Volkswacht Bodensee - Iceland votes on whether to resume EU membership talks

The country of just under 400,000 people applied to join the EU in the wake of a 2009 financial crisis that devastated its economy.

The membership talks were suspended in 2013 when a eurosceptic government came to power.

The referendum result is expected to go down to the wire, with the latest Gallup poll crediting the 'No' camp with 51.6 percent of voter support and the 'Yes' side with 48.4 percent, a gap within the statistical margin of error.

"It's pretty tight, but I'm always optimistic," Foreign Minister Thorgerdur Katrin Gunnarsdottir, a staunch europhile, told AFP ahead of the vote. "It's not done until it's done."

Voting began at 9:00 am (0900 GMT) and closes at 10:00 pm. With no exit polls and given the tight race, the first reliable results are only expected late Saturday at the earliest.

The around 273,000 voters are being asked to answer 'Yes' or 'No' to the question: "Should Iceland resume accession negotiations with the European Union?"

If the 'Yes' side wins, an accession agreement would be negotiated with Brussels and then put to a new referendum on actual membership.

The issue of fisheries -- a pillar of Iceland's economy and over which Reykjavik wants to retain exclusive control -- would have to be hammered out with Brussels, which this time around appears more willing to compromise.

"The fundaments (of the debate) are very domestic, but there is a significant impact that has come with the second term of (US President) Donald Trump and this sort of geopolitical upheaval," Bifrost University political scientist Eirikur Bergmann told AFP.

With Iceland's economy now flourishing, some voters see no reason to discuss EU membership, since the country already has access to the single market as a member of the European Economic Area.

"It's like if you are in a relationship with someone you don't live with, and if you lose something you have by getting married, then why get married?" said Hjordis Vilhjalmsdottir, a 60-year-old radio presenter wearing glasses in the red, blue and white of Iceland's flag.

"We don't need Brussels to rule us. We can do it ourselves," said Elias Theodorsson, a 65-year-old entrepreneur.

"We used to be one of the poorest countries in Europe only a hundred years ago. And now we are the most prominent country in Europe. We did it ourselves," he said.

- Money talks -

The flip side of Iceland's regained prosperity is soaring inflation and interest rates.

Some households are paying nine percent interest on their mortgages, making the prospect of joining the eurozone -- with its much lower rates -- very appealing.

"There's such a big gap, and it would mean so much for my household," said Alexandra Yr van Erven, a 32-year-old university administrator.

"I just think it's the responsible thing to do, to give this government the agency to negotiate a deal with the EU, so we can see what the possibilities are. And then we can evaluate the deal."

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

Trump's unpredictability and his threats to take over neighbouring Greenland -- which he has mixed up with Iceland on several occasions -- 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.

"People are now bringing into question the validity of that agreement," Bergmann said. "The geopolitical shifts are impacting the debate, but they're not driving it."

The referendum result will be followed closely by the EU, which has not welcomed a wealthy, net contributor to its budget since 1995.

Brussels would see Icelandic membership as an example of positive enlargement that could also make it more palatable for member states to agree to take in poorer countries like Montenegro -- or even help change some minds in ultra-wealthy non-EU member Norway, which could end up finding itself isolated.

"Iceland's decision would undoubtedly strengthen the case for the EU to welcome new members," EU Enlargement Commissioner Marta Kos noted.

H.Kuenzler--VB