Although Iceland has one of the lowest unemployment rates in the world, the trend is upwards, says the country's Confederation of Labour - also known as the ASÍ.

It warned: "The most critical situation is in the fishing sector. Over 500 employees are in danger of losing their jobs soon and more than 250 are already unemployed, most of them in rural coastal fishing ports in isolated parts of the country. The situation in Reykjavik is much better, but most fishing people have to leave home to work in the capital and fishing jobs are not that plentiful there any more."

However, there could be some relief from an unexpected sources. The worrying development on unemployment was followed by the news that the krona fell sharply on foreign exchange markets at the weekend, much of it due to the turbulence on financial markets. The value of the krona against the euro has dropped by over 25 per cent this year and some workers are demanding that they be paid in euros.

Fishing analysts believe that in the short term this could benefit seafood producers as it will make exports cheaper, although it is causing concern in financial circles where there are rumours that at least one bank may go the way of Northern Rock. Most Icelandic banks have considerable holdings in the country's fishing industry.

Iceland's Glitnir Bank, which has its own seafood specialist department says: "While fear remains widespread on international markets, the Icelandic krona will be on the defensive side. However, we deem it likely that current levels represent an overshoot and we estimate that the krona could appreciate substantially when risk aversion abates and access to foreign currency credit improves."

Icelandic seafood export producers have long complained of the high exchange rate of the Icelandic krona. Some analysts have maintained that the rate is artificially high and that market forces will sooner or later bring about a correction. It would seem that this correction is now taking place.

Recent pay rises given to fishing and other workers on the Icelandic labour market are in turmoil because of the situation. The weakening of the currency basically wipes out pay rises as the prices of necessities and oil go up. Many families have taken out mortgages in foreign currencies and foreign seafood process workers have been asking for their pay in euros instead of the krona. The industry is saying that if the situation prevails in the long term they could be faced with considerably higher payments.

www.fishupdate.com is published by Special Publications. Special Publications also publish FISHupdate magazine, Fish Farmer, the Fish Industry Yearbook, the Scottish Seafood Processors Federation Diary, the Fish Farmer Handbook and a range of wallplanners.

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