By Tom Little and Johan Ahlander
REYKJAVIK, Aug 29 (Reuters) - Icelanders vote on Saturday on whether to reopen membership talks with the European Union, with islanders split down the middle after months of debate focused on the cost of living, security and control over fishing waters.
The race is too close to call. A Gallup poll suggested on Friday a narrow majority oppose reopening negotiations, tipping the scale slightly from earlier surveys that had pointed to a narrow lead for supporters of talks.
"Yes" campaigners backing talks say joining the bloc could ease high interest rates and offer more security in a world unsettled by the war in Ukraine and U.S. President Donald Trump's threats over another Arctic island, Greenland.
"No" campaigners argue EU membership would threaten the island's sovereignty and fishing waters.
Should voters say "yes", that would only open the way to discussions with Brussels. Iceland would have to hold a second referendum, probably in several years' time, on whether to actually join.
OLD QUESTIONS, NEW URGENCY
"I think Iceland is better off outside of the EU," former Prime Minister Katrin Jakobsdottir told journalists after speaking at a "no" campaign event in Reykjavik on Thursday.
"For a country like ours with our small economy, it's very important to maintain our sovereignty and not to transfer more power than we would have to do to the EU."
Iceland first applied to join the EU in 2009, in the depths of a financial crisis that hit the country's small, exposed economy especially hard. Talks ended in 2013 when a Eurosceptic government shelved the process.
Renewed geopolitical turmoil has brought fresh urgency to an issue Icelanders have debated on and off for decades.
Foreign Minister Thorgerdur Gunnarsdottir, who has been backing 'yes', told Reuters last week that Saturday's vote comes down to a simple question: can Iceland still afford to stand apart in a world where old certainties are crumbling?
"The international order that underpinned our security and prosperity for decades is under serious pressure," she said. "In times like these, small nations need to think carefully about where they stand and who stands with them."
INTEREST RATES AND COST OF LIVING
Debates inside Iceland have focused more on interest rates, fishing rights and the cost of living than on security.
Iceland has grappled with persistently high inflation and rates that made mortgages punishingly expensive, and supporters of a "yes" vote say EU membership, and possibly adoption of the euro, could offer some relief. Iceland's central bank rate stands at 8.00%, against 2.25% at the European Central Bank.
"It would not solve Iceland's structural faults, but it could become a catalyst to a more healthy economy," said Vilhjalmur Hilmarsson, chief economist at Viska, one of Iceland's largest labour unions.
Opposition leader Gudrun Hafsteinsdottir, who has led the "no" campaign, has argued the economic case is overstated.
"These are not problems that Brussels will solve for us. These are problems that Icelandic politicians must solve," she said.
FISHERIES AS THE STICKING POINT
Under EU rules, fishing quotas are based on historical fishing patterns among other things. Some officials argue that would let Iceland keep control of its waters, since no EU country has fished there for decades.
Opponents aren't convinced. "I know that the European Union will come up with some promises of some flexibility, especially in the beginning, but we know that it will not be for good," Hafsteinsdottir said.
A foreign ministry memo estimates accession talks could start by the end of 2026 and take 18 to 24 months, if Saturday's vote favours reopening negotiations.
Iceland must also hold a general election by November 2028, adding a further layer of political uncertainty to any negotiating timetable that stretches into that period.
Polling stations open at 0900 GMT across the nation of roughly 400,000 people. They are due to close at 2200 GMT.
(Reporting by Tom Little and Johan Ahlander in Reykjavik and Stine Jacobsen and Louise Rasmussen in Copenhagen, writing by Stine Jacobsen, editing by Terje Solsvik)
