Iceland’s election spells the end for its EU accession hopes

(110) Tides pushes out at Vik

With capital controls still in place, a massively devalued krónur and galloping inflation, Iceland’s economy is not back to normal.European_Union Iceland Flag Icon

But it’s enough back to normal so that the window for Iceland’s accession to the European Union — or even, as was assumed during the worst days of its 2008 banking crisis, accession to the eurozone — is now very unlikely to happen.

Regardless of whether Sigmundur Davíð Gunnlaugsson and the Framsóknarflokkurinn (Progressive Party) or Bjarni Benediktsson and the Sjálfstæðisflokkurinn (Independence Party) come out on top in Saturday’s election, they are likely to form a center-right coalition that will look to reverse many of the initiatives of the social democratic / leftist government of Jóhanna Sigurðardóttir over the past four years.

Above all, none of the Sigurðardóttir government’s priorities is more endangered than the project of Iceland’s EU accession.  Most news stories note that both a Progressive-led or Independence-led government would slow accession talks, but it seems likelier that Iceland’s next government would essentially end the talks indefinitely — they might not formally withdraw Iceland’s EU application, but they certainly won’t take any action to further discussions.

While Gunnlaugsson has called for a referendum on the eventual result of talks, his party  virtually alone among Iceland’s parties argues that the country should not reimburse the British, Dutch and other governments who reimbursed non-Icelandic depositors who put their savings in Icesave prior to its collapse in 2008.  Benediktsson is hardly any more pro-Europe — he’s argued that Iceland should break off talks altogether and focus on deeper global ties, such as Iceland’s recent free trade agreement with the People’s Republic of China — the first such free trade pact between a Chinese and a European country, likely due to Chinese eagerness to enhance its role in the Arctic north.

If for some reason a Progressive/Independence government does complete the accession talks, the result would be put to a referendum of Icelandic voters who remain highly skeptical of Brussels’s pernicious influence.

Sigurðardóttir’s government formally applied for membership in July 2009 and negotiations began a year later, but with her party likely to return to opposition, the window for Iceland’s EU membership seems likely to end with her government, as Alda Sigmundsdóttir writes today in The Guardian:

So, what makes the Progressive party so popular?

They are vehemently opposed to joining the European Union…. Indeed, many of the Progressives’ policies and declarations lean precipitously towards a new nationalism, with mildly xenophobic stances on issues such as immigration and asylum seekers, and party symbols that are vaguely reminiscent of fascism. The Progressive party was also the party that was most fiercely opposed to Iceland repaying the UK and Holland for the failure of the Icesave online bank.

If [Gunnlaugsson] wins, it will be because Icelanders fear abuse and exploitation by outside forces more than they do a return to the corrupt days of old.

Those are some fairly strong accusations, but I have to wonder if Icelandic voters aren’t simply being rational with respect to EU accession — they already have the benefits of free movement of goods and free borders with Europe, as well as much of the legal harmonization that typically comes with membership and a robust economic relationship with Europe that developed without Icelandic membership.  Why formalize the deal when they already have so many of the benefits of membership without any potential for considerable drawbacks that could harm Iceland’s cherished (and highly protected) fishing industry or the fierce national pride of a uniquely compelling nation that won its own independence from Denmark in 1944?

Reykjavík’s major opposition to EU membership has never been cultural or even legal — like Norway, Iceland is a party of the EU single market without being a formal member of the European Union and like Norway (and now, even long-neutral Switzerland), Iceland belongs to the Schengen Area that allows for free movement between national borders.  Accordingly, Iceland has implemented nearly two-thirds of the acquis communautaire, the body of EU laws and regulations, which always made it a particularly breezy candidate for membership.  Fully 78% of Icelandic exports go to the European Union and 52% of Icelandic imports come from the European Union, so the bilateral trading relationship is already quite strong, and that partnership won’t necessarily change, even if EU accession talks come to naught.

The key difficulty is the same issue that compelled Greenland (having obtained self-rule from the Danish kingdom itself in 1979) to leave what was then the European Economic Community in 1986 — fishing rights.  Like Greenland, Iceland derives much of its exports from the fish that live in its territorial waters, and the last thing that Icelandic policymakers want to do is to open up those waters to non-Icelandic fishing vessels and non-Icelandic regulations.  It’s a serious deal to Icelanders, who fought two ‘Cod Wars‘ with the United Kingdom over territorial waters in the 1950s and the 1970s.

In addition to any potential fishing rights carve-out, the Icesave dispute among Icelandic, British and Dutch officials has also retarded what could have been a speedy accession.

Paul Krugman has made a strong case that Iceland’s ability to establish its own monetary policy allowed it to devalue its currency rapidly and make Icelandic exports cheaper, fueling a faster return to growth and lower unemployment than many eurozone states, like Estonia and Ireland.  You don’t have to buy the somewhat fanciful notion that Iceland has somehow merrily returned to boom times (it hasn’t — and that’s one reason Sigurðardóttir’s party is forecast to do very poorly in Saturday’s election) to realize that Iceland’s economy could be even worse if it were part of the eurozone.

EU membership, to say nothing of eurozone membership, was never wildly popular in Iceland, but it’s now decidedly unpopular, with one poll in February 2013 showing that 63% of Icelanders opposed EU membership and just 25% supported it.  Though Sigurðardóttir’s own Samfylkingin (Social Democratic Alliance) and the newly formed Björt framtíð (Bright Future) support EU membership, the Social Democratic’s current coalition partner, the Vinstrihreyfingin – grænt framboð (Left-Green Movement) actually opposes it.

Talks were suspended in January 2013, however, in advance of the election, though Katrín Júlíusdóttir, Iceland’s current finance minister, has argued consistently that Iceland would benefit from having a seat at the European economic policymaking table, and that membership in the eurozone might allow the country to finally emerge from the capital controls that have interfered with investment since their imposition in late 2008.

Photo credit to Kevin Lees — Vík, Iceland in October 2008.

2 thoughts on “Iceland’s election spells the end for its EU accession hopes”

  1. Nu sitter jag och bölar (B!m)ishorconer?ec. Jag håller med, ni är unika och väldigt lyckligt lottade! Älskar att läsa dina inlägg Lisa, kul att du har den! PUSS

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