2. The Current Situation
3. Pros & Cons for Iceland joining the European Union
To join, or not to join?: That is the question! Within this paper I will try to find out if Iceland would, indeed, be better off “staying out of the European Union”, as Iceland’s Minister of Finance Steingrímur J. Sigfússon stated (WSJ Europe 05.05.2011), or joining in, as Iceland’s Prime Minister Johanna Sigurdardottir favours. I will first have a look at the current - economic - situation of the island nation (in context with its latest developments), leaving the detailed examination of the accession controversy for the main part. There, I will analyse the potential advantages and disadvantages that would arise for Iceland with the EU-membership.
2.The Current Situation
Facts first: The Republic of Iceland is Europe’s second largest island country, after Great Britain. It has a total area of 103.000 km², about 130 volcanic mountains and a population of just 318,425 as measured in January 2011 (statice.is). Iceland ranks amongst the most developed (HDI = 0.869, #17 in 2010), productive and wealthiest countries of the world.
Due to its lack of natural resources, Iceland’s economy has been traditionally relying on fishing and agriculture. However, the accedes to numerous trade agreements – for example joining the Organisation for Economic Co-Operation and Development in 1960, the General Agreement on Tariffs and Trade in 1968, the European Free Trade Association in 1970, the European Economic Area Agreement in 1994 and the Uruguay Round, World Trade Organisation in 1995 – enabled a greater market access for Iceland’s labour, capital, goods and services (nationsencyclopedia.com); thus allowing its economy to diversify from primary to secondary and tertiary sector activities.
Abundant, renewable energy sources and market demand encouraged weighty foreign direct investments in the aluminium industry and the expansion of domestic banks in foreign markets stimulated businesses and consumers to borrow and to spend – boosting the Gross Domestic Product of Iceland (cia.gov) into previously unknown heights. During the 2000s (see Appendix) live was wonderful: the standard of living rose to be one of the highest in the world (Iceland, GDP per capita – 1990: 18,898; 2000: 26,943; 2002: 28,620; 2004: 32,574; 2006: 37,132; 2008: 40,634; 2010: 36,681 – measured in current international dollars, indexmundi.com), unemployment was low (2000-2007: AM 3.17%, statice.is), Iceland was considered the “most developed […], the fourth most productive […] and one of the most egalitarian” (iceland4you.is) countries worldwide.
Until the global financial crisis of 2008 hit Iceland’s banks, whose loans and assets were about 10 times as big as the country’s GDP (cia.gov). Their collapse created, according to Iceland’s former Prime Minister Geir Haarde, “a very real danger […] [of] national bankruptcy” (forsaetisraudneyti.is), a severe depreciation of the Icelandic Krona (measured against other currencies – 1 US $ exchanged for around 62 ISK in December 2007 compared with 147 ISK in December 2008, sedlabanki.is) a massive fall in the Gross Domestic Product (Appendix), a sharp increase in unemployment (peaking at 9.1% in the second quarter of 2009, statice.is) , a $2.1 billion loan from the IMF (imf.org), political unrest, debt conflicts with Great Britain & the Netherlands and last but not least a formal application for EU membership (bbc.co.uk).
The Pros and Cons for Iceland joining the EU
“We are Europeans. We share your views, your culture. We have in fact contributed quite a significant part to the classical heritage of Europe. We belong in Europe.”
Össur Skarphédisson, Brussels, 27 July 2010
These are the words that Iceland’s Minister of Foreign Affairs used to welcome the opening of Iceland’s membership negotiations with the EU, simultaneously claiming “to belong” – a view, that has been traditionally unthinkable for the fiercely independent island’s political elites (Kaute, 2010: 4) and that is actually still not exactly shared by everybody. Having already established the circumstances of Icelandic potentates’ shift of mind and the existence of controversy on EU membership in general, I will try to examine the main pro- and contra arguments, which are commonly used by politicians and economists, within this part. I will first give a short overview of the opinions and explain them afterwards in detail.