In addition, the Government owns substantial assets that it could sell in order to speed up the reduction of gross debt, including its stake in the banks.6 How Iceland would stand vis-à-vis the other Maastricht criteria, such as those pertaining to inflation, interest rate differential, and ERM II membership (for two years prior to accession) is also largely in the hands of the authorities. Through fiscal restraint, they could also contribute to the convergence of long-term interest rates. The social partners could promote low inflation by exercising restraint in wage settlements. Finally, the shorter end of the interest rate spectrum is determined by the market’s self-fulfilling expectations concerning membership itself and by the decisions of the Central Bank. Although a number of arguments indicate that currency union membership would suit Iceland well, it is not certain that a majority of the electorate will vote in favour of European Union membership in a national referendum. The fact that a number of EU member countries are in  5  Intervention would normally be sterilised in order to prevent undesirable effects on money supply. Hence the impact on the exchange rate is unlikely to be large or lasting. 6  According to current targets, the authorities aim to reduce gross public sector debt to 70% of GDP by 2015. 4  BIS central bankers’ speeches  financial distress, not least those permitted to join the EMU through rather liberal interpretation of the Maastricht criteria, does not increase the likelihood that the referendum would pass.
Under these circumstances the Riksbank has chosen to use currency interventions to underscore that the movements in the krona’s exchange rate have been unduly abrupt and exaggerated. BIS Review 80/1998