Mr. Arni Pall Arnason was recently elected as the chairman of the Social Democratic Alliance, one of the party's currently in government. He answered questions from the public at an Icelandic news website today (DV.is). He was for example asked what was plan B if Plan A, which is joining the EU, would fail. Mr. Arni Pall responded:
"We think that Plan B will entail a lot of emphasis on economic stability, on a large surplus in public finances to repay debt and on lower real exchange rate and thereby a lower purchasing power. This plan is possible but will mean a worse welfare system, lower wages and worse competitive environment than if we would join [the EU]"
Mr. Arni Pall also said that the other old parties do not have a plan A. Related to using another currency unilaterally he said:
"A highly indebted nation cannot start using another currency unilaterally. The capital controls would move into the banks and they would refuse to move the Icelandic dollars out of the country. One of the biggest gains from using the euro is what happens immediately after the nation votes Yes in the referendum. Then foreign investors will know that Iceland will join the EU and money inflows will begin and lifting the current capital controls will be possible."
Mr. Arni Pall was asked about his opinion on tossing the price indexation [in Iceland most mortgages are price indexed]. He said that it was childish to believe that it is possible to lower the real interest rate and the Icelandic-Premium by tossing the price indexation. He said:
"The government has no money to spare. We are supposed to see through political tricks. We are still suffering from the promises about 90% mortgages [from the Progressive Party in 2003] that came with a large debt burden and put the Housing Financing Fund into serious trouble. We have to learn from experience."