Iceland already has a robust relationship with the European Union. It is a member of the European Economic Area, which gives it access to the EU internal market. It is also part of the Schengen Area, which makes travel within Europe easier for Icelanders since there are no internal border controls. Seventy-eight percent of Iceland's exports go to the European Union, and approximately half of its imports come from the bloc. This strong orientation toward Europe makes it easier for Iceland to advance in its EU accession talks.
Iceland has especially strong cultural and political ties with the other Nordic countries (Norway, Sweden, Denmark and Finland), because the island was part of the Norwegian and Danish monarchies between the 13th and 20th centuries. During the financial crisis, the Nordic countries supported Iceland by granting a loan to supplement the one the country received from the International Monetary Fund. Iceland's EU accession process is connected to other Nordic countries; it applied for membership during Sweden's EU presidency and concluded negotiations on several policy areas during Denmark's EU presidency in the first half of 2012.
Additionally, because of its small population, Iceland does not have its own armed forces. It relies on foreign defense support derived from its NATO membership and enhanced defense collaboration with the other Nordic countries under the Nordic Defense Cooperation organization.
Challenges to Accession
Iceland's EU accession has progressed rapidly but the process still faces several obstacles. The main dispute concerns fishing rights. According to the Europeans, Iceland has made significant progress in several policy areas required to join the bloc but still has to make reforms to its fisheries sector.
EU members share fishing waters under the union's common fisheries policy, with national quotas agreed upon every year. In Iceland, however, a strong fisheries lobby opposes surrendering exclusive access to fishing grounds to other European states. Iceland depends greatly on its fishing industry, and Reykjavik grants its fishers higher fishing quotas. In the past, the fisheries issue created tensions between Iceland and other North Atlantic fishing countries, such as the United Kingdom, Ireland and Spain.
The other area of concern is Iceland's ongoing dispute with the United Kingdom and the Netherlands. After Iceland's banking sector collapsed in 2008, the United Kingdom and the Netherlands covered the losses their citizens incurred from the bankruptcy of Icelandic bank Icesave; Iceland had refused to cover foreigners' deposits under a deposit guarantee. London and The Hague are still in a dispute with Reykjavik over the matter and want Iceland to cover the resulting costs for the two governments. The Court of the European Free Trade Association is discussing the case and will render a final resolution. In April, members of the opposition Progressive Party in Iceland requested that Reykjavik halt accession talks until the issue was resolved.
Despite Iceland's disputes with EU member countries, its accession talks probably will advance faster than those of other candidate countries. The already strong economic integration and regional support from Nordic countries are facilitating the talks. Moreover, Iceland's location makes it geopolitically significant for Europe, particularly in light of the growing relevance of the Arctic area. China recently has shown interest in the Arctic region, and several Canadian officials recently said they might welcome Iceland's choosing the Canadian dollar as legal tender. Given this sudden interest in the Arctic, and Iceland in particular, Europe (and especially the other Nordic countries) will work to secure Iceland's orientation.
Iceland's Main Obstacle
The biggest challenge to Iceland's EU membership is domestic opposition. Polls consistently show that the majority of the Icelandic population opposes EU membership. Since the country already has access to the common market, the population does not see the benefits of joining the European Union, especially if doing so would cause the domestic fishing industry to suffer. When it joined the European Free Trade Area, Iceland was given exceptions on agriculture and fisheries, which means that Reykjavik does not have to make economic concessions in those sensitive areas. Iceland would have to renegotiate these concessions if it joined the European Union.
Iceland already enjoys most of the benefits of EU membership, such as the free movement of people, goods and services, and the country has earned these without making concessions that would harm its fishing industry. Moreover, Iceland's need to adopt another currency could be met without entering the eurozone, as the country could unilaterally adopt another currency.
The final decision on Iceland's EU accession will come at the hands of the country's voters in a referendum planned for 2013. Regardless of the outcome, Iceland's close ties to Europe will remain intact. Also, Reykjavik will be able to continue counting on foreign assistance, especially from the Nordic countries, because of Iceland's strategic location.