Iceland forms a new government and paves the way for EU membership referendum

The new coalition is split over whether the country should join the EU...

Iceland forms a new government and paves the way for EU membership referendum

Katja Ogrin / EMPICS via PA

Following a prolonged deadlock, political parties in Iceland have reached a deal to form a new government.

The centre-right Independence Party, will team-up with the more liberal Reform and Bright Future parties.

As part of the deal, the parliament will vote on whether the country should hold a referendum on applying for EU membership. This would happen "towards the end of the legislative period" according to AFP.

The uneasy coalition controls 32 of the 63 seats in Iceland's parliament.

The Independence Party has been an opponent of EU membership - it has 21 seats. Its leader Bjarni Benediktsson will be the country's next prime minister.

The other two parties support joining the Union. 

The state applied to join the EU in 2009 - but the bid was abandoned in 2015 as the country's then-foreign minister decided that joining the Union would be against Iceland's best interests as the country feared that tight fishing quotas would hurt its economy.

It is a member of the European Economic Area and the Schengen zone.

If it did want to join the EU, the earliest that it could do so would be 2022.

The country's previous PM Sigmundur Davíð Gunnlaugsson was forced to resign when his involvement with off shore accounts was revealed in the Panama Papers. Parties have been locked in coalition talks since October of last year.