25th Jun 2017

Even as EU-Iceland relations strain, Reykjavik looks to membership

Iceland's fisheries minister, a long-standing opponent of membership in the European Union for the north Atlantic island, and the country's foreign minister have said that the country's severe financial crisis could force them to join the 27-member club.

Meanwhile, analysts worry that the West's snub of Iceland when it turned to them cap in hand has inadvertently benefitted Russian designs in the north Atlantic

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Eurosceptic fisheries minister Einar Gudfinnsson told Icelandic radio on Sunday (12 October): "It's no secret, I've been against membership. However, the current turmoil means we have to look at every option."

Echoing Mr Gudfinnsson's comments, Social Democratic foreign minister Ingibjorg Solrun Gisladottir wrote in Icelandic daily Morganbladid that in the long term the country must embrace the European Union and replace the krona with the euro.

"In the short term, our defence is co-operation with the International Monetary Fund and in the long term EU membership, adoption of the euro and backup from the European Central Bank," she wrote, reports Reuters.

Separately on Sunday, industry minister Oessur Skarphedinsson said that Iceland, until days ago the richest country per capita in the world, must request aid from the International Monetary Fund.

"I have reached the conclusion that if we call for help from the IMF, other central banks, other countries will want to take part in the aid process," he said, according to the Morganbladid. He is the first minister to suggest Iceland take the IMF option.

The previous week, an IMF mission landed on the island to assess the situation.

In response to suggestions of Iceland joining the European Union, enlargement spokesperson Krisztina Nagy said: "Iceland is a European country; it is a member of the European Economic Area and the EU has very close relations with Iceland.

"According to the treaty of the European Union, the door of the EU is open to any European country that respects the principles of liberty, democracy, respect for human rights and fundamental freedoms and the rule of law.

"It is up to the people and the leaders of Iceland whether they want their country to apply for EU membership."

'New friends'

Nonetheless, while the ministers' pronouncements on the European Union suggest Iceland may soon look to join the bloc, at the same time, relations between Reykjavik and its European allies are at its lowest levels in decades.

Last Tuesday (7 October), Iceland announced it was negotiating a €4 billion loan from Russia in order to buttress its poor finances and stave off national bankruptcy.

Despite the egregious state of Reykjavik's accounts, no member of the European Union or indeed any of its allies came to Iceland's aid when its leaders came knocking.

The prime minister, Geir Haarde, told reporters that the country had first approached other countries before calling Moscow and they had turned him down, although he refused to say which ones. It is understood Reykjavik approached the EU first, followed by the Nordic countries and finally the US Federal Reserve.

"In a situation like that, one has to look for new friends," said Mr Haarde.

Meanwhile, the UK government on Sunday seized €5 billion (£4bn) of Icelandic assets, employing anti-terror legislation to do so - a move that shocked the island's government.

Mr Haarde said it was "not very pleasant" to learn that anti-terror laws had been used against an ally.

The action was taken to reimburse British savers who had parked funds with UK subsidiaries of failing Icelandic banks. UK Prime Minister Gordon Brown has described Iceland's failure to guarantee British deposits as "effectively illegal".

UK treasury chief secretary Yvette Cooper said the government would retain the assets until British savings were returned. Local governments, police authorities and a range of charities in Britain are concerned that billions of pounds they had deposited with the banks could be lost.

Today, in return, Iceland's prime minister accused the UK of "bullying a small neighbour" in an interview with the Financial Times and threatened to sue its Atlantic neighbour.

"The UK authorities have said they will sue us ... well, both countries can sue if they see it fit. Going to court is one way of settling disputes in a civilised way," he said.

Russian propaganda coup

International relations analysts worry that these recent developments have allowed Russia to win another diplomatic round against the Western alliance.

"The €4 billion loan is a big propaganda coup for Russia," Philip Hanson, associate fellow with the Russia and Eurasia Programme at Chatham House told the EUobserver.

"They are saying to the rest of the world: Look at what we can do," he said.

"They win a few brownie points with Iceland and they get to say 'yah boo' to NATO in dishing out cash to a key NATO member. They are saying we don't just do aggression, as in Georgia, but we can also be more constructive."

Mr Hanson said that even though Russia is facing many of the same problems, and is pumping money into its banks, putting some $86 billion into their own economy in the last week, the country still has $550 billion in reserves as of the beginning of October. Compared with many countries in the West, "Russia is going into this crisis with a lot of cash at the state's disposal, and the loan to Iceland is just small change."

Daniel Korsky, of the European Council on Foreign Affairs, feels that even if Iceland ultimately chooses to join the EU, the reputations of the bloc and other Western groupings have been diminished amongst allies.

"We shouldn't just see this in an EU light - Iceland went begging to the Nordic nations and other NATO members and was rebuffed there as well," he said.

"The lack of solidarity shown basically tells members of the European Free Trade Area [the European free trade association that Iceland, Lichtenstein, Norway and Switzerland belong to] that this arrangement means a lot less than we had thought up until now," he continued, "just as the Georgia crisis brought into question the solidarity between NATO members and those close to NATO.

"We're seeing a weakening of these links of solidarity between those who are in the club and those in the concentric circles outside the club."

Iceland's ambassador to Russia, Benedikt Asgeirsson, said on Friday that the loan was simply a business deal.

"We see this mainly as a financial issue," he said. "And I'm not aware that there are any strings attached."

Nonetheless, the worry in the backrooms, said Mr Korsky, is "whether Iceland will have to repay Russia in some way, even though Iceland has said there will be no quid pro quo."

"It will be interesting to see if Russia finds a use for the Keflavik airport," he said. The US closed its naval air station at the airport in 2006.

"At the very least, Russia may have purchased a friendlier voice in the North Atlantic Council than it had before."

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