Mixed feelings, but Iceland votes for shelter of the EU

Author: By Gudjon Helgason in Reykjavik

The nation’s buccaneering Viking spirit took a battering last year when its
banking sector and currency collapsed as the volcanic island became an early
casualty of the global economic crisis.

So, although many among the Iceland’s 320,000 population have their doubts
about joining the 27-nation EU ? and potentially the euro currency ? on
Thursday, the legislature passed a bill authorising membership talks. The
main party in the left-leaning government supports the move. Prime Minister
Johanna Sigurdardottir has said that membership would provide a more stable
exchange rate and lower interest rates.

Ms Sigurdardottir is keen to get on and submit a membership application to the
EU by the end of July. A final decision to join the bloc would need approval
by Icelanders in a referendum.

EU membership would, however, hit Iceland’s fishing industry, one of the few
sectors to have survived the financial crash and a symbol of national pride.
If Iceland joined the EU, it would almost certainly have to sign up to its
common fisheries policy, allowing other European fishermen access to its
waters.

Bjarni Benediktsson, leader of the minority Independence Party and a former
prime minister, has warned that Iceland should protect its interests.

“There are no credible reasons for Icelanders to give away full control
of their natural resources,” he says.

During days of heated debate on the EU bid in Iceland’s pocket-sized
parliament, the Althing, matters were often sidetracked by discussions on
how, and if, Iceland would reimburse British and Dutch governments for
compensation paid out to depositors of the failed Icesave internet bank.
Civic Movement, a small opposition party, wants Iceland’s government to
renegotiate the terms of that repayment ? a move that would infuriate
Britain and the Netherlands, both EU members.

Iceland belongs to the European Economic Area, a trading bloc that allows
Icelanders to live and work in the EU while leaving their country able to
run its own agricultural, fishing and monetary policies. And, until
recently, there was little support for closer ties with the EU. But last
year’s collapse of the banking system under the weight of huge debts amassed
during years of light economic regulation shook Icelanders’ belief in their
financial systems.

First, the plummeting krona, and spiralling unemployment and inflation, forced
the nation to seek a $10bn IMF-led bailout. Then, late last year, thousands
of Icelanders held angry protests against the then pro-business government,
clattering pots and kitchen utensils in what some called the “Saucepan
Revolution”. The government resigned and was replaced after a national
election by a coalition of Sigurdardottir’s Social Democrats and the
Left-Greens.

A version of this article first appeared in Business Week magazine

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