Volkswacht Bodensee - Iceland to vote on resuming EU talks in close referendum

Icelanders are not being asked to decide just yet if they want to join the 27-member bloc -- only whether they want their government to negotiate possible terms, including on the highly sensitive fishing issue.

"This is an opportunity, it's not a final decision," Prime Minister Kristrun Frostadottir told AFP, arguing that the referendum paved the way for a "risk-reducing 'Yes'".

"This way you get a deal on the table, you're able to see all the questions, the answers to all the questions we get here," she said.

She was speaking to AFP after a "listening meeting" in Selfoss, one of the many small towns the Social Democratic leader has visited to hear Icelanders' questions and concerns on the issue.

On Saturday, voters will be asked to answer "Yes" or "No" to the question: "Should Iceland resume accession negotiations with the European Union?"

Implied is the question of whether the country of 400,000 inhabitants ultimately thinks it best to remain the captain of its own ship, or hitch its cart to the EU.

If the "Yes" side wins, an accession agreement negotiated with Brussels would be put to a new referendum and likely require a change to Iceland's constitution, as well as ratification by EU member states.

The north Atlantic island applied to join the bloc in 2009, a year after the 2008 financial crisis led to the collapse of its banks and economy.

Membership negotiations began in 2010 but were suspended in 2013 after a eurosceptic government came to power.

The world has changed radically since then.

"The EU is looking around, it's finishing deals with India, with Mercosur. We're seeing changes in the global climate when it comes to how people are using tariffs as weapons," Frostadottir noted.

- Divisive question -

While Iceland's economy is flourishing again -- albeit with a volatile currency -- households are struggling with rising inflation and soaring interest rates, with the central bank raising rates three times so far this year to eight percent. This makes the euro an attractive option to indebted households.

On the global stage, the return of war in Europe with Russia's invasion of Ukraine has shaken established security doctrines.

US President Donald Trump's threats to take over neighbouring Greenland have added to Icelanders' concerns. Their island is strategically located in the sub-Arctic, has no military and depends on NATO and a 1951 bilateral agreement with the United States for its defence.

"The geopolitical upheaval that we have seen recently is not the root cause of this referendum. But obviously, those concerns are impacting the debate," Bifrost University professor Eirikur Bergmann told AFP.

"Mainly the aggression towards Greenland has caused great concern in Iceland and caused many people here to pause and reassess where Iceland belongs."

Opinion polls suggest Icelanders are deeply divided on the EU question.

Office worker Vilborg Inga Magnusdottir said she saw no reason to change the status quo.

"Why would we want to enter the European Union? What would we benefit from it when things are already good?" the 33-year-old told AFP.

Unlike her, Hrafnkell Gudnason plans to vote "Yes".

"It's getting more dangerous for a small country to stand outside the EU," the 59-year-old consultant and horse-breeder said.

"I think it's safer to be a part of a bigger family."

- Compromise on fishing? -

In a country where seafood products account for around 40 percent of exports of goods, fishing -- an integral part of Iceland's national identity -- would inevitably be the key issue in EU negotiations.

Half a century after the last "Cod Wars" with Britain, many Icelanders are reluctant to yield even the tiniest bit of control of their hard-won national waters to Brussels.

Even Foreign Minister Thorgerdur Katrin Gunnarsdottir, a staunch europhile, has made it clear that in any future negotiations Reykjavik would insist on retaining "sovereign control over all fisheries".

That would be difficult to reconcile with the EU's current Common Fisheries Policy.

Brussels has stayed out of the fray ahead of the referendum, but has sent positive signals, even on the sensitive fisheries issue.

For the EU, the prospect of welcoming a wealthy, stable country already largely integrated in the single market through its membership in the European Economic Area would provide a strong showcase for its enlargement policy and strengthen its presence in a coveted region.

C.Kreuzer--VB