Iceland and its participation in European economic integration: advantages and disadvantages of European Union and Euro Area membership

Abstract

Iceland is a member of the European Free Trade Association, the European Economic Area and Schengen. It was a European Union candidate country until recently, when its government decided to withdrew its European Union membership application. The European Economic Area agreement currently ensures Iceland’s access to the European Union’s common market. The question remains what is the most feasible arrangement for long term prosperity of Iceland? Should it continue to rely on the current arrangement? Should it seek European Union membership in the future and perhaps subsequently become part of the Euro Area? What are the possible advantages and disadvantages for Iceland joining the European Union and the Euro Area? These questions have economic, political as well as security dimensions. According to the article EFTA membership and the EEA agreement appear to be the best arrangement for Iceland at present. The EEA agreement decision shaping under the two-pillar structure of EEA EFTA bodies that match those on the EU side has so far served well. The three EEA countries have some modest influence under this system and this arrangement ensures access to the internal EU market. This can change in the medium or long-term and the decision made by the government of Iceland that Iceland should not be considered a candidate or potential EU candidate country may have been short sighted. Iceland should not make any decisions that cannot be reversed given how quickly the global environment can change.

Keywords

• economic integration
• small states
• iceland
• global crisis
• economic policy