Posts tagged ‘Iceland’

Iceland in good company over economic squeeze

It looks very much as if Iceland’s obligation to recompense the UK and the Netherlands for reimbursing depositors following the collapse of Landsbanki in 2008 is headed for years of litigation in the EFTA Court – not good news for those hoping for Iceland’s early EU membership. The question is whether the two creditors will allow the issue to be parked while membership negotiations proceed to a happy ending.

The Reykjavik government had negotiated much less aggressive repayment terms following the 93 per cent rejection in last year’s referendum and these had been approved in the Althing by a two thirds majority. The €3.8bn repayment timetable was extended from 8 to 22 years, out to 2046, and the interest rate cut from 5.5 per cent to 3.5 for the UK and 3 per cent for the Netherlands. Yet voters still resented having to compensate for the deeds (or misdeeds) of private banks and have thrown out the package.

Enlargement talks are due to begin again in late June, but even if difficult negotiating issues like mackerel quotas and whaling can be resolved and the negotiations brought to a successful end, Icelanders will still be asked to approve EU entry in a referendum. An Icelandic “yes” is no foregone conclusion, despite the economic arguments.  Indeed, a sceptic might ask whether Ireland inside the eurozone is any better off than Iceland outside it, except that Iceland may find it more difficult to borrow on international markets until the new repayment schedule is agreed.

The people of Iceland are in good company in resenting the medicine which their leaders are forcing upon them. After its defeat in parliament, Portugal’s caretaker government is plunged into new talks with the European Commission, the ECB and the IMF as it applies for bail-out treatment under the European Financial Stability Facility.

This will mean tough new measures, such as more flexible employment laws, a further retreat from social support and a major privatisation programme, yet with no guarantee that an incoming government  following the June 5 elections would support the package.

The Portuguese bail-out faces a further obstacle:  the leader of the eurosceptic True Finns party has said that his party will vote against Finnish participation in a Portuguese bail-out following the Finnish general election on April 17, much to the consternation of Commissioner Olli Rehn, who fears that his home country could jeopardise the eurozone economic recovery programme.

The British government will also come under domestic pressure to minimise its contribution to the Portuguese bail-out package, and is playing down its potential liabilities, although it has a fundamental interest in a stable euro.  I see that – together with Sweden – Britain has politely declined the invitation to participate in the co-ordinating principles of the Euro Pact, thus opting out of any opportunity to influence policy.

It does strike me that this opt-out further weakens Britain’s influence over evolving financial services legislation, where the atmosphere is already poisoned by the sentiment that financial markets are to blame for all our troubles and by the feeling that even the pressures on the eurozone are caused by conspiring money markets rather than by economic reality.

However, despite the troubles of the “peripheral” trio, the economic climate does seem to be improving. The German economy continues to grow rapidly, boosting imports as well as exports, and Spain seems likely to weather Portugal’s bail-out crisis without any domino effect – Madrid was able to sell three-year government bonds at less than 4 per cent interest on Thursday and Spanish borrowing is at manageable levels. It is the unemployment level which is the biggest worry for Spain.

The euro continues to strengthen against the dollar, suggesting that market confidence is growing, albeit helped by the quarter point rise in interest rates. Maybe the markets are becoming convinced that the eurozone will indeed take all necessary measures to secure its future. The political will is unswerving. Sadly this is no guarantee of the economic recovery which is vital for the future stability of its weaker member states.

Michael

April 11, 2011 at 12:02 pm 1 comment

Iceland’s path to EU membership may be a rocky one

Coat of arms of Iceland
Image via Wikipedia

I see that the EU Council of Ministers has asked the European Commission to deliver an opinion on Iceland’s application to join the EU, just 10 days after Reykjavik submitted its formal request for membership. The Swedish presidency wants the report by the end of the year, and foreign minister Carl Bildt has implied that Iceland’s status as an EEA country could speed the process of the application, in contrast to the slow progress for the Balkan applicants.

The Icelanders no doubt remain shell-shocked by the collapse of their banking system and the consequent halving in the value of the krona, and crave the stability of the eurozone, but it strikes me that the path to membership may be far from smooth. At the end of the process – say in 2011 – lurks a referendum: by then the mood of the country may have changed.

Fisheries could be a major stumbling block. Seafood accounts for almost half of Iceland’s exports and 10 per cent of its gross domestic product, which is quite something when another chunk of the country’s economy – the banking system – has disintegrated. The cod wars of the 1970s, when Iceland extended its territorial limits to 200 miles and the Royal Navy sent frigates to protect British fishing vessels, showed the depth of national feeling on this issue.

Even now international relations on fisheries policy remain poor. I gather for instance that Iceland has been excluded from negotiations on the management of mackerel stocks in the North Atlantic and has therefore opted out of catch allocations. The country is very concerned to rebuild cod stocks, which is a key economic asset. Stocks may be recovering but there will be intense opposition to surrendering quota to EU fishermen under the common fisheries policy. Just to add to the sensitivities, Iceland still has a whaling industry.

At least the review of the EU common fisheries policy is timely, with signs that ministers have accepted the need for fundamental change (just as well, as many fish stocks in European waters are on the point of collapse – and see Sarkozy’s change of heart). However, the fisheries chapter in the Commission’s Iceland report will be one of the most difficult to compose. Could it be the catalyst for the creation of a new fisheries policy, or will it hark back to the disastrous EU policy which has been pursued since 1973?

Becoming part of the eurozone is the big driver for Iceland, but there could be difficult issues here as well, given the level of Iceland’s public debt (about 100 per cent of gdp). For Iceland to qualify for eurozone membership could be an even greater challenge than is faced by the Baltic states and Hungary.

The vote in the Althing to apply for membership was a close run thing – 33 in favour, 28 against – and it would certainly be wrong to underestimate the negotiating difficulties which lie ahead. If the Irish vote “no” on Lisbon then the prospects for any enlargement would be gloomier still.

Meanwhile Britain’s Conservative shadow foreign secretary William Hague continues to inveigh against Lisbon. But whatever you think of his views, he is a consummate speaker. You may like to savour his recent performance in the House of Commons on the possibility of Tony Blair becoming president of the European Council under a ratified Lisbon Treaty. No wonder Gordon Brown needs a holiday!

Michael Berendt

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July 28, 2009 at 10:00 am Leave a comment

Annoyed Icelanders attack Gordon Brown via the Internet

Gord...

Image by Getty Images via Daylife

A group of Icelanders have got together and made a website www.indefence.is that criticises British PM Gordon Brown for having used (or abused…) anti-terror legislation to freeze Icelandic assets.

The website’s key message is the simple and not entirely unreasonable “Icelanders are not terrorists”. The title tag of the website is “Darling I’m not a terrorist”, which is a dig at British Chancellor of the Exchequer (Finance Minister) Alistair Darling.

In the first 12 hours of the website’s existence, 20,000 Icelanders had signed the on-line petition (that’s 7% of the population!). Bear in mind that Iceland has one of the highest rates of internet use in the world with around 84% of Icelanders using the web.

The website also contains a series of “postcards” which are in effect photos of ordinary Icelanders with signs saying things like “I am not a terrorist Mr Brown” and “Who are you calling a terrorist? Look what you’ve done!”.

Anyone who has been following the financial crisis will know that Mr Brown has justified his freezing of Icelandic assets on the grounds that the Icelandic government was not doing enough to prevent its struggling banks from collapsing and taking with them the deposits of thousands of British investors.

No-one would argue that Iceland had a problem with its banks; they had foreign liabilities of $100 billion in a country with a GDP of only $14 billion. But using anti-terror legislation against a peaceful Nordic country that doesn’t even have an army? It does sound a bit far-fetched and certainly not the purpose for which the legislation was created.

It will be interesting to see how far this web campaign gets, in particular:

  • How many Icelanders sign the petition
  • What media coverage the website gets outside of Iceland, particularly in the UK
  • Whether any NGOs/human rights activists or opposition politicians in the UK take up the case of the clearly mis-labelled Icelandic people
  • Whether any lawyers work out how Iceland can sue Gordon Brown for defamation of national character
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October 24, 2008 at 12:26 pm 2 comments


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