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EU Commission recommends entry talks with Iceland

The European Union's executive recommended on Wednesday launching accession talks with Iceland, the start of a process that Reykjavik hopes will lead to EU membership by 2012.

The European Commission set no entry target date and its recommendation needs the approval of all 27 member states. It could yet face obstacles because of a dispute with Britain and the Netherlands over debts lost in Iceland's banking collapse.

The Commission also underlined the need for structural reforms and a credible fiscal strategy and made clear talks on fisheries, agriculture and the free movement of capital and financial services could be particularly hard.

“The opinion (recommendation) is an important step in the accession process and provides guidance to Iceland in its efforts to become an EU member,” European Enlargement Commissioner Stefan Fuele said.

Iceland, an island of 320,000 people, was reluctant to join the EU for decades but applied for membership last year when the global financial crisis devastated its banking system. It welcomed the Commission recommendation.

“I appreciate the confidence in Iceland expressed by the EU Commission in this balanced, constructive and broadly speaking very positive report,” Foreign Minister Ossur Skarphedinsson said in a written statement.

He said he hoped EU leaders, who next meet on March 25-26, would soon agree to open accession talks.

Iceland is hoping for rapid entry talks because it is better prepared than many other EU hopefuls and already belongs to the EU's single market and its Schengen borderless zone.

It could jump ahead of all other countries in the accession queue except Croatia, which hopes to join in 2012, and sees EU membership as offering better protection in any future crisis.

But Iceland's aspirations are partly tied to the dispute with the Netherlands and Britain over $5 billion in debts lost in the banking collapse of late 2008. The three countries are trying to agree how Iceland should repay the money.

Britain and the Netherlands say Iceland owes them for repaying savers who lost money in online accounts during the financial crisis.

Iceland could also face tough negotiations on giving EU member states access to its rich fishing zones.

“Serious efforts will be required particularly in the area of fisheries, agriculture and rural development as well as free movement of capital and financial services,” the Commission said.

It said Iceland had taken steps to tackle its economic problems but called for fiscal consolidation -- moves to reduce government deficits and debt accumulation.

The Commission said the government deficit had risen to 14.4% of gross domestic product in 2009 and that the gross public debt was 130% of GDP, much higher than the limits the EU sets member states.

“The completion of financial sector restructuring as well as the substantial improvement of the regulatory and supervisory institutional framework and practices are among the key challenges to be addressed in the short term,” it said.

The Commission said Iceland should be able to cope with market competition in the EU “provided it swiftly implements the necessary policy measures and structural reforms.”

It called for more efforts to strengthen the independence of the judiciary, especially over judicial appointments. (Reuters)