ICELAND was put on a fast track to join the European Union on Thursday, but the British government served notice that it could block Iceland's membership unless it settled the £2.3bn Britain says it is owed as a result of the country's financial collapse two years ago.

European government chiefs at a Brussels summit decided that “accession negotiations should be opened” with Iceland. At British and Dutch insistence, however, the summit said Iceland would have to address “existing obligations such as those identified by the European free trade area surveillance authority”, a reference to the fallout from the collapse of Icesave in 2008 that left 400,000 depositors in Britain and the Netherlands fearing for their savings.

The Icesave dispute generated acrimonious negotiations.

Recently, William Hague, the UK foreign secretary, made it plain that Britain could veto membership unless the dispute was settled. “Iceland will have to recognise its obligations,” he said. “We won't block [opening negotiations], but we will want it clear at the start that Iceland meets its financial and legal obligations.”

“We've taken note of that,” said Stefan Haukur Johannesson, Iceland's chief negotiator with Brussels. “It's a contentious issue between our three countries. But we don't see it as linked with the accession process.” In October 2008, following the collapse of Landsbanki, Icesave's parent, the then British government sparked outrage in Iceland by invoking anti-terrorism laws to freeze Icelandic assets in Britain.

Johannesson said on Thursday that it was “self-evident that we will live up to our obligations” but insisted there could be no direct linkage between the financial row and the European negotiations. Iceland is otherwise likely to have a relatively smooth passage through the negotiations because it is in effect already part of the European single market.

— The Guardian, London