The gradual “euroisation” of Iceland’s economy is “highly problematic and probably unstable”, the government was warned on Wednesday. It was also told that it had to decide between its own ­currency and the euro as soon as possible.

Richard Portes, author of an independent report on the! Icelandic economy, said that unilateral euroisation was feasible and need not limit Iceland’s political independence. “Because of the exceptionally high degree of exchange rate passthrough into domestic prices and equally exceptional financial openness of Iceland, unilateral euroisation would not be sacrificing much effective monetary policy independence,” he told the Icelandic Chamber of Commerce.