European Union leaders agreed on Thursday to start membership negotiations with Iceland, while urging Reykjavik to move quickly to resolve a dispute over $5 billion in debts to Britain and the Netherlands.
Iceland applied to join the 27-member bloc last year, after the global financial crisis devastated its banking system. The crisis persuaded the country to overcome decades of reluctance towards EU membership and seek the added defences of Europe.
But a row over debts linked to the collapse of Icesave, an Icelandic bank that collapsed in 2008 with more than $5 billion in debts, had threatened to dash Iceland's hopes for quick accession and has fanned public opposition to the EU.
EU leaders said at a summit in Brussels that while entry talks should start, their pace would depend on Iceland meeting its financial obligations.
In May, a European trade body overseeing Iceland's cooperation with the EU (EFTA) said Iceland should ensure that Dutch and British investors receive at least minimum compensation for lost deposits.
"It's clear the existing obligations … with regard to the deposit guarantee system are going to be essential in the accession negotiations, and this is something that the EU as a whole will insist upon," a Dutch diplomat said.
"To be sure, we support Iceland's EU aspirations but there will be no accession before Iceland fulfils all its obligations."
The British and Dutch governments want Reykjavik to return billions of euros they paid out to depositors whose funds were frozen in the failed scheme. But Icelanders rejected a payout plan in a referendum and talks on repayment have failed so far.
The island state of 320,000 people also faces potentially tough talks on access to its fishing areas and on whaling rules.
In other policy areas subject to negotiations, Iceland is more prepared than many other EU hopefuls. Its democratic standards and market practices are already in line with EU rules.
It also belongs to bloc's Schengen borderless travel zone, removing the need to improve border controls. But Icelanders appear increasingly sceptical about EU entry.
An opinion poll carried out this month by the Market and Media Research pollster showed almost 60 percent of Icelanders in favour of the government withdrawing the application, while only about a quarter of those poll opposed such a move.
Other EU hopefuls include countries in the western Balkans and Turkey but out of those only Croatia has clear prospects of joining in the next few years.
