Should Iceland Seek Europen Union and Euro Area Membership?

Abstract

Iceland is a small, resource rich country in Europe that is highly dependent on foreign trade. According to the World Bank classifications, Iceland is a high income economy, but with a population of a little bit more than 300 thousand inhabitants, is the smallest economy within the Organization for Economic Co-operation and Development (OECD). Iceland is highly dependent on foreign trade, especially on trade with the European Union, where economic and political integration is evolving and the question about the most feasible level of participation is a future challenge for the country. Iceland is a member of the European Free Trade Association (EFTA), the European Economic Area (EEA) and the Schengen area, and the European Union (EU) candidate country until recently, when its government decided to withdraw its EU membership application. Currently, the EEA agreement ensures Iceland access to the EU common market. The question remains, what is the most feasible arrangement for Iceland's prosperity in the long term? Should it continue to rely on the current arrangement? Should it seek the EU membership in the future and, perhaps, subsequently become part of the Euro Area? What are the possible benefits and disadvantages for Iceland joining the EU and the Euro Area?

Nordic-Baltic Cooperation: Opportunities, Divisions and External Threats

“…below). This decision was made without a public referendum, but by a cabinet coalition formed in 2013 (Hilmarsson, 2017). Opinion polls show that support for EU membership immediately after the crisis evaporated in Iceland in light of the failure of the EU leadership in handling the crisis (see for example Hilmarsson, 2015 andHannibalsson, 2017).…”

European Union Foreign Policy

“…These two countries, compared to their Nordic partners, began to act more as spectators of the decisions taken by the EU than active builders of a coalition that served their interests. Both countries have to live with an economic and political giant in their neighborhood, with Iceland being especially sensitive to trade with the EU (Hilmarsson 2021), without having a formal voice in formulating the bloc's positions.…”