Iceland’s participation in European integration

Þórshöfn í Færeyjum, 5. apríl, 2005.


It gives me pleasure to be invited to speak here about some of the points that must be borne in mind when discussing Iceland’s position with regard to the European Union.  I intend to avoid technicalities, and will concentrate on explaining the political positions.


Just over forty years ago, the Government of Iceland faced the question of whether the country should become involved in the European integration process by applying for associate membership of the European Economic Community (EEC). These speculations were brought to an end in 1963, when President Charles de Gaulle of France refused to have Britain admitted to the community.  However, it was not until 1970 that Iceland joined the European Free Trade Association (EFTA).  Membership of EFTA was Iceland's first step towards active and direct participation in European co-operation on free trade.


At that time, Iceland’s economy had been so heavily dominated by the fishing industry that there was not felt to be any need to take part in international collaboration on free trade and economics.  Iceland’s export trade was very restricted in variety, and protective tariffs were high.  During the 1960s, on the other hand, various manufacturing industries began to flourish, and in the same decade Iceland started to exploit its electrical energy resources in the service of heavy industry, sited at an aluminium smelter in Iceland owned by Alusuisse.  This was the first major investment by a multinational company in the country, the aim from Iceland’s point of view being to diversify the economy. 


Icelandic industrialists were those who campaigned hardest to have Iceland join EFTA, and the accession agreement guaranteed them the means of adapting to a climate of free trade. 


When we talk about Iceland’s attitude towards economic and trade collaboration with the other nations of Europe, it is important to bear in mind the different viewpoints held by leaders of the country’s manufacturing industries, on the one hand, and of its fishing and seafood-production industries, on the other.  Today, leaders of the manufacturing industries are still arguing, just as they did when Iceland joined EFTA, that the country should go as far as it possibly can in joining in with the other nations of Europe, and become a member of the European Union.


In the fisheries sector, on the other hand, there is little support for this view.  There, it is argued that membership of the European Union would not guarantee recognition of Iceland’s management of its own fisheries in the long term and the 200 mile economic zone would become a common European area.




For a long time, participation in European collaboration has been a hot political issue in Iceland.  Membership of EFTA was negotiated by a coalition government involving the Independence Party and the Social Democrats, against firm opposition by the Progressive Party and the People’s Alliance.


The 1980s saw the European Economic Community (EEC) develop into the European Community (EC) and the emergence of the “four freedoms” in trade.  It became necessary to bring trade relations between EFTA and the EC into line with these changes. When negotiations on this began in 1989, Iceland had a coalition government consisting of the Progressive Party, the People’s Alliance and the Social Democrats; the Independence Party was in opposition.  


The government parties adopted the line that Iceland should take part in the talks between EFTA and the EC, while the Independence Party was undecided as to whether this was the best course of action or whether Iceland should seek a bilateral agreement with the EC.


After the general elections of 1991 the Independence Party and the Social Democrats formed a coalition government that continued negotiations, with the governments of the other EFTA countries, on the European Economic Area.  The Independence Party was still divided on the question, but eventually, support for this solution to the question of how Iceland should be involved in the European market became firm and without reservation.


The political landscape in Europe changed after the collapse of the Soviet Union, and for the first time the neutral states within EFTA saw an opportunity to apply for membership of the European Union without incurring the wrath of communist governments or making it difficult for them to live in harmony with them.


Austria, Finland and Sweden decided to accept invitations to join the EU at about the same time that negotiations on the European Economic Area (EEA) were drawing to a close. All were accepted as full members of the EU.


The Norwegian government also intended to opt for EU membership but, for a second time, the Norwegian people rejected this in a referendum.  Switzerland held a referendum in which both EU and EEA membership were offered. Neither was accepted, and since then Switzerland, as an EFTA state, has made bilateral agreements with the EU.


Membership of the EEA proved to be a deeply divisive issue in Iceland’s parliament, the Althingi.  In 1991, when the Progressive Party and the People’s Alliance found themselves in opposition in the Althingi, they took a stance against EEA membership.  They fought hard against the ratifying the EEA Agreement and used every weapon, including the argument that membership would constitute a violation of the Constitution, which prohibited such an assignment of power to an international institution.  The Government, on the other hand, based its case on an opinion given by legal experts that refuted these arguments.  No other issue has received more detailed or longer discussion in the history of the Althingi, which goes back nearly 1,100 years.


The political evaluation by the government parties was clear and straightforward: that Iceland was free to decide to join other EFTA states in applying for membership of the European Union.  However, as there was no support in the Althingi for such a move, the government saw membership of the EEA as the most sensible option. 


I am convinced that if we had set our sights on membership of the European Union at that sensitive time, the electorate would have rejected it and also membership of the EEA.  This would have left Iceland in the same position as Switzerland, and made it necessary for us to seek a bilateral agreement with the European Union.




Before going on, I should like to draw attention to five main points that must be borne in mind when considering Iceland’s position with regard to the European Union.


Firstly, we already have an international agreement (the EEA Agreement) as the basis for broad co-operation between Iceland and the European Union. This agreement is unique in as much as its contents change in step with legislative developments within the European Union in the fields that it covers, yet without interfering with the foundation on which co-operation is based. 


Secondly, it was clear when we entered into this agreement, that it might apply only to Iceland and Liechtenstein, since Norway was intending at the time to apply for membership of the European Union. 


Thirdly, Iceland participates in an extensive network of free trade agreements either within EFTA or on a bilateral basis.


Fourthly, Iceland has had a bilateral defence agreement with the United States since 1951. Thus, the country has been committed as part of a larger whole in the context of defence and security. 


The fifth point is that Iceland has looked westwards across the Atlantic no less than eastwards when it comes to international collaboration.  Although Iceland’s cultural roots lie in Europe, it has strong links with the explorers who struck out to the west.  Iceland’s closest western neighbour, Greenland, is the only country to have left the European Union. 




The ten years that Iceland has been a member of the EEA have seen its economy and business sector grow and develop more vigorously than ever before.


Icelandic companies are increasingly turning their attention to European markets, not least since Iceland’s financial market was liberalised with the privatisation and sale of the state-owned banks.  While this applies to all sections of the economy, some of the most striking examples are the fishing industry, airline operations, banking, telecommunications services, pharmaceuticals production and retailing.


During the time that I was Minister of Education, Science and Culture – a period of nearly seven years – I saw at first hand how important it is for Iceland to be involved in European networks in the fields of higher education, science and research.  For a small and isolated island nation with its own language, it is invaluable to be under evaluation according to the highest European standards in the fields of science and research, and so to have the opportunity to lead a variety of collaborative projects.  The alternative – the isolation of universities or scientific institutions – is perhaps one of the greatest dangers that face us in an age of globalisation. 


European companies have invested very little in Iceland.  By contrast, large industrial concerns based in North America have shown a great deal of interest in establishing a presence in the Icelandic business sector.  The Canadian company Alcan has bought the aluminium smelter that was built by Alusuisse in the 1960s, and the US corporation Alcoa is building a large aluminium smelter in Reyðarfjörður, on the east coast, in connection with a huge hydropower development, the Kárahnjúkar Power Plant.  Smaller investors from the USA are also involved in the expansion of their own aluminium smelter closer to Reykjavík in the southwest corner of the country. 


In recent years Iceland has enjoyed higher rates of economic growth than the EU member states – in 2004 economic growth was 5.2% in Iceland compared to 1.9% in the Euro zone. The economy is sound and the outlook is bright. The main challenges in economic management are how to maintain balance and avoid inflation.



Now I should like to turn briefly again to political developments in Iceland with a bearing on European integration.


After the Independence Party and the Social Democrats had worked together to secure Iceland’s participation in the European Economic Area as an alternative to EU membership, it came as a surprise when the Social Democrats made it part of their policy before the elections of 1995 that Iceland should join the European Union.   Prime Minister Davíð Oddsson, Chairman of the Independence Party, had made it clear again and again that membership of the European Union was neither on the government's nor his party's agenda.


This difference between the Social Democrats and the Independence Party in their position on European integration was one of the reasons why the Independence Party decided to invite the Progressive Party to join it in a coalition following the elections of 1995. The two parties have now been in government for ten years; Davíð Oddsson was Prime Minister until September last year, when Halldór Ásgrímsson took over and Davíð Oddsson took his position as Minister for Foreign Affairs. 


Because of the position adopted by the Social Democratic Party on membership of the European Union, and the debate on joining the European Economic Area, the European question put its mark on the elections of 1995, but it could be said that it was scarcely discussed at all in the run-up to the elections of 1999 and 2003.  In fact, a leader of the Social Democrats has said that the reaction by the electorate in 1995 has not encouraged the party to make EU membership into a political issue again.


Although the Progressive Party did not support membership of the EEA, the EEA Agreement has formed the basis of the policy on Europe followed by the Independence-Progressive coalition formed in 1995.  This was reiterated in the agreements made by the two parties when they renewed their collaboration to form governments after the parliamentary elections of 1999 and 2003. These agreements also contained a commitment to keep a close eye on the integration process in Europe and its implications for Iceland’s interests.




Shortly before the general elections of 2003,  Prime Minister Davíð Oddsson, voiced the idea of establishing an all-party committee to discuss Iceland’s position towards developments in Europe.


This idea was well received by the other party leaders, and on 14 July 2004 the Prime Minister appointed a Committee on Europe. Its task is to examine the implementation of the EEA Agreement, to see whether exemptions are granted in new accession agreements with the EU, and if so, what form these take, what membership of the EU would cost the Icelandic Treasury, both in the short and the long term, and what the pros and cons would be of adopting the Euro in Iceland.  The committee was also entrusted with defining Iceland’s position in terms of the new EU constitution, and discussing any other matters concerning Iceland’s relations with the EU that it considered would throw light on the country’s position with regard to European integration.


Participation by the political parties in this committee reflects the fact that there have been major changes in the political landscape in Iceland since the days of the bitter dissension over membership of the EEA.  A reshuffle of the left-of-centre parties has taken place.  The Social Democratic Party and the People’s Alliance no longer exist; instead, there are two parties on the left, the Social Democratic Alliance and the Left-Green Movement.  These are sharply divided in their attitude towards Europe: the Social Democratic Alliance which is rather positive towards joining the European Union, though it has not made it into an election issue, while the Left-Green Movement is strongly opposed to EU membership.


A fifth party, the Liberal Party, is also represented in the Committee on Europe. Its origins lie in opposition to Iceland’s fisheries management system, but it defines itself as a centrist party.  It is not in favour of EU membership.


The Committee on Europe has held 10 meetings since it was appointed.  Apart from myself, as chairman, it consists of eight members and a general secretary. The committee was not given any deadlines, but it plans to complete its work by the end of the present electoral period.


It is not up to this committee to propose that Iceland should remain outside the European Union or that it should join it.  There may be differences of opinion on this important question, but they have not influenced the work of the committee, which is aimed at gathering the most reliable possible information on those aspects of European integration that must be examined when assessing Iceland’s future position and policy.


It was decided at the outset that some of the funding granted to the committee should be spent on researching and writing reports on particular topics that the committee thought it necessary to examine in more detail.  No such reports are currently in preparation, however.  This is due not least to the fact that studies have already been made by the government, by interest groups, by research institutes and by independent scholars of most of the issues and questions that call for attention when a task like this is carried out.


In short, it is safe to say that in the period of just over ten years since Iceland joined the EEA, a great deal has been done to examine whether this arrangement does not adequately serve the country’s interests and whether membership of the EU would bring any added advantages. 


As I mentioned before, Iceland’s economy has boomed in the past few years. There has also been a great growth in all aspects of research and scientific work, and higher education has flourished. Icelandic companies are venturing into European markets and a large volume of investment capital is flowing into the country from North America. Iceland has managed to establish a fisheries management system that ensures the sustainability of fish stocks without endangering the survival of our fishing and fish-processing industries.


The Icelandic króna has risen in value; some people are of the opinion that it has risen too far, but the suggestion of adopting the Euro is meaningless unless it is coupled with a proposal to join the European Union.  There would be no sense in Iceland’s adopting the Euro without at the same time becoming a member of the safety network based on the European Central Bank’s monetary policy.




The ideal behind European integration is based on a longing for peace and the brilliant solution of making the economies of the various countries, including old enemies, so closely intertwined as to eliminate the likelihood that conflict could ever again break out between them.


Naturally, Iceland supports all measures to secure peace, but this does not automatically mean accepting the view that the only way to do this is to join the European Union.  As a North Atlantic country, it is much more concerned with peace and security in the North Atlantic region, which is currently more the business of the United States of America than of the European Union.  From the point of view of its defence interests, membership of the EU could never replace the defence agreement with the US. 




The question must of course be asked: what interests could press Iceland to join the European Union?



The EEA Agreement would have retained its value even if Norway had entered the European Union.  At the time that the EEA Agreement was being negotiated, the Norwegian government was aiming at joining the EU, but the Norwegian people rejected this idea when it was put to a referendum.  The volume of administrative procedures would have been cut if Norway had left EFTA, but the EEA agreement would still have guaranteed Iceland and Liechtenstein access to the European Economic Area.


Democratic deficit is a term intended to describe how remote the decisions taken in the European Union have become from the ordinary citizen.  Decisions are generally taken by bureaucrats in Brussels without the involvement of elected representatives.  It has been pointed out that if the EU member states have reason to complain about this deficit, then the EFTA nations in the European Economic Area should be complaining far more vigorously, since their representatives are never involved in political decisions on any aspects of legislation in the EU.


The EEA Agreement does not guarantee Iceland the right to involvement in political decisions within the EU. There is no disputing this point: it is quite correct.  On the other hand, it is a matter of opinion how much this really matters, in the last analysis, when compared with the scope that Iceland would have to exert an influence in the EU’s specialist committees, bureaucratic structure and consultative forums involving politicians, parliamentarians and ministers.



In the Icelandic debate it is sometimes said that the politicians and bureaucrats who have the most contact with the EU’s institutions quickly come to adopt the view that Iceland should join the union.  The political and institutional magnetism of Brussels is said to be so strong that it is difficult to resist its attraction.  While I do not underestimate the power of this attraction, I believe that without other incentives as well, we are unlikely to see a broad consensus develop in favour of Icelandic membership of the EU.


We Icelanders have many decades of experience of how deep-seated dissension on a cornerstone of foreign policy can be a difficult burden on all political activity in the country.  It could not be the aim of responsible politicians to unleash such dissension unless clear and overriding national interests were involved. 


To my mind, there are no such overriding interests currently at stake when we examine the question of membership of the European Union. Of course, circumstances may change, in which case it will be up to politicians to make the appropriate response, with the interests of their nation as their guiding principle.


All the Icelandic political parties are in agreement that if it comes to answering the question of whether or not Iceland should join the European Union, the issue would be put to the nation in a special referendum, in addition to which it would be necessary to amend the Constitution to remove all doubts about the legality of an assignment of power to an international institution.




Ladies and gentlemen,


Let me say again how pleased I am to have this opportunity to present the viewpoints that set their stamp on the debate on European integration in Iceland.  I hope I have managed to give you a better insight into the situation.


Recently there has been some speculation as to whether the Progressive Party has decided to support membership of the European Union. This is, and will continue to be, pure speculation at least for some years to come.  Prime Minister Halldór Ásgrímsson, leader of the Progressives, will of course lead the government on the basis of the co-operation agreement between the coalition parties, which are dedicated to keeping a close watch on the integration process in Europe while emphasising the validity of the EEA Agreement. 


It might be argued, taken note of Icelandic foreign policy history, that there will not be any basic change in Iceland's policy towards the European Union unless the Independence Party takes the initiative to promote membership.


As Minister of Justice, I take part in meetings of the ministers of the Schengen member states.  This is the only forum where an Icelandic minister works on a regular basis with his colleagues from EU member states, and referring to this experience I do not believe it is of crucial importance for Icelandic interests to join the EU in order to have political influence.  I believe it is of just as much value, if not of greater value, to have the EEA Agreement as a basis for co-operation between a small state and the European Union.