Will Iceland return to the European path?

In an unstable world, solitude rarely provides solace. That is the simplest explanation for the referendum in Iceland on August 29th, in which citizens will decide whether to renew stalled negotiations for membership in the European Union. (A final accession agreement, if any, would be decided in a separate referendum, once the negotiations are complete.)

With a population of around 400.000, a strategic location in the North Atlantic, and an economy that is strongly connected to the rest of the world, Iceland is understandably very sensitive to changing circumstances that affect its development - and even more so its security. When it applied to join the EU in 2009, the country was still recovering from the almost disastrous consequences of the 2008 financial crash, which caused an economic collapse. Many Icelanders at the time believed that tying the national currency and economy to the Union was the safest option.

After the European Commission positively assessed the country's readiness, accession negotiations began in 2010 and progressed rapidly until 2013. Out of a total of 33 negotiation chapters, 27 were opened and 11 were even provisionally closed, although the most sensitive issues, such as fishing control, remained unresolved.

But the new Icelandic government, elected in 2013, broke off negotiations. The prevailing belief among decision-makers was that the economy had recovered more easily from the 2008 crash than expected. There was a growing belief that Iceland could rely on its own strength.

Since then, Iceland's economy has performed well, thanks in large part to a booming tourism sector. At the same time, the country has benefited significantly from participation in the EU's single market through the European Economic Area (EEA) Agreement, of which Norway and Liechtenstein are also members. However, the uncertainty caused by the unstable Icelandic currency has kept interest rates - and therefore many other costs - relatively high.

Perhaps more importantly, at a time of rising geopolitical and geoeconomic tensions, Iceland's position outside the European Union is increasingly seen as a weakness. That is why the government of Prime Minister Kristrún Frostadottir has requested a mandate to resume accession negotiations and explore the possibility of membership.

For historical reasons, the issue of sovereignty has figured prominently in Iceland's discussions about joining the Union. But since the country already enjoys a kind of economic satellite status with the EU through the EEA Agreement, full membership would actually strengthen its sovereignty, as it would allow it to participate in shaping decisions that it is already obliged to implement.

Fisheries policy will be one of the key and most sensitive issues in the accession negotiations. However, since the United Kingdom is no longer a member of the EU, and Iceland's EEZ does not border any of the member states' EEZs, there seems to be room for compromise. If Sweden and Finland have already managed to win a special regime for agriculture in their northern regions, it should be possible for Iceland to receive similar, more favourable treatment.

Despite these lingering concerns, broader security priorities are increasingly shaping the debate. Iceland is a NATO member but does not have its own military. During the Cold War, the United States maintained the strategically important Keflavik Air Base in the country, but left it abruptly and without much explanation in 2006. Today, Keflavik is mostly used by European air forces, rotating their aircraft to monitor the North Atlantic.

No one can predict what US President Donald Trump will do about neighboring Greenland, which he still openly wants to annex. But there is no doubt that his administration’s unstable and unpredictable security policies have made Iceland more vulnerable. In January, Trump’s nominee for US ambassador to Iceland, apparently inspired by the president’s territorial ambitions, jokingly said that Iceland should become the 52nd US state, only to retract the statement shortly afterwards. (It is worth recalling that the European Union was ready to come to Greenland’s defense.)

Furthermore, in an era of trade wars, the fact that Iceland is not part of the EU customs union further increases its exposure to external pressures. Large economies, such as the European Union and China, can counter the Trump administration's capricious moves, while small countries lack such bargaining power.

If the Icelandic people were to vote in favour of resuming accession negotiations in a referendum, the process could, by all accounts, move forward very quickly, with a final decision on membership being made within two years. There is no reason to believe that the European Union, and in particular its Nordic and Baltic members, would not welcome Iceland as a member. Moreover, Iceland's entry into the EU would probably also force Norway to reconsider its decision to remain outside the Union. The European Economic Area Agreement, if only Liechtenstein remained in it, would have very limited significance in the current circumstances.

But these are questions for the future. The only thing that matters now is whether Icelandic voters will decide to initiate this process.

The author was the Prime Minister and Minister of Foreign Affairs of Sweden, EU Special Envoy for the former Yugoslavia and co-chairman of the Dayton Peace Conference.

Copyright: Project Syndicate, 2026.