EU debate obscures Iceland government’s economic failures

In a column published by mbl.is, Árni Helgason argues that Iceland’s debate over a referendum on continuing European Union accession talks has overshadowed the economic problems the government was elected to address.

Since the government leaders announced in early March that a referendum would be held on whether to continue the talks, little else has received public attention. The issue is important, Helgason writes, but while social media is filled with EU disputes and friends can barely meet without discussing them, many other matters are being pushed aside.

Economic affairs are among them. Helgason says the government has made little progress and that almost every key figure has moved in the wrong direction. Inflation is higher than when the government took office, interest rates are rising and unemployment has increased. The outlook is poor, and it is uncertain whether wage agreements will hold.

He says the situation is far removed from the government’s ambitious promises before the last election and from the results it initially claimed. In his most recent New Year’s address, the prime minister said the average family was benefiting from interest rate reductions worth about 60,000 Icelandic krónur a month as a result of the government’s work.

Now that interest rates have risen again, families have not been told how much the government’s lack of economic success is costing them each month, Helgason writes. Instead, government supporters and their allies regularly compare Icelandic and European interest rates, as EU membership now appears to be the only available way to address the country’s economic problems.

At the end of this month, the government’s main economic measure will expire: a temporary four-month reduction in value-added tax on fuel. Unless the policy is changed, the expiry will raise fuel prices and increase inflation.

Helgason also criticises the government’s fiscal policy. Rather than showing restraint in state operations, it substantially increased government spending in its first budget. A large portion of that spending was also placed on automatic pilot through legislation establishing a double lock for raising benefits.

Government increases to tariffs and taxes at the New Year directly added to the inflation problem, he writes.

In Helgason’s view, the government appears helpless and has little to offer beyond a years-long EU accession process, on which it is not united. Even if voters approve such a process, which he says he believes and hopes they will not, it would not change the situation in the near future.

The problems must be addressed at home immediately, he concludes, rather than energy being spent arguing about the European Union.