2008-11-17 :: stratfor.com :: Iceland: contemplating EU membership

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Iceland: contemplating EU membership

The Icelandic Foreign Ministry over the weekend of Nov. 15-16 prepared a draft plan for a potential application for EU membership in early 2009, with entry hoped for in 2011. Iceland’s government also announced Nov. 17 that it will reimburse British and Dutch depositors of Icesave, whose 3.5 billion euros (US$4.4 billion) in foreign deposits helped make it Iceland’s largest Internet bank.

Iceland is facing such a dramatic economic collapse that joining the European Union is now the only way out. Long an option the country did not want to consider, the idea now has strong public approval; nearly 70 percent of the population is in favor of EU membership in the most recent survey conducted in October 2008, a turnaround from only 36 percent support in January 2007. While on most counts Reykjavik is a shoo-in for membership, it will have to relent on its long held (and viciously defended) right to an extended fishery zone, and will have to assure that it has no outstanding issues with any EU member, as any one EU member can veto a membership application.
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Political Economy and the Financial Crisis

Over the weekend, the Icelandic government unveiled its plan to get out of the financial crisis — probably prompted in part by the Nov. 15 public demonstrations attended by more than 2 percent of the country’s population in downtown Reykjavik. The announcement that foreign depositors would have their Icesave accounts guaranteed clears the hurdle for Iceland to receive a $2.1 billion loan from the International Monetary Fund (IMF), delayed due to the insistence of the United Kingdom, Germany and the Netherlands that Iceland repay its foreign bank customers. Other countries contributing to the loan so far are Norway, with 500 million euros (US$635 million), the Faroe Islands with 300 million kroner (US$50 million) and Poland with $200 million. Russia also offered $4 billion as the financial crisis developed, but that figure and the terms of the loan are still being negotiated.