THIS island in the North Atlantic, with its myriad active volcanoes and massive glaciers, is bracing for what promises to be heated debate on its post-cold-war future.
During the years of East-West confrontation, strategically located Iceland was firmly anchored among nations in the United States-led North Atlantic Treaty Organization. Its security needs taken care of, the island enjoyed stable economic growth.
But now that Russian nuclear submarines are no longer considered a great threat, Iceland's value as a listening outpost of the Atlantic alliance has dwindled. And as a result, the island now finds itself caught between North America and Europe, rocked by the crosscurrent of uncertainty over NATO's future role.
Shifting geopolitical conditions, combined with an unfavorable economic climate, are presenting Icelanders with some hard choices - specifically whether or not to apply for membership in the European Union.
``NATO is becoming a bilateral organization between the US and Canada on the one hand, and the European Union on the other,'' says Iceland's foreign minister, Jon Baldvin Hannibalsson. ``Those not in either camp can fall through the cracks.
``A situation is evolving in such a manner that we're in danger of becoming more isolated and having less control of our destiny,'' Mr. Hannibalsson adds.
In the past, Iceland's 260,000 residents have consistently resisted joining the EU, primarily because membership would require Reykjavik to delegate some of its sovereignty to the EU's Brussels-based bureaucracy.
But according to Hannibalsson, a growing number of Icelanders are now open to exploring the EU option. The island's economic distress is making the shelter offered by the trade bloc seem more attractive, the foreign minister says.
No comfort without cod
If many Icelanders feel themselves to be on shaky ground as they go it alone, the main reason for their unease is dwindling fish stocks. Commercial fishing serves as the foundation of Iceland's economy, with the industry accounting for about 17 percent of its gross domestic product and providing about 80 percent of the country's exports.
Perhaps no European nation has been more adversely affected by declining fish stocks in European waters than has Iceland.
``Iceland remains dependent on fisheries on a scale unimaginable elsewhere in Europe,'' said Hannibalsson, speaking during a recent visit to Germany.
In Grindavik, a small fishing village south of Reykjavik, it does not matter whether there is the midnight sun of summer, or the gray noon light of winter - the mood is mostly somber and the forecast is for continued gloom. One fishermen gestured to a near-empty warehouse and said: ``It's been this way for the past couple of years.''
Lately, the scarcity of fish has increased tension among fishing nations. Icelandic trawlers have run afoul of Norwegian authorities in recent weeks around the Svalbard islands, an Arctic archipelago claimed by Norway. Iceland does not recognize the claim.
In the most violent incident, Icelandic fisherman on Aug. 5 shot at Norwegian authorities who wanted to board their trawler. A Norwegian Coast Guard vessel retaliated with a salvo that left two holes in the trawler's hull. No one was injured.
Reykjavik on Aug. 16 dispatched a gunboat to the disputed waters to protect Icelandic trawlers. ``When we have so many ships in the area, they [should] have a minimum level of support,'' Hannibalsson told Norwegian state radio.
The fish fight underscores the extent of the tough times now gripping Iceland. The Paris-based Organization for Economic Cooperation and Development (OECD) predicts the Icelandic economy will decline 1.2 percent this year, after a modest 0.8 percent expansion in 1993. A big reason for the projected contraction is a 20 percent reduction in the catch quota for cod for the year-long period ending in September.
The OECD and other world economic bodies, such as the General Agreement on Tariffs and Trade, maintain that Iceland's fisheries policies - which permitted free access to ocean resources - are primarily to blame for reducing stocks around the island's traditional fishing grounds.
Creating an effective fisheries-management plan, as well as fostering a more efficient agricultural sector, are the main challenges facing the Icelandic government, the OECD states.
Hannibalsson, meanwhile, says the island's economy could benefit from some diversification, but adds that options are limited. In the last decade, Iceland has made a concerted effort to boost tourism. But officials find the country is now approaching tourism capacity.
Banking on visitors
Tourism is currently the second-largest source of foreign currency income for Iceland, following commercial fishing. The island has an abundance of unspoiled natural wonders waiting to be discovered, from black, moon-like lava fields to majestic glaciers. The country's streams now draw anglers for trout and salmon from around the world.
But natural beauty aside, there is not much else. Reykjavik offers tourists little that cannot be seen or eaten at significantly lower prices elsewhere. The few sites of interest include Hofdi House, site of the 1986 Reagan-Gorbachev superpower summit, and the pavilion that hosted the 1972 chess championship between Bobby Fischer and Boris Spassky.
The constraints on further tourism growth include Iceland's short season, high prices, and limited number of hotel rooms, says Audur Birgisdottir, a manager at the Iceland Tourist Bureau, one of the island's largest travel agencies.
``We can't compete with countries that can accept more tourists,'' says Ms. Birgisdottir, citing Canada and the Scandinavian countries as the island's top tourism competitors.
``In addition, some people worry about the damage to the environment,'' she adds. ``They say too many people are going to delicate places.''
Although joining the EU could help ease Iceland's current economic squeeze, generating sufficient popular support to submit a formal EU membership application will take some time, Hannibalsson says.
``The image is that the EU is all too ready to snatch up Iceland's vital interests,'' he says. ``There is also a fear of being swallowed up.''
To allay Icelandic fears, EU officials likely would have to grant Iceland some kind of exemption to the EU's common fisheries policy, which opens up fishing grounds to any member state's fleet. If no exemption was granted, Icelanders fear their traditional fishing grounds would be overrun and devastated by fleets from Britain, France, and Spain.
The pressure on Iceland to apply for EU membership could increase markedly this fall, pending ``yes'' votes in referendums in Scandinavian countries on EU membership. The Scandinavian nations are not only Iceland's cultural cousins, but also its main economic competitors.
``The outcome of the referendums in Finland, Norway, and Sweden will play a crucial role in the timing'' of Iceland's possible application for EU membership, Hannibalsson says.