Is Reykjavik Steering Towards EU? Brussels Offers Hope for Crisis-Stricken Iceland

Iceland, the country hit worst by the global credit crunch, is about to get a €6 billion international rescue package. Meanwhile, the EU has said negotiations would be quick if Reykjavik wants to become a member state.

A drawing shows a man holding his head under an advertisement of Icelandic bank Landsbanki.

A drawing shows a man holding his head under an advertisement of Icelandic bank Landsbanki.

The European Union is seeking to provide new hope for financial crisis-stricken Iceland. If the island wants to seek membership, it could quickly become a member, EU Commissioner for Expansion Olli Rehn told French news agency AFP.

"Iceland is clearly a democratic European country," which has "already negotiated perhaps two-thirds" of the criteria needed to join the 27-member bloc. The Finnish commissioner noted that Iceland is already part of the European Economic Agreement (EEA), which applies most of the bloc's single market legislation. It is also an associate member of the Schengen zone, which provides for passport-free travel to most EU countries and Norway.

Iceland is currently on the verge of bankruptcy as a result of its severe exposure to the global financial crisis.

So far, the government in Reykjavik has rejected the idea of EU membership for the small Nordic state and its 300,000 inhabitants. But in the wake of the credit crunch, which has seen the country nationalize its three biggest banks, Icelandic Fisheries Commissioner Einar Gudfinnsson last week suggested his government might reconsider its position.

"Everyone knows that I am against EU membership," he said, before adding, however, that "today we should think about these things in a new light."

According to the Brussels policy Web site Euractiv, an Oct. 18 poll published by the Reykjavik daily Frettabladid showed that 70 percent of Icelanders would like to see a referendum on future EU membership. Currently, 49 percent say they would vote in favor of accession, with 27 percent rejecting it.

One of the main sticking points up until now has been the fishing industry, which comprises 30 percent of Iceland's exports and 5 percent of its total gross domestic product. In its EEA membership, it has an exclusion for agriculture and fisheries policies. If Iceland became an EU member state, it would be forced to adhere to Brussels' far more stringent fisheries directives.

Meanwhile, the Financial Times is citing sources saying that Iceland is soon expected to announce a €6 billion rescue package with money put together by the International Monetary Fund (IMF), several central banks of Nordic countries along with Japan's central bank. It is still unclear whether Russia will participate in the bailout, the newspaper reports, although it states that is "doubtful" at this point. In recent days, Reykjavik and Moscow have been negotiating a credit deal worth billions.

The newspaper reports that people with knowledge of the talks say the IMF is expected to provide more than $1 billion, with the remaining contributions coming from the group of central banks. A spokesperson for the Icelandic government, however, refused to comment on the report.

The week-long talks follow an official request from Iceland for IMF assistance.

dsl with wires


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