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Prime Minister's Office

Prime Minister's Opening Address to the Icelandic parliament Althingi

Madam Speaker.
As Icelanders, we want to and should be proud of our country, its natural environment and cultural heritage, and the resources of both the land and its people.These strong ties make us a nation, give us our strength, stamina and daring and, last but not least, our strong sense of solidarity.

The Althingi has now convened following an historical election and a winter which in various ways has been unique in our history. A winter which has brought hardship and leaves wounds and issues of greater scope than any previous government has faced. These tasks now await the joint resolution of the government, the Althingi and the entire nation.

Only some 200 days ago the Icelandic financial system collapsed, in the space of a few days, and overnight everything changed.

One after another, the consequences have been appearing, and no Icelander has been left unscathed. Thousands of unemployed, hundreds of corporate insolvencies, enormous debt piling up at the Treasury and revenues dwindling - this is the situation we face. Loss of property, deteriorating living conditions, fear and uncertainty.

Many people who previously lived comfortably now fear the future and the coming summer. Many ask how they are to pay the bills at the end of the month, whether they can afford to take a summer holiday, whether they can send their children to summer camp, or even what groceries they can buy for the weekend.

Unity urgently required

Those of us who have now been elected to sit in the Althingi, and been trusted with taking on this enormous assignment, have to approach the task ahead with humility. We have to direct all of our efforts to serving the people and work together to resurrect our society. We cannot allow the interests of a few to take precedence over the interest of the vast majority. It is my belief that, at a time like this, we will be successful in reaching a consensus on changed prioritisation and different basic values.

The people have spoken, in democratic elections; the people have chosen, and have opted for major changes. Twenty-seven new parliamentarians now sit in the Althingi, a record number of new recruits. In times like these, the nation must demand that we endeavour to work together as one body, respecting each other’s opinions.

For the first time in Iceland’s history, a social democratic party is the country’s largest, just as such parties have been for decades, and even centuries, in other Nordic countries. For the first time in Icelandic history social democratic and left-wing parties have a majority in the Althingi.

New era – new priorities

The nation has therefore declared its priorities and the majority's choice should be reflected in the work ahead, in how we approach the problems and what decisions we make concerning them. I am convinced that this altered prioritisation will affect the policies and work of all political parties in the coming years. It has to. The old-fashioned trench warfare which has for too long characterised Icelandic politics has no place in times of such consequence in the history of our nation.

The call is for national unity and new working practices. Transparency, increased access by the public to decision making, and the utmost in democratic practices are demanded.

After decades of experience in the work of the Althingi, it is my hope that we will manage, during this electoral term, to introduce new working practices and new traditions, giving each matter objective and focused discussion and a democratic conclusion. It is my hope that we can manage to establish new procedures, rather than retreating into old fashioned party blocks which, when all is said and done, have only served the interests of our voters to a limited extent.

Justice and equality

A balanced society, where everyone enjoys respect and fair treatment, where a helping hand is extended to those in need, in fact serves all of us. A healthy society is not comprised of two worlds, one for the rich and one of the poor, one for the strong and one for the weak. No, a strong and healthy society is based on equality of its citizens and equal opportunities for everyone.

These are the sort of societies which have been built up in the Nordic countries and are viewed as models by the international community. This is the sort of society which the new government believes can lead us through our difficulties and ensure our long-term welfare.

The government’s coalition platform is based on these views. It is based, for instance, on the experience of a government which, not quite 100 days ago, took over the reins of a society which was torn by discord and disunity. In its very brief term, that government managed to calm the waters and move from retreat to advance. Determined and effective steps were taken to restore confidence and address justified criticisms from the public.

Frameworks were set up to deal with issues, and a wide variety of remedies set up, remedies which the public has already begun to take advantage of and will benefit tens of thousands of people during the hard times of the coming quarters. Reconstruction has begun and positive results are already becoming visible in many areas.

Review of monetary policy

Inflation has dropped considerably and the forecasts of both the Central Bank and the Ministry of Finance predict moderate price increases during the remainder of the year. Next year inflation will therefore be well below the Central Bank’s inflation target, according to available forecasts.

As far as interest rates are concerned, they have already dropped substantially, although I want to see a further decrease achieved as early as the next weeks and months. Exchange rate volatility persists, but the fluctuations are smaller than before and the negative impact of changes in the exchange rate on inflation are now considerably less than in previous months.

I have already entrusted the Central Bank with making an assessment of the advantages and disadvantages of altering the country’s monetary policy framework. The Central Bank will deliver an interim report on the matter in June. The Bank will also shortly publish a detailed report on monetary policy arrangements, having regard to Iceland’s possible membership of EMU.

There is no doubt that the unfavourable global economic environment will, to some extent, deepen the contraction in Iceland, which is forecast to be a drop of 10% in GDP this year and practically zero growth in 2010.

The good news, however, is that as early as next year economic growth should pick up once more and the recession end sooner than might be expected, in part due to the high flexibility of the Icelandic economy.

Seeking widespread consensus

Madam Speaker.
The government’s coalition platform includes a programme of 50 important actions which it intends to set in motion over the next 100 days.

These tasks concern in particular fiscal policy; the reconstruction of the banking system, which is now reaching its conclusion; re-assessment of actions to deal with the household debt burden; actions to boost employment; a revision of the fisheries management system; and a large number of democratic reforms which have long been demanded.

The government seeks to have broad consultation on most of these issues, both within and outside of the Althingi. We are prepared to conclude a stability pact with the social partners.

We need to reach a consensus on a new fisheries management system and we seek broad support for Iceland’s application for EU accession.

We ask for collaboration and co-operation on cutbacks in public administration, involving management, employees and service users. An enormously challenging task awaits us, perhaps the most difficult we have ever faced. We have to reduce the fiscal deficit by some 170 billion krónur over the next three years. Under such circumstances everyone must be prepared to accept part of the burden. No one, unfortunately, will be untouched by the major contraction, I want to make that perfectly clear.

Protection to those in need

Fellow Icelanders.
We will see the success of belt-tightening in a more rapid industrial recovery and less unemployment than would otherwise be the case; in lower interest rates and inflation, resulting in greater stability, which is the best way to ensure improvement in households’ economic situation, our children’s welfare and their long-term security.

Under these circumstances, the government will prevent the lowest wages from shrinking in real terms and ensure the welfare of those who are most vulnerable. On this our prioritisation is based and I am convinced that those persons who can help out, and are in a stronger position, agree. The state should lead the way by setting an example, economise and streamline its administration where possible, and reducing wages which are immoderate in the face of unemployment which has materially reduced the disposable income of tens of thousands of people.

Of key importance is to lay the foundation now for a new advance in business and industry and a better society, a society which will take its place among the leaders in creating value, prosperity, welfare and true quality of life.

Creating a solid foundation for business and industry

Madam Speaker.
The previous government, and the one which is now starting work based on a new mandate, inherited a situation where unemployment is at an historical high and industry is hard pressed in the wake of the financial system’s collapse.Confidence and faith in the Icelandic economy must be increased, domestic investment in business and industry stimulated, foreign direct investment encouraged and normal credit transactions with foreign banks re-established.

Industry is and will be the principal motor of welfare in Iceland. With focused actions, the government will reduce unemployment, eliminate long-term unemployment and create a more robust foundation for Icelandic business and industry in the future.

The government will promote the formulation of an overall industrial strategy for Iceland, with emphasis placed on diversified industry, stable and steady growth, innovation and sustainable resource utilisation both on land and sea.Icelandic manufacturers, innovative companies and people working in the travel industry have already shown plenty of initiative and taken advantage of opportunities which have now developed. These parties need to be encouraged and supported still further, in order to create as many jobs here as possible.

Furthermore, it is important to consider the international competitiveness of Icelandic business and industry. It is crucial that the basic objective will be for the state to exit as quickly as possible from all competitive operations and open the way for foreign ownership.

Household finances a priority

Fellow Icelanders.
All normal Icelandic households experience the difficulties the nation is currently undergoing. Many have lost their savings or investments, the principal on their loans has soared, whether these are car loans, home mortgages or other foreign-denominated or indexed loans, while in many cases the value of their assets may even have dropped.

Still others now have lower incomes, or may have lost their jobs, and everyone feels the effects of rising prices for food, clothing and other necessities. No Icelandic households have been untouched by the wide-reaching transformation which has occurred in the country’s economy in the space of only a few months.

In a single year, the purchasing power of disposable income has dropped by over 11% and in all likelihood the situation will get worse before its gets better again.

The government’s actions have been primarily directed at protecting those who are most vulnerable, on the one hand, and ensuring families are secure in their homes, on the other.

The numerous actions which have been taken in this respect are aimed chiefly at enabling families to remain in their homes while the worst of the economic downturn persists and adapt their debt burden to their payment capacity.

The government is fully determined to keep track of these developments in Icelandic households and to respond in accordance with the objectives I have described here. If further action is needed to ensure the families in this country are secure in their homes, then we will take such action. We will respond to reduced incomes and shrinking assets by stimulating business and industry and in so doing increase growth and purchasing power once more. At the same time we must protect those who are the least well off; for them the safety net has to work best in times like these.

Application for EU membership a key step

If Iceland applies for accession to the EU and commences formal accession talks, this provides a better foundation for a more stable exchange rate and decrease in the interest rate level. The positive impact will be visible as soon as a request for accession negotiations is on the table and can be expected to increase as the accession process progresses.

The mere accession application is therefore part of the solution to the acute problem with which we are dealing; at the same time it lays the basis for a more secure future and adds stability while we move towards that future. This is what our industry needs now, and such an application will at the same time revive the confidence of the international community and foreign investors in Iceland.

We must bear in mind that every day Icelandic families pay the cost of standing outside of the EU, in the form of interest payments which are many times that of EU countries, and in the form of higher prices for food and other necessities, which would decrease substantially with EU membership.

Inflation indexation is also a heavy burden, the price we pay for the ISK. Companies in Iceland pay this cost – in the form of interest rates among the highest in the world, enormous exchange rate volatility and high inflation.

It is our responsibility to provide an operating environment for Icelandic industry which is as good or better than in our main competitor countries. On this the future development of our industrial sectors depends, and this in turn serves as the main foundation of the welfare of households and families in Iceland.

All the same, I want to emphasise that EU accession by itself is no magic solution. There are no magic solutions to the very acute problems we face, but nonetheless we do need direction and stability as we move towards the future.

The parliamentary resolution which the Minister of Foreign Affairs will submit to the Althingi includes provisos on Iceland’s basic interests in controlling its freshwater and energy resources and their disposition, on the nation’s control of its fisheries, on a vital agriculture sector, on public services and the rights of workers.

Advance and reconstruction within the EU

Madam Speaker,
EU accession does not mean surrendering resources, either in fisheries, energy or agriculture. The EU has common rules on utilisation of common resources, such as shared fishing stocks, but ownership of resources remains with the member states concerned. As a result, EU accession will not affect the ownership of fish in the ocean, of renewable energy resources or oil on the continental shelf.

Agreement and consensus between member states is required concerning utilisation of fishing stocks which are found in jurisdictions of more than on member state, just as Iceland has up until now concluded agreements on utilisation of straddling stocks. These agreements are based on fishing experience, ensuring that each member state enjoys an unaltered share in fishing stocks.

EU rules on relative stability will ensure that Iceland as before will be entitled to all quotas in local stocks in Icelandic jurisdiction following EU accession.

Discussion on Iceland’s EU accession and fisheries therefore cannot merely be a question of defence and defending our interests. Icelandic fishermen possess tremendous expertise and fisheries companies here are capable of competing on free markets anywhere in the world. We can move forward and expand within the EU.

Iceland should be an EU fisheries leader

Fellow Icelanders.
Neither I nor anyone else here in the Althingi can say what the eventual outcome of accession negotiations with the EU will be concerning fisheries, but I maintain that Iceland has a strong negotiating position. It is strong, for instance, because of the foresight and courage that Iceland showed in extending its territorial waters in stages to 200 nautical miles.

My future vision is for Iceland to be a leader in formulating and managing EU fisheries policy and a leading force in European fisheries. I fully believe that we can achieve this.

The EU has shown special flexibility with regard to agriculture in northerly regions with harsh conditions. There is therefore nothing to suggest otherwise than that Iceland’s concerns will be met with understanding and that it will be possible to ensure satisfactory operating conditions for Icelandic farmers in the future.

There is no question that agriculture in Iceland will have access to the extensive EU support system and it is established that the Icelandic government will match such grants to agriculture with allocations.

It is evident that, within a few years’ time, Iceland will have to modify its system of agricultural subsidies due to changes in WTO rules, whether or not the country accedes to the EU.

It can be argued that EU membership offers a certain shelter to Icelandic agriculture, not least due to the fact that the EU is a leading force in drafting rules on agriculture within the WTO and other international fora.

This would give farmers the necessary security to plan for the longer term, providing a healthy basis for the entry of new recruits in the sector.

Madam Speaker,
Demands have been made for new working practices, new opportunities and increased trust and dialogue between the parliament and the nation.

Both the nation and its parliamentarians have, for years, listened to the voices and arguments of interest groups which are a priori in favour of or opposed to EU membership. This has made for an unfocused debate. I want the Icelandic nation, once and for all, to hear the truth of this matter which we have been discussing for far too long without any clear conclusion.

Neither ministers nor anyone else can decide in advance on EU membership until the facts of the case have been placed on the table after the conclusion of actual accession negotiations. People cannot be asked to decide for or against an issue without knowing what is involved. This is the heart of the matter.

The summer will be used to good advantage

Fellow Icelanders.
There are few countries where seasonal changes are as dramatic as in Iceland, and perhaps this sets its mark on us, both individually and collectively. Althingi has convened here this evening, at a time when the vitality of spring is at its peak, the time of year fraught with expectation and hopes of better things to come.

While our difficulties are far from over, as a nation we have every reason to look to the future with optimism and welcome the coming summer. It is up to us how we resolve the major challenges we face, that require more optimism and determination than ever. Jóhanna Guðrún and her Eurovision colleagues – the pride of the nation – are without doubt an example to us all.

I promise you that my government will make good use of this summer. It will work energetically and determinedly to improve the situation of people in this country and encourage industry to rise to the challenge. I urge all of you to do the same, roll up your sleeves and get to work on the reconstruction ahead. By doing so we can turn retreat into advance.

Those of us in the Althingi and the government will get to work on our tasks with resolve and humility. We are fortunate in having a strong and capable nation behind us, and I am convinced that we will show the international community that we have what it takes to be the first to work our way out of the economic downturn we are currently experiencing.

Thank you.



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