Plan for cash-strapped state to become member by 2011
Iceland will be put on a fast track to joining the European Union to rescue the small Arctic state from financial collapse amid rising expectations that it will apply for membership within months, senior policy-makers in Brussels and Reykjavik have told the Guardian.
Olli Rehn, the European commissioner in charge of enlargement, said: "The EU prefers two countries joining at the same time rather than individually. If Iceland applies shortly and the negotiations are rapid, Croatia and Iceland could join the EU in parallel. On Iceland, I hope I will be busier. It is one of the oldest democracies in the world and its strategic and economic positions would be an asset to the EU."
Rehn's support for swift Icelandic membership was echoed by senior European diplomats in Brussels. "We would like to see Iceland join the EU," said one. The current and next holders of the EU presidency, the Czechs and then the Swedes, are also strong supporters of EU enlargement and will deploy their agenda-setting powers to help Iceland.
The conservative government in Reykjavik, in power for 18 years, collapsed this week, the first government to fall as a result of the financial meltdown which has wrecked the Icelandic currency, the krona, wiped out savings and pensions, required a massive IMF bailout, sparked unprecedented riots in Reykjavik, and forced the formation of a caretaker centre-left government until new elections can be held, probably on 9 May.
EU membership will be a central theme of the election campaign, with the social democrats - the senior partner in the coalition interim government with the anti-EU Left Greens - pushing to join the EU and to swap the krona for the single European currency as soon as possible.
"The krona is dead. We need a new currency. The only serious option is the euro," said a senior Icelandic official.
The financial disaster in Iceland has triggered extreme volatility among voters. While there is support for joining the euro as a currency safe haven to protect Iceland from a battering by the markets, there is less enthusiasm for full EU membership, particularly among those in the vital fishing sector. This factor has fuelled talk of "unilateral euroisation", meaning that Iceland might join or use the single currency without being admitted to the EU. This is dismissed in Brussels as nonsense.
Though deeply indebted and in dire straits, the Icelandic economy is minuscule compared with the main EU member states and therefore unlikely to prove a destabilising force. Iceland has already secured a multibillion pound IMF loan and is unlikely to prove a drain on the EU budget.
But joining the euro is a different question. Despite growing sentiment in Iceland that Brussels and the single currency might be the remedy to the worst crisis the country has seen, the road to the euro is likely to be fraught with problems because of the strict rules governing the eurozone under the Maastrict treaty. Although the economic and financial crisis has seen a loosening of the single currency rulebook, current Icelandic interest rates of 18% would pose big problems for mainstream single currency members.
Already Christian Democrats in the Netherlands, the party of the prime minister, are coupling their hostility with Turkey's membership of the EU to criticism of Iceland's ambitions. Such hostility might increase but senior figures in the European commission believe that Reykjavik brings more assets than liabilities to the EU.
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