Hoppa yfir valmynd
Prime Minister's Office

Association for Western Cooperation

    Reykjavík, December 1 2001

    Address by Davíð Oddsson, Prime Minister of Iceland,
    at a meeting of the Association for Western Cooperation
    and its youth organization Varðberg

    This respected association last gave me the opportunity to address one of its meetings on the occasion of NATO's fiftieth anniversary. That was in May 1999, at the height of the Alliance's air operation against Yugoslavia because of the events in Kosovo. It was a test of the willingness to stop forces that threatened peace in Europe. By showing great steadfastness, NATO achieved the aims it had set. Tyrannical and oppressive forces were quashed and taught the lesson that they and others needed.

    Now, two and a half years later, the inevitable aftermath to the horrendous acts of terrorism that were committed against the American people on September 11 is taking place. Military action in Afghanistan is not primarily motivated by vengeance, as certain predictable critics of the USA and NATO have implied. It is punishment for the perpetrators of a terrible crime and an attempt to prevent further evil deeds. Meanwhile, the fight against international terrorism has begun, in order to eradicate a threat to peace and security in the world, and thereby safeguard the values that we would least want to lose. President Bush has displayed both firmness and restraint and proved his strong leadership qualities. US policy has been extremely clear and he has succeeded in generating unique solidarity both within the USA and outside it.

    The day after the attacks on the USA, NATO declared that they were tantamount to an attack on all nations in the Alliance in accordance with Article Five of the North Atlantic Treaty. Iceland was naturally responsible for this declaration, like the other members of the Alliance. It is consistent with the obligations that we originally undertook because of our conviction that, in league with our NATO allies, we had shared values and a shared destiny to defend. This is the first time that Article Five of the North Atlantic Treaty, its core principle, has been invoked.

    The fight against terrorists, their henchmen and helpers calls for firm international solidarity. The Government of Iceland will not waver in its support for that fight. Military action in Afghanistan has been more successful than was hoped, although it may still take some time before the entire operation is concluded. But the campaign against international terrorism is only just beginning. It may take a long time. There will be ups and downs, a battle with such forces will never be a soft one.

    International terrorism can only thrive if certain regimes support them. The Taliban in Afghanistan are not alone in being guilty of supporting terrorism. Isolated action against Afghanistan is not enough. But hopefully it will prove possible to break the links that others have with terrorism by using softer measures than those that have proved to be the only possible recourse against the Taliban. When pressure starts to be exerted on other countries to change their behaviour, international solidarity will be very much put to the test. The shock of September 11 will no be so immediate then and voices of discouragement would resound louder.

    It has transpired that the campaign in Afghanistan enjoys much greater support than was widely expected. News reports from Afghanistan make it obvious that the public at large there welcomes the toppling of the Taliban regime and rightly sees the US military action as directed against the oppressors, not the people themselves. In this sense, a war of liberation is being waged. The violence and hatred that terrorists feel towards the USA and other Western nations therefore does not extend to the ordinary Afghani public. Nor has the war in Afghanistan led to the escalating anti-Western sentiment in Muslim countries that "experts" had predicted, with unforeseeable consequences.

    Terrorists have shown that they will stop at nothing and would not, for example, hesitate to use weapons of mass destruction if they had them at their disposal. It is therefore vital to prevent such weapons from falling into the hands of terrorist organizations. The same applies to countries ruled by ruthless thugs who are capable of anything. Such countries must now be made to feel the overwhelming weight of world public opinion. In this context it must be pointed out that the global community cannot accept Iraq's refusal to allow UN weapons inspectors to perform their tasks in that country. Inspections began under international agreements after Iraq had been expelled from Kuwait ten years ago, because it was known that they had long been attempting to produce various weapons of mass destruction, including nuclear capability.

    The UN sanctions on Iraq often come in for unfounded criticism. Above all else the suffering of the Iraqi public is brought on by the tyrannical government that rules their country. Baghdad is allowed to sell all the oil needed to buy food and drugs, but does not use that exemption in full. That is why the public is suffering deprivation there. Hussein and his henchmen are doing this in an attempt to force the West to lift the sanctions. Granting him this wish would send out a message that by bad treatment of their subjects, tyrants could force the West into submission. Criminal regimes would rejoice at such a thing.

    It is impossible to ignore the fact that weapons of mass destruction in the hands of such a country are a definite threat. There is growing support for the view that one response to this is a missile defence system. This was a controversial issue before the attacks on the USA even though a large number of countries, including Russia, had admitted that the threat exists. Iceland's Government outlined its position on this issue at the NATO Summit in June. It pointed out the emergence of a new and growing threat with the proliferation of weapons of mass destruction and missile technology. Iceland welcomed the American initiative for consultation within NATO on responses to this threat, responses based in part on missile defence systems and partly on arms limitations agreements and actions to check the proliferation of weapons of mass destruction. After the terrorist attacks on the USA, international support for such a policy can be expected to grow substantially.

    Terrorism has encouraged nations to join forces and created an opportunity for improving international relations. NATO is currently discussing ideas for instituting closer links with Russia than those established with their agreement on cooperation from 1997. It is important to take advantage of all opportunities for cooperation with Russia in specific areas such as prevention of terrorism. At the same time, of course, care must be taken to ensure that the Alliance can continue to make its own decisions on its own terms; there is no proposal to grant Russia the power of veto.

    The NATO Summit in Prague in the autumn of 2002 is supposed to decide on further enlargement. An important element in preparations for enlargement will be the meeting of NATO Foreign Ministers in Reykjavík next May. Enlargement presents the Alliance with a historic opportunity to consolidate the major changes that followed the collapse of communism and thereby to create a new Europe, based on freedom and democracy.

    On the question of enlargement, Iceland is striving to assist the Baltic countries. This year marked the tenth anniversary of Iceland taking the lead among Western nations to support the Baltic countries in demanding an end to the Soviet occupation and reclaiming their freedom. NATO has stated that no candidate countries will be excluded from membership regardless of their geographical location. This is not least a clear reference to the Baltic countries. And the Alliance's much-reiterated position that no country outside the Alliance has a veto on its enlargement refers above all to the Baltics because of Russia's opposition to their membership.

    Of course it has not been finalized how NATO will address the question of enlargement at the Prague Summit, but the Baltic cause seems to enjoy large and growing support within the Alliance. Iceland has said that the most normal course would be to offer all applicants membership, which would take effect as soon as they met the stated conditions. In this respect the Baltic countries are in the forefront, together with Slovenia.

    Another major issue on the Alliance's agenda involves its relations with the European Union with the inception of the EU security and defence policy. For its part Iceland has emphasised on this issue that non-EU European allies should be allowed to participate in the EU's security policy in an acceptable fashion, bearing in mind NATO's statement that the policy concerns the interests of all Alliance members. Besides Iceland, the non-EU European allies are Norway, Poland, the Czech Republic, Hungary and Turkey. The participation question has largely been resolved but the EU still has to negotiate with Turkey on its involvement in decisions on EU operations in which it would take part. Such an agreement would consolidate even further participation by the non-EU European allies in EU security policy.

    The crucial point is for all relations between the two organizations to be on a clear and straightforward basis, which is how the participation issue links up to other priorities of the Icelandic Government. We support the formulation of a security policy under the auspices of the EU but consider that this must be done in such a way as to strengthen rather than weaken the transatlantic link to North America. This is a fundamental precondition for Iceland's security policy in the near and long term. Given how much is at stake, the Icelandic Government can only trust that the matter will be handled properly. In essence this means that, notwithstanding the EU countries' security cooperation, NATO will remain the true forum for consultation and decisions on issues which concern all member states.

    The history of Europe was changed with the founding of the Alliance just over fifty years ago and it has played a key role in developments ever since, not least because of the link with the USA. This May saw the fiftieth anniversary of the bilateral defence agreement between Iceland and the USA which made Iceland into a crucial part of the transatlantic link. Icelandic-American defence cooperation continues to look towards the interests of both these friendly nations and also remains an element in the transatlantic link and its credibility.

    Ladies and Gentlemen:

    After the terrorist attacks, the world economic outlook has been bleak for a while. Before the attacks the outlook had already worsened because of a slump in share prices and the impact of higher oil prices. Uncertainty following the terrorist attacks has naturally had an adverse effect on the expectations of individuals and businesses. It may delay the upswing that had previously been expected to begin early next year. Iceland is not left unaffected by these developments. However, most of the signs are that the recession will be short-lived and the economies of most OECD members will soon start to recover.

    A recent meeting of Ministers of the World Trade Organization reached agreement on launching a new round of negotiations on further trade liberalization. Although a conclusion is not expected until after several years, the agreement was nonetheless welcome under the current circumstances. Freedom of trade remains the surest way to achieve economic growth and greater prosperity in the world. For Iceland it was gratifying that the issue for which it has campaigned in particular, the abolition of grants and subsidies to the fisheries sector, was taken on the agenda of the planned negotiations. The aim is to set rules governing the use of government grants and subsidies, and work towards their elimination. If this is achieved, it will strengthen the competitive position of countries such as Iceland, which seeks to run its fisheries sector on commercial principles. Abolition of grants and subsidies would also reduce the fishing effort and conserve stocks which in many places are overfished. Iceland, in league with other nations, took the initiative on this matter at the WTO and led the preparatory work for it.

    The European Economic Area Agreement ensures Iceland access to the internal market. However, it is right to consider the technical adaptation of the agreement to the EU integration process in other areas than those involving trade. We should not and must not be daunted by the scope of this task, since it is mainly on technicalities. At the same time care is needed to ensure that the EU's enlargement to the East does not damage Icelandic trade interests among the candidate nations. Such a prospect must be considered unlikely, however, since the EU is obliged to resolve such matters according to WTO rules.

    EU membership still presents many and widely discussed disadvantages for Iceland. Nothing has been said to controvert this except unfounded and naive wishful thinking that we can talk our way out of all the flaws to leave only the more appetizing pickings. Furthermore it is clear that the direct annual cost to Iceland of EU membership would run into many billions of krónur, for reasons that are well known.

    Advocates of Icelandic membership of the EU must state precisely what will be gained and unequivocally what is to be sacrificed for membership. Vague and unconvincing talk of gaining political weight through membership can never be sufficient grounds for applying to join. Finally, we should bear in mind that globalization presents Iceland with new opportunities and it would be inadvisable for us to tie ourselves too closely to the EU, which is intrinsically an exclusive club obeying its own rules in the increasingly denser jungle of regulations and directives which have rarely been handled in any genuinely democratic way.

    The interests and circumstances of Iceland by no means go hand in hand with the prevailing forces within the EU. One example is Iceland's possibilities for attracting foreign investment. Iceland is off the beaten track and we cannot take it for granted that foreign investors consider our country as an option. The opening up of financial markets has also made it easy for Icelandic businesses to relocate their activities in other countries if they see fit. So it is vital for us to have full control over the type of business environment we create in Iceland. The Icelandic government has very recently decided to cut corporate income tax from 30% to 18%. and make other reforms to the tax environment , not least to stimulate interest among both domestic and foreign investors. Many Icelandic companies which had been seriously considering relocating their activities in other countries have already announced publicly that they will continue to operate in Iceland because of the tax cuts.

    In recent months the Icelandic króna has experienced fluctuations in the foreign exchange market and has depreciated. This has prompted talk about the need for Iceland to join the EU immediately and adopt the euro. Some people apparently seem to think that such action is an attractive solution to a short-term problem. The Icelandic króna, they claim, is clearly too small to function as a credible currency. Uncertainty about foreign exchange developments is a barrier to foreign investment and damages Icelandic business, it is also claimed.

    Admittedly, exchange rate uncertainties are unfortunate for businesses and for the whole community. The depreciation of the króna at the moment can above all be traced to the fact that the economy has been adjusting to a recent phase of overheating. For the seven years before this unease began to be felt, the Icelandic króna was one of the most stable currencies in Europe and easily withstood the slide in the euro. But the króna was neither larger nor smaller over those years than it is now.

    Everything suggests that the present problem will be a short-lived one that will be resolved as soon as the economy has adjusted to new conditions. The króna slipped lower than the economic fundamentals warranted, and now appears to be rallying. When it peaked in May last year, on the other hand, its exchange rate was too high. Now it will gradually seek equilibrium which will be based on Icelandic assumptions and Icelandic circumstances. This is the key to Icelandic economic well-being and we must not throw it away. The exchange rate of the euro will never reflect what is happening in Iceland, even if we were part of the EU. Our economy is simply too small for that. We would face intolerable and unsolvable problems if, for example, our export industries were on a downswing at the same time as an upswing was taking place in Germany and France. The common currency would be strengthening then, at the same time as Iceland's economy was weakening, and the Icelandic economy would be simply torn apart.

    I have heard people say that the euro is taking effect in the New Year. This is a misunderstanding. The euro has been a currency for two years. All that is happening now is to put the common currency into circulation; all the national currencies in Euroland were tied to it long ago.

    Iceland's relations with the European Union are highly significant, not just because of trade but also because of historical and cultural links with the nations in the Union. Although Iceland is not on its way into the EU, we are a European nation in the finest sense of the term and have much in common with the rest of Europe. We can be sceptical about the mess that the Commissariat in Brussels sometimes creates in its obsession with over-government, but we can still love and respect Europe as much as ever. There is no equation between the two. The European Union has its roots in the tragic events which the continent witnessed during the twentieth century and is based on a noble ideal of peace in Europe. Close cooperation among its member states has in this respect proved successful and brought them benefits. Shared values and shared interests are one of the best possible guarantees for peace. Ever since 1949 there has been no doubt as to which side Iceland is on when the stakes are highest and peace and democracy need to be secured. Iceland's compass will continue to point in the right direction as far as that is concerned.

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