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Wake up call from Iceland

March 13, 2015

Life as an islander must be pretty good, as Iceland has now withdrawn its bid for EU accession. Christoph Hasselbach says that the reasons for this retraction should give all Europeans something to think about.

Island EU Flagge ARCHIVFOTO 2008

In 2008, the water swelled to the top of the retaining wall at Reykjavik harbor. An overinflated banking sector went bust overnight as a result of the global financial collapse, and threatened to take the North Atlantic island state with it on its descent into the abyss. Panic gripped the Icelanders. Credit was extended by the International Monetary Fund and others, but the remote island suddenly didn't feel so comfortable with its splendid isolation, rather it felt lost and alone. With that uneasy feeling in their gut, the Icelanders swallowed the pride of their independence and came knocking on the EU's door. Over the years they had seen it help several member states that had also gone into debt.

Now Iceland has withdrawn its application. Many Icelanders are angry that the government did so without holding a referendum, but that would not have changed the final outcome. The departure from the EU is not a surprise, and has been looming for quite some time.

Enjoy advantages, avoid drawbacks

How did this change of heart come about? The questions around fishing quotas are only one part of the equation, perhaps not even the most important one. It was clear what they were getting into from the beginning. True, fishing is extremely important for Iceland, and as an EU member, the island would have had to integrate itself into the quota system of the Common Fisheries Policy. On the other hand, Iceland belongs to the European Economic Area (EEA) and can export its fish to the EU duty free. Beyond that, as part of the Nordic Passport Union, Iceland is also a member of the checkpoint free Schengen Area. This greatly simplifies tourism - which is just as important as a source of income. In other words, even as a non-member state, Iceland enjoys a number of European Union advantages, and it wants to avoid membership's disadvantages.

Christoph Hasselbach
Christoph HasselbachImage: DW/M.Müller

If you've got money, you stay out

The Icelanders have been able to observe from afar many of these disadvantages over the last several years. For instance, they could see how the EU, and especially eurozone countries, invested vast sums of money into helping debt-ridden members. Which, for instance in the case of Greece, has resulted in the country being hardly better off than before the bailout, resisting reforms, and now even insulting the helpers. Nobody wants to join that kind of club unless they absolutely have to. Like many EU states, Iceland helped itself out of its financial crisis and is now on pretty solid footing. Is Norway thinking about joining the EU? Switzerland? Why should they? Are Sweden, Denmark, or Great Britain contemplating introducing the euro? Now less than ever. All of these states could easily fulfill membership requirements. But they don't want to. What do they have in common? They are all wealthy and competitive.

Fear of the bottomless pit

That all leads to a scary conclusion: the EU is only attractive for have-nots and those who resist reform. Those who can afford to stay completely outside of the union, or at least maintain their own currency to avoid having to join in throwing money into a bottomless pit. At least that is the popular impression. The EU welcomed Iceland with open arms. Yet, that is where most Icelanders see the problem. Because Iceland would be welcome above all as one who could pay. But who wants to be taken advantage of? Iceland's retraction will not go unnoticed in Great Britain either. The euroskeptics will be emboldened in their opinion that they are better off outside of the EU, but in the European Economic Area - just like Norway, Denmark, and now Iceland.

If there were only more Irelands

The Icelandic withdrawal has to be a wake-up call. The less competitive countries of the south - which unfortunately also includes Italy, and despite its geographic centrality, France - have to make more of an effort. Otherwise there will eventually have to be a rift between north and south. The fact that financial help does not have to be extended forever is best exemplified by Ireland. Like Iceland, Ireland was in rough shape due in great part to the debt incurred by its banks. With help from the EU and IMF, and the implementation of a radical austerity and reform agenda, Ireland is once again financially fit and has the highest economic growth rates in the entire EU. By the way, there was very little whining there. One simply did what one had to do. If there were more Irelands in the EU, perhaps the attitude in Iceland would be different today.

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