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Europe's economic woes may hurt Iceland's EU bid

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(REYKJAVIK) - Europe's economic and financial problems may undermine Icelanders' support for joining the European Union, Prime Minister Johanna Sigurdardottir told AFP in an interview.

Iceland officially opened EU membership talks on June 27.

Asked whether the current economic and financial problems plaguing the bloc could dampen Icelanders' support for joining the group, Sigurdardottir replied: "That may well turn out to be the case."

"I'm hoping that the situation is just temporary and that Europe will work its way out of it," she said.

Icelandic support for the bloc has yo-yo'd over the years.

After the dramatic collapse of Iceland's economy in 2008 when its three major banks failed, Icelanders support for joining the EU and the eurozone soared as they saw the value of their currency halved and many perceived the euro as a safe haven in stormy times.

But support then plummeted following a dispute with Britain and the Netherlands over the failed bank Icesave, in which 340,000 British and Dutch customers lost their savings.

The British and Dutch governments dished out a total of 3.9 billion euros ($5.5 billion) to compensate their citizens but then entered into a long and still-ongoing dispute with Reykjavik over repayment of those costs.

Now Iceland is on the path to economic recovery while Europe is experiencing problems.

"Fortunately we are quite well-guarded against this international crisis, in regard to currency reserves and liquidity. We have done a lot in regard to the state's fiscal situation and debts which many European countries are now battling," Sigurdardottir said.

"I hope (Europe's crisis) will have no effect on the (EU) talks as such," she added.

"But of course unrest such as this -- recession and crisis on international markets -- can have an effect on Iceland if it drags on," she said.

Iceland is expected to hold a referendum on joining the EU at the close of the membership negotiations, something Reykjavik is aiming to conclude before the country's next scheduled parliamentary elections in 2013.

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