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Iceland's new eurosceptic government vows EU referendum

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(REYKJAVIK) - The two parties that emerged victorious from Iceland's general election in April announced Wednesday they had agreed to form a government and vowed to hold a referendum on EU membership.

"We will not continue the accession talks with the European Union until after a referendum," a government policy document signed by the centrist-agrarian Progressive Party and the right-wing Independence Party said.

EU negotiations between Reykjavik and Brussels began in July 2010, but Iceland's foreign minister said in January it was slowing the pace of talks ahead of the April elections "to give the election campaign the room it needs".

The new government said it would now evaluate the progress of the negotiations and the practical aspects of a referendum.

Although Icelanders are still feeling the effects of the 2008 financial crisis in the form of sliding living standards and ballooning mortgages, many do not see what benefits losing some of their sovereignty to Brussels would bring.

The country already has a free trade agreement with the EU, and is part of the European Free Trade Association (EFTA) and Europe's visa-free Schengen zone.

In addition, the Icelandic economy has largely recovered from the spectacular collapse of its banking system, while Europe has continued to grapple with its debt woes.

Recent public opinion polls have indicated that a majority of Iceland's 320,000 people are opposed to EU membership.

Most are also against the introduction of the EU's common policies on fishing -- one of the small island nation's biggest resources. The EU talks have not yet dealt with the topic of fishing.

The anti-EU sentiment is increasingly being felt elsewhere in Europe, including in Britain where Prime Minister David Cameron has said he wants to renegotiate the conditions of the country's troubled relationship with the 27-member union.

A draft bill has been rushed out to pave the way for a 2017 referendum on Britain's membership of the EU.

Iceland's new government is expected to take office on Thursday, almost a month after the April 27 legislative elections. The Progressive and the Independent parties garnered 19 seats each in the 63-seat parliament, or Althing.

Progressive Party leader Sigmundur David Gunnlaugsson will hold the post of prime minister in the new government, while the head of the Independent Party, Bjarni Benediktsson, will serve as finance minister.

The rest of the cabinet has not yet been disclosed.

In addition to halting Iceland's EU membership bid, the new government's programme calls for an easing of household debt by recovering money from the creditors of Iceland's banks that collapsed in 2008.

It also called for a simplification of the tax system to reduce taxes.

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