Iceland suspends EU talks as approaches key election

REYKJAVIK (Reuters) - Iceland has suspended its European Union entry talks, the ruling coalition said on Monday, ahead of an election in April that could bring a more EU-skeptic government to power and halt negotiations altogether.

The government, formed by the Social Democrats and the Left-Green Party and which is lagging in opinion polls, said no talks on new policy areas with the EU would be opened. Negotiations under way would continue, but no decisions would be made.

"The coming months will be marked by the upcoming parliamentary elections in Iceland," the government said.

"In the light of this, it will best serve Iceland's interests to safeguard Iceland's position in a responsible manner," it added in a statement.

The centre-left coalition launched EU entry talks, which involve reaching agreement on many different policy areas, called chapters, after taking office in 2009 as the country was still in shock after the 2008 collapse of its top banks.

The crisis had increased interest in joining a big bloc like the EU, but recent opinion polls have shown people would vote against entry in a referendum. The main opposition centre-right Independence Party, which opposes EU entry, is also front runner to form a new coalition, polls have shown.

EU skepticism has risen as Iceland made a good recovery from its crisis as many EU countries were hit by debt woes.

The Social Democrats support EU entry, but the Left-Greens are against. They overcame differences to begin the EU talks on condition any deal on entry would be put to a referendum.

"It's too early to say that Iceland's EU ambitions are dead. The outcome will fully depend on the results of the parliamentary elections in late April," said political science professor Eirikur Bergmann Einarsson of Bifrost University.

Victory by the Independence Party and its centrist ally the Progressive Party would likely put the process on hold, though that victory was not certain, he added.

Support for the Independence Party has come despite the fact many people blamed it for backing economic liberalization and cronyism which were seen as having led to the crisis.

(Reporting by Omar Valdimarsson, writing by Patrick Lannin; Editing by Alistair Scrutton)