What Iceland could gain from EU membership

Iceland's high inflation rate, standing at 5.6% in July and significantly above the central bank's 2.5% target, is a primary driver for renewed discussions about potential EU membership and Euro adoption. Professor Thorvaldur Gylfason notes that Iceland has had the second-highest average inflation rate in the OECD since 1960. The introduction of the Euro is seen as a potential solution to curb this persistent price instability and lower interest rates, which would make housing more accessible for younger generations struggling with current market conditions.

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The introduction of the Euro would lower inflation and interest rates in Iceland, making housing affordable again for a young generation that is currently excluded from the market.

Prime Minister Kristrún Frostadóttir has initiated a review to assess the benefits of replacing the Icelandic króna with the Euro. This move aims not only to end the currency's volatility but also to reduce transaction costs for Icelandic exporters, whose primary customers are in the Eurozone. The adoption of the Euro is framed as a key objective for the current government in Reykjavik, with a referendum on August 29th serving as an indirect vote on the currency.

The influential Icelandic fishing lobby, a significant contributor to the nation's economy, could also see benefits from EU membership. While historically skeptical of joining the EU, the industry's access to the EU's single market has diminished over the past three decades. Currently, only 68% of Icelandic fishery products enter the EU duty-free, a stark decrease from 98% when the European Economic Area agreement was established in 1994. Annual tariffs paid by Icelandic fish exporters amount to approximately ten million Euros.

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The referendum on August 29 serves de facto as an indirect vote on the Euro. The main goal for the current government in Reykjavik is to introduce the EU's currency.

Membership in the EU could create opportunities for increased processing of fish within Iceland, as stated by the Icelandic Ministry of Foreign Affairs. Furthermore, exporting fish to the United Kingdom would become simpler for an EU member. The analysis suggests that the security policy situation also supports membership, although specific details are not elaborated upon in the provided text.

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Membership in the EU would create opportunities for more processing in Iceland.