Breaking the ice

 
 

What’s the difference between Ireland and Iceland? Is it one letter or four – E-U-R-O? Catriona Logue examines the proposed accelerated ascension of Iceland to the EU.

Following the Irish government’s decision to nationalise Anglo Irish Bank, the similarities with the Icelandic crisis have become hard to dismiss, leaving us asking the question – could an examination of the Icelandic story help us to predict what lies in store for Ireland?

Last autumn, the extent of Iceland’s economic problems became apparent when the government took control of Glitnir, the country’s third largest bank. Similarly, here in Ireland, the first and only bank to collapse (so far) has been Anglo Irish Bank, our third biggest. The rest of the story has yet to be written but both the Irish financial institutions and the government alike will be hoping that that the lines will not follow the Icelandic tale word-for-word, for it’s a story of further bank nationalisation, record-high inflation, rocketing unemployment, angry riots and ultimately, government collapse.

The crucial difference between Ireland and Iceland in terms of its financial solvency is the euro. President of the EU Commission, Jose Manuel Barroso, pointed this out when he compared Ireland to Iceland in a recent speech given at the World Economic Forum in Davos.

Taoiseach Brian Cowen rejected the comparison and said he would not tolerate any “bad mouthing of Ireland”. But Mr Barroso drew the parallels in order to highlight this one major difference. He implied that Ireland had avoided the type of collapse which has befallen Iceland because it “was a member of the euro area [and] so, a country with a respected currency”.

“The crucial difference between Ireland and Iceland in terms of its financial solvency is the euro”

The safety net that the euro provides has been highlighted by Iceland’s expression of interest in joining the EU as the banking crisis has crippled Iceland’s currency, the Krona, causing the inflation rate to soar to a record high of 17.1 per cent. Thus, the cost of living has risen while wages remain stagnant and unemployment soars towards ten per cent, a devastating combination.

Icelanders are now beginning to see the benefits that could come from abolishing a weak currency and adopting the euro instead. Of course, Mr Barroso has made it clear that there is only one way that Iceland can join the single currency and that is by firstly joining the EU. Until now, this idea has been unpopular in Iceland for one reason: cod.

Cod is the most important export in Iceland and, until the collapse of the Krona; it provided a substantial chunk of national income. Joining the EU would mean adherence to EU Common Fisheries policy, which does not have a hugely successful track record. However, given the state of the Icelandic economy, it looks likely this sacrifice will have to be made.

This move towards EU membership epitomises a sea change that is happening in Iceland at the moment: the voices of the young are resonating powerfully and more liberal policies are being adopted. In late January, the Icelandic Prime Minister, Geir Haarde, finally surrendered to the surge of protests calling for his Independence party to resign from power.

A new government was sworn in with the first day of the new month; a coalition of The Social Democrats and the Left-Green Movement. The Social Democrats have always been in favour of EU membership and it seems likely, now, that a referendum will take place on the matter.

A right-wing party in government promoting conservative values and opposition towards the EU’s fishery policies were two of the defining characteristics of Icelandic politics for the last sixty years. The net effect of the global economic crisis has been such that these fundamental attributes have now been reversed as the country has hit rock bottom under traditional governance.

Whether or not ascension to the EU will solve Iceland’s problems remains to be seen but such is the extent of her willingness to adapt, it would seem to point Ireland in a similar direction.

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