Is Iceland getting ready to join the EU?

A new change in Iceland’s government means that joining the EU is back on the cards for Iceland.

Polling shows that the Icelandic public are keener on it than ever before, with more Icelanders wanting to join the EU than stay out. The turnaround happened with Putin’s second invasion of Ukraine in Feb 2022, but other domestic and international dynamics also come into play.

Things are moving fast, as Iceland’s new Foreign Minister has just announced “a referendum on the continuation of Iceland's European Union accession talks and that this referendum be held no later than 2027”. You might ask what is meant by a “continuation”. Ah, well that’s a whole fascinating historical story which I’ll gladly set out below. But basically, the last social democratic government started accession talks in 2009, then a conservative-led government came into power and put talks on pause in 2013, then tried to cancel it outright in 2015, but without parliamentary approval. That led to anger and an open question on whether the accession talks have indeed been cancelled or are still formally open and ready to be picked up again! In the meantime, the national polling has gone from being against joining the EU to being for joining the EU (see graph further down), so the time could be ripe for Iceland to finally join.

But firstly, let’s look at the election that just happened, then this history of Iceland’s place in EFTA, the EEA and its stalled attempt to join the EU. Then we’ll look at what happens now and what the current push means for Iceland, EFTA, Norway and the UK.

The election: Social Democratic Alliance back in power

The Icelandic parliament is called the Alþingi (pronounced “Althingi”). It is the oldest surviving parliament (founded in 930 AD) and currently has 63 seats to represent the Icelandic population of nearly 400,000.

Elections were held in Iceland on 30 November 2024 and the results were:

The previous government had been comprised of a coalition of Independence (16 seats), Progressive (13) and Left-Green (8). So in the table above, you can see just how badly they all crashed out.

The last government was an odd mix, with both Independence (named after Icelandic independence movement from Denmark, which happened in 1918) and Progressive parties both being centre-right parties - but Left-Green doing what it says on the tin and being left wing. In October, prime minister Bjarni Benediktsson announced that the government had collapsed due to disagreements on several fronts and called the general election.

Note that the Liberal Reform Party is nothing like Reform UK – it is staunchly pro-EU. Also, just as the “Progressive Party” is not progressive, the “People’s Party” may sound reactionary, but they are very centrist. Conversely, the “Centre Party” are right-wing populists. Finally, the Pirate Party likes direct democracy.

A new government has now formed

The new prime minister is Kristrún Frostadóttir (age 36), leader of the Social Democratic Alliance (15 seats). On Dec 4^th, she began coalition negotiations with the Reform Party (11 seats) and People's Party (10 seats) and on Dec 21^st they announced their government and ministers. The new government now holds 36 out of the 63 seats in the Alþingi.

Kristrún Frostadóttir, official portrait.

Given previously-expressed concerns by Frostadóttir that any referendum could be divisive, alluding to the narrow margin of Brexit in her commentary on the matter, it is surprising how quickly they announced that there would indeed be a referendum on picking up EU accession talks – and the choice of word being “continuation” rather than “starting”, “restarting” or “renewed” indicates very strongly that they believe that the EU will let them continue from where they left off, should they gain the popular mandate for it.

To understand the debate that will happen in Iceland now, it’s very useful to understand Iceland’s relationship with EFTA, the EEA, the EU and even the US.

Iceland and EFTA

Iceland joined EFTA in 1970. At that time, EFTA had been around for ten years, initially founded in 1960 by the “outer seven” of the UK, Portugal, Austria, Switzerland and the Nordic countries Denmark, Sweden and Norway. These “outer seven” counterbalanced the “inner six” of Belgium, France, West Germany, Italy, Luxembourg, and the Netherlands. Those “inner six” had all signed the Treaty of Paris in 1952 to make the European Coal and Steel Community (ECSC), which then developed into just the “European Communities (EC)” in 1967, comprising also the European Atomic Energy Community (Euratom) and the European Economic Community (EEC).

In 1972, the UK and Denmark left EFTA to join the EC. Then in 1985, Portugal also left EFTA to join the EC. The 8 members of EFTA (“outer seven” plus Iceland) were now down to 5. In the late 1980s, the EFTA countries began discussing options to join the EEC part of the European Communities. This was while two new members joined EFTA – Finland (1986) and Liechtenstein (1991). By May 1992, the EEC had been renamed the EEA (European Economic Area) and all 7 member states of EFTA signed “The EEA Agreement” alongside the 12 member states of the EC.

So far, so good… but Switzerland then held a referendum on EEA entry in December 1992 in which its population voted “no” by 50.3% to 49.7%. This is why Switzerland has been out of the EEA and just had messy bilateral arrangements with the EEA/Single Market ever since.

In 1994 Sweden, Finland and Austria jumped ship from EFTA into the brand-new European Union (the Maastricht Treaty came into force in 1993, forming the “European Union”). The Norwegian government also tried to jump the EFTA ship into the EC in 1972 and then into the EU in 1994, but both times the public stopped them in a referendum. In 1972, “No” won with 53.5% of the vote and in 1994, “No” won with 52.2% of the vote.

So by the end of 1994, just Norway, Switzerland, Iceland and Liechtenstein were left in EFTA, which remains the case 30 years later. Referendums explain why Norway and Switzerland were kept out of moving into the EU, but as for Liechtenstein and Iceland, they both felt they were too small to have any influence in the EU and with the EEA covering their basic needs, they just never mustered the political will to attempt the move when the bigger countries did.

Things changed for Iceland in 2008, however

The mood music changed dramatically in 2008 with the banking crisis. Iceland was particularly badly hit. All three of the country's major privately owned commercial banks (Kaupthing, Glitnir and Landsbankinn) defaulted in late 2008. This made it, in terms of relativity to the size of the nation’s economy, the largest systemic banking collapse in economic history. According to Gudrun Johnsen, who was on the special commission set up to learn lessons from Iceland's banking collapse: “80% of the stock market was wiped out overnight... About every other business in Iceland became technically bankrupt. 97% of the banking sector collapsed in a matter of three days.” The banks were far too big to save by the small nation’s economy and were just allowed to fail.

The currency (Icelandic króna) had already been seen to be extremely volatile and vulnerable before that stage. Icelanders had, before the banking collapse, started thinking about the safety of the Euro as an alternative. A poll in 2007 had found 53% of Icelanders favoured adopting the Euro and a paper in 2004 had calculated that Iceland joining the EU and Euro could boost trade with other Euro countries by 60% leading to a 4% increase in GDP per capita. Additionally, Iceland felt alone and started wishing that it had close friends to help handle such turbulence.

All of this was precipitated when, under public pressure, snap parliamentary elections were held in Iceland on 25 April 2009. The (Conservative) Independence Party, which had been governing and which had constantly been the most voted-for party since 1937 suddenly found itself in second place (16 seats) to the Social Democratic Party (20 seats). A government was formed between the Social Democratic Party and the Left-Green movement (14 seats).

Iceland applied to join the European Union in July 2009. Formal negotiations began a year later in July 2010.

A recovery, a change of government, and talks frozen

Iceland’s economy started stabilising and then growing by mid 2011. Emergency legislation to take over the domestic running of the three largest banks, the IMF led a $10 billion financial aid package to pull Iceland out crisis, the application to EU membership and the tourism boom (driven largely by spectacular volcanic eruptions 2010 and the use of Iceland in the Game of Thrones series) all helped. In particular, Iceland’s tourism boom was dramatic and Iceland now has several times as many tourists per annum as its entire population.

(Picture from: https://en.wikipedia.org/wiki/Tourism_in_Iceland)

Ironically, financial recovery seems to have helped the political party (Independence) who had been blamed for the 2008 banking crisis. Parliamentary elections were held in April 2013 and Independence stormed back to power. With their fellow Eurosceptic party, the Progressive Party, which also won 19 seats, they formed a coalition government which held 38 seats of the Alþingi’s 63 seats. In September 2013 the Eurosceptic government dissolved its accession team and suspended its application to join the EU. Then in March 2015, the Foreign Minister, Gunnar Bragi Sveinsson, announced he had written a letter to Brussels saying that Iceland’s application to join the EU was cancelled. This caused huge political blowback in Iceland because the Alþingi had note voted for this action to be taken, so there were huge questions about the power of the Foreign Minister and the legitimacy of this action. On the EU side, a spokesperson for the European Union's Enlargement Commissioner said that the EU has taken note of the letter from the Icelandic government but that the application had yet to be formally withdrawn. Three days later, on March 15 2015, there were protests against the government’s unilateral behaviour in front of the Icelandic Parliament building.

Picture from anti-withdrawal protest on March 15, 2015 in front of Icelandic Parliament building. The sign reads “Við ráðum”, which means “We decide” or “We are in charge”, referring to the will of the people vs the Minister’s lone action. Photographer: G. Pétur Matthíasson

However, despite the protests, this action effectively ended the EU accession negotiations until the revival in the last few days – nearly a decade later. In the 2016 elections, Independence increased its lead to 21 seats (although Progressive Party tumbled), in the 2017 elections they led again with 16 seats forming a coalition with Progressives and Left-Green, and then in 2021, that coalition held. So 2024 has provided the second break from decades long dominance of the Independence Party. Through all this time, there was broad agreement in the public that a referendum was needed on whether to continue or cancel the accession talks.

The rise of the EU in the polls – and European Movement Iceland

Since the opening of accession talks, there has been polling on whether the public at large are, in principle, for or against joining the EU. From 2010 through to 2022, the answer was “no”. Although that “no” was declining slowly over time, it was clearly “no” until 2022 when a remarkable crossover happened:

Polling data courtesy of Jón Steindór Valdimarsson

Putin’s invasion of Ukraine shocked many in Europe – and in Iceland it reignited the sense of vulnerability that Icelanders felt about Russia and also their currency in a turbulent world. Since that point, the polling lead for “yes” has been sustained consistently over several time points during the last two years. In the latest poll, the >11% gap would translate into a 57% yes vs 43% no in a referendum where “don’t knows” are excluded. Beyond concerns about Russia and the more unstable world that can knock around their currency so easily, there is the relationship with the US. After WWII, the US became something of the protector of Iceland, with a bilateral defence agreement in 1951 and a US military base in Iceland. In fact, the cod wars against the British fishing fleets were finally resolved in Iceland’s favour by the US wading in to protect Iceland and its geographic strategic importance in NATO. With Russian threats menacing norther Europe, but a new president in the US who shows very little interest in NATO or keeping back Russia, Icelanders worry that Trump would have no interest in defending Iceland, especially given that the US base in Iceland no longer hosts army troops. I’m sure Icelanders were not enamoured to hear Trump’s very recent rekindled pronouncements on Greenland either.

The “Yes, Iceland” campaign that started in 2009 had shut down in 2015, following the Foreign Minister’s letter. So Jón Steindór Valdimarsson, and Icelandic ex-MP (2017-2021) from the Liberal Reform Party set up Evrópuhreyfingin (European Movement Iceland) in May 2022 to campaign firstly for a referendum on continuing Iceland’s EU accession talks and then to campaign for Iceland to join the EU. They have 1,600 members I am told and I’ve just received their Christmas email celebrating the announcement of the referendum and looking to mobilise their base.

So what happens now?

I’ll be blunt – I wrote this section header before it was announced that there will be a referendum before 2027. That announcement caught me off-guard. I began writing this piece on Dec 9^th after a long chat with Jón (the European Movement Iceland founder) and I started documenting the history of Iceland-EU relations and requesting data and materials from Jón for a write up. I had been under the impression that the whole question of *whether* the new government would tackle the issue of joining the EU would happen in the new year, maybe even in Feb.

So, it’s clearly “game on” already. Note that the new Icelandic government also announced that it would assemble a panel of experts to analyse the advantages and disadvantages of adopting the Euro. I do not know whether this would happen in parallel to a referendum on accession talks, but I imagine it would be planned that major conclusions of this panel would be presented to the public ahead of any vote on accession talks.

Also, a note of caution. When David Cameron came to power in 2015 on the promise of a referendum on the UK’s membership of the EU, he had promised that the referendum would happen before the end of 2017. In reality, he decided in Feb 2016 that the referendum would be held in four months’ time. Similarly in Iceland, the government have the power to announce the referendum at any point between now and the end of 2017 and may feel that sooner rather than later they want to put the issue to the people and not let the debate drag on for three long years, likely consuming a huge amount of the political bandwidth during that time and impeding progress in other areas of policy. All governments fall out of favour over time, so getting the balance right between not rushing it to the detriment of public education and good referendum structure (as Cameron did) but not letting it string out until it feels more like a burden than an opportunity, will be important.

What does this all mean for EFTA and Norway? C’mon EU Vikings!

One thing that few people (at least in the UK) have considered is what Iceland joining the EU would mean for EFTA (4 members) and the EEA agreement (3 EFTA members). According to Per Christiansen, a professor of European law & judge at the EFTA Court from 2011-2023, the days of the EEA Agreement would be numbered if Iceland became an EU member. Essentially, to reduce the EEA agreement to just Norway and the Principality of Liechtenstein (population under 40,000) would make the institutions difficult to maintain with any real meaning. Similarly with EFTA per se, are they really going to maintain the EFTA Court and the negotiators to effectively keep just copying EU trade deals?

Beyond a departing Iceland taking EFTA and the EEA agreements to under critical mass for any notion of a club of members, there are also the other aspects that could cause a domino effect upon Norway in particular. Norway and Iceland are culturally close. Norway also has a European Movement, which is aiming to get Norway into the EU and which talks regularly with European Movement Iceland. They watch each other.

Like in Iceland, the 2022 invasion of Ukraine by Putin shifted the conversation in Norway about potentially joining the EU and shifted the dial on polling. Some 30 years after Norway last shut down the option (in 1994) there’s bubbling conversation about whether the newest generation of Norwegians should have their say. A report published in April 2024 on the Norwegian-EEA relationship has also added to the debate, with the leader of the Liberal Party saying that Norway is better off participating in the politics that decide the rules of its labour market rather than just receiving them from other countries.

And resistance to EU membership is falling in Norway - 48% would now vote no to the EU, down from 54% three years ago and 70% in 2016. That’s still ahead of the 32% that would vote yes, but the gap is shrinking quickly. The general wisdom is that if there were an external factor (such as Iceland leaving EEA & EFTA – and joining the EU and, with it, the EU’s fishing policy), then that could be enough for Norway to get shaken out of its comfortably rich-but-obsolete model and also seriously consider joining the EU.

What does this mean for the UK’s ambitions to join the EU?

There are lots of potential dynamics here for European Movement UK’s drive for the UK to join the EU. Firstly, of course, there’s the story that alongside Moldova, Ukraine, Georgia and Eastern European countries looking to join the team of the European Union, there’s also the western European countries of Iceland and Norway. That changes how the EU is perceived and it points to the fact the attraction of the EU is very real to an increasing number of nations and, far from “falling apart”, the EU is fundamentally growing as a perceived guarantor of stability and shared strength.

There is also the fascinating dynamic of EFTA-EEA and what it means if those associations collapse in favour of the EU. I don’t believe it was ever a realistic proposition that the UK joined EFTA, however, the notion that there’s some half-way house to land in would somewhat vapourise if EFTA became no more. That may remove a stepping-stone to the EU… but it could also remove the potential to get stuck in an inadequate compromise position that we languish in, when full EU membership was always the thing to go for.

Finally, the model that Iceland is pursuing in its journey mirrors the one that I currently believe we should take – namely an initial referendum (simple majority) on giving our government licence/permission to engage in negotiations… to be followed at a later date by a referendum (probably with a set of thresholds) on an actual deal to be set before the UK public for their approval. Either way, the fact that others in our neighbourhood are moving in a similar direction means that Iceland, Norway and the UK have pro-European contingents that have a shared vision and can learn from each other as we work together over the next years to join the neighbourhood team and strengthen this great continent of ours.

A special note of thanks to Jón Steindór Valdimarsson for taking the time to walk me through so many fascinating stories and dynamics around Iceland’s relationship with Europe and the EU.

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