Saturday, August 29, 2009

The iceing on the cake

With the approval by the Icelandic Parliament of arrangements to pay back money owed by failed Icelandic banks to depositors in the UK and the Netherlands, the way is now clear for Iceland's application to join the EU to proceed.

The opening of negotiations has already been approved by the Parliament, but membership would have to be approved by a national referendum and approval rates have been dropping sharply as the nation's population consider that they have been harshly treated by the international community for the failures of a few financiers.

Fish is normally seen as the main obstacle to Icelandic membership, but agriculture also poses many challenges. Iceland has a PSE of around 70 per cent, one of the highest in the OECD (along with Norway and Switzerland, although reforms have been introduced in the latter country) and twice the OECD average. The OECD has commented that since the last 1980s there has been limited progress in policy reform with only a slight drop in levels of producer support.

Sheep farming has been the main activity, but this has been in decline. Scarcely any crops are grown in the country. There are around five hundred dairy farms, presumably to ensure a liquid milk supply given the country's isolation. At least until recently, dairy prices were still administered.

The EU's net trade balance with Iceland is just over €150m for agricultural and food exports. The value of EU food exports has risen 25 per cent in the last four years. However, there is a trade deficit of more than €1bn in fish products.

In any negotiations account has to be taken of Iceland's special circumstances in terms of climate and location. There is no doubt that agriculture as well as fish is a sensitive subject in terms of the already wounded national pride of the Icelandic nation. The main potential gain for Iceland is membership of the euro and relief for their own battered currency.

We shall be paying special attention to negotiations as they proceed.

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