EU bid tangle may hamper Iceland capital controls exit

Subject

Implications of the Icelandic government's EU missteps for its planned exit from capital controls.

Significance

The government has sought to make more definite the halt to Iceland's EU accession process, without seeking either parliamentary or popular endorsement of its formal withdrawal of the membership application. It has succeeded in damaging its domestic standing, while still leaving Iceland's EU status unclear. It has also made the political environment more volatile, when stability is needed to facilitate the government's planned exit from the capital controls imposed in the 2008 crisis.

Impacts

• The EU is still seeking clarity on whether Iceland is formally withdrawing its membership application.
• Strains over the handling of the exit from capital controls could exacerbate other differences within the government.
• The government's side-stepping of parliament has triggered a broader debate on executive-legislative relations which will continue.