Iceland’s Prime Minister, Sigmundur Davíð Gunnlaugsson, has expressed his utter relief that the country decided not to join the European Union.
In an interview last week Gunnlaugsson says that if Iceland had joined Europe in 2009, during the economic collapse, then Iceland may have suffered the same fate as Greece. “I am pretty sure our recovery couldn’t have happened if we had been part of the EU,” the Prime Minister said.
“We might have even gone the other way and become a bankrupt country,” he said. “If all these debts had been in euros, and we had been forced to do the same as Ireland or Greece, and take responsibility for the debts of the failed banks. That would have been catastrophic for us economically.”
Instead, Iceland is a post-crisis success story.
After growing by 1.9 percent last year, the economy is expected to expand by 3.5 percent this year. National debt is down to 64 percent of GDP, falling from a peak of 86 percent in 2012, and making it back down towards the pre-crisis level of 37 percent.
Unlike most EU countries, as well as the U.S., Iceland has actually been jailing the bankers who grew the country’s financial sector to 10 times larger than the economy before the 2008 banking crisis that sent the broader economy into a tailspin.
Iceland today is a world away from the fraught days of 2009, when Gunnlaugsson’s predecessor, Jóhanna Sigurðardóttir, saw EU membership as a way of rescuing the country.
Yet the country’s EU application subsequently foundered. Reluctance in both Brussels and Reykjavik to broach the awkward subject of fishing quotas slowed negotiations, while at home popular feeling changed as the North Atlantic island slowly dug its way out of trouble.
Iceland suspended its EU bid in 2013, and Gunnlaugsson finally withdrew the country’s application earlier this year.
This month, Iceland repaid the last of its $2.1 billion loan from the International Monetary Fund — a legacy from Iceland’s main banks defaulting on a combined sum of $85 billion back in October 2008.
The finance ministry this week took steps to end capital controls. They were imposed in 2008 to prevent money flooding out of Iceland and worsening the financial collapse.
During the interview with POLITICO, Gunnlaugsson said he was relieved at the country’s extraordinary turnaround. He believes that if Iceland had been rushed into the European Union it could have been a very different story.
Crucial reasons for Iceland’s recovery were having its own currency, the krona, an independent legislation that gave the government more room to maneuver, and control over the country’s natural resources.
“Factors dealing with being outside of the EU have been essential in our economic improvements,” he said.
Iceland’s recovery has also been turbocharged by a rise in tourism. Visitors have risen by roughly 25 percent each year for the last four years as foreigners flock to see the Northern Lights and bathe in volcanic springs.
Gunnlaugsson said the decision to apply to join the EU was misguided and hasty.
“The main reason given for the application in 2009 was that we had to join for economic reasons,” he said. “It was always addressed as an economic question. Now people feel they have the answer to that. The Icelandic economy has been doing much better than the EU economy … we have seen huge improvements these last couple of years, while the EU is facing difficulty and continued crises.”
Once the desperation lifted, it turned out that Icelanders were fine on their own. “There was never any debate about the values of the EU or whether we wanted to be part of that,” he said.
Along with Norway and Liechtenstein, Iceland is part of the European Economic Area, which grants access to the EU single market while staying outside the EU’s governance structures.
“Our relationship with the EU, the model we have with Norway and Liechtenstein, through the EEA agreement, has worked for us,” Gunnlaugsson said.
And that’s about as close to the EU as Iceland wants to get.
“I think it is extremely unlikely — in fact impossible — that Iceland will join any time soon,” the prime minister said.