Government inaction fuels claims over EU referendum

Inflation reached 5.3% in July, and if it exceeds 4.7% in August, clauses in collective wage agreements will be activated, allowing the agreements to be terminated, according to a submitted opinion article published by mbl.is.

Labour market representatives have repeatedly warned about the risk in recent months. The government has taken no action to prevent the agreements from being terminated, apart from a temporary fuel tax cut in the spring introduced after strong public pressure. The article says that measure was insignificant compared with the increases in various government fees at the beginning of the year.

On the contrary, the government has repeatedly made decisions that have contributed to higher inflation. Most recently, it announced plans to increase several healthcare charges, including doubling consultation fees at primary healthcare centres.

Experts have said that, without the public-sector increases at the beginning of the year, the collective wage agreements would probably not be at risk.

Inflation-indexed loans are based on 12-month inflation, which still includes, and will continue to include until the end of the year, the government’s increases from the beginning of this year and those introduced afterwards.

The article argues that incompetence is not a sufficient explanation for the government’s inaction, even if it is undoubtedly part of the reason.

Kristrún Frostadóttir, the prime minister and leader of the Social Democratic Alliance, said on the podcast Chess After Dark on August 27, 2024: “What happens repeatedly with the European Union is that when things are going badly, when inflation has arrived, when interest rates are high, people start wanting to join the European Union.”

According to the article, other government leaders are also aware of this, including Foreign Minister Þorgerður Katrín Gunnarsdóttir.

Warnings ignored

The issue is now being discussed widely in society, including in the business community.

“We are in a strange situation. We have a government that wants to force us into the EU, and you really have to ask whether the government is trying to leave the domestic economy in complete disarray to increase the likelihood that people will choose to join the EU. We need to get moving here at home and take responsibility for ourselves. There are no magic solutions, and the EU is certainly no magic solution either. It is an economically declining union, as everyone who looks into the matter can see,” financial economist Daði Kristjánsson wrote on his Facebook page earlier this year following the Central Bank’s most recent interest rate increase.

Others in the business community have raised similar concerns, including Stefán Guðmundsson, managing director of the whale-watching company Gentle Giants.

The article’s author says he was initially unwilling to believe that the government could sink so low as to try to persuade citizens to vote in favour, in the national referendum at the end of August, of beginning the process of joining the European Union, with full alignment to the bloc taking place alongside accession negotiations.

However, he says that increasingly more evidence has pointed to that being the case. He asks what else could explain the government’s conduct, noting that both the prime minister and finance minister are highly educated economists and are at least supposed to be so.

He also questions why the government has ignored repeated warnings from labour movement leaders that the conditions of the collective wage agreements are almost certain to fail because of inflation.