On 9 November, the Commission adopted its 2010 Enlargement package. It comprised a Strategy paper, the Opinions on the membership applications by Montenegro and Albania and seven Progress Reports on the other candidate countries and potential candidates, including on Iceland. On Iceland, the Commission concluded that the country meets the political criteria for EU membership and, despite being hit hard by the banking crises, it is well prepared to undertake the pending measures needed to meet the requirements for EU membership.
Ahead of the adoption of the Report, Commissioner Füle stated: "I look forward to progressing steadily in our accession negotiations with Iceland. I am sure that Iceland's accession to the EU would make both the Union and Iceland itself stronger".
Iceland meets the political criteria for EU membership. It is a functioning democracy with strong institutions where the judiciary and the protection of fundamental rights are of a high standard.
Iceland has taken steps to improve its legal framework related to conflict of interest and the financing of political parties, in line with the recommendations made in February 2010 by the European Commission in its Opinion on Iceland's application. The Judiciary Act was also amended to change the rules on the appointment of judges with the aim of further strengthening the independence of the judiciary. However, the effect of these measures needs to be assessed in practice.
The recommendations of the independent Special Investigation Commission, set up to investigate alleged criminal acts in the context of the banking crisis, and the follow-up given at parliamentary level aim to improve the supervision of the Icelandic financial system and streamline the related decision-making process.
Iceland can be considered a functioning market economy. In order to regain the capacity to cope with competitive pressures and market forces within the single market over the medium term, Iceland needs to continue to address some structural weaknesses through appropriate macroeconomic policies and structural reforms.
Following the international economic crisis and the breakdown of the Icelandic financial system in 2008, the economy went into a deep recession which has not ended yet. Unemployment has increased and public finances witnessed a marked deterioration. On the other hand, inflation and interest rates have been gradually and steadily coming down. Iceland's prudent macroeconomic policy mix focuses on exchange rate stabilisation and fiscal consolidation. The IMF programme has been on track.
The reconstruction of the banking sector has progressed, but banks are still suffering from weak asset quality which undermines their ability to finance the economy. Similarly, the process of corporate sector debt restructuring has progressed slowly but the debt overhang is limiting the scope for new investment, holding back the recovery.
The overall level of Iceland's preparedness to meet EU legislative requirements is good due to the country's participation in the European Economic Area and in the Schengen agreement. A satisfactory level of alignment can be noted in most chapters covered by these two agreements.
However, preparations are at an early stage in key areas such as fisheries, agriculture and rural development, environment including whaling, regional policy as well as in food safety, veterinary and phytosanitary policy, where important structural changes are necessary. There are still significant challenges in the fisheries sector where restrictions to the internal market are still in place. Restrictions on capital movement remain a source of concern. The EFTA surveillance authority has launched an infringement procedure on Iceland’s application of the EU Deposit Guarantee Directive. The Icesave dispute remains unsolved.
Also, particular attention is required to ensure that the budget cuts necessary in the context of the economic downturn do not disproportionately affect preparations associated with the process of EU accession.
EU-ICELAND: KEY DATES
-1970: Iceland joins European Free Trade Association (EFTA)
-1973: Free trade agreement with the European Community
-1994: Iceland joins the European Economic Area (EEA)
-2000: Iceland becomes a participant in the Schengen agreement
-July 2009: Application for EU membership
-February 2010: Commission's Opinion on Iceland's application for EU membership
-June 2010: European Council decides to open negotiations with Iceland
-July 2010: Formal opening of the accession negotiations
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