Tuesday, July 27, 2010 Publisher: Íslandsbanki Research - greining@islandsbanki.is - Resp.Editor: Ingólfur Bender

European Union: Membership talks to begin today

Formal membership discussions between the European Union and the Icelandic authorities are slated to begin today, just over a year after Iceland's Parliament decided to apply for EU membership. The talks open today with an intergovernmental conference held in Brussels. The conference will be attended by representatives of Iceland and the EU Member States; Stefan Füle from the Czech Republic, the current EU Commissioner for Enlargement; and the Belgian Minister of Foreign Affairs, as Belgium currently holds the presidency of the EU Consilium, or council of ministers.

 Accession talks are expected to take some 12-18 months. The accession negotiations are divided into 35 chapters, categorised by content. The first 34 chapters centre on EU legislation, by chapter, while the last covers other issues and is usually used to tie up loose ends in the discussions. Iceland's EU experts are of the opinion that the first 20 chapters of the negotiations will be concluded quickly, as virtually all of them are covered by the EEA Agreement. The next phase involves the sections of medium difficulty, centring on regulatory provisions that are of limited importance to Iceland and its circumstances. The final phase focuses on issues that are few in number but are of greatest significance for Iceland, such as those related to the fishing industry. When negotiations are concluded and a membership agreement prepared, the Icelandic nation will vote on it in a referendum taking place in the second half of 2011 at the earliest, and probably not until 2012. It is not a given that Icelanders will approve membership once the negotiation process is complete, although most countries do. Norway has rejected EU membership twice in national referenda, first in 1972 and again in 1994.

Massive changes in a single year
It is clear that circumstances have changed dramatically in the year since Parliament agreed to apply for EU membership. In the first place, popular support in Iceland for EU membership has plummeted, in a turnaround so dramatic that EU leaders themselves have made public mention of their concerns about it. In October 2008, shortly after Iceland's economic collapse, a poll conducted by Capacent Gallup showed 65.5% of Icelanders in favour of joining the EU. In a similar poll taken early this month, however, 60% of the population were opposed to membership.

Iceland's political parties have adopted clearer policy on EU membership than they did a year ago. For example, the Independence Party (IP) wants to withdraw Iceland's application immediately. This resolution, passed by the IP National Convention early this summer, supplanted a much more neutral resolution stating that the nation should vote on the matter. The Left-Green Movement (LG) believes Iceland's interests are best protected outside the EU but favours a national plebiscite to decide the issue, while the Progressive Party (PP) and the Social Democratic Alliance (SDA) are in favour of EU membership, according to the resolutions adopted at their national conventions. In the final analysis, however, the political parties official stance on joining the EU is of little importance. The subject is clearly a multipartisan issue that defies party lines. Apparently, Members of Parliament from all parties are ready to vote according to their own convictions on the matter, and only one party seems to be unanimous in its position on the EU.

Difficult times in Europe
It is likely that Iceland's growing opposition to EU membership stems partly from the Icesave affair and the conduct of certain EU Member States in that dispute. Another likely factor is the radical change in Europe's economic affairs and the difficulties faced by individual EU Member States. It is safe to say that the financial crisis has been a tough testing ground for the EU, with the final result of that test still uncertain. The foundations of the EU have weakened considerably in the past year, and the future of both European co-operation and the euro has been the focus of discussion to an unprecedented degree. This discussion is most positive and is enormously important for Icelanders, who may be in a position to vote on the EU within a very few years.

News
OMX ICEX, 7/26/2010
Category Volume
Bonds 1
Equities 236
Total 237
Icelandic Bonds, 7/26/2010
ID Vol. Yield Day.ch.
HFF150914 0 3.15% 5
HFF150224 1 3.49% -5
RIKB 10 1210 41 0
RIKB 11 0722 37 0
RIKB 13 0517 1 4.34% 3
RIKB 19 0226 12 5.96% -1
RIKB 25 0612 140 6.05% -6
REIBOR Market, 7/26/2010
Term REIBID REIBOR
O/N 6.50% 7.00%
SW 6.50% 7.00%
1M 7.10% 7.50%
3M 6.80% 7.05%
6M 6.35% 6.70%
12M 6.10% 6.35%
Exchange Rates, 7/26/2010
  pr.ISK 3m.Libor 3m.fwd.
USD 120.51 0.48% 1.9
GBP 187.65 0.74% 2.9
JPY 1.38 0.24% 0.0
EUR 157.09 0.83% 2.4
Vt. ISK 212.35 0.85% 3.2
Currency Crosses, 7/27/2010
  EUR GBP USD
GBP 0.837    
USD 1.304 1.557  
CHF 1.378 1.646 1.057
JPY 114.040 136.225 87.485
NOK 8.001 9.557 6.138
SEK 9.463 11.304 7.260
Icelandic Equities, 7/26/2010
ID Vol. Yield Day.ch.
OSSR 1 190.00 0.00%
FO-EIK 0 82.00 0.00%
FO-BANK 0 144.00 0.00%
MARL 0 93.40 0.00%
FO-AIR 0 117.00 0.00%
Volume in ISK m.
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