Sunday

25th Jul 2021

Column

Small states in 'Big Power' games

The world is a turbulent place, and for small countries all the more so. Perhaps there is no better place to observe this than in Iceland.

Twenty years ago the most dominant foreign influence in Iceland was the United States, as it had been throughout the cold war.

Read and decide

Join EUobserver today

Become an expert on Europe

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

  • Chinese investment constituted almost six percent of Iceland's average GDP over the past five years

Nowadays it is China.

The Chinese are all over the island. In 2015 Iceland became the first country in Europe to sign a trade agreement with China, mainly to boost the export of Icelandic fish.

With loans from the Asian Development Bank, Icelandic companies are helping to develop a geothermal industry in China. Since 2010 there have been several currency swaps between both countries.

In 2018 both opened an Arctic Science Observatory in the north of the island. In the same year China invited Iceland to join its Belt and Road initiative.

There is only one case in which Iceland is known to have said no.

That was in 2011, when a Chinese property tycoon wanted to buy a huge plot of land in the east of the island to build a golf course. The area was close to a harbour. Fearing it could be turned into a military port or airport one day, Reykjavik refused.

Inspired by his country's recent geopolitical somersaults Baldur Thorhallsson, an Icelandic political scientist, wrote a book called Small States and Shelter Theory; Iceland's External Affairs.

It's a case-study about a small country that is eternally looking for protection but never finds it - not permanently, at least. Each time when geopolitical shifts occur, the country has to start all over again.

After five centuries of foreign domination, Iceland obtained independence from Denmark in the 1940s. It immediately began to seek shelter again, and found it with the US.

It also nurtured close ties with Denmark, Norway, Sweden and Finland. During the Cold War the international system offered small countries some degree of protection against the domination of large countries.

For decades this worked well. Long enough, in any case, to give Icelanders the illusion they were safe.

Then, in 1989, the Berlin Wall came down. Beyond the idea that capitalism had triumphed and that the rest of the world would now become democratic, many Icelanders initially had no clue what the consequences of this would be.

That suddenly changed in 2006, when the US announced the closure of the first military base in Europe - the one in Iceland. The island didn't even have a defence budget.

From one day to the next, Icelanders felt vulnerable again and started looking for shelter once more. Small countries, argues Thorhallsson, are more vulnerable than large ones - politically, economically and militarily.

They are not only likely to be hit by crises and attacks but, more crucially perhaps, they are totally on their own when it comes to cleaning up afterwards.

Banking on Iceland

This became clear when, in 2008, the financial crisis hit. Iceland, with its oversized banking sector and lax oversight, was heavily affected. Most banks and companies went down, bankrupting the state in the process.

In the old reflex, Reykjavik asked the US for help – in vain.

It then turned to Nordic neighbours and the European Free Trade Association (EFTA), of which is it a member, for assistance. But nothing obliged those countries – all of whom have found shelter inside or in very close relationship with the EU - to provide for financial solidarity.

Then, Iceland applied for EU membership.

This didn't go well either. Iceland refused to subject its fisheries to EU rules. Moreover, Brussels sided with Dutch and British depositors in Icesave, an Icelandic bank that had gone bankrupt, supporting their demand for compensation by Iceland.

Reykjavik took this very badly.

The message of all this was inevitable: small countries in a geopolitically shifting world are on their own. This is the price of sovereignty - as the British are discovering, too.

Iceland has trouble trusting the EU since the Icesave affair. But it is a member of Nato and EFTA. With its Nordic neighbours it patrols airspace, organises student exchanges and works on cybersecurity.

It is reaching out to the UK, the other lone wolf on the edge of Europe, with whom it has just formed a defence alliance. But somehow little Iceland, with just 365,000 inhabitants, looks more interested in this than the UK.

During the financial crisis, the first countries offering loans to Iceland were Russia and China.

A fine choice for a country that places itself in the Western camp. Disbursal of an IMF loan was initially blocked by the UK and the Netherlands, who demanded compensation for Icesave depositors first.

Svein Harald Øygard, a Norwegian who presided the Icelandic Central Bank in that period, says that although the Icelanders had created the mess themselves, the British and Dutch behaved "like a pack of wolves".

It was at this stage that China came into the picture. Slowly it started to fill the void the EU left behind.

After the initial trade agreement there have been several Chinese initiatives that the Icelandic government has engaged in: tourism projects, green energy, polar shipping and scientific research.

Chinese investment constituted almost six percent of Iceland's average GDP over the past five years.

Reykjavik even helped China to get a seat in the Arctic Council, as an observer. With Russia rapidly stepping up its interest in the arctic, the Chinese move raised eyebrows all over the region. China published an Arctic policy in 2019.

Is Iceland repeating the same mistake again: over-reliance on one big ally? Resenting this Chinese involvement, the US has suddenly shown a renewed interest in Iceland.

Secretary of state Mike Pompeo came to Reykjavik last year, thanking the government for "rejecting" China's offer to join Belt and Road. But Iceland has not rejected that offer – it is under consideration.

"Iceland won't be neglected anymore," Pompeo said. But somehow this doesn't sound like shelter. It sounds more like great power competition, in which small states can be crushed – especially when they're all on their own.

Author bio

Caroline de Gruyter is a Europe correspondent and columnist for the Dutch newspaper NRC Handelsblad. This article has been adapted from one of her columns for De Standaard.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

Why the EU doesn't get China's Belt and Road

It is not enough for European officials to simply tell the press that they do not understand the Belt and Road – the vision is clear enough, the point is to decide how to engage with it.

Why aren't EU's CSDP missions working?

The EU deploys thousands of advisers to its missions abroad. Without addressing reform as a profoundly political struggle, however, the EU will remain successful only in operational advisory and trainings.

News in Brief

  1. Macron changes phone after Pegasus spyware revelations
  2. Italy to impose 'vaccinated-only' entry on indoor entertainment
  3. EU 'will not renegotiate' Irish protocol
  4. Brussels migrants end hunger strike
  5. Elderly EU nationals in UK-status limbo after missed deadline
  6. WHO: 11bn doses needed to reach global vaccination target
  7. EU to share 200m Covid vaccine doses by end of 2021
  8. Spain ends outdoor mask-wearing despite surge

Ukraine - Zelensky's authoritarian turn?

President Volodymyr Zelensky has begun his third year mired in mid-term unpopularity with a poll showing only 21.8 percent of Ukrainians would vote to re-elect him. More than half would prefer him not even to run for a second term.

Why the EU delay on supply chains? Corporate lobbying

EU legislation to clean up supply chains and corporate governance has been delayed after fierce industry lobbying. Voluntary commitments have repeatedly failed, now it is time for decisive regulatory action.

Stakeholders' Highlights

  1. Nordic Council of MinistersNineteen demands by Nordic young people to save biodiversity
  2. Nordic Council of MinistersSustainable public procurement is an effective way to achieve global goals
  3. Nordic Council of MinistersNordic Council enters into formal relations with European Parliament
  4. Nordic Council of MinistersWomen more active in violent extremist circles than first assumed
  5. Nordic Council of MinistersDigitalisation can help us pick up the green pace
  6. Nordic Council of MinistersCOVID19 is a wake-up call in the fight against antibiotic resistance

Latest News

  1. Far left and right MEPs less critical of China and Russia
  2. Why is offshore wind the 'Cinderella' of EU climate policy?
  3. Open letter from 30 embassies ahead of Budapest Pride
  4. Orbán counters EU by calling referendum on anti-LGBTI law
  5. Why aren't EU's CSDP missions working?
  6. Romania most keen to join eurozone
  7. Slovenia risks court over EU anti-graft office
  8. Sweden's gang and gun violence sets politicians bickering

Join EUobserver

Support quality EU news

Join us