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Heads up – Embassy 24 – April 2010

Rising from the ashes

On the walls of the Icelandic Embassy are British tabloid cartoons of the Cod Wars of the 1950s and 1970s, when Icelandic fishing boats took on the British Navy in a fight over fishing rights in the North Atlantic.

The cartoonists were back at their drawing boards when Iceland’s new Ambassador to London, Benedikt Jonsson, arrived in town. This time they were depicting an ill-tempered row between the two normally likeminded island nations over an alleged £3.3bn debt owed to 400,000 British and Dutch depositors by the Icelandic bank Icesave, which collapsed during the financial meltdown of 2008.

The British government underwrote the debt, used anti-terrorism legislation to freeze Icelandic assets and demanded that the Icelandic government pay up, as required under deposit guarantees in EU legislation. Unhappy with what Icelanders thought were harsh repayment terms (each taxpayer would have to foot a bill of over £10,000), the deal was resoundingly defeated in a referendum last month.

“Icelandic people understand their moral obligation to shoulder their part of responsibilities,” stresses the Ambassador, but he adds: “There is a perception that the repayment terms of the rejected Icesave deal are unfair. There is also the feeling that there is flaw in the EU regulatory framework.

‘Icelanders want to know what their obligations are under EU legislation – does it mean a guarantee for the collapse of a bank, a few banks or a whole financial system? I don’t think those who designed the directive had in mind that it would have to cover the collapse of a whole financial system as has happened in Iceland.”

The ongoing dispute means for the moment much of Jonsson’s time will be consumed by Icelandic delegations visiting London to hammer out another deal.

“The sooner we strike a deal the better,” says the Ambassador, although he admits the timing is not ideal. “The general elections in both the UK and the Netherlands could complicate matters.”

And a failure to come to an agreement may also complicate Iceland’s EU accession negotiations, although the Ambassador hopes the Icesave dispute will be treated as a purely bilateral issue: “It is very clear in the recommendation issued by the Enlargement Commissioner that there is no link made with this dispute and the accession application.”

On paper, Iceland is well qualified to join the EU, but Jonsson says his country does not expect special treatment. “We don’t expect to be fast-tracked into the EU and we don’t know what negotiations will throw up. We know there will be a few areas that may prove difficult – we have no illusions about that.”

Talks over fisheries are predicted to be tough – protecting this resource is one of the main reasons why Iceland has stayed outside the Union for so long, lest other EU countries get access to Iceland’s fish stocks under the EU’s common fisheries policy.

But the Ambassador hopes Iceland could reform the system from within: “It’s a fair assumption that Iceland’s fisheries system is better than the current system of the EU. Many EU members would like to see something of our fisheries management system in a reformed European fisheries policy, Britain included.”

The EU could view other advantages to having Iceland as a member of the club, he adds, not least its cheap, clean energy and its prized gateway to the untapped resources of the Arctic.

How Icelanders feel about joining the EU may be another matter. The EU’s warm embrace in the chill winds of the financial crisis may seem oppressive once their economy recovers, and the Icesave row has served to increase their ambivalence, admits the Ambassador: “Icelanders have asked this question: do we want to belong to a club where the larger EU states can bully us?”

Whatever the uncertainties over the EU, the Ambassador is certain the Icelandic economy has the tools to rebound. “The economic fundamentals are solid and we have defied the doomsday predictions.”

A priority for the Ambassador will be to persuade investors that Iceland remains a good investment opportunity. It is stable and has a highly skilled work force to sustain a knowledge-based economy, he explains, adding that many talented Icelanders also work in the UK.

Fisheries aside, for years the country has been diversifying into areas such as life sciences, IT and, with its abundant source of geothermal power, it is a world leader in energy-intensive green industries.

Its volcanic landscapes and glaciers are also a draw for British tourists – and the financial crisis has made Iceland an affordable destination.

Jonsson, a former permanent secretary, is just the man for the job to sell the country, having served as Iceland’s chief trade negotiator, both at the ministry and as permanent representative to the UN and other international organisations in Geneva, including the WTO and EFTA.

He’s also served in Moscow twice, once during Gorbachev’s glasnost era and again as Ambassador during the Putin era where he witnessed the Russian economy undergo severe turmoil and emerge stronger.

Ambassador Jonsson remains confident Iceland too will survive this difficult saga. “One of our main qualities is that Icelanders are resilient people and we will come through this.”

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HE Mr Benedikt Jonsson

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