I'm sure something more subtle would be used - like delaying their application for EU membership, which is currently in the works.

Most Icelanders do not want to join the EU. The two political parties with the current greatest following which will probably be elected for a new government next Saturday also oppose joining the EU.

And seeing as how well the EU has been to the PIIGS, i would say that most Icelanders are being rational.

Didn't the EU give billions of Euros in handouts to the PIIGS?

They have unsustainable economies due to excessive public welfare programs and unfavorable demographics. Being outside the EU wouldn't magically solve those problems, though it would let them monetize some debt.

"though it would let them monetize some debt"

And there you have it.

Yes the problems won't magically go away. "They have unsustainable economies due to excessive public welfare programs and unfavorable demographics" can be said about most countries.

But of course GDP growth y/y is sustainable ad infinitum.

Here in the USA, when we run out of money we can print some more and pass the cost to nations who use the USD in foreign exchange (Kudos for China and Australia for trying to get out of this hole). But in the EU, they have to appease the troika before they run some database queries. (And as we have seen with cyprus, now you also have to sell an arm and a leg, what's next?)

In the world where central banks are openly buying stock with their freshly minted database queries…what could go wrong?