In a few days I shall leave not only my post here in Oslo, but also the Commission after fourteen years of service. I am moving back to Sweden and will begin the slightly different life as a pensioner. I will miss my current job, not least because of all the good friends I have made both in Norway and Iceland. One might say that I am leaving at a time when EU-Icelandic relations are getting particularly interesting. But maybe that is how it should be, one should leave an assignment when it is at its most interesting point.

As I write this, the Althingi has not yet concluded on the question of EU membership. The EU as such does not have any opinion on what the Althingi should decide, but I admit that I personally would be very pleased to see Iceland become the fourth Nordic member state of the European Union. I am sure the Swedish Presidency will do what it can to facilitate the process, should an application materialise.

All accession negotiations are in some respects demanding, there are always concerns which may be of particular importance to the acceding country. In the case of Iceland, fisheries are usually mentioned as a potential stumbling block. I do not wish to underestimate the difficulty in reaching a mutually acceptable agreement on fisheries, but I nevertheless feel rather confident that it will be possible. After all, all previous accession negotiations have been successfully concluded, and some of them were rather difficult indeed!

In the Icelandic debate there have also been some rather confusing and baseless claims as to what EU membership would entail. Some have argued that Icelanders might be drafted into an imagined “European Army”, which of course is nonsense. Others seem to think that Brussels would “control” all of Iceland’s natural resources, which is also simply wrong. It will be important for Icelanders to openly debate the pros and cons of membership if an application is made, but hopefully the debate will be well informed and balanced.

Let me also say that my frequent visits to Iceland have made me a great admirer and friend of the country. I have been saddened by the misfortune brought upon the population by the financial collapse last autumn. It was brought about by irresponsible, not to say wreck-less, behaviour by parts of the business community, particularly in the financial sector. In retrospect, it is also easy to see that regulatory authorities and politicians could have been more vigilant. These problems were not unique to Iceland, but the excesses were greater in proportion to the country and thus the consequences were much more serious than elsewhere.

But despite this, I am still optimistic about the potential of Iceland to turn things around. Icelanders are very hard working, well educated and innovative. They will learn from past mistakes and build a sustainable and sophisticated economy, drawing upon Iceland’s great potential to be at the cutting edge of modern green technologies. Iceland will also stabilise its finances, gradually reducing the debt level and preparing for a new monetary system, based upon the euro if Iceland ultimately enters the EU.

In one way or another I hope to have the opportunity to work with my Icelandic friends also in future, based upon some of the activities I may be involved in as an active pensioner. Until then, I wish you all a pleasant summer and all the best for the future!

I recently received an e-mail from an Icelandic reader of my blog, asking what would happen to Iceland’s natural resources, in the field of energy, agriculture and fisheries, in case of EU membership. I have noticed that this issue plays a prominent role in the Icelandic EU debate. It is perhaps not surprising that the question arises, but some participants in the debate appear to be intent on spreading misinformation about EU policies. Icelanders have an abundance of energy and marine resources which they rely on for upholding their standard of living. Understandably they want to feel confident that the resources will remain under their control.

With the exception of fisheries, there is no common resource policy in the EU. The founding treaties of the EU contain no articles relating to control of natural resources and neither does the Lisbon treaty. Should the Icelanders decide to join the EU, they would of course remain in control of their geothermal, hydro and other energy resources, just like the Swedes control their forests and iron ore and the Brits control their oil and gas.

It is true though that when managing a resource, certain common rules may have to be followed, for example rules relating to environmental protection or fair competition. But Iceland already follows such rules through its membership of the EEA.

In agriculture, EU has a common policy based on the creation of an internal duty- and tariff-free market for agricultural products and a common system of subsidies and market regulation. There is no question of common ownership or control. The general rule is that subsidies are paid from the EU budget. But there are important exceptions. When Sweden and Finland joined the EU in 1995, both managed to negotiate a special arrangement which allowed them to grant extra subsidies from their own budgets, so-called Nordic aid, to regional areas where conditions for agriculture are particularly harsh. Most of Iceland’s farming communities would probably fall under the same category.

Being a mobile resource, fisheries, however, pose a very different challenge. It would be so much easier if only the fish would respect national jurisdictions. But since it does not, EU member states have agreed to let common rules decide how they manage the resource. How would it be possible to manage fisheries in the Baltic Sea, where 9 states compete for scarce and largely straddling stocks, without joint policies?

Iceland’s position is different, because unlike most other European states, the lion share of its fishing stocks are not shared with others. I agree with Fisheries Commissioner Borg’s view, expressed in a recent press conference, that should Iceland apply for membership, a deal which will safeguard the interests of its fishermen and gain the approval of the people can be reached. The EU Common Fisheries Policy (CFP) will be reviewed before 2012 and should the Icelandic Alþingi agree to apply for membership this summer, negotiations will take place in parallel to the fisheries reform. That should not be to Iceland’s disadvantage, particularly since many of the Commission’s reform proposals are already part of fisheries management policy in Iceland.

The Icelandic finance ministry’s economic forecast for 2009-2014 and the prognosis that it could take up to 30 years to meet the Maastricht criteria for adoption of the euro raised some eyebrows this week.

With the Icelandic króna showing few signs of recovery (in fact the finance ministry expects no major strengthening of the currency until in 2011), many Icelanders see the euro as the main attraction of EU membership and cling to hopes of a relative short transit to the euro, should Iceland join the EU. Few would probably have the patience to wait for 30 years.

The ministry’s prognosis is, however, affected by many uncertainties. It is clear that government debt has risen sharply, to 103% of GDP in 2009, and may possibly be underestimated since it is unclear to what extent the government will have to take on debt related to the IMF loan package. It is also unclear to what extent the assets of Landsbanki will cover liabilities for Icesave depositors.

Much will obviously depend on how quickly the global economy recovers from the current crisis and on Iceland’s future international creditworthiness. According to the forecast, interest payments are estimated to absorb 6-7% of Icelandic GDP in the coming years.

The current situation may look gloomy. Iceland does at the moment not meet any of the Maastricht criteria. Inflation will on average be 10% this year, policy interest rates 11.8% and the deficit 14.1%.

But the good news is that the forecast expects inflation and interest rates to fall sharply in the next few years and government deficit will decrease. In a recent book on how the euro came into being*, it is described how interest rates on government debt were lowered throughout Europe when the rates converged on German levels in the run up to the establishment of EMU in 1999. This development allowed Italy (and indeed also other member states) to reduce sharply its budget deficit and qualify for the euro. In the same vein, Iceland may possibly benefit from its gradual convergence with Maastricht criteria in ERM2.

The biggest obstacle to eventual membership of the eurozone, which would take place at the very minimum two years after EU membership (after at least two years in ERM II), would therefore seem to be government debt.

But it is worth noting that The EU Treaty (Art 104) foresees that a government debt ratio above 60% of GDP, which is “sufficiently diminishing and approaching the reference value at a satisfactory pace” can be compatible with not being put in the so called excessive deficit procedure (EDP). And if a country is not in EDP, it fulfils the Maastricht public finance criterion (see Art 121). In other words, it is not excluded that a country could qualify for the euro even if the ratio is above 60%, as long as the debt ration is on a steady downward path. In fact there are several precedents of countries with debt/GDP ratios above 60% having been admitted into the euro area, for example Belgium, Italy and Greece.

* The Euro: The Politics of the New Global Currency. By David Marsh

In one respect, Norway is truly different from the EU. While the No to EU movement in Norway has for several years had the upper hand in the opinion polls, the public opinion in the EU has developed in the opposite direction. In the most recent Eurobarometer survey, from November last year, 53% of citizens in EU countries say that EU membership is good for their country. Only 15% say membership is a bad thing. In the case of Denmark, 64% say they are for membership, with only 16% against, while the corresponding figures for Sweden are 59% and 17% respectively. In Sweden, support for EU membership has never been higher.

One can ask oneself why Norway is so different from its Scandinavian neighbours. Could it be - as Heming Olaussen, the leader of the No to EU movement, claims - that Norwegians are “firmly vaccinated” against the EU? Or has it more to do with the fact that Norwegian politicians, unlike their Danish or Swedish counterparts, deliberately shy away from taking a stand and engage in a debate about important issues on EU’s agenda. Such aloofness does not sit well with the declared objectives of the Norwegian government’s action plan on Europe, but is perhaps understandable in light of how difficult it can be to promote a nuanced EU-debate in Norway. It can be an unthankful task for a politician to engage in a debate on issues which he or she has little chance of influencing.

Unlike in Norway, the EU debate in Denmark and Sweden has developed in a more nuanced direction. Supporters of the EU often express criticism about the EU system, while eurosceptics have acquired a more nuanced vision of the EU. The fact that the Danish Socialist People’s Party and the Swedish Green Party have both recently reversed their opposition to EU membership has not stopped them from taking a critical view on specific EU issues.

The Norwegian debate seems to be just as polarised as it was 15 years ago, at least when it comes to the No-side. The opponents of membership campaign hard against anyone who has anything positive to say about what the EU does, sometimes in a way that reminds one of the Spanish Inquisition. Fierce emotions characterise the debate, as well as the illusion that Norway could somehow, without negative consequences, withdraw from parts of its cooperation with the rest of Europe.

It is interesting that despite its claim that the Norwegians are firmly vaccinated against the EU, the No to EU movement does not seem to be able to relax.  On the contrary, the wider the margin is against membership in opinion polls,  the greater is the effort of the movement in its fight against the EU. The most probable explanation is that the movement’s fight is not at all about Norwegian EU membership. The No to EU will simply not rest as long as the EU exists.

The reason is simple. Regardless of what the nature of Norway’s future relationship with the EU will be, it is difficult to ignore the fact that the premises for future political and economic developments in Europe are determined inside the EU. In some areas, Norway is already more integrated with the EU than certain EU member states. That has not come about because of pressure from Brussels, but because through the years Norwegian governments and ministers – including those who are opposed to membership – have realised that it is in Norway’s national interest to have as close ties as possible with the EU.

The black and white EU debate in Norway would probably continue even if 99% of Norwegians would say no to membership. With or without membership, the country will for obvious reasons continue to seek close cooperation with the EU in almost all areas. Here Norway is no different from other countries in Europe outside the EU. The real question is not whether Norway should participate in European integration or not, but rather, whether one believes that Norway could best exercise its influence and strengthen democracy as a member of the EU, or whether that is best achieved by continuing as an outsider with very close ties to the Union.

I recently received a comment by one of the Icelandic readers of this blog, Björgvin Víglundsson, who expresses concern that the EU applied political pressure to make the Icelandic government accept responsibility to compensate foreign Icesave depositors. He wonders why the EU could not accept the Icelandic suggestion of court settlement of the matter. The reason, he suggests, was that the EU feared it would lose a court case.

The truth of the matter is that not only all available expertise in Brussels agreed that Iceland had this responsibility. In fact, the Icelandic government itself apparently accepted that this was the case. In response to a question by MP Siv Friðleifsdóttir in the Althingi, two letters sent to the British Treasury by the Icelandic government on August 20 and October 6 were made public. In these letters, which can be found at the Althingi website, the government confirms without qualifications that it would be responsible if the guarantee fund would be inadequate to cover for bank failure. The EU would undoubtedly have prevailed in court, but it is rather obvious that a drawn-out court case would have been neither helpful nor necessary.

One might add that the Icelandic government had the responsibility to compensate foreign Icesave depositors regardless of how you interpret the directive. This is because the Icelandic government announced it would offer domestic depositors guarantees for deposits in Icelandic banks. There is little doubt that there is then an obligation in principle to offer depositors in these banks’ foreign branches equal treatment. Non-discrimination is a fundamental principle for the internal market, thus also for the EEA.

I think every Icelander can appreciate the importance of this principle if they try to imagine how they would react if the “shoe had been on the other foot”. If Icelanders had been tempted by promises of high interest rates to make deposits into internet branches of British or Dutch banks, how would they expect to be treated if these banks went bankrupt? If the British or Dutch government promised domestic depositors guarantees, would Icelanders (or their government) accept that they would be ignored?
The most constructive way forward is undoubtedly the one taken by the Icelandic government, namely to engage in direct negotiations with the British, Dutch and German governments to try to reach the best possible deal. The scope of the Icesave liability is hard to estimate, partly because we do not yet know the value of the remaining assets of Landsbanki. There is some speculation that the final debt figure may not be as high as initially thought. But regardless of that, I think most Icelanders will agree that we need to work together in a spirit of constructive engagement and solidarity. It is fair to say that the EU has already demonstrated such a spirit when the French Presidency and the Commission helped to negotiate the mutually agreed guidelines, which now serve as basis for the bilateral Icesave negotiations. Several member states of the EU also made significant contributions to the IMF package for Iceland.

Norwegian politicians on EU mission to Iceland

Iceland remains very much the focus of Scandinavian media coverage as we enter the new year. The ruling Independence Party (IP), as well as the Progress Party (PP), hold party conferences in the next few weeks to review their positions on EU membership. The outcome is not certain, but public opinion seems to be strongly in favour of joining the EU and indications are that these two parties will reverse their traditional EU-sceptic positions. If the IP does not make an outright decision to apply it may instead decide to hold an initial referendum on whether to do so, as hinted by PM Geir Haarde in his new year’s message. That option may, however, lead to simultaneous general elections, as suggested by the foreign minister, Social Democrat leader Ingibjörg Sólrún Gísladóttir.

In the last few days there has been a mission to Iceland by representatives for the two euro-sceptic parties in the Norwegian government, the Center Party (CP) and the Socialist Left (SL). One of the participants, CP parliamentarian and former party leader Åslaug Haga, said to the press that they were not going to Iceland as “missionaries”. In the next breath, however, she says that the visitors wish to share with Icelanders their positive and long experience of being outside the EU. Since Iceland already has that experience of being outside, one might wonder what extra wisdom Ms Haga might have to offer to her hosts.

It is perhaps not relevant to talk about missionaries, but rather a desperate attempt to stop the Icelanders from diverting from the true faith. Just a few months ago Norwegian euro-sceptics dismissed all talk about possible Icelandic membership application as nonsense. So this mission is rather telling in itself.

Fabricated “horror story” in Daily Express makes impact in Icelandic media.

These last few days there has also been an EU “horror story” with a British twist in the Icelandic press. The Icelandic TV channel, Stöð 2, had a story yesterday, repeated on the webpage of www.visir.is  based on an article in the British tabloid Daily Express, according to which the EU would use secret powers to confiscate British oil and gas fields. After closer scrutiny, it turns out that the article was based on a press release from the UK Independence Party, a racist and xenophobic party on the extreme right. The content of the article is of course sheer nonsense. There is no plan whatsoever for the EU to take over national resources, nor is there any legal means to do so.

What is true is that EU member states are trying to develop a network of pipeline connections, which would allow member states to export gas to neighbouring countries. This network can be particularly important in an emergency situation, like the one we have now due to the Russian-Ukrainian dispute and the consequent stoppage of deliveries to EU member states. The EU is trying to promote such solidarity amongst member states, but obviously no member state can be forced to sell to another against its will. The Daily Express article is an example of scaremongering of the worst kind.

Ahtisaari’s price

Former President Martti Ahtisaari of Finland was duly celebrated in Oslo last week as he received his well deserved Nobel peace price. There are many good peace-makers involved in the numerous conflicts around in the world, but few can claim as much success as Ahtisaari. It is certainly hard to think of any Nordic mediator who is as widely known and respected in the world as Ahtisaari. He brought peace and independence to Namibia, brokered peace in the Aceh region of Indonesia and helped resolve the Kosovo conflict. It is a rather common belief amongst Norwegian politicians that EU membership would make it impossible for Norway to remain engaged as peace-broker around the world. Ahtisaari has managed not only to combine EU membership with high profile and successful peace-making missions, he has very much built on EU support and resources in his efforts.

Iceland moving towards membership application?

Several prominent Independence Party politicians, such as PM Haarde, finance minister Mathiesen, the chairman of Althingi foreign relations committee Bjarni Benediktsson and the co-chair of the government appointed EU Committee, Illugi Gunnarsson, have recently hinted that they might support an EU membership application at the party’s general conference next month. The Confederation of Employers recently made a survey among its members on the EU membership issue, which showed that only a narrow majority was in favour. However, the Icelandic Chamber of Commerce has given membership application its endorsement. It is still too early to predict the outcome, but one might say that the support for membership has gained some momentum recently.

Regardless of what Iceland decides with regard to EU membership, it is encouraging that Iceland is now making progress towards stabilising the economy.  The IMF loan has been secured, much thanks to support from the Nordics and other EU member states. The French Presidency, assisted by the Commission and member states, helped draw up balanced guidelines which should help Iceland reach agreement with the UK, Netherlands and Germany on how Icesave depositors in these countries should be compensated in accordance with EEA law.

I know there has been concern in Iceland about the burden of compensating for Icesave, some even suggesting that Iceland was “forced” by the EU to compensate foreign depositors. That is not true. All the legal advice we could muster in Brussels (the legal services of the Council, Commission and ESA) was unanimous in the opinion that the government is ultimately responsible for any shortfalls in the depositors’ guarantee fund. It was also made clear that EEA law makes it illegal to treat foreign depositors different than domestic ones.

So I think it is fair to say that the EU has tried hard to help Iceland find solutions, but obviously the solutions had to be compatible with EEA law.

The prospect of a possible EU membership application from Iceland has triggered some debate also in Norway. Could the EEA survive with only Norway and Liechtenstein forming the EFTA “pillar”? How would Norwegian fisheries be affected by Icelandic membership? Would Norway even have to consider joining Iceland in applying for membership? The answers given to these question followed traditional patterns. Those in favour of membership, as well as those nay-sayers who oppose the EEA, predicted the collapse of the EEA and urged the government to think about finding an alternative. The former obviously arguing for membership, while the latter argued for Swiss-style ad hoc agreements.

The President of the Storting, Thorbjörn Jagland, has cautioned in an article in Aftenposten on November 24 against trying to promote another Norwegian application on the tail-coats of Iceland. He points out that politicians need to convince citizens why it is in Norway’s interest to join rather than to tell them why Norway has to do so. Jagland thinks the main problem is the distorted perception of the EU in Norway. He mentions the Norwegian debate about the services directive as an illustration of this. Many Norwegians apparently think that Norway could reject this key directive, on behalf of itself and the other two EFTA states, without any negative consequences.

I think Jagland here points to an important and paradoxical aspect of the Norwegian attitude to the EU. No other non-member state is so deeply integrated into the EU as Norway. Yet, EU policies are not subject to much public debate, this despite the stated objective of the government and Storting to enhance transparency and debate about European issues. To the extent there is a debate, it is often negative and driven by “No to EU”.  The laudable objective, as stated in the European policy bill, to discuss EU issues in their own right and without regard to membership has been difficult to implement in practice.

The reason for this is not only that several of the political parties, as well as the government, are divided on EU membership.  There is also a certain nervousness about being seen as taking a stand in favour of EU directives/initiatives which have been targeted for public campaigns by the opponents of the EU. This is of course particularly true within the parties which are officially against EU membership, where any positive mention of the EU might be viewed as high treason.  

But there is also often reluctance to engage in public debate on important EU issues within other parties and organisations. A case in point is what happened when former LO leader Gerd-Liv Valla tried to have LO endorse the service directive two years ago, but was stopped by a massive and aggressive phone and sms campaign by No to EU.  Both Valla and foreign minister Störe expressed concern that the campaign was driven by a desire to torpedo the EEA Agreement. Nevertheless, most leading politicians remained silent, leaving the high ground to No to EU and a few other activists who managed to define the debate in a manner which no-one outside Norway would understand.

Is Iceland different?

The Icelandic debate has very much been about the positive Icelandic interest in membership, and it is a debate which started long before the financial crisis. It is primarily driven by the need for a more stable monetary regime, where the euro is seen by many as the obvious answer. The many other aspects of membership, such as the fisheries policy of the EU, have also been thoroughly examined in several broad panels composed of politicians and social partners. It is too early to predict what the end result of this debate will be, but I feel confident that Iceland, should it decide to join, will be a well prepared and fully committed member of the Union.      

After several weeks of confusion and uncertainty, it now seems as though Iceland has owned up to its responsibility according to the EEA with regard to compensating foreign (mostly British and Dutch) depositors in the Icesave scheme of the now defunct Landsbanki. Guidelines for settling these disputes have been agreed to by all sides under the auspices of the French EU Presidency. The details of specific settlements will have to be worked out by Iceland with each creditor nation, but the language of the guidelines set out a clear and constructive framework.

It is thus clear that there is no room under EEA law for discrimination of foreign depositors. It is also clear that the government has the responsibility to step in if the national deposit guarantee fund does not adequately cover the liability. On the other hand, the guidelines also mention the need to take into account the “unprecedented difficult situation of Iceland and therefore the necessity of finding arrangements that allow Iceland to restore its financial system and its economy.”

The head of IMF, Mr Strauss-Kahn, has during the weekend indicated that the IMF Board will grant Iceland the requested funding next Wednesday. This will open up for floating of the currency and bringing a degree of normalcy back to the economy. Funding is likely to be provided also by the Nordic countries and several EU member states, as well as by the EU Commission. By engaging constructively with its partners and allies in the EU, Iceland has reversed negative and potentially very destructive development and is now in position to exploit the goodwill and friendship it has traditionally enjoyed in the European Union.  

There have also in the last few days been some rather dramatic developments with regard to Iceland’s debate on EU membership. The Independence Party has brought forward its party congress from October to January next year in order to give early consideration to the question of Icelandic EU membership. A similar process is under way in the centrist Progressive Party. Most analysts seem to expect both parties to reverse their negative positions to EU membership, and it is even possible that an application could be forthcoming in early spring. Such a development would obviously raise questions also about Norway’s relationship to the EU, even though it is far from certain that Norway would follow suit. But there would possibly be ramifications for Norway’s fishing industry, and there would be questions about the future of the EEA Agreement. 

The speed and intensity of the financial crisis of recent weeks has taken everybody by surprise. This kind of crisis was precisely what many feared could be very dangerous to the euro-zone since it lacks an integrated system of economic and financial governance. Would the EU be up to the task of providing a coherent response to protect the banking system?

The crisis is not yet over, but European leaders have so far exceeded expectations as far as leadership and finding innovative solutions are concerned. The system for bank guarantees was first hammered out in the euro group and was subsequently endorsed by the European Council last week. The approach of EU governments, notably to take stakes in the ailing banks, was even imitated by the US. Once again, the EU proved that it can make a quantum leap in policy-making if pushed to the brink by an acute crisis.

This particular phase of the financial crisis represents, in my view, only the beginning of an interesting new development within the EU, and within the euro-zone in particular. Last week’s EU summit agreed not only to establish an informal crisis mechanism to improve information flows between member states, but also to enhance co-operation between regulators in order to ensure improved oversight over cross-border financial flows.

President Sarkozy has gone beyond that and called for some kind of economic governance for the euro countries. He rightly points out that the common currency requires close co-ordination of economic policy amongst euro member states, as clearly evidenced during this crisis. It is not yet clear what this common governance would look like and it is probably only going to develop gradually over time. There is broad agreement that the independence of the EBC must not be compromised. President Sarkozy has suggested more frequent summits amongst euro countries to begin with. Continued uncertainty and turbulence in financial markets will no doubt give further impetus to development of a common economic governance.

The EU has also taken the lead in calling for a review of the global financial system, as was discussed by Presidents Sarkozy and Barroso with President Bush in Washington last week-end. The need to review the Bretton Woods system is obvious, but it will not be easy to reach consensus at global level. Chances are that whatever the EU can achieve for the euro area could also set a pattern for global efforts. This process will obviously be of great importance also for Norway and Iceland, two countries which are already closely integrated with the EU. It will also give pause for thought to member states, such as Denmark and Sweden, which have not yet introduced the euro. Being outside could lead to less financial security and certainly less influence over key decisions affecting the national economies.