Interest rates, fish and Donald Trump on Icelanders' minds as nation goes to referendum on EU

Iceland divided as nation holds referendum on whether to restart talks to join European Union By Europe bureau chief Mazoe Ford and Daniel Pannett in Iceland 7.30

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.

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.

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.

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.