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PhD in Political Science, Director of the EU Political Integration Center at RAS Institute for European Studies
The story of Iceland’s entry into the European Union proved to be brief, and to a significant degree the result could have been predicted: six years after submitting its application, Iceland withdrew it and halted its negotiations on joining the EU.
The story of Iceland’s entry into the European Union proved to be brief, and to a significant degree the result could have been predicted: six years after submitting its application, Iceland withdrew it and halted its negotiations on joining the EU.
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Unlike the majority of European countries, Iceland has never been keen to join the European Union. However, after the financial crisis which came from the United States at the beginning of 2009 Iceland’s banking system ended up on the brink of a crash, which led to a change of government. In the initial stage of the crisis the country suffered far worse than the Eurozone states, therefore it activated talks on the possibility of joining the EU, which was regarded as a guarantee of the future financial stability. The left-wing government that came to power, headed by prime minister J. Sigurdardottir, called for Iceland to join the European Union. In the middle of July 2009 the Icelandic parliament voted with a small majority to apply to join the EU and authorised the country’s government to begin the accession procedure. At the end of July 2009 Iceland submitted its official application to join the EU.
For the European Union Iceland is one of most desirable and, at first glance, most trouble-free candidates: a country with a very high standard of living, the oldest democracy in Europe, closely linked with other Nordic countries, part of the European Economic Area (EEA) and the Schengen Area. As a member of these projects, Iceland has already incorporated two-thirds of the EU’s statutory provisions into its national law. In addition, this country is one of the world’s leaders in use of hydro-power and geo-thermal resources, and therefore its experience is of considerable interest to the EU in terms of implementation of the 20-20-20 programme or the climate and energy package (1, 2).
In the peak year of 2009 the country’s GDP fell by 6.6%, inflation reached 16.3%, unemployment rate was close to 10%, and the Icelandic krona was devalued by almost 50%.
Despite Iceland’s long membership of the EEA and the Schengen Area, however, the differences in interests have not disappeared. The first stumbling block was the fisheries quotas specified by the European Commission. Protection of the sea’s biological diversity comes within the exclusive competence of the EU, and national governments have no authority here. But the fishing industry is one of the main sectors of Iceland’s economy, generating about 40% of export incomes and 8% of jobs, therefore it is not in the country’s interests to bring in restrictions in this area. This issue has also been discussed in the EU. According to Olli Rehn, former member of the European Commission responsible for enlargement, “issues such as fisheries and agriculture are very sensitive for Iceland and for the European Union. Iceland meets more than half the criteria required by the EU of a candidate country. Nevertheless, the negotiations could prove to be fairly complicated”. The disagreements over fish catch quotas between the EU and Iceland also spilled over into the so-called “mackerel wars”, when the Commission accused Iceland of catching too much mackerel in the North Sea and not taking into account the possibility of replacing it and the interests of the EU countries that are also engaged in this fishing. Iceland stated that it had a lot of practical experience of fishing and maintaining the necessary natural balance. There are also disagreements over the question of access for EU member-states’ ships to fish in Iceland’s territorial waters.
Secondly, Iceland, along with some other countries, has not joined the ban on whaling, citing its existing national traditions. The European Union is taking a very strict position on this matter and consequently criticises all countries, including Iceland, which hunt whales.
Thirdly, there is the unresolved issue of paying compensation to foreign depositors in Icelandic banks. When Landsbanki collapsed, it wasn’t only citizens of Iceland that suffered but also foreigners who had willingly deposited money in profitable Icelandic assets. The United Kingdom and the Netherlands, which had suffered most, came to the defence of their subjects by compensating their losses, but threatened to veto Iceland’s EU entry unless the country reimbursed their costs. The Social Democrat-led Icelandic government twice took a decision on the payments being demanded, and each time the Icelanders took to the streets in protest against using Iceland’s national budget funds to compensate foreign depositors. The country’s president twice refused, under pressure from public opinion, to sign the relevant law. The International Court later found in favour of Iceland.
In general, the impression that is forming is that Iceland was not interested in seeking a compromise with the EU on these issues; on the contrary, it was clearly defending its own national interests. In April 2013 the government of Iceland broke off talks with the EU, arguing that this was in preparation for the national elections. By that time negotiations had opened on 27 of the 53 chapters requiring agreement, and those on 11 chapters had already been successfully concluded. On the most difficult issues, however, including those concerning agriculture and fisheries, and also the free movement of capital, discussions had not even begun.
On the other hand, over the last four years Iceland’s economy has gradually overcome the consequences of the crisis. In the peak year of 2009 the country’s GDP fell by 6.6%, inflation reached 16.3%, unemployment rate was close to 10%, and the Icelandic krona was devalued by almost 50%. In such a situation, joining the still stable Euro zone seemed an attractive option for solving the problems. After taking some unconventional steps to get out of the crisis and receiving help from the IMF and countries in Northern Europe, the country’s economy began to get straight quite quickly. In 2011-2014 the country saw stable economic growth, at a rate of 2.7% in 2011 and 1.9% in 2014. Inflation was cut by almost two-thirds, to 6% in 2012. The country also managed to achieve a substantial reduction in unemployment: in the last two years it has stood at the 5.5% mark, which is significantly lower than in the majority of EU countries. Forecasts for Iceland for the next few years by the statistical agency Eurostat are quite positive. Although per capita GDP (PPP) declined in absolute terms during the crisis, in relation to the EU average it stands at 130%, the same as in 2002. Iceland’s economic success looks especially impressive against the backdrop of the severe crisis in the Euro zone, joining which was one of the country’s aims when it applied to join. Not only has the economic situation changed in Iceland and the Euro zone; there’s also been a change of mood in Icelandic society. According to Eurobarometer, in 2013 24% of the country’s population thought EU membership for Iceland was a good idea, and 42% considered it as a bad idea.
Not only has the economic situation changed in Iceland and the Euro zone; there’s also been a change of mood in Icelandic society. According to Eurobarometer, in 2013 24% of the country’s population thought EU membership for Iceland was a good idea, and 42% considered it as a bad idea.
The elections held in Iceland in April 2013 led to the creation of a Centre-Right government that rapidly stated it was freezing negotiations on entering the EU. This decision reflected the existing difficulties between Iceland and the EU and also apprehension connected with the internal transformation of the EU. As the country’s new prime minister Sigmundur Gunnlaugsson said, “There has been a very big change in the situation since Iceland sought membership” (Euronews 23.05.2013). The Centre-Right politicians decided first to carry out an overall assessment of the situation in the EU and then to think about continuing the negotiations. The EU transformation processes are indeed proceeding quite actively at the moment. Countries that want to join the EU cannot be sure that tomorrow they will be joining the same union that it was yesterday, when they were negotiating. Candidate states are obliged to fulfil the requirements of the EU if they are interested in becoming full members of it.
Meanwhile Eurobarometer recorded a certain improvement in the position of Iceland’s citizens in relation to the EU. A poll conducted in spring 2014 showed that 36% of the country’s population thought EU membership for Iceland was a good idea, and 29% thought it a bad idea. Such a result, however, was clearly not enough to resume negotiations, especially in the context of a positive outcome to a referendum on joining the EU, the results of which would probably be negative.
In view of the above, the announcement by the Icelandic government what it was withdrawing its application to join the EU on 12 March 2015 was not unexpected. The government’s decision is all the more understandable if one takes into account that Iceland’s Progressive Party, which heads the government, relies primarily on farmers and fisheries workers, who have a negative attitude towards the introduction of EU rules on the operation of these industries. At the same time Iceland is insisting on maintaining a close relationship with the EU within the framework of the EEA and the Schengen Area, which ensure duty-free imports of Icelandic goods into the EU countries, including fisheries produce, and the free movement of tourists and workers to the island.
It is obvious that in Iceland’s case the EU’s integration project is not particularly attractive. This can be explained by the country’s low level of interest in seeking a compromise on disputed issues, and by the final decision to withdraw its application for membership. For the EU, Iceland’s decision is quite a painful blow. It is necessary to understand, however, that the Icelandic case is an exclusive one for the countries of Europe, in which specific economic, social and political interests have coincided. The process of European integration envisages the possibility of flexible approaches to involvement in integration processes, including for countries that do not have full membership of the EU. Thus, countries that share with the EU an interest in cooperation but have interests that are not very compatible with the practice of the EU may find a format of cooperation that is acceptable for both sides.
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