Iceland begins talks to enter EU

European Union leaders are holding opening negotiations today on bringing Iceland into the EU - but only if it settles a €3.8bn dispute with Britain and The Netherlands after the 2008 meltdown of Icelandic banks.

A draft statement, to be firmed up at the close of the one-day summit, said "accession negotiations should be opened" with Iceland.

The 27 EU leaders added they are counting on Iceland to "actively pursue its efforts to resolve all outstanding issues" - a reference to the financial dispute.

In March, Icelandic voters rejected a deal to repay the British and Dutch governments €3.8bn as compensation to customers of Icesave bank, which collapsed in 2008.

"We will not block the start of membership negotiations," Dutch prime minister Jan Peter Balkenende said when he arrived at the EU summit in Brussels. "But if and when it gets to (joining), Iceland must meet its obligation," and compensate Dutch nationals who saw their savings evaporate overnight.

"Iceland must face its responsibility. We shall see to that," Mr Balkenende said.

He said beginning entry talks - in which candidates must meet EU norms and standards in 35 areas - is no guarantee that Iceland will become a member. The process may take a year or more.

The negotiations will be based on Iceland's commitment to address that issue, the draft summit statement said.

Any European country can apply for EU membership. Candidates must be democracies, be ready to adopt the euro, have market economies and no border disputes.

Iceland has mixed feelings about ditching its independence. It decided to try to enter the EU only after a devastating financial crisis almost wiped out its banking sector, forced its currency to plunge and saw the government bailed out by the International Monetary Fund and Nordic nations.

Four out of the country's five parties are urging parliament to withdraw the EU bid.

For decades, Iceland avoided seeking EU membership over concerns that it would be forced to share its rich North Atlantic fishing grounds with boats from other European nations.