By Prof. Dr. Dr. h.c. Carl Baudenbacher, former President of the EFTA Court (2003-2017), Visiting Professor at the London School of Economics, Baudenbacher Law AG
The forthcoming EU referendum in Iceland raises a limited legal question, but a much larger political one. Formally, Icelanders will be asked whether accession negotiations with the European Union should be reopened. In substance, however, the vote concerns the direction of the country’s constitutional, economic and political future.
The ‘seat at the table’ and the geopolitical situation
The common argument that membership would finally give Iceland a ‘seat at the table’ is too simplistic. The decisive question is not whether Iceland would obtain a seat, but at which table, under what conditions and with what real influence. The most important decisions are in any event made in Paris and Berlin. This concentration of power was illustrated by the sharp criticism voiced by Italian Prime Minister Giorgia Meloni of Ursula von der Leyen’s nomination for a second term — a process Meloni regarded not as an open European procedure, but as a back-room arrangement by established power blocs, indeed as an ‘oligarchy’ overriding the will of the voters.
The emotionally strongest argument for accession is uncertainty about the United States, the wars in Ukraine and around Iran, and the pressure on the international order. That concern is understandable, but it does not in itself justify a permanent constitutional shift. For small democracies such as Iceland and Switzerland, the EU may appear more attractive in view of doubts about American reliability; nevertheless, decisions on sovereignty should be based on institutions, competences and guarantees, not on a temporary political moment. Iceland’s hard security rests on NATO and the defence agreement with the United States, not on the EU — accession would bring political integration, but no additional protection, especially as the EU itself remains dependent on American capabilities. In his NZZ analysis of 31 July 2026, Ulrich Speck underlines this point: the United States remains indispensable to the West, since neither military deterrence nor technological leadership and economic power can be replaced by middle powers. Canadian Prime Minister Mark Carney’s ‘anti-Trump’ posture therefore falls short in foreign-policy terms. It is doubtful whether accession would be worth the loss of the institutional distance afforded by the EEA. The EU’s claim to be the ultimate defender of the rules-based order must be rejected: the EU seeks to force Switzerland and the United Kingdom, under threat of significant disadvantages, to accept an interpretative monopoly of its own Court of Justice. Germany, France or Italy would never accept this if they were in the United Kingdom’s position. This breaches the Golden Rule of treating others as one would wish to be treated oneself.
Democratic deficit and the question of exceptions
The EEA undoubtedly has a democratic deficit: Iceland adopts internal market law without voting rights. EU Membership, however, would merely mean exchanging one deficit for another, because responsibility would shift from parliament to the government and the EU institutions. The EU’s democratic deficit separates power from accountability: decisions emerge from the interplay of the Commission, the Council, committees, agencies and courts, making responsibility difficult to locate, while national parliaments lose control without there being an adequate democratic substitute at EU level.
Permanent exceptions are not unthinkable — the Åland Islands and the Danish opt-outs show that special arrangements are possible if all Member States agree. For new members, however, this is generally not done and usually does not concern entire core policy areas. The key test is fisheries: a permanent solution is not legally impossible, but it would have to be secured in the accession treaty — and the closer it came to the EEA model, the higher the hurdles would be. Accession would mean submission to the Common Fisheries Policy, a core part of EU law. Other fishing nations, above all Spain, would resist — less because of direct access to Icelandic waters than because of the systemic question of preserving a uniform fisheries policy. This is historically framed by the memory of 1615, when around 32 Basque whalers — subjects of the Spanish Crown — were killed in the Westfjords; a decree by Sheriff Ari Magnússon of Ögur, under which Basques and Spaniards in the region could be killed with impunity, was not formally repealed until 2015.
For the European Union, the prospect of a new recruit on its north-western periphery would be welcome. But Iceland is divided over its relationship with the bloc. Register to read why, https://t.co/Bz3Hae7Q9P
Photo: Zigaplahutar/Dreamstime pic.twitter.com/Ixf3GVUopa
— The Economist (@TheEconomist) August 10, 2026
The EFTA pillar and the Icesave case
The EEA permits deep, legally secured participation with only partial political absorption. The fact that the EFTA States were able in 1992 to persuade the EU Court of Justice to share its monopoly over the interpretation of internal market law with the EFTA Court was revolutionary and remains the essential strategic value of the EEA. EU membership would mean the loss of the EFTA pillar: Iceland would leave the EFTA Court and the EFTA Surveillance Authority, ESA, and would be bound by EU law, with even treaty-based exceptions being interpreted by the Commission and the CJEU.
Icesave provides a striking example. On 28 January 2014 the EFTA Court ruled in Iceland’s favour and held that EEA law did not oblige Iceland, in a systemic banking crisis, to guarantee the liabilities of private banks. The judgment also illustrates how concepts such as moral hazard were central to the analysis of systemic financial risk. Reporting by the Financial Times summarises the judgment: the EFTA Court rejected all claims against Iceland, finding that, given the scale of its systemic financial crisis, the country had neither breached the EU Deposit Guarantee Directive nor discriminated between domestic and foreign depositors. The final, unappealable judgment ended a long dispute arising from the collapse of Landsbanki in 2008 and its high-interest Icesave accounts, which had affected around 340,000 British and Dutch savers; Reykjavík welcomed the acquittal as removing an obstacle to economic recovery. Icesave showed that the EFTA pillar can protect a small state in an existential crisis — against the European Commission, which had intervened and sought a judgment against Iceland, an official accession candidate. Defeat would have created severe fiscal problems and possibly led to sovereign bankruptcy.
Energy and the unattractiveness of the EU
On energy policy, Iceland’s isolated grid provides stable renewable energy and accession would not automatically require a submarine cable. Over time, however, market integration, climate policy and solidarity pressure could make permanent refusal more difficult. Norway’s experience shows that interconnectors can transmit European price volatility into national electricity markets. The Wall Street Journal editorial of 29 January 2019 mocked German energy policy — after the phase-out of nuclear power and then coal — as the ‘world’s dumbest energy policy’.
The broader point is that EU membership is simply not an attractive option. Accession should not be compared with an idealised EU or with the EU of fifteen years ago. Germany, the ‘paymaster’, is in a deep and prolonged political and economic crisis; in 2025, 288,579 people — including academics, doctors and IT specialists — left the country, most of them to Switzerland. Jihadist terrorism is a daily problem in Germany because politicians and authorities downplay attacks, ignore causes and shy away from decisive measures (NZZ of 31 July 2026). France, in turn, has always been treated with kid gloves by the Commission. One may recall Giscard d’Estaing’s statement of 2003 that not all Member States are equal, with the result of appalling debt policies and the risk of a far-right or far-left president at the next election. The late Czech foreign minister Karel Schwarzenberg said: “An EU shaped by French centralism and implemented with German thoroughness fills me with dread; without the British, the ‘joy of dissent’ is missing.”
The EU’s ‘regulatory reflex’ in areas such as digital services, sanctions, artificial intelligence, industrial policy and freedom of speech must be criticised. Risks are managed through administration, reporting duties and platform obligations. The Commission increasingly acts as a political executive rather than as a neutral guardian, making it harder for Member States and citizens to perceive its actions as purely treaty-based and impartial; once the Commission becomes political, legal enforcement risks becoming selective, strategic or aligned with current policy objectives — the ESA has neither the power nor the ambition to do this.
Freedom of expression is protected by the EU Charter, but it is impaired by the Digital Services Act and accompanying rules on disinformation and hate speech, which encourage platforms to remove excessive amounts of content. As examples of misguided developments, ‘chatcontrol’ may be mentioned, which in July 2026 was pushed through the European Parliament by procedural abuse, and the case of the Swiss Jacques Baud, who was sanctioned without a hearing because he assessed the causes of the Ukraine war differently from the Commission — something which, according to former German Court of Justice judge Ninon Colneric and French professor Alina Miron, raises serious questions under EU law, fundamental rights, the ECHR and international law.
In technology policy, the EU often regulates faster than it innovates; Iceland should distinguish access to the digital single market, which is largely secured through the EEA, from the mistaken assumption that membership would create its own technological capacity. Barack Obama warned ten years ago that the EU was using its law against American innovators to compensate for its own technological weakness. The United States had ‘owned the internet’: Europe had often compensated for weak digital-industrial capacity through competition law, tax law and regulation.
Finally, Dieter Grimm’s observation that the EU Court of Justice is ‘freer than any national court’ is highly relevant. The judgment in Commission v Malta, according to which the Maltese investor citizenship model breached EU law because Union citizenship may not result from a commercial transaction, is an expression of boundless interpretation.
Path dependency is the key issue
The first Icelandic referendum of 29 August 2026 would not, as a matter of law, decide accession. A positive vote would give a mandate to reopen negotiations. Membership would still require an accession treaty, approval by the European Union under Article 49 TEU, and ratification in accordance with Iceland’s constitutional requirements. According to the political commitment now being made, it would be followed by a second referendum on the final terms.
That legal position should be acknowledged. It would also remain true if the parliamentary majority changed before the process was completed. A later EU-sceptical majority could slow the talks, change Iceland’s negotiating position, refuse to submit a final treaty or decline ratification. In strict legal terms, the first vote would therefore not be irreversible. The political reality, however, may be different. Once an accession package existed, the second vote would be held under far greater pressure than the first. The question might no longer be simply whether Iceland should join the EU, but whether it could reject an offer without appearing unreliable or isolated. In that sense, the first vote would be exploratory in law, but it could become the real point of no return in politics.
The promised second referendum is therefore important, but it should not be presented as an absolute safeguard. If it rests primarily on a political commitment rather than on a legally entrenched obligation, a later parliamentary majority could still prevent the process from reaching that vote by withholding legislation, blocking ratification or ending the process. Conversely, if negotiations were completed, the second referendum could take place in a political atmosphere shaped by diplomatic pressure, institutional expectations and appeals not to waste a historic opportunity. For that reason, the decisive issue is not whether a second vote is promised, but whether Icelanders understand the political momentum that a Yes in the first referendum vote of 29 August 2026 would create. The referendum is therefore not a harmless exploration of Brussels’ terms, but a decision on whether Iceland preserves its position or begins to negotiate it away. The burden of proof lies with those who wish to replace the existing model by EU membership. On the arguments set out above, that burden has not been discharged.
A restrained assessment therefore leads to a clear conclusion: Iceland should not enter the European Union, and the first referendum should be answered with No.
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