It should have come as no surprise to observers of Iceland, but its new center-right government has firmly closed the door to membership in the European Union anytime soon, with an announcement from Icelandic foreign minister Gunnar Bragi Sveinsson (pictured above, left) last week.

It was virtually certain that Iceland would take a step back from EU membership, given that both governing parties — the Framsóknarflokkurinn (Progressive Party) and the Sjálfstæðisflokkurinn (Independence Party) — campaigned against EU membership in Iceland’s April parliamentary elections.

Former social democratic prime minister Jóhanna Sigurðardóttir launched membership talks with the European Union in July 2009, when Iceland was still reeling from the effects of a financial crisis that bankrupted its three major banks and left Iceland in economic meltdown.  In the immediate aftermath of the September 2008 crisis, some Icelanders even seriously considered joining the euro after the Icelandic krónur tanked in value.  As Iceland’s economy has recovered to some degree, despite difficult loan burdens and continued currency controls, and as the eurozone has come to appear more like a monetary straitjacket than an economic life raft, Icelandic voters have increasingly soured on the benefits of EU membership.

Though prime minister Sigmundur Davíð Gunnlaugsson’s Progressive Party was seen as originally more open to continuing the talks, Gunnlaugsson seems to have taken aboard the more hardline views of the Independence Party — no one quite expected the government to end negotiations with such resolute finality in only its first month in office.

So while Iceland will continue to be a part of Europe, it will do so, like Norway and Switzerland, outside of a formal membership of the European Union.

As I wrote in the immediate aftermath of the election, however, the line between membership and Iceland’s current status is not as bright as you might expect:

[Icelanders] already have the benefits of free movement of goods and free borders with Europe, as well as much of the legal harmonization that typically comes with membership and a robust economic relationship with Europe that developed without Icelandic membership.  Why formalize the deal when they already have so many of the benefits of membership without any potential for considerable drawbacks that could harm Iceland’s cherished (and highly protected) fishing industry or the fierce national pride of a uniquely compelling nation that won its own independence from Denmark in 1944?

Reykjavík’s major opposition to EU membership has never been cultural or even legal — like Norway, Iceland is a party of the EU single market without being a formal member of the European Union and like Norway (and now, even long-neutral Switzerland), Iceland belongs to the Schengen Area that allows for free movement between national borders.  Accordingly, Iceland has implemented nearly two-thirds of the acquis communautaire, the body of EU laws and regulations, which always made it a particularly breezy candidate for membership.  Fully 78% of Icelandic exports go to the European Union and 52% of Icelandic imports come from the European Union, so the bilateral trading relationship is already quite strong, and that partnership won’t necessarily change, even if EU accession talks come to naught.

The key difficulty is the same issue that compelled Greenland (having obtained self-rule from the Danish kingdom itself in 1979) to leave what was then the European Economic Community in 1986 — fishing rights.  Like Greenland, Iceland derives much of its exports from the fish that live in its territorial waters, and the last thing that Icelandic policymakers want to do is to open up those waters to non-Icelandic fishing vessels and non-Icelandic regulations.  It’s a serious deal to Icelanders, who fought two ‘Cod Wars‘ with the United Kingdom over territorial waters in the 1950s and the 1970s.

In addition to any potential fishing rights carve-out, the Icesave dispute among Icelandic, British and Dutch officials has also retarded what could have been a speedy accession.