Icelanders are called to the polls on Saturday to decide whether their country should resume negotiations to join the European Union, abandoned over a decade ago.
The vote does not mean that Iceland will automatically join the EU. If the pro-negotiation camp wins, and the two parties reach an agreement, Icelanders will be called to the polls again to decide whether to accept membership.
The referendum comes at a time when the pressures exerted by Donald Trump on Greenland have brought attention to Arctic security and the strategic importance of Iceland, writes CNN.
But the debate within the country focuses mainly on the economy: giving up the Icelandic krona in favor of the euro, the high cost of living, and the risk of Iceland losing control over its fishing waters.
Iceland applied for EU membership in 2009, following the financial crisis that severely impacted families and companies in the country with approximately 400,000 inhabitants.
A few years later, the new center-right government halted the process. The main argument was that membership could weaken Iceland's control over its own resources, especially its fishing territorial waters.
The current center-left coalition came to power with the promise of organizing, by 2027 at the latest, a referendum on resuming negotiations. The government also aims for closer cooperation with the European Union, the other Nordic countries, and NATO.
Iceland is already a member of NATO and part of the European Economic Area, which allows for the free movement of people, goods, and capital. The country is also in the Schengen Area.
Therefore, Icelanders already benefit from many advantages of the European market. The difference is that Iceland must adhere to numerous European rules without fully participating in their adoption.
Trump and Greenland have changed the context
Iceland has no army or Ministry of Defense, but it has a strong coast guard. Its security is primarily ensured through NATO and partnerships with Western allies.
The country recently signed, along with four other NATO states, an agreement to strengthen maritime security in the Arctic and North Atlantic, a region that has become increasingly important due to Russia's naval activities.
At the same time, Donald Trump's statements and actions regarding Greenland have caused unease in Iceland. The American president has repeatedly confused Greenland with Iceland when discussing taking control of the Arctic territory.
"The lack of restraint with which he acted has caused unease in Iceland," explained Ragnar Hjálmarsson, a senior adviser at the Icelandic think tank Varda.
Discussions about Greenland, however, have made Icelanders more aware of their country's strategic position, situated between Europe and North America.
Iceland's importance is viewed differently in Brussels. "For the European Union, Iceland will be, in the current security context, a much more relevant partner than it was ten years ago," said Almut Möller, Director for European and Global Affairs at the European Policy Centre.
After Brexit, admitting a new prosperous state would allow the EU to show that the European project continues to attract members and that the bloc becomes stronger in terms of geopolitics and security.
Prime Minister Kristrún Frostadóttir believes that Brussels' strategic interest could help Iceland obtain better conditions. "I think this is an excellent time for Iceland to join, given the geopolitical situation we are in. I think this also gives us a stronger position in the accession negotiations," she said on The Rest is Politics podcast.
What supporters of resuming negotiations say
The government's message is that Iceland should at least find out what conditions it can obtain from the European Union before making a final decision. "You can be undecided about the EU and still say 'yes' to negotiations because you want to see what this could look like," the Prime Minister argues.
Frostadóttir states that adopting the euro could bring more stability and new investment opportunities. Iceland currently uses the Icelandic krona, a currency vulnerable to strong fluctuations and episodes of inflation.
The Prime Minister also says that maintaining its own currency reserves costs the country a lot. Among the other possible advantages of EU membership are funds for Arctic agriculture, loans for infrastructure, and integration into European research programs.
Although one of the most prosperous countries in the world, Iceland faces a very high cost of living. GDP per capita reaches around $98,300, higher than that of the United States, and unemployment is relatively low.
Residents benefit from universal healthcare, universal preschool education, and equal paid parental leave for both parents. However, the 2008 financial crisis left deep scars, and the Icelandic krona is a volatile currency that can amplify inflation.
Supporters of accession believe that switching to the euro and fully entering the European market could attract more investments and encourage competition in an economy dominated, in key sectors, by only a few companies.
"People hope that EU membership would bring us economic discipline, more stability, and more competition in the domestic market," explained Hjálmarsson.
Fishing and fear of losing control over resources
For opponents of accession, the main issue is sovereignty. They fear that foreign vessels could gain access to Icelandic waters and that decisions regarding one of the country's most important resources would end up being made in Brussels.
The fishing industry generates approximately 6.5% of Iceland's GDP, according to data from the Nordic Council.
The eurosceptics' argument is that the country's prosperity was built precisely by maintaining control over its resources. "If we jeopardize control over our own resources, we jeopardize our future prosperity," summarized Hjálmarsson their position.
The Independence Party, the main opposition party, leads the camp that rejects resuming negotiations. "What is the value of a seat at the table if we do not have the final say?" asked the party's leader, Gudrún Hafsteinsdóttir.
However, analysts believe that Iceland could obtain some derogations from EU policies in the fishing and agriculture sectors. The country is wealthy, would contribute more to the EU budget than it would receive, and would require far fewer reforms than the Balkan states seeking accession.
"I think there would be a willingness to take into account Iceland's special situation, including regarding natural resources," said Almut Möller.
An impossible-to-predict vote
Polls show an extremely tight race. According to Gallup, of Icelanders who already have an opinion, 51.5% support resuming negotiations, while 48.5% oppose. A small percentage remains undecided.
If the pro-negotiation camp wins, negotiations for a potential accession agreement could take around 18 months, according to the Icelandic Foreign Minister.
Then, a second referendum would follow, in which the population would decide whether Iceland joins the European Union or not.
Until then, it remains to be seen how much Brussels is willing to offer to a small, prosperous, and increasingly strategically important country, but whose population is almost evenly divided.