By Tom Little and Johan Ahlander
REYKJAVIK, Aug 29 (Reuters) - Icelanders voted on Saturday on whether to reopen membership talks with the European Union, with islanders split down the middle after a campaign focused on the cost of living, security, sovereignty and control over fishing waters.
The race is too close to call. A Gallup poll on Friday suggested a narrow majority opposed the government's proposal of reopening negotiations, a slight shift from earlier surveys that pointed to a narrow lead
for supporters of renewed 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.
The referendum campaign has fuelled debate about Iceland's place in the world, Prime Minister Kristrun Frostadottir told reporters after casting her ballot in the capital on Saturday.
"This is a great day, we've been waiting for this for years to be able to have a vote," Frostadottir said, adding that her government would continue its work regardless of the outcome.
Should voters say "yes", that would only open the way to discussions with Brussels. Iceland would then have to hold a second referendum, likely several years later, on whether to join the EU.
OLD QUESTIONS, NEW URGENCY
Iceland first applied to join the EU in 2009, amid 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.
Iwo Egill Macuga Arnasson, a 19-year-old student casting his ballot in Reykjavik on Saturday, said he would vote in favour of the proposed negotiations.
"I think this will influence my life a lot, whether we join the European Union or not," he told Reuters.
Polling stations close at 2200 GMT and results are expected in the early hours of Sunday.
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.
Ragnhildur Skarphedinsdottir, 70, said Iceland was managing well on its own and that she was voting "no".
"By staying independent as we are, we look brightly to the future," she said before casting her ballot in Reykjavik.
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.
(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 and Ros Russell)
