Will EU lifeline sink Iceland's fishing industry?

The fishing trawlers are tied up four-deep at the pier, their crews unloading from – or stocking for – long, nearly sunless days spent plying the banks of the frigid North Atlantic.

Fishing has long been the backbone of the Icelandic economy, a resource so important to this island nation's survival that it fought three bloodless "Cod Wars" against Britain in the 1950s and '70s to assert exclusive control over its traditional grounds.

Fishermen now fear that their nation's financial meltdown will bring about their worst nightmare: that Iceland will join the European Union, surrendering management of its oceans to a distant bureaucracy with a poor conservation record.

"The Icelandic fishing industry has been booming for years, and we're not subsidized like the EU," says Sigurdur Sverrisson of the Federation of Icelandic Fishing Vessel Owners. "If we joined there is no way we could keep all of our fisheries policies intact."

Iceland's rulers have long resisted EU membership in an effort to protect this vital industry, which accounts for the majority of the country's export income. This week, everything changed with the collapse of the center-right government Monday in the face of violent protests. The Social Democrats, who generally support joining the EU, are expected to lead the interim government.

On Tuesday, the Social Democrats announced their wish to hold a nationwide referendum on joining the EU to be held concurrent with May elections. Public opinion polls suggest two-thirds of Icelanders will vote yes, up from a little over half before October's banking sector collapse.

For Iceland, the real goal is to adopt the euro and retire their currency, the kronur, which is widely viewed as irreparably tarnished by the failure of Iceland's banking system. Until the meltdown, the kronur had been the world's smallest freely traded currency, supported by an economy of only 300,000 people; when its banks tumbled after the collapse of Lehman Brothers, Iceland's economy turned out to be too small to rescue the institutions.

"We tried the course of an independently floating currency and that has led us into disaster," says Olafur Isleifsson, of the Reykjavik University School of Business and onetime central bank official, who supports adopting the euro. "We have to rebuild our status in the international financial world and return to the world of business as a credible entity."

"It would be very difficult to reestablish the kronur as a strong currency, and the fact that we do most of our business with European countries makes the euro the logical choice," says Gunnar Haraldsson, director of the University of Iceland's Institute of Economic Studies. "But if we engage in entry talks with the EU, we would really have to reach some agreement about our fisheries."

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