Opinion article challenges Iceland foreign minister’s figures

An opinion article published by Morgunblaðið argues that Foreign Minister Þorgerður Katrín Gunnarsdóttir has made inaccurate claims in interviews about Iceland’s exports, the cost of the European Economic Area Agreement, foreign exchange reserves and government interest payments.

Recently, Gunnarsdóttir said in a radio interview: “Seventy per cent of our exports go to the European Union.” A new report from the Research Centre for Social and Economic Affairs examines the figure in detail. The article says the correct figure is 50 per cent, while just under 30 per cent of exports are in euros.

Disputed cost figures

Gunnarsdóttir has also said: “The EEA Agreement now costs us eight billion [Icelandic krónur]. The parliamentary Foreign Affairs Committee examined this particularly closely and assumes that there will always be an additional five billion. This could be an additional five to seven billion.”

She later said: “Yes, maintaining the EEA Agreement costs eight billion; it could potentially cost 13 to 15 billion in total. In other words, we are adding another five to seven billion to this.”

The article calls these statements “pure inaccuracies” and says the minister uses net figures when comparing costs with gross figures. It adds that some of the figures may have been taken from the Foreign Ministry’s website, but says it is not credible that the ministry would assess its own minister using incorrect figures.

The article says it is “pure fantasy” to claim that Iceland’s total cost of joining the European Union would be 13 to 15 billion krónur.

The Icelandic Taxpayers’ Association has published calculations that, according to the article, are based on facts and cannot be refuted. The association estimates that Iceland’s annual gross payment to the European Union would probably be between 43 billion and 53 billion krónur. Based on the EU budget, the article says the higher figure is much more likely.

After estimated payments from EU funds to Iceland and costs that would disappear upon membership are deducted, the median net cost is estimated at 34 billion krónur, after accounting for grants from the union. The article says this would be the annual amount Icelandic taxpayers would have to pay to the EU.

Foreign exchange reserve costs

Gunnarsdóttir has said: “We are paying between 30 and 40 billion simply to maintain the state’s foreign exchange reserves.”

A report on currency matters prepared for the Ministry of Finance and Economic Affairs says under the heading “Foreign exchange reserves could be redirected towards higher returns”: “If these assets [the foreign exchange reserves] were invested on the basis of a longer-term perspective, for example through a sovereign wealth fund, so that they generated one to two per cent higher returns, or were used to pay down government debt, the benefit could amount to approximately 0.1 to 0.2 per cent of GDP annually.”

Based on this information from the finance minister’s euro report, the amount under discussion is five to 10 billion krónur a year, the article says. It calls on the foreign minister to explain the substantial discrepancy.

Interest costs and inflation

Gunnarsdóttir has also said: “We are seeing the state treasury pay at least 150 billion in interest on debt every year.”

The article argues that citing this figure without putting it in the context of inflation in Iceland is misleading. Ten-year government bonds carry interest rates of 7 per cent, while inflation is just under 5.5 per cent, putting real interest rates at around 1.5 per cent.

It says the treasuries of euro-area countries currently face less favourable real interest rates than Iceland’s, citing France and Italy as examples. Inflation is 2.4 per cent in France, 2.8 per cent in Germany and 2.9 per cent in Italy. The nominal yield on 10-year government bonds is approximately 4.00 per cent in France, 3.20 per cent in Germany and 4.00 per cent in Italy.