Icelanders agonize over future, but wary of the EU

REYKJAVIK (Reuters) - As Iceland prepares to negotiate membership of the European Union, Icelanders are torn between feeling it may be best for the country and fears they could lose their independence to faraway Brussels.

After a meltdown of the north Atlantic island's economy, on Thursday parliament narrowly backed the government's plan to begin talks to join the bloc.

But skepticism to the move is widespread among Icelanders who jealously guard the traditional waters teaming with red fish, cod, haddock and halibut.

"I don't think we will get a deal with the EU we can say yes to. The only thing that will get us back on track is honest hard work and fishing," said Kristjan Gudmundsson, captain of a whale watching boat, at the end of a long day.

"We have survived and thrived as a nation through fishery. This is our gold."

Iceland -- a volcanic island the size of England but with a population of just 320,000 -- stunned the world with the scale and speed of its financial meltdown which followed an unsustainable boom in the financial sector.

Now, Icelanders are trying to pick up the pieces.

Ragnar Stefansson, 27, gave up dentistry in January and went back to fishing which had become more lucrative.

"After the kronor fell this is much better money," he said, as seagulls flew above the dock in the capital of Reykjavik, named "smoky bay" for its steamy landscape.

Steiner Thorsteinsson, a 19-year-old fisherman, says he would vote against the EU if given the chance: "This is one of the main Icelandic resources -- it would be terrible if we lost that."

Icelanders fear EU membership could mean tighter controls over what they can catch and leave their waters open to trawlers from other countries.

STILL SORE

The government will need time to win the hearts of a Viking nation that treasures its independence ahead of a popular vote that is seen by some in 2011 or 2012.

Icelanders are still sore over a British move to use anti-terror legislation to freeze Icelandic assets when the country's banks collapsed, and European pressure for them to pay back debt owed for the enormous losses incurred by the banks.

But in a nation isolated by geography, there are growing fears the island may get left behind in an increasingly globalize world.

Iceland's recently elected government wants to gain full access to the world's biggest single market, the security of the euro and have a voice in the club that now has 27 members.

People talk of a brain drain as jobs are fewer by the day.

Inga Jessen last October lost her job in the financial industry and started up a website last week that gives tips on free things to do in Reykjavik.

Jessen had taken out Japanese yen loans for two cars and an apartment at the height of the financial boom, similar to many Icelanders who borrowed heavily in foreign currencies to pay for their Range Rovers and lifestyles that were envied even by people in the richest countries of the world.

Icelanders are realistic about the risks of going it alone.

"In principle, I am for entering the EU," said Methusalem Thorisson, a 62-year-old coffee shop owner.

"But we need to solve our own problems first. We are coming in as beggars. It's 'let us in, we've made a mess.' It has a feeling of desperation and I don't like that. It just doesn't feel right."

(Editing by Robin Pomeroy)