Donald Trump’s Arctic threats are pushing Iceland towards Europe The island is voting on whether to restart EU membership talks Aug 6th 2026 Iceland sits on the geological boundary between North America and Eurasia, equidistant from New York and Athens. It is tied to America by long- standing defence arrangements and hosts a NATO base in Keflavik. It is linked to Europe by history (it won independence from Denmark in 1944) and commerce (it belongs to the European Economic Area). Now, amid transatlantic tension and concerns about Donald Trump’s intentions in the Arctic, the country is about to vote on whether to take a step closer to the European Union. On August 29th the island of 400,000 people will hold a referendum on whether to restart membership talks with the EU. Iceland began these nearly
two decades ago, but ended them in 2013 after electing a Eurosceptic government. Voting yes will not commit the country to joining the EU; another vote would take place when talks conclude. Yet the pro-European camp is worried. Two polls in June and one in July showed a majority of just 52-53% for restarting talks. That lead is too close for comfort and could easily be reversed. Weak Euro-enthusiasm appears to fly in the face of today’s geopolitics. Iceland does not have its own armed forces. It relies on rotating air-force deployments from NATO countries to Keflavik. With only coastguard ships at its disposal, Iceland leans on American and European aircraft to monitor the growing activity of Russian submarines nearby; in June a Russian spy ship was detected just outside its waters. The government worries about hybrid warfare and attacks on infrastructure. These days such arrangements seem less solid. On a chilly day in July the NATO base in Keflavik was strangely quiet. American planes were “a little bit occupied in the Mediterranean”, said an Icelandic official. Mr Trump’s threats to annex Greenland, just 300km away, feel uncomfortably close to home. The EU is not primarily a security club, although it does have a mutual- defence clause. For a small country, however, the union offers collective support against bullying over territory or trade. After Mr Trump’s threats to Greenland, which is an autonomous Danish territory, several EU countries sent symbolic detachments of troops at Denmark’s request. France’s president, Emmanuel Macron, flew to Greenland to show support. “When trade and tariffs have been weaponised,” says Thorgerdur Katrin Gunnarsdottir, Iceland’s pro-European foreign minister, “we should at least as a small nation consider where we secure our interests…For us it was important to see how steadfast the European Union stepped in.” In recent weeks, however, anti-EU campaigners have stepped up their efforts. They are a motley coalition of hard-left and hard-right nationalists, as well as conservatives, backed by the country’s big fishing-industry lobby and media interests. In a fiercely independent country, they draw on long- standing worries about protecting fishing waters and agriculture, as well as submitting to the EU rulebook. But the debate has hardened. False claims
abound. One is that this is a referendum on joining the EU; another, that Icelanders would have to join a European army. For the EU, the prospect of a new recruit on the north-western periphery is welcome. Unlike applicants to the union’s south and east, Iceland has an income per head well above the EU average, and much of the accession homework has already been done. The European Commission has said there is “room for flexibility” on fishing rights. Yet European leaders are treading carefully to avoid any hint of interference. When Jean-Noël Barrot, France’s foreign minister, visited Reykjavik on July 20th (in part to discuss security co-operation), he declared cautiously that “the Icelandic people have nothing to lose by opening negotiations.” The choice about joining, he stressed, would come later. A no vote would nonetheless be a symbolic blow. “We haven’t known anything except security protection by the US,” says Bogi Agustsson, a veteran Icelandic broadcaster. “A lot of people in the country are in a state of denial and don’t yet see Europe as a security alternative.” ■ This article was downloaded by zlibrary from https://www.economist.com/europe/2026/08/06/donald-trumps-arctic-threats-are- pushing-iceland-towards-europe
Why the EU’s big covid-recovery fund lost steam Spain used it better than Italy, but it was not a game-changer Aug 6th 2026 NOT SINCE the great flood of 1966 has Florence known such disruption. A tramway extension has turned the road fringing the city centre into a construction site. Costing €500m ($576m), it is the city’s biggest project financed by NextGenerationEU, the European Union’s post-covid recovery programme. The scheme is paying for 55 other projects in the Tuscan capital, from crèches to cycle paths. Sara Funaro, the mayor, calls it “a momentous juncture in the history of Florence”. Across the Mediterranean, Madrid’s wholesale market is abuzz at 5am. It includes one of the world’s biggest fish markets. With a grant of €400,000 in NextGenerationEU funds, the fishmongers’ association has set up a digital payment-and-order system, replacing handwritten orders and long queues at
the bank. “It’s saved us a huge amount of time,” says Christian Cobo, as he prepares to sell tuna from huge carcasses. At NextGenerationEU’s heart is its Recovery and Resilience Facility (RRF), created during the pandemic in 2020, which has approved €577bn in grants and loans. The EU had never spent so much, so fast. Most important, it was funded by joint bonds; advocates of a stronger EU termed it a “Hamiltonian moment”, citing the decision by America’s first treasury secretary to empower the federal government by assuming the states’ debts. It aimed to speed recovery from the pandemic slump, especially in the poorer south, and to make the continent greener and more digital. Disbursements were supposed to be linked to reforms to make economies more efficient. The last payments are due by the end of 2026. Has it worked? The answer seems to be: sort of. The biggest recipients were Italy (€194bn) and Spain (€103bn), which together account for 52% of the funds. At first glance Spain has done a lot better than Italy (see chart). When the RRF started, Italy’s government reckoned its rate of economic growth would soar from its previous annual average of around 1% to 3.6% this year. In the event, annual GDP growth has been below 1% since 2023. By contrast, Spain has achieved robust growth of at least 2.5% in each year since 2021.
Some of this divergent performance is explained by the way each country used the RRF. Italy risks emerging from the programme “more indebted than before, without having solved its structural weaknesses”, according to a paper by Tito Boeri and Roberto Perotti of Bocconi University in Milan. Many of Italy’s schemes were “trivial or unfeasible”, the economists conclude. Unlike Greece's strategic plan for the funds, Italy’s lacked coherence. Much of Spain’s economic performance has little to do with the RRF. “The recovery from the pandemic recession was much faster than everyone expected,” says Ignacio de la Torre of Arcano Partners, a financial firm. Spain has approved some useful reforms. It has barred employers from abusing workers by keeping them on temporary contracts indefinitely, and has reduced regulatory obstacles that hinder small businesses and startups. Still, productivity growth remains modest, at 0.7% last year, according to Eurostat. Massive immigration, which has added labour, accounts for around half of the headline growth and two-thirds of additional jobs, according to the Bank of Spain. (Italy, for its part, has curbed immigration.) An increase in tourism and the export of other services has helped, too. Carlos Cuerpo, the economy minister, thinks the RRF has added three percentage points to GDP. But Funcas, a think-tank in Madrid, reckons that at most only 14% of the total growth of the economy between 2021 and 2025 was due to the RRF money. Still, the funds may support longer-term growth. “Things are happening, but we can only know the impact in several years’ time,” says Manuel Hidalgo of the University of Seville. Spain has used some of the cash to invest in big capital projects, including schemes for electric vehicles and batteries. In Andalucía, Moeve, a Spanish energy company, is building a €1bn green- hydrogen plant—which will be southern Europe’s largest—with €300m from the RRF. Moeve’s boss, Maarten Wetselaar, says that he expects the electrolysers used to make hydrogen to be 30% cheaper in five years’ time. “The state funds compensate for the first-mover disadvantage,” he says. Italy may see more benefits over time, too. One of the reforms the European Commission wanted was to speed up the justice system. The slow pace of cases involving debt recovery and dispute settlement discourages foreign
companies from investing in Italy. Gian Luigi Gatta of the University of Milan noted in a paper that the average length of court proceedings has been cut by 28% since 2019. Italy is also on track to increase nursery places—needed to raise women’s workforce participation—by around 150,000 (compared with 378,500 in 2024), though funding them after the RRF expires will be a challenge. The fund has helped build a high-speed railway between Naples and Bari which by 2030 should link the two biggest cities in the poorer south. The RRF’s flaws are partly built into its structure. During the pandemic, the EU wanted to get money flowing quickly to prevent a lasting slump. One consequence is that some of it went on investments that would have happened anyway. Another is that the programme gave money to national governments instead of pan-European projects or cross-border infrastructure. “In Europe we haven’t yet understood that we need to do things on a more continental scale,” says Mr Hidalgo. The EU’s next generation may regret that. ■ This article was downloaded by zlibrary from https://www.economist.com/europe/2026/08/04/why-the-eus-big-covid-recovery-fund- lost-steam
Italians may help Germany get its trains to run on time Opening up national markets has worked wonders for European railways Aug 6th 2026 Non-Europeans relying on stereotypes are often bemused to find that nowadays Italy’s trains are tip-top while Germany’s are in chaos. In July Friedrich Merz, the German chancellor, sacked Patrick Schnieder, his transport minister, over his inability to fix Deutsche Bahn (DB), the state- owned railway operator, whose troubles range from a dilapidated network to a bloated bureaucracy. His successor, Steffen Bilger, inherits a mammoth task. DB is notoriously resistant to change, and its unions can paralyse the country, as they did with a six-day strike in 2024. Fortunately, Mr Bilger may get help from efficient Italians. In early July Italo, an Italian high-speed operator, obtained access to German rails via an