Iceland moves towards EU

The country’s Prime Minister Johanna Sigurdardottir announced on state television that she would present a parliamentary bill to authorize the start of membership talks with the European Union.

"There will be a government resolution tabled (on EU talks)," Prime Minister Johanna Sigurdardottir said. She did not give a timeframe for when the bill would be put forward, but it’s expected that the draft could be introduced as early as next week when parliament convenes.

The move is a u-turn for the small Northern Atlantic island and it’s a development which would have been unthinkable only one year ago. But then the financial crisis struck and the small country was turned upside down.

On the brink of bankruptcy

Long before the recession arrived in Europe and the US, Iceland in the summer of 2008 was already in serious trouble. Late last year the country made headlines as it veered toward bankruptcy.

Before the sudden downturn, Iceland had been thriving, it’s people enjoying a living standard among the highest in the world. The country’s banks epitomized the global credit boom and the capital Reykjavik became a hub of international finance.

Banks expanded overseas and enjoyed exceptional growth. On the eve of the credit crunch, Iceland’s banks held foreign assets worth around ten times the country’s GDP. In 2007, GDP amounted to around $11 billion.

Iceland was therefore extremely vulnerable to any disruptions on the international financial markets and when the crisis eventually hit, the country went into a tailspin. The Icelandic crown virtually ceased trading and strict capital control had to be introduced to sustain even the import of vital goods such as food and medicine.

The country's top banks were all nationalized and Iceland needed a $10 billion rescue package from the International Monetary Fund to stay afloat. Painful reforms are underway but unemployment is still on the rise and the economic outlook remains gloomy.

Public pressure and growing support for EU membership

It was not long until the trouble on the balance sheets translated onto the streets. In a wave of unrest, citizens expressed their anger and frustration at the government's handling of affairs. The country was then run by a coalition headed by the center-right Independence party which had dominated Icelandic politics for decades. But after months of increasingly violent protests, the government collapsed early this year.

New elections in April saw the Social Democrats emerge as the strongest party and their leader Johanna Sigurdardottir became the country's new prime minister.

The 66-year old left little doubt that she wanted to steer her country closer toward the EU. "It's the only option we have to safeguard economic stability in the country," she said after the elections.

The Social Democrats' junior coalition partner, the Left-Greens, had previously opposed a move toward the European Union over fears that Reykjavik would have to surrender some of its independence to Brussels.

However, many of Iceland's 320,000 inhabitants support the idea of joining the EU and ultimately adopting the euro currency. A snap opinion poll for state television on Wednesday showed that 61.2 percent were in favor of EU talks and only 29.6 percent against it.