Page last updated at 10:31 GMT, Friday, 30 January 2009

Iceland 'could join EU by 2011'

Anti-government protest in Reykjavik, 24 Jan 09
The wave of street protests is a dramatic change for Iceland

Iceland could be fast-tracked to join the EU within two years, to help the small Nordic state out of its economic crisis, a top EU official says.

Enlargement Commissioner Olli Rehn said that if Iceland applied soon, it could join at the same time as Croatia, which is expected to become a member by 2011.

But Iceland is yet to decide if it wants to join the 27-nation bloc.

Icelandic politicians say they expect to reach a deal on Friday on a new centre-left coalition government.

Iceland's banking system collapsed in October, causing its currency, the krona, to plummet and prompting the government to arrange $10bn in emergency financing from the International Monetary Fund and several European countries.

The crisis has stunned a nation that enjoyed one of the world's highest living standards during the stock market boom.

October 2008 - Government takes control of three largest banks
20 November - IMF approves $2.1bn (1.4bn) loan for Iceland
26 November - Annual inflation rate hits record 17.1%
20 January 2009 - Economy forecast to shrink by 9.6% in 2009
23 January - PM Geir Haarde calls snap election for 9 May
26 January - Government resigns following breakdown of coalition

Social Affairs Minister Johanna Sigurdardottir is widely expected to be named as an interim prime minister - and would become the world's first openly gay politician to hold such a post.

President Olafur Ragnar Grimsson asked the Social Democrats and the opposition Left-Green Party to form a new government to replace the administration of Geir Haarde. He resigned as prime minister on Monday following angry public protests.

The BBC's Oana Lungescu in Brussels says Iceland has already adopted two-thirds of EU rules, so its accession talks could go much faster than the five years Croatia has spent negotiating. Croatia is widely expected to join the EU by 2011.

But Iceland still has to make up its mind to apply and the Left-Green Party, favoured to win early elections in May, has so far campaigned against joining the EU, mainly because of concerns about fisheries policy.

Swapping the battered krona for the euro could also take several years, our correspondent says.

Iceland would first need to be a member of the EU and then prove it can comply with the strict discipline of the single currency.

Iceland's Social Democrats want to replace the governor of the central bank, whom many blame for the country's sudden lurch from prosperity to economic meltdown.

They also reportedly want to hold a referendum on EU membership.

The economy is forecast to shrink by almost 10% this year.

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