Unexpected Side Effect of Financial Crisis: Iceland Joining EU?

by Chris Borgen

The Wall Street Journal has the story:

After six days of grueling debate, Iceland’s parliament voted narrowly Thursday to apply to join the European Union — an institution from which the country long stood proudly apart.

But a binge of overseas expansion by Iceland’s buccaneering banks led to a towering stack of bills that couldn’t be paid when the credit crunch cut off funding last fall, leaving Iceland with few options. Alone, with a currency that no one wanted to buy, Iceland’s banking system went under.

The measure passed 33-28, with two abstentions, and followed vigorous discussion on farms, fish and finance that reflects Icelanders’ lingering misgivings about the regulations that come with EU membership.

The country’s new prime minister, Jóhanna Sigurdardóttir, elected after the financial crisis, made joining the EU — and, eventually, the stable euro currency — a priority. With Thursday’s vote, she wrangled her own center-left party into line and cajoled support from parts of her usually euro-skeptic left-wing coalition partner and a handful of smaller parties.

This would leap-frog other coutntires, such as Albania, Turkey, and Croatia who are seeking EU membership. The WSJ adds:

Iceland is likely to have an easier time with EU accession than other aspirants, such as Albania, which wrestles with poverty and corruption, and Turkey, whose large population of Muslims has caused consternation in France and Germany. Thursday, the EU commissioner in charge of enlargement praised Iceland’s “deep democratic traditions.”

But hurdles remain, among them an expected popular referendum on the matter and substantial concerns over the economic hit to the fishing industry from adopting EU quota and catch rules. Fish and seafood accounted for 37% of Iceland’s exports in 2008.

Even if all goes smoothly, accession is at least 18 months away, and likely more. After joining, Iceland would still need to meet stringent economic and currency-stability criteria — which it is far from reaching — before adopting the euro.

I wonder if Iceland’s accession may spur other European Free Trade Area members, such as Norway, to join the EU. It will also be interesting to watch how the news of Iceland’s probably accession will play in Turkey, in particular. Note that the EU enlargement commissioner made a comment about Iceland’s “deep democratic traditions.” I wonder if that was meant to deflect any complaints from Turkey?

Check out the whole story at the WSJ.

Hat tip: Foreign Policy Passport

http://opiniojuris.org/2009/07/17/unexpected-side-effect-of-financial-crisis-iceland-joining-eu/

7 Responses

  1. I wonder if Iceland’s accession may spur other European Free Trade Area members, such as Norway, to join the EU.

    Unlikely. For all the nordics, EU membership has always been about money. In the case of Greenland (seceded in 1984) and Iceland, the problem was mostly fishing. For Norway, an additional point is that they are rich enough that they don’t need full access to the Common Market. (Well, that and the whale hunting thing.)

    Just because Iceland went bankrupt and therefore decided to seek refuge in the safe lap of mother Europe, doesn’t mean that Norway will. Norway doesn’t have any serious economic problems, not to mention that in Norway, unlike in Iceland, the EU debate has been ongoing for several decades now. (The Norwegian people twice rejected EU membership in a referendum, in 1972 and in 1994.) For Norway, nothing’s changed.

    Generally, Iceland should have no difficulty getting their accession treaty ratified. This has very little to do with their “democratic traditions”, and all the more with the fact that there are only 300.000 Icelanders. Absorption capacity, etc. etc.

  2. Then again, Iceland is one of the candidates for oldest parliament in the world

  3. I would much rather the EU adopt Iceland’s fishing practices and rules than vice-versa.

  4. [Maybe double-posting, but my comment disappeared.]

    @delenda est: Absolutely. However, the objection isn’t mainly against the organisation of the Common Fisheries Policy, but more against the level at which the quotas are set. By staying outside the Union, Iceland, Greenland, the Faeroer and Norway are allowed to catch much more fish than they otherwise would be able to.

  5. Yes, but they caught from their largely sustainable and well-managed fisheries, not from insanely bureacratic and status ante quo EU fisheries which are anything but sustainable because you can’t even pay French (nor Spanish I believe) fishermen to not catch fish.

    Hearing French people bleat about sustainability and ‘des produits bio’ always makes me ‘doucement rire’.

  6. I had a conversation about this with a senior Continental IMF economist a couple of months ago, who told me the view in the EU (he is a senior member of the team addressing the Eastern European economic problems), is that it is better to take Iceland in in order to be able to have regulatory power over it.  It’s a problem having a country of 300,000 but with its own central bank, nationally chartered banking institutions, etc., with access to the global financial system.  The view was that at some point down the road, even an Iceland would get reconnected as a sovereign actor to global finance, and better to have it part of something quasi-regulated than not – given that its close connections to European markets and banking would suggest that it could again create serious problems for European finance down the road.  Not quite calling Iceland a case of European “too big to fail’ – but suggesting that the net benefit was to put Iceland under some adult financial supervision via the ECB.

  7. Damn lucky they got the rest of them under that adult supervision then :)

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