Iceland must defend its interests as global order shifts

In an opinion article published by Morgunblaðið, Þorgerður Katrín Gunnarsdóttir writes that the world is changing faster than many expected and argues that Iceland must strengthen its position as international trade faces growing protectionism.

Tariffs have become tools of power for major states and even part of their arsenal. Protectionism is gaining ground, while international trade, one of the main foundations of prosperity for small countries such as Iceland, can no longer be taken for granted.

That makes it important to ask where Iceland wants to stand when the international system comes under strain.

At the heart of European cooperation is the familiar idea that freedom of trade, investment and employment across borders creates greater value and better living standards than protectionism and the pursuit of national special interests.

The common rules of the internal market, which many now complain about, are largely intended to protect that freedom. They prevent states from erecting new barriers in place of those that have been removed, favouring their own companies or undermining competition. These liberal values have served Iceland well.

The European Economic Area Agreement has been one of the most important foundations for the growth of Iceland’s competitiveness and prosperity. It has given Icelandic companies access to the world’s largest internal market, strengthened their competitiveness, created jobs and improved living standards in Iceland. But Europe, like the rest of the world, is moving rapidly, and Iceland cannot stand still.

Defending Iceland’s interests

The rules governing the internal market are becoming increasingly extensive. They have a growing impact on Icelandic businesses and households. Iceland adopts a large part of these rules, but its influence over their development is limited.

That is a fact responsible governments should not ignore, especially at a time when defending Iceland’s interests more firmly than ever is essential.

The debate in Sweden is interesting in this context. Economist Lars Calmfors, who previously believed Sweden should remain outside cooperation on the euro, has now changed his view. One reason is that research over the past two decades suggests the positive effects of a common currency on trade and investment, and therefore on productivity and economic growth, have been underestimated.

This is worth considering for Sweden, an economy of 10 million people. But what about Iceland?

The International Monetary Fund has recently pointed out that the small size of Iceland’s economy makes the stability of a larger currency area particularly attractive. Closer ties to the euro could reduce exchange-rate risk, lower the cost of capital and strengthen trade and investment.

There would, of course, be both advantages and disadvantages. That is precisely why they should be laid out so that an informed decision can be made.

Iceland must also be wary of large figures presented without context. It has, for example, been claimed that EU membership would cost the Icelandic Treasury 50 billion krónur a year. That is a gross figure that takes no account of funds that would return to Iceland or of costs the country already bears through EEA cooperation. The actual additional cost would therefore be considerably lower. Such misinformation must not control the debate.

Sticking to the facts

For this reason, the public should be given the opportunity to decide whether Iceland should resume membership negotiations with the European Union. It is important to stick to the facts.

The referendum on 29 August is not about membership. It is about whether Iceland should sit down at the negotiating table.

Membership talks are negotiations. Iceland would not enter them having agreed to anything in advance, but to negotiate from a position of strength, with clear objectives and Icelandic interests in mind.