Having made the historic decision to seek EU membership, Iceland's parliament will now have to tackle the unpopular Icesave agreement, writes ASGEIR SVERRISSONin Reykjavik
HAVING NARROWLY passed a historic Bill on Thursday to begin negotiations to join the European Union, the Icelandic parliament now turns its attention to a matter which will also shape the future of the tiny Atlantic nation for years to come.
Looming over the heads of Iceland’s political class is the “Icesave agreement”, renamed the “IceSlave agreement” by opponents who maintain that a deal to pay back Great Britain and the Netherlands, whose depositors lost huge amounts of money when the Icelandic banks collapsed last autumn will enslave the people of Iceland for generations to come.
Icelanders, descendants of Norse settlers and their (mostly Irish) slaves, are facing a bleak future: the state’s finances can only be described as a mess and the country is facing a foreign debt burden believed by many to be unsustainable.
According to Steingrimur Sigfusson, Iceland’s left-wing minister of finance, the national foreign debt is probably “on the wrong side” of 200 per cent of GDP, a staggering figure.
In fact “national bankruptcy” is by now a concept most Icelanders can discuss in impressive detail. The crisis, or kreppa, as it is known in Icelandic, is never far off, although most Icelanders have been busy trying to enjoy the windy island’s short summer where temperatures of more than 20 degrees are seldom recorded and when they occur are described as a “heatwave”.
Iceland’s prime minister, Johanna Sigurdardottir, expressed her delight after the parliament, the Althing, passed the EU application Bill by 33 votes to 28 with two abstentions. “This is a historic moment and by far the most enjoyable vote I have taken part in,” Mrs Sigurdardottir said.
EU membership for Iceland has long been a key issue for the Social Democrats, led by Mrs Sigurdardottir, a cool 66-year-old former stewardess who is now the country’s most trusted politician. She and her considerable support base maintain that EU membership will facilitate the resurrection of the economy after the epic financial meltdown of October 2008.
Many concur with that assessment, although the issue was hotly debated in parliament, where opposition parties maintained that a referendum was called for in order to decide whether the people of Iceland wanted to enter membership talks with Brussels. A motion for such a referendum, which if passed would have led to another referendum, this time on the membership agreement, was put forward by the Independence party, Iceland’s long-time party of power and the main architect of the “Icelandic economic miracle” – now turned nightmare.
The motion was narrowly defeated, indicating that although the application Bill has been approved, actual EU membership is still far away. The Icelandic government lodged its formal application with the Swedish government in Stockholm yesterday.
Many believe that this tiny nation of some 315.000 souls will never be ready to cede sovereignty over its lucrative fishing grounds, the backbone of the economy. Thus, while talks on EU membership are set to begin, Icelanders will need a lot of convincing if and when an agreement is reached.
Oessur Skarphedinsson, the current foreign minister, who has fought long and hard for EU membership, has said that he is optimistic that in four years’ time Iceland will have a seat at the table in Brussels. However, opponents are convinced that in due course Icelanders will reject membership. “I believe it is absolutely certain that EU membership will be flatly rejected in a referendum,” Ragnar Arnalds, a former minister of finance and one of the leaders of the emerging No movement, said after the parliament vote.
Getting rid of the local currency, the krona, is however deemed necessary by many Icelanders and the euro seems an obvious choice. The near total collapse of the currency has deepened the crisis; unemployment has reached heights of more than 8 per cent and is widely predicted to rise as the bright summer nights give way to autumn.
State expenditure will have to be cut drastically over the coming years and the somewhat timid decisions already made have provoked protests in many quarters. More is yet to come.
The Icesave agreement is sure to become even more hotly debated than the EU membership bid. It is widely believed that Icesave will prove the final nail in the Icelandic economic coffin. After difficult talks it was agreed last month that Iceland would take responsibility for the $3.83 billion and $2.43 billion paid to British and Dutch depositors respectively. The country will pay back these huge sums in the next 15 years with a fixed rate of 5.5 per cent. Most Icelanders blame greedy bankers and inept politicians for “enslaving” the nation for decades to come.
The agreement requires the approval of parliament, which will have to give the go-ahead for the financing of the Dutch and British loans. The current centre-left government, formed by social democrats and socialists, is in for a rough ride.
In January, mass protests, nearly unknown in Iceland’s history, brought down the centre-right government which was in power during the meltdown. As the crisis is widely seen as likely to deepen in the coming months many fear that protesters will soon be back, banging pots and pans on the streets of Reykjavik. As the midnight sun fades and the shadows grow longer, Icelanders will be bracing themselves for a long and cold winter.
Asgeir Sverrisson is an Icelandic journalist, a former foreign editor and a columnist of the daily Morgunbladid