The Greek problem seen from Iceland

In Ice­land the cur­rent eco­nom­ic cri­sis in Europe is per­ceived as a very seri­ous prob­lem, not least because of the domes­tic bank col­lapse in the autumn of 2008. The Euro­pean Cen­tral Bank has had sub­stan­tial inter­ven­tion in the bond mar­ket, by buy­ing bonds from states that stand poor­ly. By doing that the Bank is gain­ing a new role in eco­nom­ic coop­er­a­tion in Europe but per­haps simul­ta­ne­ous­ly sac­ri­fic­ing its inde­pen­dence in the process.11Jón Þór Sturlu­son (econ­o­mist and asso­ciate pro­fes­sor at the Reyk­javik Uni­ver­si­ty): Radio inter­view on Spegillinn, cur­rent affairs pro­gram, Nation­al Broad­cast­ing Cor­po­ra­tion in Ice­land, 17 May 2010. Increas­ing sta­bil­i­ty in Europe is seen as a dif­fi­cult project, and the under­stand­ing of that is high in Ice­land, hav­ing already expe­ri­enced severe eco­nom­ic and cur­ren­cy dif­fi­cul­ties in the last two years.

The Ice­landic media por­trayed a tug of war on how much aid Greece would receive from the EU on the one hand and the Inter­na­tion­al Mon­e­tary Fund (IMF) on the oth­er, which in a way taint­ed the results of the mat­ter. Great dis­sat­is­fac­tion was shown by the Ger­man nation, feel­ing they were expect­ed to pro­vide too much help. A risk of a Euro-col­lapse con­trolled the Ger­man government’s move­ments. By grant­i­ng the aid, they bought cer­tain secu­ri­ty and thus tried to pre­vent some­thing else and much graver to hap­pen.22Tele­phone inter­view with a mem­ber of the Left-Green move­ment cur­rent­ly in government.

Much spec­u­la­tion on the con­se­quences of the fall of the val­ue of the Euro and whether the EU itself is under threat is going on in Europe. A decrease in coop­er­a­tion is feared, although few believe it will be ter­mi­nat­ed com­plete­ly. The actions that are being tak­en by the EU and the IMF serve as a dead­line for the mem­ber states to deal with their eco­nom­ic prob­lems. Ger­many and the Euro­pean Cen­tral Bank are the voic­es of rea­son: cut­backs are nec­es­sary. Europe is now fac­ing more eco­nom­ic con­trols and restric­tions for future eco­nom­ic coop­er­a­tion to flour­ish.33Tele­phone inter­view with econ­o­mist and asso­ciate pro­fes­sor Jón Þór Sturlu­son, 19 May 2010. Ice­landic econ­o­mists won­der if Greece can do what needs to be done in order to rec­ti­fy their finan­cial sit­u­a­tion, oth­er­wise social insta­bil­i­ty could become a con­cern. Expec­ta­tions and per­cep­tions are very impor­tant in such cas­es because when peo­ple expect the worst to hap­pen, the required rate of return will increase on indi­vid­ual debts, mak­ing it even hard­er for peo­ple to pay them and there­fore it brings about the fear that was dread­ed. On the con­trary, if per­cep­tions and expec­ta­tions are kept pos­i­tive in dif­fi­cult times like Greece is expe­ri­enc­ing, the coun­try should be able to gain eco­nom­ic sta­bil­i­ty again. It all depends on the Greek social sit­u­a­tion not dete­ri­o­rat­ing any fur­ther to the point of no return.44Jón Þór Sturlu­son, econ­o­mist and asso­ciate pro­fes­sor at the Reyk­javik Uni­ver­si­ty: Radio inter­view on Spegillinn, cur­rent affairs pro­gram, Nation­al Broad­cast­ing Cor­po­ra­tion in Ice­land, 17 May 2010. To the gen­er­al pub­lic, it may seem weak that the EU is not able to assist Greece on its own, but needs to bring in the IMF which turned out essen­tial for the aid pack­age. On the oth­er hand, Ice­land is also accept­ing assis­tance from the IMF and may there­fore have a bet­ter under­stand­ing of the sit­u­a­tion. The grave­ness of the glob­al eco­nom­ic reces­sion has become appar­ent and increas­es a small state’s per­cep­tion of vul­ner­a­bil­i­ty. This is not a prob­lem that has an easy solu­tion, but the debate in Ice­land will sure­ly con­tin­ue to focus, first and fore­most, on the inter­nal prob­lems. Sim­i­lar to most EU debates, the Ice­landic “No” cam­paign­ers will use every oppor­tu­ni­ty to judge EU actions harsh­ly and the fact that the Euro is in trou­ble has added fuel to the fire for the anti-EU cam­paign.55Tele­phone inter­view with econ­o­mist and asso­ciate pro­fes­sor Jón Þór Sturlu­son, 19 May 2010.

Greece is an exam­ple of a state that did not fol­low many of the rules set forth in the Sta­bil­i­ty and Growth Pact. In hind­sight, Greece should not have been allowed in the Euro­zone, not hav­ing ful­filled the require­ments. To bet­ter align the bud­get and the mon­e­tary pol­i­cy of the EU is cru­cial. Stronger super­vi­sion and coop­er­a­tion in the field of fis­cal pol­i­cy is nec­es­sary if the Euro­pean coun­tries intend to work togeth­er.66Jón Þór Sturlu­son, econ­o­mist and asso­ciate pro­fes­sor at the Reyk­javik Uni­ver­si­ty: Radio inter­view on Spegillinn, cur­rent affairs pro­gram, Nation­al Broad­cast­ing Cor­po­ra­tion in Ice­land, 17 May 2010. The idea of a strong coor­di­na­tion of eco­nom­ic poli­cies can sound, to EU oppo­nents, as an idea to have all mem­ber states present their fis­cal bud­get to the EU for accep­tance or decline.77Inter­view with gov­ern­ment offi­cials at the Min­istry for For­eign Affairs, 19 May 2010. People’s opin­ions on Euro­pean inte­gra­tion usu­al­ly spill over to all mat­ters con­cern­ing more inter­state coor­di­na­tion. Peo­ple who are for inte­gra­tion are there­fore more like­ly to be more pos­i­tive to the idea of a strong coor­di­na­tion of eco­nom­ic poli­cies in Europe, while the peo­ple who are not for inte­gra­tion will find such actions prone to dimin­ish­ing the oppor­tu­ni­ties of indi­vid­ual states.88Tele­phone inter­view with a mem­ber of the Left-Green move­ment cur­rent­ly in gov­ern­ment, 6 July 2010.

It has become clear to Ice­landic pol­i­cy-mak­ers that being in the Euro­zone does not absolve mem­ber states of respon­si­bil­i­ty towards their own econ­o­my and cur­ren­cy. Mem­ber states are still expect­ed to act respon­si­bly and ratio­nal­ly, and not exceed their nation­al bud­gets. At the same time, the idea of increased con­trols, whether these con­trols stem from Brus­sels or not, may not be con­sid­ered a bad idea. Ice­landers have recent­ly been bru­tal­ly remind­ed of their small size and vul­ner­a­bil­i­ty in the inter­na­tion­al com­mu­ni­ty, there­fore increased finan­cial reg­u­la­tions are deemed essen­tial. Pro­mot­ing good prac­tices and sta­ble eco­nom­ic gov­er­nance can only be a pos­i­tive thing. The EU debate in Ice­land, how­ev­er, is still very lim­it­ed and in many ways immature.

The Europe 2020 Strat­e­gy that fol­lowed in the wake of the Lis­bon Strat­e­gy has been well received in Ice­land. Only time will tell, how­ev­er, whether the ambi­tious goals set fort in the Strat­e­gy will be reached.99Tele­phone inter­view with a mem­ber of the Left-Green move­ment cur­rent­ly in gov­ern­ment, 6 July 2010. The Strat­e­gy is in fact a mod­el upon which a local strat­e­gy has been designed.1010Infor­ma­tion on the Ice­land 2020 strat­e­gy, avail­able at: http://www.island.is/endurreisn (last access: 12 July 2010). This is wel­comed in Ice­land as local strate­gies have rarely adopt­ed a long-term vision with long-term goals.1111Tele­phone inter­view with a mem­ber of the Left-Green move­ment cur­rent­ly in gov­ern­ment, 6 July 2010. This open method of coor­di­na­tion is seen as a pos­i­tive devel­op­ment offer­ing encour­age­ment. The new Europe 2020 Strat­e­gy seems to be sim­pli­fied, which is a def­i­nite plus and can there­fore be per­ceived as a bet­ter strat­e­gy. Coun­try spe­cif­ic rec­om­men­da­tions should pro­vide the nec­es­sary push for those that want to par­tic­i­pate, but may need guid­ance in pur­su­ing this. Ice­land, like the oth­er EFTA coun­tries, has done well in obtain­ing the goals, but is still lag­ging behind in school drop-out rates.1212Tele­phone Inter­view with a gov­ern­ment offi­cial at the Min­istry for For­eign Affairs and a mem­ber of the Ice­landic nego­ti­at­ing team, 20 May 2010.

    Footnotes

  • 1Jón Þór Sturlu­son (econ­o­mist and asso­ciate pro­fes­sor at the Reyk­javik Uni­ver­si­ty): Radio inter­view on Spegillinn, cur­rent affairs pro­gram, Nation­al Broad­cast­ing Cor­po­ra­tion in Ice­land, 17 May 2010.
  • 2Tele­phone inter­view with a mem­ber of the Left-Green move­ment cur­rent­ly in government.
  • 3Tele­phone inter­view with econ­o­mist and asso­ciate pro­fes­sor Jón Þór Sturlu­son, 19 May 2010.
  • 4Jón Þór Sturlu­son, econ­o­mist and asso­ciate pro­fes­sor at the Reyk­javik Uni­ver­si­ty: Radio inter­view on Spegillinn, cur­rent affairs pro­gram, Nation­al Broad­cast­ing Cor­po­ra­tion in Ice­land, 17 May 2010.
  • 5Tele­phone inter­view with econ­o­mist and asso­ciate pro­fes­sor Jón Þór Sturlu­son, 19 May 2010.
  • 6Jón Þór Sturlu­son, econ­o­mist and asso­ciate pro­fes­sor at the Reyk­javik Uni­ver­si­ty: Radio inter­view on Spegillinn, cur­rent affairs pro­gram, Nation­al Broad­cast­ing Cor­po­ra­tion in Ice­land, 17 May 2010.
  • 7Inter­view with gov­ern­ment offi­cials at the Min­istry for For­eign Affairs, 19 May 2010.
  • 8Tele­phone inter­view with a mem­ber of the Left-Green move­ment cur­rent­ly in gov­ern­ment, 6 July 2010.
  • 9Tele­phone inter­view with a mem­ber of the Left-Green move­ment cur­rent­ly in gov­ern­ment, 6 July 2010.
  • 10Infor­ma­tion on the Ice­land 2020 strat­e­gy, avail­able at: http://www.island.is/endurreisn (last access: 12 July 2010).
  • 11Tele­phone inter­view with a mem­ber of the Left-Green move­ment cur­rent­ly in gov­ern­ment, 6 July 2010.
  • 12Tele­phone Inter­view with a gov­ern­ment offi­cial at the Min­istry for For­eign Affairs and a mem­ber of the Ice­landic nego­ti­at­ing team, 20 May 2010.

The reports focus on a report­ing peri­od from Decem­ber 2009 until May 2010. This sur­vey was con­duct­ed on the basis of a ques­tion­naire that has been elab­o­rat­ed in March and April 2010. Most of the 31 reports were deliv­ered in May 2010.

The EU-27 Watch No. 9 receives sig­nif­i­cant fund­ing from the Otto Wolff-Foun­da­tion, Cologne, in the frame­work of the ‘Dia­log Europa der Otto Wolff-Stiftung’, and finan­cial sup­port from the Euro­pean Com­mis­sion. The Euro­pean Com­mis­sion is not respon­si­ble for any use that may be made of the infor­ma­tion con­tained therein.