Iceland yesterday (12 March) announced it was dropping its bid to join the European Union, in line with pledges made by its Eurosceptic government after its election two years ago.
Iceland first applied for EU membership in 2009. Foreign Minister Gunnar Bragi Sveinsson said that the centre-right government had told Latvia, currently holding the rotating presidency of the EU, and the European Commission of its decision to annul the application.
“Iceland’s interests are better served outside the European Union,” the minister wrote on his website.
Iceland first applied for EU membership under a leftist government in 2009, when the country was badly shaken by an economic crisis that saw the Icelandic krona lose almost half its value. That made eurozone membership an attractive prospect.
But the thorny issue of fishing quotas was seen as a key obstacle to joining the bloc, although it was never brought up in the accession talks.
Fishing represents an important part of the Icelandic economy, and it was never made clear how differences between Brussels and Reykjavik on the subject could be resolved.
Thousands of protesters thronged the streets of Reykjavik last year to demand a referendum after the government said it was dropping its EU membership bid without a popular vote.
But opinion polls more recently began to show growing resistance among Icelanders to EU membership.
But the head of the Social Democratic opposition, Arni Pall Arnasson, lamented that the government had taken the decision without approval from a majority in parliament.
Formally the application of Iceland is not withdrawn. To withdraw, the Foreign Affairs Committee of the Icelandic Parliament would have to adopt a resolution which did not happen.
Following Sveinsson’s decision, the President of the Alliance of Liberals and Democrats for Europe (ALDE) Party Sir Graham Watson said: “The Icelandic people are free to decide if they want to join the EU or not but the decision to submit the application to the EU was made in accordance with the mandate awarded to the government by the Icelandic Parliament Althingi in 2009. Hence it should be up to the Parliament – or the Icelandic people via a referendum as promised in 2013 – that should determine whether the process should continue or the application be withdrawn”.
When the centrist Progress Party and the right-wing Independence Party came to power in 2013 they suspended the talks with Brussels.
Iceland has said it wants to maintain “close ties and cooperation” with the EU, and already benefits from such links. The North Atlantic island is a member of Europe’s visa-free Schengen area and the European Economic Area.
That allows it to export seafood to the mainland tariff-free and helps boost tourism, which is crucial to the country’s foreign exchange earnings.
Iceland has clawed its way back from the demise of its bloated financial sector in 2008, with official figures showing this week that GDP reached record levels last year.
Iceland’s GDP grew by 1.9% in 2014 to beat a GDP record dating back to pre-crisis levels, according to Statistics Iceland.
However, “GDP per capita remains lower than in 2008, and while there is no shortage of jobs, we lack jobs that pay well, especially for young graduates,” University of Iceland economics professor Asgeir Jonsson told AFP.
For many Icelanders, joining the EU has not been a major priority. They are more concerned about how to pay back loans taken on when the economy was booming.
The small Nordic country was hit hard as the crash of US investment bank Lehman Brothers caused the collapse of its three largest banks.Without effective oversight, Iceland’s banks had taken out massive cheap loans abroad, scooping up assets worth several times the island’s annual output.
Iceland then became the first Western European nation in 25 years to appeal to the International Monetary Fund to save its battered economy.
Guðmundur Steingrímsson the leader of ALDE Party Member in Iceland Björt framtíð (Bright Future), said: "For us, Iceland has not withdrawn its application to become a EU Member State. A recent letter from the government of Iceland doesn't change anything in that regard. It is clear that the current government does not want Iceland to join the EU, therefore the negotiations have been paused. We, within Björt framtíð, have said that we can live with, and understand, that temporary situation. But to withdraw the application altogether, and ruin the process, is a totally different issue. The government has no right to do that.“
In a joint letter to the President of the European Parliament, the Representative of the Latvian Presidency and the European Commissioner for Enlargement Negotiations, all Icelandic opposition parties state:
"The Government of 2009-2013 lodged an application to join the EU on the basis of a mandate given by the Althingi in a resolution of 16 July 2009, with the support of MPs from all political parties. The accession process was slowed down two months before the elections in April 2013. The current Government then “paused” the accession process when it took office in May 2013 and stated that the process would not continue unless the people would decide so in a referendum. No such referendum has been held. The Government presented a proposal for a resolution mandating the withdrawal of the application to the Althingi in February 2014. In spite of its strong parliamentary majority, the Government could not get the proposal passed in the face of widespread public opposition and calls by more than 20% of the population for a referendum to be held. The proposal was debated in first reading, but not passed to second reading by the Foreign Affairs Committee."
Iceland was hit severely by the 2008 global financial crisis and decided joining the European Union as a viable solution to its problems.
In the summer of 2009, Iceland's parliament backed the government's plan to begin accession talks with the European Union. Only one year later, the country started EU accession talks.
With the approach of the elections, in January 2013 the government decided to put on hold negotiation over the “difficult” chapters relating to fisheries, agriculture, right of establishment and services, and on free movement of capital.
The vote was favourable to the Independence Party, which has participated in every government between 1980 and 2009, and to the Progressive Party, its main rival and partner in previous coalitions. Both parties are against Iceland joining the EU or the euro.
Before taking the post of Prime Minister, Sigmundur Gunnlaugsson, leader of the Progressives, said that that his cabinet intended to halt his country’s accession negotiations, pending a referendum on his country’s relation with the EU.