Oslo, Reykjavik  - Iceland should consider replacing its currency with that of neighbouring Norway, an Icelandic economics professor suggested in an interview published Wednesday.

The move was necessary since confidence in the Icelandic central bank has withered in the wake of the recent financial turmoil, Professor Thorolfur Matthiasson of the economics faculty at the University of Iceland told the Bergens Tidende newspaper.

"To get room to maneuver we need a plan A and a plan B," Matthiasson said, noting that one option was to consider joining the European Union and adopting the joint European currency, the euro.

"In the short-term, it may be more realistic to pursue a monetary union with Norway," he added.

Both Norway and Iceland are members of the European Economic Area (EEA) that cooperates with the 27-nation bloc, and have sizeable energy resources and fisheries, Matthiasson noted.

Several cabinet members in Reykjavik have recently aired similar views of closer ties with the EU over the ongoing financial crisis.

For instance, Fisheries Minister Einar Gudfinnsson, traditionally known for opposing membership, said in a radio interview that all options had to be explored.

EU membership should be a "long-term goal," Foreign Minister Ingibjorg Solrun Gisladottir said in the Morganbladid newspaper earlier this week.

Gisladotir is leader of the pro-EU Social Democrats that rule in coalition with Prime Minister Geir Haarde's Independence Party.

The Icelandic central bank on Tuesday opted to draw on swap facilities with the central banks of Denmark and Norway, totalling 400 million euros (543 million dollars).

The loans were under the auspices of a May agreement secured with the central banks of Sweden, Norway and Denmark.

The North Atlantic nation has been hammered by the financial turmoil and its main commercial banks have been nationalized by the state under special legislation.

Talks over a possible loan from Russia have begun in Moscow, and Haarde's government has also received a delegation from the International Monetary Fund (IMF). (dpa)