From the 2008 financial crisis to the new constitution that was never ratified, the island has used these traumatic events to experiment with new forms of grassroots participation in power.

On 29 August, the people of Iceland will have to decide whether to restart the process of joining the EU. Not actual accession, then, but the preliminary stages. This is the question that could reopen the debate on enlargement to the north; should the ‘Yes’ vote prevail, the decision would be put to a second, confirmatory referendum. The alternative for Iceland is to bring an end – probably for good – to any attempt to forge ties with Brussels, should the ‘no’ vote prevail.

Against this backdrop, Iceland is already deeply integrated into the European area: it is a member of the EEA, the Schengen Area and EFTA, with around 70 per cent of its legislation already aligned with EU rules.

Iceland: Then and Now

Let’s try to understand how Icelandic democracy works, when it began, who decides what, and why this referendum is not merely a formality.

Iceland became a republic following a referendum in 1944. It had previously been a Danish territory (like Greenland), but when Denmark was occupied by the Nazis in 1940, the island was occupied first by the United Kingdom and then by the United States. In May 1944, a referendum on independence was held, in which over 90 per cent of Icelanders voted to dissolve the union with Denmark and become a republic.

Today, Iceland is a small country with just under 400,000 inhabitants – about the same size as Florence, to give you an idea.

It does, however, boast one of the oldest parliamentary traditions in the world:the Althing, the parliamentary assembly founded as far back as the year 930, is today the centre of the country’s political life. Around this63-seat chamber and the figure of the President, who is elected directly by the people, a system has been built that seeks to resolve conflicts through voting and compromise, rather than through division.

The 63 members of parliament are elected under a proportional representation system that makes coalition governments inevitable and forces the parties to negotiate constantly. The President has limited powers, but these are not merely symbolic; he acts as a safety valve when trust between the public and the political establishment is eroded.

A democracy accustomed to crises

Iceland’s recent history has been marked by crises that could have disrupted this balance but which, instead, have transformed it.

The collapse of the banking system in 2008 was a defining crisis: within the space of a few months, Iceland’s three main banks collapsed, unemployment rose sharply and confidence in politics plummeted to an all-time low.

It is precisely the way in which Iceland has responded, however – with trials of bankers, the resignation of the government and experiments in citizen participation in political decision-making – that today fuels the idea of the country as a ‘laboratory’ for democracy.

Between autumn 2008 and early 2009, thousands of people demonstrated outside the parliament building in Reykjavík, banging pots and pans to the rhythm of anti-government and anti-finance slogans. This was the so-called ‘pot and pan revolution’, which forced the centre-right government to resign and led to the replacement of the leadership of the central bank and the supervisory authority. In a system where many people know one another personally, the protests demonstrated that pressure from below can overturn established balances of power, transforming a crisis of confidence into institutional change.

The failed constituent assembly

Following the financial crash of 2008, Iceland embarked on a unique constitutional experiment: a participatory process combining a random draw of citizens, online public consultations and an elected constituent assembly of 25 members.

In 2012, a consultative referendum approved the draft of the new constitution by around two-thirds of the votes, clearly demonstrating the country’s desire for reform. Referendums are not a frequent occurrence in Iceland, but when they are held, they often concern highly contentious moral and political dilemmas.

At that point, the new constitution seemed to be a done deal, but parliament never passed that text into law. Owing in part to opposition from conservative parties and powerful economic interests, particularly in the fishing industry, the reform stalled and the country remained under the 1944 constitution.

For many, it is an open wound that will also influence the outcome of this referendum: on that occasion, the will of the people was ignored.

Political parties and the geography of power

As for the political parties , Iceland remains in the hands of a few long-established European political families: the Social Democratic Party, led by Prime Minister Kristrún Frostadóttir, on the one hand, and the centre-right, liberal-conservative Independence Party on the other. In between these are various centrist parties and a populist party that has swept the board. Outside Parliament, however, are other left-wing and green parties, with a special mention for the Pirate Party.

Following the 2008 crisis, a section of the electorate sought answers outside the traditional political parties, supporting movements centred on single causes and forcing the entire system to address a growing demand for transparency. Today, little remains of that political experience.

Iceland: a testing ground for the European choice

Putting these pieces together – the old medieval parliament, the president as a figure of assurance, the forced coalitions, the street protests, the failed constituent assembly, the previous referendums – means viewing Iceland as a democracy that has already weathered traumatic choices and turned them into a political testing ground.

The 2008 crisis showed that the country can choose not to bail out the banks at any cost, but rather to bring those responsible to justice and involve the public directly in rewriting the rules.

From this memory of crisis, of public squares and referendums, a new question about Europe has emerged: Icelanders know that a popular vote can change the direction of the country, but they also know that Parliament will have the final say on how that mandate is translated into law.

Europe: a battle that cuts across party lines

The pro-EU/anti-EU divide cannot simply be reduced to a left-right split; there are real dividing lines running through the middle. The issue of Europe cuts across the political spectrum: one’s stance for or against the EU intersects with issues of sovereignty, fisheries, finance and relations with the elite to a greater extent than the traditional right-left divide.

A section of the social-democratic left sees the EU as an anchor of economic and political stability following the trauma of 2008, whilst sections of the ‘activist’ and rural left fear Brussels as a technocratic, Eurocrat-bureaucratic entity that is, in any case, far too distant.

Within the centre-right, Euroscepticism is the usual form of short-sightedness in the name of national sovereignty , particularly regarding fisheries resources and macroeconomic policies; however, a section of the liberal centre-right sees an opportunity in the benefits of the single market.

It is not just politics that divides people: social background (fishermen, farmers, tourism workers, the financial elite) and geographical location (coastal towns integrated into global flows on the one hand, inland rural areas on the other) play a far greater role . We will explore this in more detail later.

What the polls say

The latest polls paint a picture of a divided country, with a slight lead in favour of reopening European negotiations but without a solid majority. The most significant finding is not so much the margin asthe high volatility of the electorate and the still significant proportion of undecided voters, a sign that the European issue remains a sensitive one.

In this context, rather than simply a vote on the European Union itself, the referendum risks becoming a test of confidence in the institutions and in the future direction of Iceland’s economic model. Support for accession tends to be concentrated in urban areas and amongst the sectors most integrated into the global economy, whilst scepticism is strongest in fishing communities and rural areas. It’s a film we’ve seen before.