[7] Iceland is a member of the Nordic Passport Union[8] and the Schengen Area, which now is under EU law, as a non-voting participant.

[10] One year later, the country managed to comply with the deficit criteria and had begun to decrease its debt-to-GDP ratio,[11] but still suffered from elevated HICP inflation and long-term governmental interest rates.

Iceland is legally bound to implement into its own law all EU directives applicable to the free movement of goods, persons, services and capital.

If an agreement were to be concluded, the accession treaty would be subject to a national referendum in Iceland and require ratification by every EU state.

[25] Despite this hostility towards EU membership, the Independence Party was forced to accept some of the constraints associated with participation in the European project.

[29] Following the 2007 election, the Independence Party and the Social Democratic Alliance formed a new coalition with a policy of not applying for membership, but setting up a special committee to monitor the development within the EU and suggest ways to respond to that.

[30] Due to Iceland's limited currency,[clarification needed] the government has explored the possibility of adopting the euro without joining the European Union.

At a meeting of members of his party on 17 May 2008, Geir Haarde said that in his opinion the cost of joining the EU outweighed the benefits, and therefore he was not in favour of membership.

[34] The Progressive Party accepted at its congress to support application for EU membership but with very strict conditions including one demanding full authority for Iceland over its fishing grounds and other national resources.

Domestic features of each and every state need to be taken into consideration in order to fully understand its calculations of cost and benefits of a potential shelter relationship.

[26] Iceland's finance minister, Steingrímur J. Sigfússon, ahead of the country's first elections since the financial crisis, stated that "any decision for Iceland to join the European Union and the single currency must be taken by its people, not one political party", on the subject that the issue of EU membership was the greatest threat to a stable coalition.

[41] After the win of the pro-EU Social Democratic Alliance in the election, Prime Minister Jóhanna Sigurðardóttir spoke of an immediate application to the European Union and adoption of the euro within four years as a way to deal with the country's debt.

[45] The anti-EU Left-Green coalition partner accepted that in spring 2010, the minister for foreign affairs would present to the parliament a bill on talks with the EU.

[46] On 10 May 2009, Prime Minister Jóhanna Sigurðardóttir announced that the government intended to move towards membership more quickly than previously expected.

She also stated that she was confident that the legislation would pass, and that she had secured a parliamentary majority on the issue, despite the official opposition to talks by one of her coalition partners.

Then the Social Democratic Alliance's proposal to apply for membership immediately was approved with a narrow majority of 33 to 28 votes with 2 abstentions.

[65] On 24 July, the Lithuanian Parliament unanimously approved and gave full support for Iceland's membership application to join the European Union.

Spanish Foreign Minister Miguel Ángel Moratinos, who then held the Presidency of the European Union, has said that the Icesave dispute does not impact Iceland's application.

[70] David Miliband, then British Foreign Minister, reaffirmed the UK's continued support for Iceland's EU application.

[70] Additionally, the Dutch Foreign Minister Maxime Verhagen has stated that while the opening of negotiations will not be blocked by the Icesave dispute, it must be resolved before Iceland's accession.

[79] The first annual report on negotiations was published in November 2010:[80] the main issues at stake remained the fisheries sector and whale hunting, while progress has been made concerning the Icesave dispute.

Most importantly, however, while the country retained the Icelandic kronur, it was unable to lift the capital controls recently introduced in the turmoil of the economic crisis.

[88] On 14 January, the Icelandic government announced that negotiations would be slowed, and that an accession agreement would not be reached before the parliamentary election in April.

[93] On 19 March 2013, Þorgerður Katrín Gunnarsdóttir, an Independence Party MP, put forward a motion in the Althing calling for a referendum asking the Icelandic public whether EU accession negotiations should continue.

[99] On 13 June, Iceland's Foreign Minister Gunnar Bragi Sveinsson informed the European Commission that the newly elected government intended to "put negotiations on hold".

[100] European Commission President Manuel Barroso responded on 16 July 2013 by requesting that the new Icelandic Prime Minister make a decision on the continuation of their accession bid "without further delay", and stressed that the EU remained "committed to continue the accession negotiations process, which I'm certain could address Iceland's specificities".

[101] In August 2013 the Icelandic government revealed that it had received a legal opinion that the 2009 Parliamentary vote did not oblige it to continue accession negotiations with the EU.

[109] Following the 2024 Icelandic parliamentary election, the Social Democratic Alliance, Viðreisn and People's Party formed a new coalition government, which agreed to hold a referendum on resuming negotiations on EU membership by 2027.

[166] On 22 February, the governing parties agreed to formally withdraw the membership application, without first holding a referendum on the matter, and submitted a bill to parliament seeking their approval to do so.

[171][173] On 25 February, Ragnheiður Ríkharðsdóttir, chairman of the parliamentary group of the Independence Party, announced her intention not to vote in favour of the proposal.