Iceland's parliament clears way for EU bid

REYKJAVIK (Reuters) - Iceland's parliament on Thursday backed the government's plan to begin accession talks with the European Union, an all but unthinkable prospect until the global financial crisis wrecked the island's economy.

Icelandic membership of the 27-nation bloc is still years away, after what promises to be long and tough negotiations, especially over the island's cherished fishing rights.

Members of parliament voted 33 to 28 in favour of an EU application after a final round of marathon debates lasting almost a week. The government needed 32 votes to gain approval. Two MPs abstained.

Prime Minister Johanna Sigurdardottir, whose Social Democrats fought hard to win support for the bill from their EU-sceptical coalition partner, has made joining the bloc a priority, seeing it as key to Iceland's economic recovery.

"This is probably the most historic vote in the history of our parliament, since the founding of the republic. I have no doubt that this decision will be beneficial to the people of Iceland," she told Reuters.

"Now we must ensure that we bring home a treaty that we can put before the people and recommend."

Sigurdardottir said an application could be sent in the next few days in order to reach Brussels in time for the foreign ministers' meeting on the 27th of this month. But she warned that talks could last as long as three-and-a-half years.

Swedish Prime Minister Fredrik Reinfeldt, whose country holds the six-month EU presidency, said in a statement he welcomed Iceland's decision to apply for membership.

ROAD TO STABILITY

The issue of membership shot to the top of the political agenda after an economic meltdown whose speed and scale shocked many, even in the context of the current global recession.

"I am hopeful that this will give a bit of a credibility boost to Iceland in the eyes of the wider world," said Jon Bentsson, economist at Islandsbanki.

The vote clears the way for the application to be sent to Brussels within days and for the government to put the question on actual membership to voters in a referendum.

Icelanders -- just 320,000 in number -- have warmed to the European Union but remain protective of their sovereignty and worry about losing control of fish stocks.

Dozens of anti-EU protestors gathered again outside of parliament, banging on pots and honking horns.

"It is a loss of independence for the nation," said Gunnnar Guttormsson, outside of parliament near a long line of Icelandic flags. "I have no words for it. It is the worst thing I can imagine for the people."

A Gallup poll in May showed 61.2 percent in favour of EU talks and 29.6 percent against. But those polled were evenly split over the issue of actual membership.

Joining the European Union was almost unimaginable before the volcanic country was cast into the centre of the global financial storm when its top three banks collapsed in a matter of days last year.

"You could say that the Icelanders want the euro but don't want the EU," said Finance Minister Steingrimur Sigfusson, who is also leader of the EU-sceptic Left-Greens.

But the prime minister is hopeful that EU membership helps bring greater economic stability and prosperity again for a country that was once one of the world's wealthiest on a per capita basis.

Still, even with the cost of insuring Icelandic sovereign debt against default falling after the vote, analysts said investors would not be rushing.

"There is no miracle cure for Iceland, they have to take a number of small steps," said Lars Christensen, analyst at Danske Bank. "As long as Iceland risks going bankrupt the EU will not allow it in."