Iceland divided as nation holds referendum on whether to restart talks to join European Union

High interest rates and inflation, a fishing industry under threat and the shadow of Donald Trump are on the minds of Icelanders as the country goes to a referendum this weekend to decide whether it should restart negotiations on joining the European Union.

If this tiny island nation of almost 400,000 people chooses 'yes', they would have a second vote later to seal the deal reached between Reykjavik and Brussels.

Or the people could reject it and keep the status quo.

A Gallup poll this month found voters split on restarting talks with the EU: 46 per cent said they would vote yes and 46 per cent no, with 8 per cent undecided.

Other polls show a majority against actually joining the bloc.

For Icelanders who support the 'yes' side the most compelling argument is around creating economic opportunities and improving cost of living.

Living standards and wages are high, but so are inflation and interest rates.

Economics student Óðinn Freyr Baldursson, 21, is saving up to buy his first home.

"The interest rates for mortgages, regular mortgages for homes, are around 9 per cent here in Iceland," Mr Baldursson said.

"Which is more than two times higher than most other places in Europe, and that's the main reason why owning a house here in Iceland is so, so tough."

He said he believed that if Iceland joined the EU and replaced the volatile krona with the euro, interest rates and inflation would come down.

"Just based off of the experience of other countries joining the EU, we can expect that interest rates will decrease by 3 to 4, maybe 5 per cent," he said.

The 'no' side fervently disagrees that joining the EU would solve this.

"Telling people 'we just need to go into the EU because we have so high interest rates, because we have so high inflation' [is wrong], because we have to deal with inflation and the interest rates either way," 'no' campaigner Steinar Ingi Kolbeins, 29, told 7.30.

"For me, that's just that the government is not doing their job."

He said even if Iceland was to have a seat at the table in Brussels, he doubted his country's officials would have much of an impact because it would have fewer seats than the larger nations.

"We have to think about what does the seat at the table look like? What's the size of the chair? And what's the trade-off? What are we letting go of for that seat at the table?" Mr Kolbeins said.

His colleague Magnea Gná Jóhannsdóttir, also 29, said she was motivated to vote 'no' because she wanted "decisions to be made in Iceland by Icelanders".

"I don't want to sell the EU the right of our natural resources or fisheries or farming and all the other things that are part of the European Union," she said.

"And [having negotiations] is a not a journey that's free. It costs money. It costs the time of the government."

The government though, argues the time and investment would be worth it and provide more opportunities for the people.

Fears for fishing industry

On the west coast of Iceland, the Snaefellsnes Peninsula is famous for its appearance in the hit TV show Game of Thrones but it is also home to a thriving fishing industry.

Sustainable fishing is central to Iceland's identity and economy — only Icelandic ships can fish within the 200 nautical miles (321 kilometres) of the island and foreign companies can't own fish processing facilities.

If Iceland joins the EU, those in the fishing industry fear the bloc's Common Fisheries Policy will mean these exclusive waters will become a free-for-all.

Arnar Kristjánsson's family business, G.RUN, has been fishing in them for more than 70 years.

G.RUN is the biggest employer in the small town of Grundarfjörður — 80 of the roughly 800 residents work for the company.

Mr Kristjánsson is firmly against joining the EU.

"The big companies in Europe will swallow up all these small companies and for small towns like this, there will be no more fish production," the third-generation owner said.

"Iceland tries to use our fish stocks in a way that they can keep producing, [but] Europe has not done that. Many of their fish stocks are in a very bad shape and we don't like to have that here."

Prominent 'yes' supporter and Reykjavik MP Dagur B Eggertsson said fishing history "matters very much" and Icelandic officials would fight for exemptions so the industry could be protected.

"The kind of detailed plans of how to handle this have been met with the kind of words of flexibility and openness on the EU's behalf," Mr Eggertsson told 7.30.

"Some people say [exemptions] are out of the question but one of the arguments for a 'yes' in this referendum is exactly to go into negotiations."

Former president of Iceland from 1996 to 2016, Ólafur Ragnar Grímsson, said he believed exemptions would not happen.

"The core element in the whole EU existence is the commonality of the rules applying to everyone, every country, every economy, so you can't perhaps say, 'Let's try to see what we can get,' no," Mr Grímsson told 7.30.

He said he feared Iceland would be taking a huge step backwards if it was to eventually join the EU.

"It took the generation of my parents and grandparents 100 years to gain independence [from Denmark], full control over our powers, the right to negotiate with other countries, to be a sovereign state," the former president said.

'No' campaigners see multiple threats

Iceland has been proudly independent since it broke away from Denmark in 1944.

It first looked at EU entry 17 years ago after the global financial crisis and the collapse of Iceland's banking sector, but walked away after disagreements on several policies, including fishing.

But the world has changed a lot since then.

Iceland sits opposite Greenland, just beside the Arctic Circle, a region the US, Russia and China all want to exploit for resources and new shipping channels as the polar ice melts due to climate change.

US President Donald Trump's ongoing campaign to slap tariffs on allies, and his threats to annex Greenland, before confusing it with Iceland multiple times in a speech at January's Davos Economic Forum, have startled people here.

These developments have prompted some Icelandic policymakers to seek deeper security and economic cooperation with European partners.

Iceland's already a member of the defence alliance NATO and some European trade agreements, but now the coalition government wants extra reinforcement with EU membership as well.

"Wars are not just wars fought with weapons. We also see trade wars going on and threats of tariffs being used. Tariffs are being weaponised.

"So where should we, as Icelanders, seek tighter bonds? I see that within the EU."

The EU will be watching Saturday's referendum closely.

Given how peaceful, prosperous and well-positioned Iceland is, this Nordic nation would be seen by many in Brussels as a very good get.

But if the 'yes' vote gets up, the path forward will be tricky — negotiations will require delicate diplomacy and calculated compromise.

For the Icelandic people though, the vote is not about what is in it for the EU, but all about what is in it for them.

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