REYKJAVIK (AFP) -Banking and fishing hot issues on Iceland.

• Moody's cuts outlook on Iceland
• Iceland told to win back public over membership

Formal talks have started over Iceland's entry into the European Union, but Icelanders remain cool at the prospect as differences over fishing and revived national pride trump EU enthusiasm.

As enlargement negotiations got under way in Brussels last week there were few on the small volcanic island in the north Atlantic who were keen to champion the idea of becoming the 29th EU member after Croatia next year.

"I don't have really a marked opinion but, about the fishing, I don't think it's good for the Icelandic people," said artist Gestur Mar Fanndal, enjoying the Reykjavik sunshine with his child on a busy shopping street.

Public support for enlargement is key because the decision to join the EU will ultimately go to a referendum. Norway twice voted against joining the EU, in 1972 and 1994.

Negotiations opened a year after Iceland submitted its application in July 2009 in the wake of a financial crisis that decimated its banking sector and fuelled initial public support to join the EU family's economic security.

Some remain keen, such as Elias Halldor Agustsson, a senior systems analyst at the University of Iceland.

"I think it would be a bloody good idea. It can't be worse than what we already have," he said, citing endemic corruption and nepotism.

However, in the last available poll on the question from June, 60 percent of Icelanders said they were against the EU membership, with just 26 percent in favour.

Nationalism has been revived in part by the collapse of Icesave bank and Iceland's tough negotiations with EU members Britain and the Netherlands over compensation for British and Dutch account holders who lost their savings.

The collapse of Iceland's banking system has also led Icelanders to fall back on traditional industries, namely fishing, which represents a third of its exports.

In the small port of Sandgerdi, an hour from the capital, captain Hjortur Alfredsson expressed his concerns over the impact EU membership would have on his industry.

"By experience, when two parts of different sizes negotiate, the smaller one always loses," he said. "There's not a doubt in my mind that the European Union would take over the control of the Icelandic fishing areas within a few years."

A fisherman in the nearby village of Nylenda said: "I'm against it because I think that Iceland should have control over its natural resources like fish. I don't want anyone in Brussels to decide how much we can catch."

More europhile businesses in Iceland have tried to counter the resistance to EU membership from fishermen, agriculturalists and whale hunters.

"They're very loud against the EU. What is important is that they stop screaming and that they start discussing more," said Helgi Magnusson, the head of the Federation of Icelandic Industries.

"We will do our utmost to influence the negotiations in order to get as favourable a deal as possible," he pledged.

Jon Agust Thortseinsson, head of a company specialising in efficient energy for the maritime sector, deplored the high costs for Icelandic businesses due to the volatility of the national currency.

"We are a European nation with a European culture and we should be a part of the European Union," he said.