Page last updated at 15:29 GMT, Wednesday, 24 February 2010

Iceland EU bid gets European Commission support

Icesave's parent bank, Landsbanki, collapsed in 2008

The European Commission has recommended that the EU open membership talks with Iceland, saying the island already holds many of the EU's common values.

The "opinion" from the EU's executive arm still requires the approval of EU governments before talks can start.

A big hurdle is the lack of a deal so far to repay the Netherlands and UK for huge debts incurred when Iceland's online bank Icesave collapsed in 2008.

The Icelandic krona lost about half its value in the financial crisis.

The UK and Dutch governments paid out 3.8bn euros (£3.3bn; $5.4bn) to savers who lost money when Iceland's online bank Icesave went bust.

'Well prepared'

Almost a quarter of the Icelandic population signed a petition against a repayment plan, prompting the country's president, Olaf Ragnar Grimsson, to veto it last month. No deal has been reached yet on a new plan.

Without Dutch and British support Iceland has no chance of joining the EU, the BBC's Dominic Hughes reports from Brussels.

Iceland map

So while Iceland is better placed than any other candidate country to become the EU's 28th member, the Icesave issue will have to be sorted out first, our correspondent says.

"Iceland is on the whole well prepared to assume the obligations of membership in most areas," the Commission opinion says.

It says Iceland meets EU criteria on democracy and human rights.

But in some areas Iceland will have to make "serious efforts" to conform with EU legislation, it says, including: fisheries; agriculture and rural development; the environment; free movement of capital; financial services and taxation.

The commission says Iceland's government deficit rose to 14.4% of gross domestic product (GDP) in 2009, and gross public debt was 130% of GDP - way above EU target levels.

Trading partner

The North Atlantic island became independent from Denmark in 1944. It has a population of 323,000 and a long tradition of democracy.

Last July Iceland's parliament voted to apply to join the EU. In 2008, more than 54% of Iceland's imports came from the EU and 76% of its exports went to the EU, the commission says.

Iceland is already well integrated with the EU's single market as a member of the European Economic Area (EEA). The EEA, which includes all 27 EU member states, extends EU single market rules to Iceland, Liechtenstein and Norway without them being EU members.

Icelandic Foreign Minister Ossur Skarphedinsson welcomed the EU recommendation, saying: "I appreciate the confidence in Iceland expressed by the EU Commission in this balanced, constructive and broadly speaking very positive report".

Seven other countries are in the queue to join the EU, but only three have opened formal negotiations - Croatia, Macedonia and Turkey. Croatia is farthest advanced in the process and could join as early as next year.

Correspondents say Iceland could end up jumping the queue - and it hopes to join in 2012. But EU officials say "fast-track" membership is not on offer.

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