The future of Iceland’s EU bid is in question as the Euro-skeptical forces enter the parliamentary poll as hot favorites. The experts are split on the issue as some speak for isolation and other suggesting Iceland needs the European currency to cope.

Iceland applied to join the EU under current center-left government in July 2009, with the formal negotiations beginning a year later. But the talks are most likely to be stalled if the center-right Independence and Progressive parties will take power in the country after the Saturday’s vote.

Icelandic MP and founder of the Rainbow Party, Atli Gislason, believes that Iceland will lose more than it’ll gain from becoming a part of the European Union.

“We’re internationalists and would like to trade with all the world, not only isolated Europe. It’s little part of the whole world, not so little, but still a little one,” he told RT.

The Gislason stressed that even UK-proposed reform of the EU, aimed at making the Union more flexible, won’t make him and his colleagues in the Rainbow Party to change their mind.

“I think we’ll lose our independence [if Iceland joins the EU],” the MP explained. “We’ll lose our influence in the northern part of the Atlantics and we’ll not rule the fisheries and resources. We’ll have only 23-mile fishing line, the EU will rule everything else in their free market way, which I don’t like.”

Iceland, which took a devastating blow in the 2008 economic crisis, is widely seen as a recovery success story. The country has showed steady economic growth and falling unemployment rates, but the ruling center-left Social Democratic Alliance participate in parliamentary election with zero chance of success.

People take to the streets of Reykjavik, Iceland, on November 8, 2008 to call on the government to resign and for banks to be more open about the country's financial crisis. Between 3,000 to 4,000 protestors turned out on the fourth consecutive Saturday of demonstrations, with numbers growing each week. (AFP Photo / Halldor Kolbeins)

“There are two sides on this,” Gislason said. “Banks and money owners are happy, but families and homes aren’t. We have more poverty now than four, five, six years ago. We have flats going on auctions. Many people have lost their capitals and their flats after the crisis. So the homes are having it bad and it’s the main issue now in the election.”   

Doctor Steven Mccabe from Birmingham City University also thinks that Iceland’s comeback after the 2008 crisis would’ve been impossibility if it was an EU member state.

“There was talk about the EU, but I think that’s out of the question. They realized that their best stretch in for recovery is to remain isolated or to be independent. Europe doesn’t offer salvation,” he said.

“What Iceland does have is the fact that it’s on the edge of the world. It’s an isolated nation and indeed is an island.”

“It effectively, as we say in the UK, stuck its fingers on the rest of the world and said: we’re not giving you your money back. What can you do, short of invading Iceland, which was never on the agenda. It has been able to look at its own ends, look after itself. For other European economies, such as Ireland, Portugal and others – they’re much more interlinked in Europe. Iceland isn’t. So, what it’s been able to do is reinventing the sort of things it’s good at – its indigenous industries (fishing, farming, aluminum smelting),” Mccabe added.

Iceland has no future without European currency

But not everybody sees the EU membership as a disadvantage for Iceland, with Director of the Centre for European Studies at Bifrost University, Eirikur Bergmann, saying that the European currency is essential for the country to go with its economic recovery.  

“One of the main problems in the country is the currency,” he said. “Even though the economy has turned around quite a bit, there’s an underlying difficulty with operating such a small currency like the Icelandic krona, which is only backed with 300,000 people and isn’t sustainable. Iceland is thus locked behind capital controls and this distorts very much the economic growth in this country. And Iceland desperately needs to break out of these constrains. One was of doing that is to join in a stronger, bigger currency. A currency that’s actually tradable abroad, which Icelandic krona isn’t at the moment.”

An Icelandic kronor note of 500 kronors is shown with various Euro notes in this photo illustration. (Reuters / Bob Strong)

“So, the EU question is really a question of sort of re-joining the international economy. But it depends very much on how it’ll be done and what sort of agreement Iceland could strike with the EU on accessing the Union and adopting the currency. This is the main underlying problems still unsolved in Iceland. That’s the problems of currency and debt burdens on ordinary households. If we can get those two out of the way, Iceland is heading for the remarkable recovery,” Bergmann, who was on the Assembly that revised the Icelandic constitution after major anti-crisis protests back in 2008, added.

Economics professor at the University of Iceland, Thorolfur Matthiason, has called the EU membership“a very complicated question”, but agreed that the country would, eventually, have to give up on the krona to insure economic stability in the future.

“You have to remember that Iceland is a very small nation. We are only 320,000. So there are things that we will have problems with,” he said. “And one of the biggest problems that we’ll have in the future concerns our currency. We have tried to run a free-floating currency in the smallest currency area in the world for the Icelandic krona. And that was directly and indirectly the cause for how big the banks got, eventually, in the collapse. There are long-term considerations that are rather different from the short considerations at this point of time.”

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