Iceland and the EU: is opposition to membership starting to thaw?

05 Jun 2009

Author: Andrew O'Rourke

It appears likely that Iceland will, in the coming months, begin discussions with the EU regarding the opening of negotiations for membership. Irish interests would be involved. Two spring to mind, namely the possible use of an accession treaty to copper-fasten Irish guarantees on the Lisbon Treaty and secondly, the issue of the future of the common fisheries policy.

Background

- Iceland declared its independence from Denmark in 1944. It is a constitutional republic, with a unicameral parliament (63 seats, four year term). The population is 307,000.
- The principal economic resources are fisheries (which provide up to half of export earnings); geothermal and hydro energy; certain minerals; aluminium production and tourism.
- Iceland has followed the Scandinavian model of a social market economy, with considerable success up to the 2008 financial crisis, including growth of  about 4.5% per annum in 2006/2007, with low unemployment. GDP per head in 2007 was US$ 41,700 (est.).
- Iceland is, like Norway, a member of the European Economic Area. Its trade is predominantly with EU Member States.

The 2008 crisis
 
The financial crisis in Iceland followed the extraordinary expansion abroad of the country’s financial sector and a related surge in domestic demand. Loans by the banks grew to ten times the country’s GDP. With the world financial crisis in 2008 and a severe depreciation of the local currency (the krona), the three largest banks could not meet their obligations and collapsed. Households which had taken loans in euro or other foreign currencies were hard hit. It was necessary to call on the IMF for a loan of US$ 10 billion to stabilize the situation and to guarantee foreign deposits.
 
The Government and Opposition
 
The Government which was formed in May 2007, a coalition of the conservative Independence Party (leader Geir Haarde who will speak at the IIEA) and the Social Democratic Alliance (led by Ingibjorg Gisladottir) came under intense public pressure following the collapse of the banks in October 2008. Prime Minister Haarde announced on 23 January 2009 that he was retiring from politics for health reasons. The Government fell on 26 January 2009 and a minority coalition government of the Social Democratic Alliance and the Left-Green Movement took office on 1 February with Johanna Sigurdardottir as caretaker Prime Minister. New elections were held on 25 April, 2009.

In this recent election the Social Democrats won 20 seats (+2); the Independence Party 16 (-9); the Left-Greens 14 (+5); the Progress Party 9 (+2), and the Citizens’ Party 4 (-). A coalition government of the Social Democrats and the Left-Greens was formed with a safe majority of 34 seats out of 63 and with Johanna Sigurdardottir confirmed as P.M.
 
Attitudes to membership of EU

Historically, the Independence Party, the main government party for many years, did not consider it in Iceland’s interests to apply for membership and were supported in this line by their coalition allies the liberal Progressive Party. The Social Democratic Party was in favour of opening negotiations.

The financial crisis brought changes in attitudes, often expressed in nuanced ways: the Independence Party was now in favour of a referendum on membership; the Progressive Party became supportive of membership. Importantly, the Social Democrats, the big winners, made membership a key issue in their electoral campaign. The Left-Greens, in government, have remained sceptical. In October 2008 the trade unions demanded that the Government agree to apply for EU membership, in exchange for wage restraint. Public opinion polls show significant (but by no means decisive) moves in favour of membership of the EU and adoption of the euro.
 
Present position

According to Iceland Review, two resolutions regarding application for EU membership were submitted to the Icelandic parliament (Althingi) on 28 May 2009. The first, proposing the launch of membership negotiations after consultations with interested parties on the goals to be pursued, was submitted on behalf on the coalition government by the Foreign Minister, Ossur Skarphédrasson, who said he was certain that Iceland would get agreement on special solutions on matters of particular importance, such as fisheries. However, his Government colleague, Finance Minister Sigfusson – who is also chairman of the Left-Greens – was doubtful if exceptions and special solutions could be found in light of Norway’s experience. He also stated that he believed membership would be rejected in a referendum.

A second resolution was submitted by the opposition proposing that the foreign affairs committee of Parliament first prepare a report on Iceland’s interests and on a framework to address these matters in a possible application.

A parliamentary vote may come as soon as 5 June 2009. The P.M. expressed confidence, in light of the opposition’s draft resolution (which also envisages an application), that it ought to be possible to reach agreement.
 
EU reactions
 
Over recent months, the idea of an application for membership from Iceland has given rise to generally favourable comments from the Commissioner for Enlargement Olli Rehn, who has suggested that Iceland could enter the EU in 2011, at the same time as Croatia. He has, however, on other occasions been more cautious, rejecting the possibility of special treatment.

The UK has indicated support for Iceland’s membership.

It has been made clear that Iceland cannot adopt the euro as the national currency without first joining the EU.

As an independent forum, the Institute does not express any opinions of its own. The views expressed in the article are the sole responsibility of the author.