Considering those characteristics, adopting any currency other than the euro would have serious drawbacks.8 Therefore, reforming the current regime appears preferable to a radical change should EMU membership be unattainable, at least for the next decade. The fact that the vast majority of small countries either use another country’s currency or pursue some type of rigid fixed exchange rate policy could indicate, however, that a floating currency may face difficulties over the long haul (Chart 3). Ladies and gentlemen: No monetary framework or choice of currency will solve Iceland’s economic problems once and for all. The set of solutions labelled “cure-for-all-ills” is an empty set. Protracted discussions of the contents of an empty set are not only empty in themselves; they are absolutely pointless. Irrespective of the framework, economic policy must be pursued with greater discipline than has been the case to date. However, imposing a framework that forces the authorities to adopt more long-term oriented policies could improve performance. One way to do this is to join a currency union. The experience of Greece and other countries on the periphery of the EMU shows, however, that if economic policies remain short-sighted and solving imminent fiscal problems is delayed for too long, the imposed discipline is anything but palatable. I think Iceland’s experience of its collaboration with the IMF indicates, however, that it would flourish under such discipline. But if EMU membership is not an option, that discipline must come from within.
The answers to this question as provided in the Inflation Reports published in 2006 were as follows: •  JANUARY 2006: “... a short-term interest rate path remaining constant for the first couple of months in 2006 and displaying a gradual decline thereafter...”  •  APRIL 2006: “...where the Central Bank continues to cut policy rates gradually...”  •  JULY 2006: “... in addition to the measures of June, the Central Bank will implement measured monetary tightening in the rest of 2006 and cut policy rates gradually in 2007...”  •  OCTOBER 2006: “under the scenario that the Central Bank maintains its tight stance until the last quarter of 2007 and cuts policy interest rates afterwards...”  As it is clearly seen above, as long as there was not a significant shock in the economy, the Central Bank acted in parallel to its earlier statements. However it had to revise its monetary policy stance after important shocks such as the market volatilities of May and June. It is more evident in light of these this example that, as it is frequently emphasized in our announcements, the interest rate path, which is used by the Central Bank in producing forecasts, should not be perceived as a commitment to be followed in every case. Hence, the interest rate risk should be assessed by considering the fact that the outlook presented in the Inflation Report is subject to change depending on the data flow, and thus, the policy perspective can be updated whenever necessary.