Communication from the Commission to the European Parliament and the Council Commission Opinion on Iceland's application for membership of the European Union {SEC(2010) 153}
Date: 2010-02-24
Institutions: European Commission
Subjects: EC opinion, European Commission, Iceland, accession criteria, accession to the European Union

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EUROPEAN COMMISSION 

Brussels, 24.2.2010 
COM(2010) 62 final 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

Commission Opinion on Iceland's application for membership of the European Union 

{SEC(2010) 153} 

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

Commission Opinion on Iceland's application for membership of the European Union 

A. 

a) 

INTRODUCTION 

Application for membership 

Iceland  presented  its  application  for  membership  of  the  European  Union  on  17  July  2009. 
Subsequently,  on  27  July,  the  Council  of  the  European  Union  requested  the  Commission  to 
submit its opinion on this application, in line with the procedure laid down in Article 49 of the 
Treaty  on  European  Union,  which  currently  states:  ‘Any  European  State  which  respects  the 
values  referred  to  in  Article  2  and  is  committed  to  promoting  them  may  apply  to  become  a 
member of the Union. The European Parliament and national Parliaments shall be notified of 
this application. The applicant State shall address its application to the Council, which shall 
act  unanimously  after  consulting  the  Commission  and  after  receiving  the  consent  of  the 
European  Parliament,  which  shall  act  by  a  majority  of  its  component  members.  The 
conditions of eligibility agreed upon by the European Council shall be taken into account’. 

Article  2  states  that  ‘the  Union  is  founded  on  the  values  of  respect  for  human  dignity, 
freedom,  democracy,  equality,  the  rule  of  law  and  respect  for  human  rights,  including  the 
rights of persons belonging to minorities. These values are common to the Member States in a 
society  in  which  pluralism,  non-discrimination,  tolerance,  justice,  solidarity  and  equality 
between women and men prevail’. 

In Copenhagen in June 1993, the European Council concluded that: 

Accession  will  take  place  as  soon  as  a  country  is  able  to  assume  the  obligations  of 
membership by satisfying the economic and political conditions required. 

Membership requires:  

–  that  the  candidate  country  has  achieved  stability  of  institutions  guaranteeing  democracy, 

the rule of law, human rights and respect for and protection of minorities;  

–  the  existence  of  a  functioning  market  economy,  as  well  as  the  capacity  to  cope  with 

competitive pressure and market forces within the Union; 

–  the  ability  to  take  on  the  obligations  of  membership  including  adherence  to  the  aims  of 

political, economic and monetary union.  

The Union’s capacity to absorb new members, while maintaining the momentum of European 
integration, is also an important consideration in the general interest of both the Union and the 
candidate countries. 

In December 1995, the Madrid European Council referred to the need ‘to create the conditions 
for  the  gradual,  harmonious  integration  of  [the applicant] countries, particularly through the 

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development of the market economy, the adjustment of their administrative structures and the 
creation of a stable economic and monetary environment’. 

In  December  2006,  the  European  Council  agreed  that  ‘the  enlargement  strategy  based  on 
consolidation,  conditionality  and  communication,  combined  with  the  EU’s  capacity  to 
integrate new members, forms the basis for a renewed consensus on enlargement’. 

In  the  present  opinion,  the  Commission  analyses  Iceland’s  application  on  the  basis  of  the 
country’s capacity to meet the criteria set by the Copenhagen European Council of 1993. The 
method followed in preparing this opinion is the same as used in previous opinions, mutatis 
mutandis.  The  Commission  has  analysed  both  the  present  situation  and  the  medium-term 
prospects.  For  the  purpose  of  this  opinion  and  without  prejudging  any  future  date  of 
accession, the medium-term has been defined as a period of three years. 

In  line  with  the  renewed  consensus  on  enlargement,  the  present  opinion  also  identifies  key 
policy  areas  likely  to  require  particular  attention  in  the  event  of  Iceland’s  accession  and 
provides initial impact estimates with regard to key policies and sectors. The Commission will 
provide more detailed impact assessments for these key policy areas at later stages of the pre-
accession  process.  In  addition,  Iceland’s  accession  Treaty  would  involve  a  technical 
adaptation of the EU institutions in the light of the Lisbon Treaty, as well as the recognition of 
Icelandic as an official language of the EU.  

The report containing the detailed analysis on which the opinion is based is made public as a 
separate document (Analytical Report for the Opinion on the application from Iceland for EU 
membership1).  

b) 

Recent developments 

The  last  two  years  have  been  challenging  for  Iceland.  In  the  context  of  the  global  financial 
crisis, its banking system collapsed in October 2008 with severe economic impact and social 
consequences.  The  crisis  led  to  significant  economic  contraction,  caused  considerable 
hardship for the population and triggered a series of political developments. 

In January 2009, the Prime Minister resigned and early parliamentary elections were called. 
General elections took place in April 2009, resulting in a coalition government of the Social 
Democratic  Alliance  and  the  Left-Green  Movement.  In  July  2009,  on  a  proposal  by  the 
government,  the  Icelandic  parliament  voted  in  favour  of  applying  to  join  the  EU.  Public 
opinion and political parties in Iceland are divided on the question of EU membership.  

On  5  January  2010,  following  a  petition  signed  by  25%  of  the  electorate,  the  Icelandic 
President withheld his signature on the law setting the arrangements for repayment of a € 3.9 
billion  loan  to  the  governments  of  the  United  Kingdom  and  the  Netherlands,  known  as  the 
Icesave  bill2,  as  approved  by  the  parliament  on  30  December  2009  after  months  of  heated 
debate. In line with Article 26 of the constitution, a referendum has been called on that law for 
6 March 2010. 

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SEC(2010) 153. 
The ‘Icesave bill’ authorises the Icelandic Minister of Finance, on behalf of the State Treasury, to issue 
a state guarantee on the € 3.9bn loans granted by the governments of the UK and the Netherlands to the 
Depositors’  and  Investors’  Guarantee  Fund  of  Iceland.  The  purpose  of  the  loans  is  to  reimburse  the 
British and Dutch governments for the compensation already provided to their citizens holding savings 
accounts in the Icesave online wing of Landsbanki Íslands hf.  

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c) 

Relations between the EU and Iceland 

Iceland became an independent republic on 17 June 1944.  

Iceland and the European Union have been cooperating extensively across a broad range of 
areas over the last forty years.  

Iceland  joined  the  European  Free  Trade  Association  in  1970  and  has  been  a  party  to  the 
Agreement  on  the  European  Economic  Area  (EEA)  since  its  entry  into  force  in  1994.  The 
EEA provides a framework for regular meetings between Iceland and the EU at political level, 
including the twice-yearly EEA Council meeting of Foreign Ministers. 

Participating in the single market for over 15 years through the EEA Agreement, Iceland has 
adopted a significant part of European Union law. The EFTA Surveillance Authority (ESA) 
regularly  monitors  Iceland's  performance  under  the  EEA  Agreement.  Overall,  Iceland  has  a 
satisfactory track record in implementing its EEA obligations. Some shortfalls that will have 
to  be  addressed  at  an  early  stage  have  been  identified,  notably  in  areas  such  as  financial 
services,  food  safety  and  the  free  movement  of  capital  and  are  described  under  the  relevant 
chapters  in  Part  3  of  the  analytical  report.  Against  the  background  of  the  financial  crisis, 
Iceland  invoked  the  exceptional  balance  of  payments  safeguards  allowed  for  non-Eurozone 
countries.  These  temporary  safeguards  –  some  of  which  were  lifted  in  November  2009  - 
restrict capital flows between Iceland and EU/EEA members.  

Starting in 1981, regular meetings have taken place between the European Parliament and the 
Committee  of  Members  of  Parliament  of  EFTA  Countries.  Since  the  entry  into  force  of  the 
EEA  Agreement,  these  relations  have  been  institutionalised  in  the  EEA  Joint  Parliamentary 
Committee. In addition, bilateral meetings between Icelandic parliamentarians and Members 
of the European Parliament take place on a regular basis. 

Iceland  has  been  associated  with  the  development  of  the  Schengen  agreements  since  19963 
and  has  applied  its  provisions  since  2001.  This  means  that  Iceland  has  abolished  border 
controls with other Schengen area countries. Common rules and procedures are applied with 
regard to visas for short stays and external border controls. Iceland participates in extensive 
cooperation  and  coordination  among  police  services  and  judicial  authorities  within  the 
Schengen area. 

Iceland is associated to the Dublin Regulation, which establishes criteria and mechanisms for 
dealing with asylum requests4.  

As regards trade relations, Iceland became a member of the GATT in 1968 and is a founding 
member of the World Trade Organisation. In addition to its membership of the European Free 
Trade  Association  (EFTA)  and  the  Agreement  on  the  European  Economic  Area  (EEA), 
Iceland has free trade agreements - along with complementary bilateral agreements on basic 
agricultural products - in force with sixteen third countries within the framework of EFTA, as 
well as four additional ones, still to enter into force. In addition, a bilateral trade agreement 

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The Agreement on Iceland’s association with the implementation, application and development of the 
Schengen  acquis,  as  based  on  Council  Decision  1999/439/EC  of  17  May  1999,  was  signed  between 
Iceland and the EU on 18 May 1999. Council Decision 2000/777/EC of 1 December 2000 provides for 
the application of the Schengen acquis arrangements to the five countries of the Nordic Passport Union, 
including Iceland, as from 25 March 2001. 
Council Decision 2001/258/EC. 

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and  a  complementary  agreement  on  basic  agricultural  products  relating  to  the  EEA-
Agreement is in force with the EU.  

In 2008, more than 54 % of Iceland’s imports came from the EU and 76 % of its exports went 
to the EU.  

Iceland  contributes  to  reducing  social  and  economic  disparities  in  Europe  through  the  EEA 
Grants5.  For  the  period  2004-2009,  Iceland  provided  approximately  € 29 million  for  project 
funding in a number of EU Member States through EEA Grants. 

Following  Iceland’s  membership  application,  the  Commission  proposed  that  Iceland  be 
included  as  a  beneficiary  of  pre-accession  financial  support  under  the  Instrument  for  Pre-
Accession  Assistance  (IPA).  Such  support  would  foster  institution  and  capacity  building  to 
allow  smooth  implementation  of  the  acquis,  especially  in  areas  not  covered  by  the  EEA, 
mainly through the Technical Assistance and Information Exchange Instrument (TAIEX) and 
twinning. 

B. 

CRITERIA FOR MEMBERSHIP 

1. 

POLITICAL CRITERIA 

Iceland is a functioning democracy with strong institutions. It is a parliamentary republic with 
deeply rooted traditions of representative democracy and division of powers. Its constitutional 
and legal order and governing institutions are stable.  

The separation of powers between the legislature, the executive and the judiciary is respected. 
The government is subject to effective parliamentary control; its ministers are accountable for 
their acts. Municipal authorities function efficiently. 

Iceland’s  judiciary  is  of  a  high  standard  and  the  judicial  system  is  well  established.  The 
effective independence of the judiciary, in particular the procedure for judicial appointments, 
is, however, a matter of concern. 

Iceland’s public administration is, in general, efficient and free from political interference. A 
public administration reform process was initiated in October 2009.  

Following the financial crisis, certain questions have been raised concerning possible conflicts 
of  interest  in  Iceland’s  public  life,  such  as  close  links  between  the  political  class  and  the 
business  community,  especially  in  light  of  the  country’s  small  population  and  isolated 
location. Immediately following the crisis, a Special Investigation Commission and a Special 
Prosecutor were set up to investigate and prosecute alleged criminal acts in the context of the 
bank  collapse.  Investigations  are  under  way.  Against  this  background,  mechanisms  will, 
where appropriate, need to be strengthened to reduce the scope for conflict of interest. 

Iceland has a comprehensive system for safeguarding fundamental rights and there is a high 
level of cooperation with international mechanisms for the protection of human rights. 

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The ‘EEA and Norway Grants’ are Iceland’s, Liechtenstein’s and Norway’s contribution to the wider 
European cohesion efforts. The EEA Grants are contributions funded jointly by Iceland, Liechtenstein 
and Norway, while the Norway Grants are funded by Norway alone. 

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2. 

ECONOMIC CRITERIA 

Iceland is a small open economy and a member of the EEA since 1994. As an EEA member, 
Iceland  is  well  integrated  into  the  EU  economy.  During  the  1990s  and  for  most  of  the  past 
decade, it restructured its economy, mostly through deregulation and liberalisation. It moved 
from  an  economy  based  mainly  on  the  fishing  sector to being more  diversified  with  a large 
and  open  financial  sector.  Given  the  degree  of  exposure  of  Icelandic  banks  and  the  lack  of 
adequate  financial  sector  supervision,  in  the  context  of  global  financial  turmoil,  Iceland’s 
banking sector collapsed in 2008, pushing the economy into a monetary and financial crisis 
which  led  to  deep  recession.  The  government  subsequently  sought  the  assistance  of  the 
international  community,  including  the  IMF,  to  support  the  currency  and  re-establish 
sustainable macroeconomic stability. The IMF stand-by arrangement for €
 1.4 billion focuses 
on currency stability, fiscal consolidation and bank restructuring.  

The gravity of the economic crisis and the resulting political situation in Iceland delayed the 
implementation  of  the  IMF  programme.  However,  since  summer  2009,  a  broad  consensus 
about the fundamentals for recovery has been reached. The authorities have taken important 
economic stabilisation measures, aimed at fiscal consolidation, exchange rate stabilisation and 
financial  sector  restructuring.  The  first  positive  results  of  these  measures  are  starting  to 
emerge.  Iceland  has  a  relatively  flexible  labour  market  with  high  participation  rates,  a 
relatively young working population and a well managed and robust resource base.  

However, macroeconomic stabilisation is not yet complete. In response to the crisis and as a 
consequence of the public takeover of the failed banks, the government deficit rose to 14.4 % 
of  GDP  in  2009.  In  the  same  year,  the  gross  public  debt  reached  130 %  of  GDP,  a  third  of 
which  is  due  to  the  Icesave  debts.  Fiscal  consolidation  remains  a  key  challenge.  Public  and 
private  debts  require  far-reaching  and  sustainable  restructuring  in  order  to  enable  recovery. 
The completion of financial sector restructuring as well as the substantial improvement of the 
regulatory  and  supervisory  institutional  framework  and  practices  are  among  the  key 
challenges to be addressed in the short term. Further diversification of the economy and the 
the  country’s 
implementation  of  a  number  of  structural  reforms  would 
competitiveness. 

improve 

3. 

ABILITY TO ASSUME THE OBLIGATIONS OF MEMBERSHIP 

Iceland’s  ability  to  assume  the  detailed  obligations  of  membership  has  been  evaluated 
according to the following indicators: 

–  The obligations under the EEA Agreement; 

–  The  level  of  alignment,  implementation  and  enforcement  of  the  acquis  outside  the  EEA 

Agreement. 

In general, Iceland has a satisfactory track record in implementing its EEA obligations.  

According  to  the  EFTA  Surveillance  Authority  (ESA),  the  percentage  of  internal  market 
legislation introduced into national legislation as required by July 2009 is at the same level as 

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the  average  for  EU  Member  States.  The  total  number  of  infringement  proceedings6  against 
Iceland  decreased  significantly  in  recent  months.  ESA's  investigation  into  the  emergency 
legislation and actions taken by Iceland in the aftermath of the banking collapse, including its 
compatibility with EEA law, is ongoing. 

Iceland is on the whole well prepared to assume the obligations of membership in most areas, 
in particular fields covered by the EEA.  

In the following areas, Iceland will need to make serious efforts to align its legislation with 
the acquis and/or to implement and enforce it effectively in the medium term in order to meet 
in  due  course  the  accession  criteria:  fisheries;  agriculture  and  rural  development;  the 
environment; free movement of capital; financial services; as well as customs union; taxation; 
statistics; food safety, veterinary and phytosanitary policy; regional policy and coordination of 
structural instruments; financial control. 

C. 

CONCLUSION AND RECOMMENDATION 

Iceland is a parliamentary republic with deeply rooted traditions of representative democracy. 
Its  institutions  are  effective  and  respect  the  limits  of  their  competences.  Iceland's 
constitutional  and  legal  order  is  stable.  The  rule  of  law  and  respect  for  human  rights  are 
guaranteed.  The  Icelandic  authorities  need  to  make  further  efforts  to  strengthen  the 
independence  of  the  judiciary,  especially  regarding  the  procedure  for  judicial  appointments. 
Mechanisms to prevent conflicts of interest need to be strengthened. Overall the Commission 
considers  that  the  country  satisfies  the  political  criteria  set  by  the  Copenhagen  European 
Council in 1993. 

As regards the economic  criteria, Iceland can be considered a functioning market economy. 
The functioning of the markets has been seriously affected by macroeconomic imbalances and 
certain  structural  and  regulatory  weaknesses,  exacerbated  by  the  global  economic  and 
financial crisis. In order to address existing vulnerabilities, agreed reform measures and policy 
adjustments  need  to  be  strictly  implemented.  Before  the  crisis,  the  country  proved  able  to 
withstand  competitive  pressures  and  market  forces  within  the  European  Economic  Area 
(EEA). Bearing this in mind, Iceland should be able to cope with competitive pressures and 
market  forces  within  the  Union  in  the  medium  term  provided  it  swiftly  implements  the 
necessary policy measures and structural reforms. 

The country has a generally satisfactory track record in implementing its obligations under the 
EEA,  of  which  it  has  been  a  member  since  1994.  Iceland  is  well  prepared  to  take  on  the 
obligations of membership in the medium term, particularly in the fields covered by the EEA, 
and,  on  the  path  towards  accession,  Iceland  needs  to  continue  to  fulfil  these  obligations. 
Efforts to align legislation with the acquis and to ensure its implementation and enforcement 
need  to  continue.  Serious  efforts  will  be  required  particularly  in  the  areas  of  fisheries, 
agriculture  and  rural  development,  environment,  free  movement  of  capital,  and  financial 
services in order to meet the accession criteria.  

Iceland's accession would have a limited overall impact on the European Union and would not 
affect the Union's capacity to maintain and deepen its own development.  

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For  cases  concerning  lack  of  conformity  with  or  incorrect  application  of  EEA  provisions,  as  well  as 
legislation not at all or not fully transposed. 

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In  the  light  of  these  considerations,  the  Commission  recommends  that  negotiations  for 
accession to the European Union should be opened with Iceland. 

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