Iceland has doubts about the euro as economy recovers

Formal negotiations for Iceland to join the EU come in the middle of the eurozone crisis

Bombarded as Europeans are, these days, by news of economic disaster in the eurozone, few would expect countries to be queuing up to adopt the single currency.

But in Iceland, which this summer opened formal negations to become a member of the EU, the troubled currency remains the big attraction.

"Compared to the Icelandic krona, the euro is like a rock in the sea, you know," is how Gylvi Arnbjoernsson, president of the Icelandic Confederation of Labour, puts it.

He represents an impressive 85% of his country's workers, and he firmly believes joining the EU would benefit them.

"This is partly because we are already members of the European Economic Area (EEA) and enjoying, and also meeting, the challenges of Europe," he says.

"And it is also because the stability of the euro is such that it would be better than the fluctuations of our own currency.

"For the last 50 years in Iceland, the krona has been used to transfer wealth, every 10 years or so, from the workers to the employers, the companies."

In the aftermath of Iceland's big economic crash of 2008, EU membership was suddenly an attractive prospect to many Icelanders - probably a majority of them - because of the safety-in-numbers it seemed to offer.

But times have changed.

Not only are Icelanders taking note of the increasingly frantic efforts of politicians in countries hundreds of kilometres away to save the euro, they are finding that their own financial circumstances constitute less of an emergency.

The conditions attached to their bailout by the IMF seem comparatively lenient.

Start Quote

Steingrimur Sigfusson, Finance Minister

You are quicker turning a small boat around than a big ship”

End Quote Steingrimur Sigfusson Icelandic finance minister

The new government of 2009 was allowed to carry on borrowing and spending for another year before the cuts kicked in.

In the meantime, devaluation - something impossible for eurozone members - meant all-important exports suddenly became competitive again. Unemployment is already falling.

Many people's mortgages were quietly "re-negotiated" by the newly nationalised banks. The richest 5-7% of the population have been subjected to a new wealth tax.

The welfare state and the health service were shielded from the biggest savings and public sector workers have recently been awarded an above-inflation wage rise.

Opinion polls suggest a clear majority of Icelanders now oppose joining the EU and the finance minister, overseeing all these changes, is among them.

Steingrimur Sigfusson says his country's size has been crucial in the move towards recovery: "You are quicker turning a small boat around than a big ship.

"And that is, I think, what is being proven: that the small, vibrant Icelandic economy, including having our own currency, makes adapting quicker."

Fisheries obstacle

The biggest sticking point for those currently negotiating the possible terms of Iceland's EU membership will undoubtedly be fishing rights.

Iceland owns the rights to 200 nautical miles around its shores.

Start Quote

Sigmar Oskarsson

We are good at catching fish and good at protecting them”

End Quote Sigmar Oskarsson Icelandic fisherman

It fishes and manages them exclusively, sustaining stocks upon which it relies for 70% of its total export business. Gone are the days when banking was Iceland's biggest business.

In the determined fishing community of the Westmann Islands, off the south coast of Iceland, the resistance seems unanimous to any change that might bring EU boats within reach of these waters.

A population of about 4,000, sheltered by intimidating cliffs - black and sheer - in what is the windiest inhabited place on Earth, relies on year-round catches of cod, mackerel and scampi.

Sigmar Oskarsson remembers the Cod Wars with the British in the 1970s, when Iceland last demonstrated the strength of its resistance to foreign fishing fleets.

He is a youthful-looking fisherman of 50, as sceptical as all his colleagues about the idea of EU membership.

"Icelandic fishermen want to keep their jobs," he says.

"We know from our Scottish colleagues how difficult it can be when other nationalities, like the Spanish, fish their grounds.

"We are good at catching fish and good at protecting them. We have been good at it for a hundred years and we want to keep going, to live on fish."

Neither he nor his bosses at the local fishing company go into detail about the fact that Icelandic concerns own substantial amounts of the fishing and fish processing industries in other EU countries, particularly the UK and Germany.

Such extensive foreign involvement would not be allowed under Icelandic law, so it is not as if there is already a level playing field.

Splendid isolation

As the pro and anti campaigns hot up in preparation for a referendum on EU membership, Icelanders will most likely continue to consider themselves a special case.

And their unique isolation within Europe might well prove be too precious an asset for them to compromise.

One of Iceland's most successful artistic exports, the film director and actor Baltasar Kormakur (101 Reykjavik, Jar City), puts it like this when I meet him in a cafe during the city's film festival: "We actually take it for granted that we will get a different treatment from other nationalities.

"We will always be the special kid in the class because we're small. We're not that important. We're like: 'You can't do that to us, you can't take our fish'."

He adds: "It's really hard to beat somebody up who seems too weak to be beaten up."

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