Iceland drafts plan for 2011 EU entry

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Iceland drafts plan for 2011 EU entry

Postby theeuro on 18 Nov 2008, 01:45

LEIGH PHILLIPS, EU Observer

Iceland's prime minister has announced the set-up of a commission to investigate joining the European Union.

An initial plan has already been drafted by the country's foreign ministry that would see a membership application made in early 2009, aiming for entry some time in 2011, according to a report in the Financial Times which appeared at the weekend.

The prime minister, Geir Haarde, also said that his centre-right Independence Party would hold its 2009 conference in January instead of October as scheduled, to consider EU membership.

In announcing the move on Friday (14 November), Mr Haarde said "We have always said that we will assess at any given time how we co-operate with Europe."

"This process will help us make our future decisions."

Until now, Iceland has never applied for EU membership, and the population has historically been strongly opposed to the idea.

After the bottom falling out of the Icelandic banking sector and a run on the currency in recent weeks, many are now convinced of the need to adopt the euro, but EU officials have repeatedly told the north Atlantic nation that the euro cannot be adopted without joining the union first.

The crisis has sharply boosted support for EU membership in Iceland, climbing to a current 70 percent up from around 50 percent ahead of the crisis.

On Saturday, some 6,000 people - two percent of the population - protested outside the Icelandic parliament, attacking the government for its handling of the crisis. According to local reports, several people carried EU flags.

Icesave deposits guaranteed

In separate news, a bitter row between Iceland and EU member states the UK and the Netherlands over savers' deposits in local subsidiaries of Icelandic banks appears to have been resolved.

On Sunday, the Icelandic government announced it is to refund the deposits of those banking with Icesave, the collapsed internet bank owned by the now nationalised Landsbanki.

Iceland's attempts to access IMF funding were threatened in recent weeks as London and the Hague - as well as Berlin - insisted that Reykjavik guarantee foreign deposits before the taps were opened.

According to a statement from the Icelandic Ministry of Foreign Affairs: "Talks between Iceland and several EU member states, initiated by the French EU Presidency, led to a common understanding that will form the basis for further negotiations."

The EU-chaperoned deal will see the government covering the "deposits of insured depositors in the Icesave accounts in accordance with EEA law."

In return, "the EU, under the French Presidency, will continue to participate in finding arrangements that will allow Iceland to restore its financial system and economy."

European Commission President Jose Manuel Barroso had said on Wednesday that aid could only be delivered "after Iceland and some EU member states reach an agreement on ...issues related to deposit guarantee schemes and protection of foreign depositors."
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Re: Iceland drafts plan for 2011 EU entry

Postby Miguel.mateo on 18 Nov 2008, 07:11

Interesting, realistically speaking, if they join in January 2011, by when can they adopt the euro? Can they peg their krone to the euro now and by then reduce two years needed in the ERM II in order to accelerate the euro adoption process?

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Re: Iceland drafts plan for 2011 EU entry

Postby theeuro on 18 Nov 2008, 08:37

Miguel.mateo wrote:Interesting, realistically speaking, if they join in January 2011, by when can they adopt the euro? Can they peg their krone to the euro now and by then reduce two years needed in the ERM II in order to accelerate the euro adoption process?

Thanks,
Miguel


Interesting question, Miguel.

The soonest the Krone could be pegged to the Euro would not be before EU membership. However, an agreement could be reached and has been in negotiation for quite some time, that might allow entry into ERMII before EU membership. As long as the intent to join the EU is there and progress is being made with a firm timetable, ERMII could be achieved and Euro adoption could take place at the time the ascension treaty is signed.

To answer your earlier question, the Krone would need to be stable for at least two years in ERMII before Euro adoption. There are a number of scenarios that would allow for an exception, but in the case of Iceland, that is looking less and less like a possibility. This has to do with the financial crisis, which has hit Iceland particularly hard. The Krone would only serve to destabilise the Euro as a whole were it to enter ERMII prematurely.
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Re: Iceland drafts plan for 2011 EU entry

Postby Miguel.mateo on 18 Nov 2008, 09:55

Your answer makes more sense to me now. Of course that I do not see the euro as a solution to their current problem, but more of a tool to avoid future problems.

BTW, I thought that goverments can choose to peg their currency to any other currency, at their own risk. Look at Cuba for example, they have their Cuban Convertible Peso (CUC) pegged to the US Dollar at 1.08 (1.00 CUC = 1.08 USD). Who would say that Cuba can do that, specially after the 40+ years of conflicts between those countries? But I might be wrong of course ...

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PS. You're posting interesting stories, it seems like year 2014 (or aorund) will be called the "Eurozone expansion" year (similar to 2004, called "the EU expansion year"), if all those countries do what they are planning to do.
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Re: Iceland drafts plan for 2011 EU entry

Postby theeuro on 18 Nov 2008, 17:45

Miguel.mateo wrote:Your answer makes more sense to me now. Of course that I do not see the euro as a solution to their current problem, but more of a tool to avoid future problems.

BTW, I thought that goverments can choose to peg their currency to any other currency, at their own risk. Look at Cuba for example, they have their Cuban Convertible Peso (CUC) pegged to the US Dollar at 1.08 (1.00 CUC = 1.08 USD). Who would say that Cuba can do that, specially after the 40+ years of conflicts between those countries? But I might be wrong of course ...

Thanks,
Miguel

PS. You're posting interesting stories, it seems like year 2014 (or aorund) will be called the "Eurozone expansion" year (similar to 2004, called "the EU expansion year"), if all those countries do what they are planning to do.


When you said 'peg' I thought you were referring to Exchange Rate Establishment via ERMII. You are correct with what you said about pegging. Unless I am mistaken, the Icelandic Krone is already pegged to the Euro.

2014 might just be a little too far in the future for the EMU Expansion year. I'm thinking there is going to be two major expansions- one in 2012 and another in 2014.

We shall see...
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Re: Iceland drafts plan for 2011 EU entry

Postby Miguel.mateo on 18 Nov 2008, 17:49

Oh, so pegging the krone will not help them, they have to be in the ERM II, which is way more than just pegging their currency to the euro. In thatcase, I do not understand the hurry, unless they do expect a lot of problems intwo/three years. But hey, I am in favour of the EU, so welcome Iceland and anyone else interested! And if the year 2012 is going to be a major expansion, I better start saving money now to get all those coins :)

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Re: Iceland drafts plan for 2011 EU entry

Postby theeuro on 18 Nov 2008, 18:38

Miguel.mateo wrote:Oh, so pegging the krone will not help them, they have to be in the ERM II, which is way more than just pegging their currency to the euro. In thatcase, I do not understand the hurry, unless they do expect a lot of problems intwo/three years. But hey, I am in favour of the EU, so welcome Iceland and anyone else interested! And if the year 2012 is going to be a major expansion, I better start saving money now to get all those coins :)

Miguel


Apparently, the hurry lies with the supposition that Euro adoption, or a clear road to adoption, could result in a quicker economic recovery. If problems are expected in two-three years, the ECB would not allow Euro adoption. This is something that Iceland has been considering for at least the last three years, with varying degrees of intensity. The present crisis only re-affirms the desire to seek membership and serves to help quiet any critics of the move toward Euro adoption.

One can hardly argue that EMU members would be better off in this crisis without the Euro. For the moment, the general feeling among many Europeans is this: without the Euro, this crisis could have been far worse for everyone. One can hardly argue that the crisis is severe and there are a great many people who have suffered a great deal because of it. With the Euro, though, all of Europe moves toward recovery in unison, step-by-step, thus mitigating to a large degree the damage that a crisis such as this incurs.

In fact, I expect Europe to recover much, much more quickly than the US. And in the 10th year of the EMU, the Euro will finally prove itself to detractors and dissenters as a viable currency able to withstand an economic crisis of disastrous proportions.
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Re: Iceland drafts plan for 2011 EU entry

Postby Miguel.mateo on 06 Dec 2008, 04:02

I read from an Icelander source that the government denied what the EU Observer wrote. Unfortunately my source is in Icelandic, but some how says:

"I have seen no files, memos or working documents where dates are discussed in a connection with a membership application to the EU. The EUobserver news to that effect is simply wrong. There is no draft for an EU membership application here in the ministry"

This was said by Urður Gunnarsdóttir, press secretary of the Iceland foreign ministry. Have we heard anything similar from any other EU sources?

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Re: Iceland drafts plan for 2011 EU entry

Postby theeuro on 06 Dec 2008, 07:21

Miguel.mateo wrote:I read from an Icelander source that the government denied what the EU Observer wrote. Unfortunately my source is in Icelandic, but some how says:

"I have seen no files, memos or working documents where dates are discussed in a connection with a membership application to the EU. The EUobserver news to that effect is simply wrong. There is no draft for an EU membership application here in the ministry"

This was said by Urður Gunnarsdóttir, press secretary of the Iceland foreign ministry. Have we heard anything similar from any other EU sources?

Thanks,
Miguel


The EUObserver is one of the most trusted sources of information in all of Europe, on a level with Reuters and AP. That an Icelandic FM press secretary is denying the rumors and not a more senior level department may lend itself to the story's authenticity. Just a thought.

Regarding your question, there has been no other sources for the denial of the report. My guess is that not everyone in the government is yet fully aware of the plan, especially if it is still int he draft phase. Iceland's FM has long been an opponent to EU membership.
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Re: Iceland drafts plan for 2011 EU entry

Postby blackev on 06 Dec 2008, 14:44

I thought the EU cannot allow any new members due to the rejection of the Lisbon Treaty.

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Re: Iceland drafts plan for 2011 EU entry

Postby Miguel.mateo on 06 Dec 2008, 17:54

blackev wrote:I thought the EU cannot allow any new members due to the rejection of the Lisbon Treaty.

-blackev


My understanding was that new members are allowed but new members will be somehow different, something in union will be missing for them. Sorry not being to recall exactly what this was.

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Re: Iceland drafts plan for 2011 EU entry

Postby Miguel.mateo on 06 Dec 2008, 17:57

theeuro wrote:
The EUObserver is one of the most trusted sources of information in all of Europe, on a level with Reuters and AP. That an Icelandic FM press secretary is denying the rumors and not a more senior level department may lend itself to the story's authenticity. Just a thought.

Regarding your question, there has been no other sources for the denial of the report. My guess is that not everyone in the government is yet fully aware of the plan, especially if it is still int he draft phase. Iceland's FM has long been an opponent to EU membership.


MdV,

I can not agree with you more, but for the Icelanders is confusing news, this is where I got it from. On top of that the polls did show a radical change in favour of the euro adoption, but recent polls may have been manipulated to show a decrease in such a rush. As you properly said, maybe is some one in the goverment making more rumors against the plan, just to reduce the impact it could have. I think we have no choice but to wait and see ;)

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Re: Iceland drafts plan for 2011 EU entry

Postby Miguel.mateo on 06 Dec 2008, 18:03

BTW, my source is the Morgunblaðið (The Morning Paper), an Icelandic newspaper ... hence Icelanders are hearing two different sounds of the same music ;)

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Re: Iceland drafts plan for 2011 EU entry

Postby $€€ ¥ou £at€r on 03 Jan 2009, 06:55

According to this article I've just read, the latest plan being discussed is to put two public votes in the next year. One is to seek voter permission to begin accession talks. The next vote would be on the issue of joining the EU itself.
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Re: Iceland drafts plan for 2011 EU entry

Postby dblcala on 03 Jan 2009, 08:56

Let's see what 2009 will bring in that matter.
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