Iceland has been recovering from its financial crisis of late 2008. What does this mean for the future possibilities of Iceland’s accession to the European Union?
After taking office in May 2013, Prime Minister Sigmundur Davíð Gunnlaugsson stated, “The government intends to halt negotiations between Iceland and the European Union. We will not hold further negotiations with the European Union without prior referendum.”
Though the application to join the European Union has been put on hold, Iceland’s Foreign Affairs Minister, Gunnar Bragi Sveinsson, said the debate would resume in Alþingi, the Icelandic parliament, this fall. EU Commission President Jean-Claude Juncker has also stated that he does not expect further EU enlargement within the next five years.
This is a far cry from 2009, when former EU Enlargement Commissioner Olli Rehn confidently urged Iceland to seek quick EU membership accession with the desire that the country become a full member by 2011. European Union watchers may be asking themselves what happened.
It wasn’t long ago that most of the country was ready to trade the Icelandic króna for the Euro. “We’re expecting 3.7 percent growth this year, said Finance Minister and Independence Party Leader, Bjarni Benediktsson. Moody’s and Fitch Ratings lists Iceland’s credit rating outlook as Stable.
Iceland’s Central Bank Governor, Mar Guðmundsson told the Wall Street Journal in an interview, “Look out of the window and you see cranes. This is real stuff—more people are employed and their living standards are higher.” Indeed, the signs of construction and development are everywhere in Reykjavík.
Sveinsson did not expect the current center-right government to make the EU issue a priority. Former Prime Minister Jóhanna Sigurðardóttir had pushed hard for EU membership, but the IMF bailout and tough austerity measures that followed the financial crisis led to widespread disenchantment.
The Independents and the Progressive coalition took power in 2013 after Sigurðardóttir’s party, the Social Democrats, lost in the biggest electoral rout since Iceland broke off from Denmark in 1944.
The Icelandic public confidence in the Icelandic króna is still shaky. Tension between Brussels and Reykjavík is high since the government announced it would not reimburse foreign investors after the collapse of the banks. Does this mean that Iceland has finally given up on joining the European Union?
Erna Bjarnadóttir, who has represented the interests of the Farmers Association of Iceland and Heimssyn, an Icelandic Eurosceptic movement, expressed confidence that the Pro-Euro movement has lost momentum, “The economic recovery has been successful to a large extent and therefore the voices which called for joining the Euro are lower than previously. The rate of inflation is below the objectives of the Central Bank of Iceland. Another important factor is to minimize the deficit in the state budget. The current government is in particular working on that objective.”
The EU’s own troubles do not make it look appealing, either. Unemployment in the EU was an estimated 25 million people, nearly double compared to the United States. In 2013, its economy grew only 0.1 percent.
However, Iceland’s pro-EU movement is not dead yet. Just last February, 3,000 protestors turned out to seek a referendum on EU membership after the parliament sought to permanently end the EU talks.
Sema Erla Serdar, a Social Democratic Alliance member, serves as the Editor on Chief of an online news publication covering European Affairs (Evrópan) and was also the project manager of the pro-EU Yes Campaign. Sema explained that the February demonstrations revitalized the movement, “At that moment there was again momentum. The pro-EU campaigners woke up and started to fight for the matter, resulting in more than 50,000 signatures against the government’s plans to withdraw the application. Besides that, a fraction of the Independence party started working on a new right-wing, pro EU party, although it has not been established yet.”
The pro-EU faction of the Independence party has strong backing from Iceland’s business community. Some conservative politicians fear that Iceland is distancing itself from Europe at a time when the continent needs to stand united against Russia’s ambitions.
Furthermore, Sema expressed confidence that the public is changing their mind. She indicated that recent polling by the pro-EU movement showed 45 percent of Icelanders in favor of membership and 55 percent against it. “The gap has not been so tight for years and at [one] point was 70 percent against EU membership,” she told me.
Economic growth may back the momentum. The government announced in July that it would return to the capital markets to sell euro-based bonds. This move signals the beginning of easing Iceland’s capital controls put in place after the crisis. The capital restrictions directly contradict the EU’s internal market freedoms.
One man, Jón Gnarr, a comedian and popular former mayor of Reykjavík, is widely credited for saving the city from financial ruin after Reykjavik Energy was left in the red. He has weighed in on whether Iceland should seek EU membership, “We are indirectly part of the EU through the EEA [European Economic Area] and Schengen [Agreement]. So it wouldn’t make any difference. That is something social democrats care about.”
Gnarr’s party, The Best Party, has adopted a new name, Bright Future, and is now aligned with the Social Democrats. The brilliant natural beauty and economic resilience of the country assures us that Iceland’s future will be bright, but whether that future lies with the EU remains or with itself remains to be seen.
