Iceland seeks EU membership benefits, but fishing and Icesave remain thorny issues

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For example, it would face less barriers to trade, receive access to EU financial assistance, and participate in EU decision making, said Natascha Gewaltig, director of European economics at Action Economics.

Stephen Webster, principal of Topecon, an independent economic consultancy, added that joining the EU would probably give Iceland a better sovereign credit rating and secure it better access to capital markets, which is a crucial consideration because of Iceland's shaky economy and financial system.

Icesave

A particularly delicate matter during EU negotiations will likely concern Icesave. During the financial crisis, Icesave, one of the biggest banks in Iceland, collapsed and could not back pay its depositors from the U.K. and the Netherlands. The U.K. and the Netherlands are now owed some 3.8 billion euros, but the Icelandic government is refusing to guarantee that obligation.

Not surprisingly, U.K. and Dutch officials have responded with outrage.

Britain Financial Services Secretary, Baron Paul Myners has warned that if the people of Iceland do not want to guarantee that obligation, then they “would effectively be saying that Iceland doesn't want to be part of the international financial system.”

Webster noted that the Icesave affair “is still an extremely sore point and one reason why negotiations for Icelandic entry...are likely to be very protracted."

“That is still an issue and will have to be resolved once and for all before Iceland can have any chance of joining,” added Gewaltig.

Fishing

Iceland is also very sensitive about its fishing industry, which represents 70 percent of its export income and employs 6 percent of the work force. Webster noted that per capital income from fishing in Iceland is 100 times higher than the EU average.

Iceland's foreign minister Ossur Skarphedinson was quoted by Associated Press as saying that the fishing sector – the lifeblood of the Icelandic economy – is off limits to EU's Common Fisheries Policy. In other words, EU fishermen will not get access to Iceland's waters and Iceland will not adhere to an EU-assigned fishing quota. Iceland is also pro-whaling, which the EU opposes.

Relatively Smooth Process

Despite these very thorny issues, Dragana Ignjatovic, political analyst for Iceland at IHS Global Insight, said that Iceland's negotiations “are likely to be faster and smoother...than other aspiring nations such as Croatia and Turkey.”

She added that “around three-quarters of Icelandic legislation is already harmonized with EU laws due to the island's membership of the European Economic Area.”

Indeed, compared to a country like Turkey, barriers to Iceland's entry seem manageable. Turkey still has many laws that are not yet harmonized with EU laws and it faces serious opposition from France. French President Nicolas Sarkozy said in 2007 that “not all countries have a vocation to become members of Europe, beginning with Turkey which has no place inside the European Union.”