From a speech by Foreign Minister Haarde at the University of Iceland March 31, 2006

When Iceland, back in the early 1990s, opted for the EEA as a long term basis for its relations with the Union, it was because EU membership presented serious problems. The single most important argument made against joining related to the Common Fisheries Policy. The disadvantages of membership were generally considered so obvious that the decision to stay outside the EU hardly caused any political controversy here at that time although membership in the EEA was a major bone of political contention back in 1992 and ‘93. So, by the way, was EFTA membership in 1970. Today the EEA is not a politically contested issue in this country. Membership in the EU is not and has never really been a serious issue in the political debate in Iceland. Some people seem to think, however, that it might be possible to put negotiations with the EU “to the test”, as it is frased, meaning that we should ask for membership negotiations just to see what the outcome might be. One assumption behind this way of thinking is that Iceland would be able to obtain permanent exemptions, in particular from the Common Fisheries Policy. This is simply not correct.

To begin with, the main principle in accession negotiations with the EU is that permanent exemptions are not granted from its policies. The basic rule of the Common Fisheries Policy is that major fisheries management decisions are made not by member countries but by EU institutions. Should Iceland join the EU, regulatory powers in the field of fisheries move irretrievably to Brussels. Even if the fisheries commissioner would be an Icelandic national he or she would be bound by the principles of the common policy.

This whole idea is obviously unacceptable to Iceland.

In membership negotiations with Iceland, the EU would most likely make demands for access to Icelandic waters for fishing vessels from Member States. The principle of freedom of establishment could easily lead to the so called “quota hopping” problem, which would give EU fishing companies access through the back door to Icelandic waters.

The problem is not merely that key decisions would be transferred to Brussels, nor that other EU countries’ fleets would enter our waters aided by the phenomenon of “quota hopping”. Just as important is the fact that the entire operating environment for fisheries within the EU is completely different from that in Iceland. In the EU, fisheries are largely regarded as a branch of regional development. Iceland, however, has no alternative but to operate its fisheries as a sustainable business sector.

A further consequence of membership would - due to a number of factors, including our standard of living and high national income - be that Icelanders would pay many billions of krónur more into the EU´s coffers than they would receive.

There are those who say that the Icelandic public would still gain as the price of food would go down should Iceland enter the EU. But we need not join for such purpose - and pay as a consequence huge amounts of money into EU funds - since we obviously have our own means, if we so choose, to reduce taxes, tariffs and other protective import restrictions on various agricultural products. That will in any case most probably happen through WTO arrangements.

It is also maintained that the admittedly high interest rates here would go down with membership of the EU and the Euro. There is, of course, no question that a small economy has to pay a certain price for keeping an independent currency. Interest rates have always been higher in Iceland than in most of the EU, for example. But Iceland has also experienced stronger economic growth than most EU countries, with very little unemployment.

If Iceland were a member of the eurozone, the interest rate here would almost inevitably be contrary to the requirements of our monetary policy. We have had strong economic growth for many years and we have needed to respond to inflationary pressures in the economy by raising interest rates. It is indeed unlikely, to say the least, that economic growth would be stymied in Germany, for instance, in order to keep the spectre of inflation at bay in Iceland.

Iceland´s exports of goods are not particularly diversified and are still dominated by fisheries products. This structural characteristic of our economy would make monetary union particularly risky. The exchange rate of the euro would obviously never be influenced by what might be happening in the Icelandic economy. It is, of course, too small for that.

We would face severe problems if, for example, our fisheries sector underwent a downswing at the same time as an economic upswing was taking place in the bigger countries in Europe. The euro would strengthen at the same time as the Icelandic economy was weakening and in need of a weaker, not stronger, currency. It is not difficult to imagine the consequences of such a scenario for us.

More problems would thus be created than solved. The challenge for us is to keep our own economic affairs in order rather than look for panaceas within the EU. If we succeed in that, economic stability will be ensured.

The Foreign Ministry