EU-Iceland relations


In the midst of the economic crisis, Iceland identified stabilising its economy by joining the European Union as a viable solution to its problems. The Nordic country, which has a well-developed relationship with the EU as a member of the European Economic Area (EEA), formally applied for EU membership on 16 July 2009.

Iceland prides itself on being the oldest parliamentary democracy in the world. Rule of law and respect of human rights are well in line with European standards. Iceland is a founding member of NATO. 

The country submitted its EU membership application on 16 July 2009, after being hit badly hit by the economic and financial crises. Despite its troubled economy, support for Iceland's EU accession bid is broad among the member states. At the European Council summit on 17 June 2010, EU leaders agreed to open membership talks with the country.

Iceland is positioned between mainland Europe and the Arctic Circle. The North Atlantic Current ensures that temperatures are higher there than in other regions on the same latitude, and its ports can be used throughout the year. Iceland is located on both the Mid-Atlantic Ridge and the Icelandic hotspot, meaning that geothermal power is easily accessible to its citizens and ensuring that all of its electricity comes from renewable sources. 

Iceland has a population of 320,000 inhabitants. If it were to join the EU it would be its least populous country and would probably be given the same voting weight and number of MEPs as Malta (which has 400,000 inhabitants). An additional official language would be added to the existing 23. 

Iceland's relationship with the EU is long-standing. A bilateral free trade agreement was signed between Iceland and the European Economic Community (EEC) in 1972. Iceland subsequently participated in the single market thanks to a 1994 agreement creating the European Economic Area (EEA) between the EU and EFTA (European Free Trade Association) countries. 

Iceland is also an associate member (since 1996) of the Schengen Agreement (1985) which allows citizens to travel freely to and from the EU. The main reason for Iceland and Norway's decision to join was their willingness to preserve the benefits of the Nordic Passport Union, which allowed citizens in Denmark, Sweden, Norway, Finland and Iceland to travel and reside freely in each of these countries without needing passports or work permits. 

In joining the Schengen Area and the EEA, Iceland had to adopt a significant chunk of EU legislation. According to Enlargement Commissioner Olli Rehn, this amounted to two-thirds of the acquis communautaire, putting Iceland in a good position to open and close a number of negotiating chapters quickly upon receiving candidate status. 

Iceland's economy relies heavily on the fishing industry, which provides 40% of export earnings and accounts for 8% of its workforce. In the last decade, the services and manufacturing sectors have been expanding, particularly in the fields of finance, software and biotechnology. 

Iceland was hit badly by the economic and financial crises. Its troubles came to a head in September 2008 when all the three major Icelandic banks - Glitnir, Landsbanki and Kaupthing - were put under the control of the Icelandic Financial Supervisory Authorities. 

Between January and September 2008, the Icelandic krona fell by more than 35% against the euro. The cost of repaying the country's high foreign debt has surged, both as a result of declining trust on the part of international markets and the reduced value of the krona. 

EU membership is seen as a way of restoring the country's credibility among creditors and stabilising its currency by adopting the euro. Indeed, economic considerations are at the heart of the evolution in Iceland's attitude to prospective EU membership. 

The Independence Party and the Progressive Party had been in power for 12 years before the Icelandic elections of April 2009. Their opposition to EU membership made accession unlikely. Among the major parties, only the Social Democratic Alliance (SDA) has consistently advocated Iceland's membership. 

The SDA emerged victorious from the 25 April 2009 poll and submitted its EU membership application on 16 July.

Although Iceland has adopted a significant proportion of EU legislation through its membership of the EEA, its road to membership of the Union might not be as smooth as initially indicated by the Icelandic authorities. 

One initial concern is the amount of EU legislation which has been officially transposed into Icelandic law. Controversy reigns here: whilst the Icelandic government and former Enlargement Commissioner Olli Rehn suggested that the figure is around two-thirds of all EU legislation, a study carried out by the European Free Trade Association (EFTA) puts the proportion at just 6.5%. If the latter is true, the amount of acquis communautaire to be digested would be much larger than commonly thought, effectively postponing Iceland's accession for now. 

Another important area of contention is Icelandic fisheries policy, with sources claiming to EURACTIV that the Iceland's position could affect its EU entry negotiations. Seafood accounts for almost half of Iceland's exports and 10% of its gross domestic product. 

Icelandic Foreign Minister Össur Skarphéðinsson has said Reykjavik will not accept a rotten deal with the EU over its powerful fishing industry. Meanwhile, without referring to any specific policy, Commissioner Rehn declared that "in exceptional and well-justified cases, the EU may agree to transitional measures allowing some EU rules to enter into force some time after accession. But any such measures would be limited in time and scope. We strive for solutions, not for derogations".

Iceland's tradition of whale hunting also represents a hurdle in the country's membership talks. In the EU, all ceteceans – whales, dolphins and porpoises – are protected by law. Despite an ongoing ban set up by the International Whaling Commission and opposition from several countries, Iceland currently permits commercial whaling in its waters, with a quota of 150 fin whales for 2009-2013.

A February report by the European Commission on Iceland's accession bid stated that "steps will need to be undertaken as regards the protection of cetaceans," while an EU diplomat stressed that "if Iceland continues to practise commercial whale hunting for scientific purposes, that's going to create a political problem," reported AFP.

According to Arni Thor Sigurdsson, chair of the Icelandic parliament's foreign affairs committee, whaling is an issue that divides opinion in the country yet ultimately brings no economic value, AFP stated.

Whale hunters argue, however, that that the practice represents an important tradition and boosts a struggling economy by eliminating competition from its fishing industry.

More positively, a major stumbling bloc seems to have been lifted by an agreement reached on 18 October 2009 between Iceland, the Netherlands and the United Kingdom regarding the repayment of funds that Dutch and British citizens lost during the 2008-2009 financial crisis. 

Some 300,000 people in Britain and a total of 128,000 people in the Netherlands lost a considerable amount of their savings due to the collapse of Landsbanki in September 2008. 

Dutch Foreign Minister Maxime Verhagen said his country would block Iceland's EU accession if the country did not reimburse Dutch victims of Landsbanki's collapse. 

Meanwhile, Icelandic public opinion presents another problem. A series of polls carried out between August 2005 and September 2009 by various survey groups show that although there was support for starting accession negotiations, the majority of Icelanders consistently oppose full membership. This could turn out to be an insurmountable threshold if the Independence Party's desire to put Icelandic EU membership to a referendum were to see the light.

Icelandic Prime Minister Johanna Sigurdardottir told the country's parliament that Iceland's application for EU membership "represents a clear strategy for the country's direction and vision for the longer term. The application and the reception it has received send a clear and reassuring message to the outside world". 

The PM referred to the issues still outstanding with the UK and Dutch governments in less positive terms, claiming that it is unfair for both governments to "wash their hands of the failure of their own financial supervisory bodies, no less than that of our own, in the Icesave question". 

"It is extremely unfair of them to place obstacles in the way of co-operation between Iceland and the IMF. We became the victims of a tacit agreement, by all the countries with which we primarily trade and otherwise deal with on both sides of the Atlantic, that it was necessary to defend flawed financial market regulation to prevent bank runs throughout the world," Sigurdardottir said. 

Stefan Haukur JohannessonIceland's chief negotiator on EU accession, announced that his government is planning a thorough communication campaign to inform Icelanders about the EU. He also stated that negotiations might be concluded within a year to eighteen months (EURACTIV 20/07/09). 

Following their national congress in March 2009, the Independence Party's stance on the EU remained unaffected. "The Independence Party holds that Iceland's interests are best secured by remaining outside of the EU. A complete membership would threaten to take control over Iceland's biggest national resources, such as the fisheries. The Independence Party also emphasises greatly that it will ultimately be the Icelandic nation, the people, who decide if membership talks with the EU commence, and a second vote will be conducted about the result of possible membership talks." 

EU Enlargement Commissioner Olli Rehn said in a speech at the Iceland University that Iceland is "deeply integrated with the EU through the EEA and Schengen". 

"It is already implementing major parts of the acquis communautaire. Thus, the remaining distance to be covered will be shorter than for other countries that do not have such strong ties with the EU," Rehn added, before warning that "the remaining distance may not necessarily be any easier". 

EU Fisheries and Maritime Affairs Commissioner Joe Borg condemned Iceland's decision to set unilaterally its fishing targets for mackerel in 2009. "In setting such an exaggerated level of quota, Iceland is acting in contradiction to its international obligations to cooperate on the conservation of this key resource in the North East Atlantic," Borg said, adding that the quota "completely undermines the successful multilateral management of the stock by the EC, Norway and the Faroe Islands since 1999". 

Dutch Foreign Minister Maxime Verhagen said on 21 July 2009, a few days after Iceland's membership submission, that a solution to the problem of Icesave would "encourage rapid consideration of Iceland's bid to join the European Union. It would show that Iceland takes European directives seriously". 

Mark Flanagan, the International Monetary Fund's (IMF) head of mission to Iceland, claims that – although delayed by controversies with some creditors – the programme which is now in place will help to initiate a recovery by the middle of 2010 and that the medium-term outlook for Iceland is "extremely bright".

A Gallup poll conducted in July 2010 revealed that 60% of Icelanders support the withdrawal of its request for EU membership.

Tomas Heidar, the Icelandic representative at the International Whaling Commission, says that killing off whales eliminates an important competitor to the island's fishing fleet as its economy struggles and that, most importantly, it was a question of principle that the EU should respect.

"A coastal state has the right to sustainably utilise all living marine resources," he said, adding: ''Hopefully the EU will appreciate that there are special traditions in northern Europe.''

Veteran Icelandic whaler and head of the Hvalur whaling company Kristjan Loftsson was more blunt on the issue of national pride. ''The management of fisheries in the EU is the worst example you can find of managing natural resources and Iceland is not going to join that nonsense," he insisted.

  • 1 Jan. 1970: Iceland becomes a member of the European Free Trade Association (EFTA). 
  • 1 Jan. 1972: a bilateral Free Trade Agreement between the EEC and Iceland enters into force. 
  • 1 Jan. 1994: The European Economic Area Agreement (EEA), which Iceland undersigned, enters into force. 
  • 19 Dec. 1996: Iceland starts taking part in the Schengen Agreement (concerning the free movement of persons), albeit without voting rights in the Schengen Executive Committee. 
  • 25 March 2001: Council Decision of 1 December 2000 providing for the application of Schengen acquis enters into force. 
  • 12 May 2007: Icelandic parliamentary elections return a coalition of the Independence Party and the Progressive Party, with a policy of setting up a special EU committee rather than applying for membership. 
  • Sept. 2008: Due to the impossibility of financing its short-term debt, the Glitnir bank of Iceland is nationalised. The Landsbanki and Kaupthing banks follow suit. The three banks are placed under the control of the Financial Supervisory Authority (FME) of Iceland. 
  • 26 Jan. 2009: Icelandic coalition government collapses. 
  • 30 Jan. 2009: Enlargement Commissioner Olli Rehn states his belief that Iceland can join EU at same time as Croatia, which at the time was expected to join in 2011. 
  • 25 April 2009: Iceland holds new elections, resulting in a coalition government between the Social Democratic Alliance and the Left-Green Movement. 
  • 26 April 2009: New Prime Minister Johanna Sigurdardottir claims Iceland will join EU and adopt euro as its currency within four years. 
  • 16 July 2009: Iceland submits application for EU membership. 
  • 27 July 2009: EU Foreign Ministers formally ask the Commission to draft an opinion on Iceland's application for EU membership. 
  • 14 Oct. 2009: European Commission publishes new enlargement strategy, stressing the concept of accession talks tailored to individual countries. 
  • 18 Oct. 2009: Iceland agrees to new deal to repay Britain and the Netherlands billions of deposits lost during the Icelandic banking crisis. Deal lifts a hurdle to Iceland's accession bid. 
  • 28 Oct. 2009: IMF approves $167.5 million loan to Iceland. 
  • 2 Nov. 2009: Icelandic foreign minister appoints Stefan Haukur Johannesson to serve as Iceland's chief negotiator with the European Union.
  • 17 June 2010: EU leaders agree to open membership talks with Iceland at the European Council summit.

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