A POORER Iceland has decided to apply for membership of the European Union after the collapse of its financial system last autumn floored its currency and devastated its economy.
Voting in its parliament, the Althingi, was close – 33 in favour of opening negotiations with Brussels, 28 against and 2 abstentions. The left-wing coalition majority believes membership of the euro will protect Iceland from further financial turmoil. And its existing membership of the European Economic Area and Schengen system already commits Iceland to two-thirds of EU legislation, so there should not be too much trouble adapting. But the parliamentary divisions closely reflect those in public opinion between the 40 per cent who favour joining the EU, the 40 per cent who oppose it, and the 20 per cent who swing from one position to the other. While a majority currently favours opening talks, the same cannot be assumed when a referendum is held on the negotiated terms in several years time.
That pre-existing adaptation will speed up negotiations, but several major issues already loom large. Iceland has now accepted responsibility to repay British and Dutch depositors who lost money in IceSave, the internet arm of the Landsbanki bank which collapsed during the crisis. This will cost its taxpayers $5.66 billion – half Iceland’s annual output – to be repaid over 15 years at an interest rate of 5.5 per cent. Coming on top of the devaluation of the krona by 50 per cent, the 89 per cent fall in its stock market and rising unemployment this shock looks unsustainable. Accepted in anticipation of becoming a veto point on the EU talks, it now looks set to make them much more difficult.
The same applies to Iceland’s famous fishing resources, which supply 37 per cent of its exports and employ 8 per cent of its workforce. They are bound to become a central issue in the accession talks, as EU states, including Ireland, demand access to the fishing grounds that have been protected from over-fishing by foreign trawlers. The industry is no longer as crucial as it once was in Iceland’s economy; but the anti-EU Independence Party is squarely based on it and will resist any concessions made.
Iceland has much that is positive to offer the EU, including restoring momentum to its stalled enlargement process and underlining the greater economic strength membership brings. But it would be a mistake for Brussels to exploit the country’s temporary economic weakness if a durable relationship is to be forged.