Iceland (05/02)

For the most current version of this Note, see Background Notes A-Z.

PROFILE

OFFICIAL NAME:
Republic of Iceland

Geography
Area: 103,000 sq. km. (39,600 sq. mi.); about the size of Virginia or twice the size of Ireland.
Cities: Capital--Reykjavik (pop. 117,777). Other towns--Kopavogur (24,225), Hafnarfjordur (20,232), Akureyri (15,635). Terrain: Rugged.
Climate: Maritime temperate.
Highest elevation: Hvannadalshnjukur at Vatnajokull Glacier, at 2,119 meters (6,952 ft.).

People
Nationality: Noun--Icelander(s). Adjective--Icelandic.
Population: 286,575 (December 2001).
Annual growth rate: 0.6%.
Ethnic group: Relatively homogenous mixture of descendants of Norwegians and Celts.
Religion: Evangelical Lutheran, 87%.
Language: Icelandic.
Education: Compulsory up to age 16. Attendance--99%. Literacy--99.9%.
Health: Infant mortality rate--2.7/1,000. Life expectancy--men 77.6 years, women 81.4 years.
Work force (2001, 162,700): Commerce--14.0%; manufacturing--11.2%; fishing/fish processing--8.2%; construction--6.7%; transportation and communications--6.8%; agriculture--4.4%; unemployment (2001): 2.3%

Government
Type: Semi-presidential, parliamentary.
Independence: 1918 (became "sovereign state" under Danish Crown); 1944 (establishment of republic).
Constitution: 1874.
Branches: Executive--president (chief of state), prime minister (head of government), Cabinet (12 ministers). Legislative--63 member unicameral parliament (Althing). Judicial--Supreme Court, district courts, special courts.
Subdivisions: 26 administrative districts and 120 municipalities. Major political parties: Independence (IP), Progressive (PP), Social Democratic Alliance (SDA), Left-Green Party (LGP), Liberal Party (LP).
Suffrage: Universal 18 years and above.
National holiday: June 17, anniversary of the establishment of the republic.
Flag: Red cross edged in white on a blue field.

Economy
GDP (2001): $7.6 billion.
GDP growth rate (est. 2002): -0.5%.
Per capita GDP (2001): $26,660.
Inflation rate (est. 2002): 3.0%.
Budget (2002): $2.4 billion.
Annual budget deficit (2002): None (2.5% surplus forecast).
Net public debt (revised budget 2002): $1.9 billion.
Foreign aid as part of 2002 budget: 0.13% of GDP.
Natural resources: Marine products, hydroelectric and geothermal power, diatomite.
Agriculture: Products--potatoes, tomatoes, cucumber, turnips, livestock.
Industry: Types--aluminum smelting, fishing and fish processing technology, ferrosilicon alloy production, geothermal power, tourism, information technology.
Trade: Exports of goods (2000)--$1.9 billion: marine products 71%, other manufacturing products 22%, miscellaneous 5%, agriculture 2%. Partners--EU 65% (U.K. 19%, Germany 15%, France 7%, Denmark 5%); U.S. 13% ($247 million); EFTA 9%; Japan 5%. Imports (1998)--$2.4 billion: industrial supplies 26%; capital goods, parts, accessories 24%; consumer goods 20%; transport equipment 14%; food and beverages 9%; fuels and lubricants 7%. Partners--EU 56% (Germany 11%, U.K. 10%, Denmark 8%, Sweden 6%, Netherlands 6%); U.S. 11% ($268 million); EFTA 11%; Japan 5%.

GEOGRAPHY
Iceland is a volcanic island in the North Atlantic Ocean east of Greenland and immediately south of the Arctic Circle. It lies about 4,200 kilometers (2,600 mi.) from New York and 830 kilometers (520 mi.) from Scotland.

About 79% of Iceland's land area, which is of recent volcanic origin, consists of glaciers, lakes, a mountainous lava desert (highest elevation 2,000 meters--6,590 ft. --above sea level), and other wasteland. About 28% of the land is used for grazing, and 1% is cultivated. The inhabited areas are on the coast, particularly in the southwest where about 60% of the population lives.

Because of the Gulf Stream's moderating influence, the climate is characterized by damp, cool summers and relatively mild but windy winters. In Reykjavik, the average temperature is 11°C (52°F) in July and -1°C (30°F) in January.

PEOPLE
Most Icelanders are descendants of Norwegian settlers and Celts from the British Isles, and the population is remarkably homogeneous. According to Icelandic Government statistics, 93% of the nation's inhabitants live in urban areas (localities with populations greater then 200) and about 60% live in Reykjavik metropolitan area. Of the Nordic languages, the Icelandic language is closest to the Old Norse language and has remained relatively unchanged since the 12th century.

About 91% of the population belongs to the state church, the Evangelical Lutheran Church, or other Lutheran Churches. However, Iceland has complete religious liberty, and about 20 other religious congregations are present.

Most Icelandic surnames are based on patronymy, or the adoption of the father's first given name. For example, Magnus and Anna, children of a man named Petur, would hold the surname Petursson and Petursdottir, respectively. Magnus' children, in turn, would inherit the surname Magnusson, while Anna's children would claim their father's first given name as their surname. Women normally maintain their original surnames after marriage. This system of surnames is required by law, except for the descendants of those who had acquired family names before 1913. Most Icelanders, while reserved by nature, rarely call each other by their surnames, and even phone directories are based on first names. Because of its small size and relative homogeneity, Iceland holds all the characteristics of a very close-knit society.

Cultural Achievements
The Sagas, almost all written between 1180-1300 A.D., remain Iceland's best-known literary accomplishment, and they have no surviving counterpart anywhere in the Nordic world. Based on Norwegian and Icelandic histories and genealogies, the Sagas present views of Nordic life and times up to 1100 A.D. The Saga writers sought to record their heroes' great achievements and to glorify the virtues of courage, pride, and honor, focusing in the later Sagas on early Icelandic settlers. The best-known Icelandic writer in this century is the Nobel Prize winner Halldor Kiljan Laxness. The literacy rate is 99.9%, and literature and poetry are a legendary passion with the population. Per capita publication of books and magazines is the highest in the world.

Unlike its literature, Iceland's fine arts did not flourish until the 19th century because the population was small and scattered. Iceland's most famous painters are Asgrimur Jonsson, Jon Stefansson, and Johannes Kjarval, all of whom worked during the first half of the 20th century. The best-known modern sculptor, Asmundur Sveinsson (1893-1982), drew his inspiration from Icelandic folklore and the Sagas for many of his works.

Kristjan Johannsson is most likely Iceland's most famous opera singer, while pop singer Bjork is probably its best-known artist internationally together with the band Sigurros.

HISTORY
Iceland was settled in the late 9th and early 10th centuries, principally by people of Norse origin. In 930 A.D., the ruling chiefs established a republican constitution and an assembly called the Althingi--the oldest parliament in the world. Iceland remained independent until 1262, when it entered into a treaty establishing a union with the Norwegian monarchy. Iceland passed to Denmark in the late 14th century when Norway and Denmark were united under the Danish crown.

In the early 19th century, national consciousness revived in Iceland. The Althingi had been abolished in 1800 but was reestablished in 1843 as a consultative assembly. In 1874, Denmark granted Iceland home rule, which again was extended in 1904. The constitution, written in 1874, was revised in 1903, and a minister for Icelandic affairs, residing in Reykjavik, was made responsible to the Althingi. The Act of Union, a 1918 agreement with Denmark, recognized Iceland as a fully sovereign state united with Denmark under a common king. Iceland established its own flag, but Denmark continued to represent Icelandic foreign affairs and defense interests.

German occupation of Denmark in 1940 severed communications between Iceland and Denmark. Consequently, Iceland moved immediately to assume control over its own territorial waters and foreign affairs. In May 1940, British military forces occupied Iceland. In July 1941, responsibility for Iceland's defense passed to the United States. Following a plebiscite, Iceland formally became an independent republic on June 17, 1944.

In October 1946, the Icelandic and U.S. Governments agreed to terminate U.S. responsibility for the defense of Iceland, but the United States retained certain rights at Keflavik. Iceland became a charter member of the North Atlantic Treaty Organization (NATO) in 1949. After the outbreak of hostilities in Korea in 1950, and pursuant to the request of NATO military authorities, the United States and Iceland agreed that the United States should again be responsible for Iceland's defense. A bilateral defense agreement signed on May 5, 1951, is the authority for U.S. military presence in Iceland. Iceland is the only NATO country with no standing military of its own.

GOVERNMENT
The president, elected to a 4-year term, has limited powers. The prime minister and cabinet exercise most executive functions. The parliament is composed of 63 members, elected every 4 years unless it is dissolved sooner. Suffrage for presidential and parliamentary elections is universal for those 18 and older, and members of the parliament are elected on the basis of parties' proportional representation from eight constituencies. A new six-constituency electoral system will be introduced for the next parliamentary election, scheduled for 2003. The judiciary consists of the Supreme Court, district courts, and various special courts. The constitution protects the judiciary from infringement by the other two branches.

Principal Government Officials
President--Olafur Ragnar Grimsson
Prime Minister--David Oddsson (Independence Party--IP)
Foreign Affairs--Halldor Asgrimsson (Progressive Party--PP)
Finance--Geir H. Haarde (IP)
Industry and Trade--Valgerdur Sverrisdottir (PP)
Fisheries--Arni M. Mathiesen (IP)
Justice and Religious Affairs--Solveig Petursdottir (IP)
Environment, Nordic Cooperation--Siv Fridleifsdottir (PP)
Agriculture--Gudni Agustsson (PP)
Transportation and Communications--Sturla Bodvarsson (IP)
Education and Culture--Tomas Ingi Olrich (IP)
Social Affairs--Pall Petursson (PP)
Health and Social Security--Jon Kristjansson (PP)
Speaker of Althingi--Halldor Blondal (IP)
Ambassador to the U.S.--Jon Baldvin Hannibalsson
Ambassador to the UN--Thorsteinn Ingolfsson
Ambassador to NATO--Gunnar Palsson
Ambassador to the EU--Gunnar Snorri Gunnarsson

Iceland maintains an embassy in the United States at 1156 - 15th Street, NW, Suite 1200, Washington, DC 20005 [tel. (202) 265-6653], and a consulate general at 800 Third Ave, 36th floor, New York, NY 10022 [tel. (212) 593-2700]. Iceland also has 25 honorary consulates in major U.S. cities.

POLITICAL CONDITIONS
The current government is a coalition of the conservative Independence Party (led by Prime Minister David Oddsson) and the rural-based Progressive Party (led by Foreign Minister Halldor Asgrimsson). The Independence Party (IP) has 26 seats in parliament (based on its 41% vote in the last parliamentary election, held in May 1999) and the Progressive Party has 12 seats (based on its 18% vote). The two parties, which have been in coalition since the 1995 election, therefore hold a comfortable majority in parliament with 38 of 63 seats. Oddsson has been prime minister since 1991, making him the longest-serving prime minister in Europe (from 1991 to 1995, the IP was in coalition with the Social Democratic Party).

Three left-wing parties--the Social Democratic Party, the People's Alliance and the Women's List--formed an electoral coalition prior to the 1999 parliamentary election in the hope of mounting a credible challenge to the long-dominant Independence Party. But the dream of creating a united left coalition failed when disaffected leftists formed a new far-left splinter party called the Left Green Party, led by former deputy People's Alliance leader Steingrimur Sigfusson. With these defections, the left coalition won a disappointing 27% of the vote (17 seats) in the 1999 election, four percentage points below what the three parties had won running separately in 1995. The Left Greens, on the other hand, surprised everyone by winning a respectable 9% of the vote (6 seats). Another new splinter party, the Liberal Party, led by former IP member Sverrir Hermansson, won 3% of the vote (2 seats) based on its strong opposition to the current fishing management system.

Despite the poor electoral showing in 1999, the three left-wing parties decided to formerly merge in 2000, creating a new party, the Social Democratic Alliance, led by Ossur Skarphedinsson. The party has found it difficult to reconcile the widely varying foreign policy views of its members, which range from strong support for NATO membership and the U.S. military presence to pacifism and a return to traditional neutrality. Since 2000, public opinion polls have consistently shown the Left Greens with 20% or more support (making them second only to the IP), while the Social Democratic Alliance has languished with support in the low to middle teens.

When Iceland became a republic in 1944, the post of president was created to fill the void left by the Danish king. Although the president is popularly elected and has limited veto powers (he can force a public referendum on a proposed law by refusing to sign it), the expectation is that the president play the same limited role as a monarch in a traditional parliamentary system.

The current president is Olafur Ragnar Grimsson, a former political science professor who led the People's Alliance in 1987-95 and served as finance minister in 1988-91. Although Grimsson won office with only a 41% plurality in 1996, he was not challenged for re-election in 2000. This follows a well-established tradition of giving deference to sitting presidents. Once in office, a president can generally count on serving as many terms as he or she likes, assuming good behavior. Since the establishment of the republic in 1944, a sitting president has been challenged for re-election only one time and that effort fell far short (in 1988, against then-President Vigdis Finnbogadottir). Reflecting the belief that the president is "above politics," presidential candidates run for election as individuals--since 1952, political parties have played no role in nominating or endorsing candidates. During his term, Grimsson has occasionally drawn criticism for breaching the bounds of presidential etiquette by being too outspoken on sensitive political issues.

Parties in Government
Independence Party (IP) 26
Progressive Party (PP) 12

Parties in Opposition
Liberal Party (LP) 2
Social Democratic Alliance (SDA) 17
Left-Green Party (LGP) 6

Total 63

ECONOMY
Marine products account for the majority of Iceland's exports of goods. Other important exports include aluminum, ferro-silicon alloys, equipment and electronic machinery for fishing and fish processing, pharmaceuticals, and woolen goods. Information technology and related services is an important growth area. Foreign trade plays an important role in the Icelandic economy. Exports account for about one-fourth of GDP and imports for one-third. Most of Iceland's exports go to the EU and EFTA countries, the United States, and Japan. The U.S. is Iceland's largest bilateral investment partner and largest partner in services trade.

Iceland's relatively liberal trading policy was strengthened by accession to the European Economic Area in 1994 and by the Uruguay Round agreement, which also brought significantly improved market access for Iceland's exports, particularly seafood products. However, the agricultural sector remains heavily subsidized and protected.

Iceland's economy is prone to inflation but remains rather broad-based and highly export-driven. The 1970s oil shocks hit Iceland hard. Inflation rose to 43% in 1974 and 59% in 1980, falling to 15% in 1987 but rising to 30% in 1988. Since 1990, due to economic reforms and deregulation, inflation has dramatically fallen, averaging only 4.85% from 1990-2000. Due to several years of strong economic growth, Iceland experienced the best economic period in its history in the 1990s. However, the economy fell into recession in late 2001 and inflation began to escalate. In March 2001, the Central Bank adopted an inflation target exchange rate policy instead of an index rate policy with the aim of managing the value of the Icelandic Krona to keep inflation below a certain level. In addition, the government urged municipalities, labor unions and private parties to unite in keeping inflation down. Unemployment more than doubled to 2.6%, and inflation that spiked above 9% threatened to give labor unions leverage to abrogate national wage agreements. The government took monetary and fiscal measures that brought inflation down close to the current target rate of 3%. Inflation is expected to remain moderate in 2002, but with slightly negative GDP growth. The government expects a return to positive growth in 2003.

Iceland has few proven mineral resources, although deposits of diatomite (skeletal algae) are mined. Abundant hydroelectric and geothermal power sources allow about 90% of the population to enjoy heating from these natural resources. The Burfell hydroelectric project is the largest single station with capacity of 240 mw. The other major hydroelectric stations are at Hrauneyjarfoss (210 mw) and Sigalda (150 mw). Iceland is exploring the feasibility of exporting hydroelectric energy via submarine cable to mainland Europe and also actively seeks to expand its power-intensive industries, including aluminum and ferro-silicon smelting plants. Nordural Aluminum is a wholly owned investment by Columbia Ventures of Washington State. The plant employs more than 150 people and recently expanded to 90,000 tons per year capacity.

Iceland has no railroads. Organized road building began about 1900 and has greatly expanded in the past decade. The current national road system connecting most of the population centers is largely in the coastal areas and consists of about 13,000 kilometers (8,125 mi.) of roads with about 3,955 kilometers (2,472 mi.) were paved. Regular air and sea service connects Reykjavik with the other main urban centers. The national airline, Icelandair, flies from Iceland to Europe and North America, and is one of the country's largest employers. Iceland became a full European Free Trade Association member in 1970 and entered into a free trade agreement with the European Community in 1973. Under the agreement on a European Economic Area, effective January 1, 1994, there is basically free cross-border movement of capital, labor, goods, and services between Iceland, Norway, and the EU countries.

DEFENSE
When Iceland became a founding member of NATO in 1949, it did so on the explicit understanding that Iceland, which has never had a military, would not be expected to establish an indigenous force. Iceland's main contribution to the common defense effort has been the rent-free provision of the "agreed areas"--sites for military facilities. By far the largest and most important of these is the NATO Naval Air Station at Keflavik. Although this base is manned primarily by U.S. forces, it also has a permanently stationed Dutch P-3 aircraft and crew, as well as officers from Canada, Denmark, Norway, and the United Kingdom. Units from these and other NATO countries also are deployed temporarily to Keflavik, and they stage practice operations, mainly anti-submarine warfare patrols. Iceland and the United States regard the ongoing U.S. military presence since World War II as a cornerstone to bilateral foreign/security policy. In May 2001, the 50th anniversary of the bilateral agreement was celebrated. Bilateral negotiations regarding implementation of a new "Agreed Minute" governing force structure and operations at the Keflavik base are expected to begin in 2002.

In addition to providing the "agreed areas," the Government of Iceland contributes financially to NATO's international overhead costs and recently has taken a more active role in NATO deliberations and planning. Iceland hosted the NATO Foreign Ministers' Meeting in Reykjavik June 1987 and will again do so in May 2002.

In June 2002, Iceland will host the Partnership for Peace (PfP) humanitarian exercise "Cooperative Safeguard." This will be the third time that Iceland has held this exercise since 1997. The exercise has the distinction of attracting a large number of partner countries, including Russia.

FOREIGN RELATIONS
Iceland maintains diplomatic and commercial relations with practically all nations, but its ties with other Nordic states, with the U.S., and with the other NATO member states are particularly close. Icelanders remain especially proud of the role Iceland played in hosting the historic 1986 Reagan-Gorbachev summit in Reykjavik, which set the stage for the end of the Cold War.

Iceland has greatly increased its international profile since the early 1990s with the end of the Cold War. In 2001 alone, the government opened new embassies in Canada, Japan, and Mozambique, bringing the total number of its overseas missions to 20. uying and outfitting the embassy in Tokyo cost more than $7 million, an extraordinary investment for this small country, whose total foreign affairs budget in 2000 amounted to a little more than $40 million. Since the mid-1990s, Iceland has opened eight missions overseas, including an embassy in Beijing, giving Iceland a diplomatic presence in all five permanent member countries of the UN Security Council. Not coincidentally, one of Iceland's key foreign policy goals is to win a seat on the UN Security Council for the 2009-10 term. In the past few years, Iceland has also established missions to the Council of Europe in Strasbourg and to the OSCE in Vienna. In 1998, it bolstered its delegation to NATO, assigning a permanent representative to the military committee for the first time ever.

Notwithstanding its status as an unarmed nation, Iceland has been eager to do its part to contribute to the maintenance of international peace and security. One of the niches it is trying to fill is in civilian peacekeeping and crisis management. It took a significant step forward in this area in 2001 by launching its Icelandic Crisis Response Unit (ICRU). In setting up the ICRU, the Ministry for Foreign Affairs established a roster of 100 experts in various occupations (police officers, nurses, doctors, lawyers, engineers, journalists, etc.) who will be specially trained and prepared to deploy to troubled spots abroad on short notice.

Peacekeeping has been a permanent item in the Icelandic state budget since 1994, and Iceland has been an active member of the UN Peacekeeping Committee since 1997. Iceland had an average of five peacekeepers-- primarily doctors, nurses, and police officers--in Bosnia at any given time from 1994 to 1999, and it doubled that number to 10 in 2000. During 2001, Iceland had an average of 15 peacekeepers in the Balkan region at any given time. Most of the peacekeepers continued to be policemen, doctors, and nurses, but a few engineers, media experts, and social scientists also were deployed. With the formal establishment ICRU, the government planned to increase the number of peacekeepers to 20 in 2002 and to 25 in 2003. Ultimately, Iceland wants the capability to deploy up to 50 peacekeepers overseas at any given time.

Icelanders have a strong emotional bond toward the Baltic states, and Iceland prides itself on being the first country to recognize their claim for independence in 1991.

Membership in International Organizations
Iceland is a member of the following organizations: Arctic Council, Barents Euro-Arctic Council; Council of Baltic Sea States; Council of Europe; European Economic Area; European Free Trade Organization; EFTA Court; EFTA Surveillance Authority; North Atlantic Treaty Organization; Organization on Security and Cooperation in Europe; Organization for Economic Cooperation and Development; International Criminal Police Organization; International Council for the Exploration of the Sea; International Hydrographic Organization; International Maritime Satellite Organization; International Telecommunications Satellite Organization; International Union for the Publication of Custom Tariffs; Nordic Council; North-East Atlantic Fisheries Commission; North Atlantic Salmon Conservation Organization; and the North Atlantic Marine Mammal Commission.

It also is a member of the United Nations and most of its related organizations, specialized agencies and commissions, including the International Monetary Fund, World Trade Organization, World Tourism Organization, Food and Agricultural Organization, International Atomic Energy Agency, International Civil Aviation Organization, International Fund for Agricultural Development; Industrial Development Organization; International Labor Organization, International Maritime Organization, International Telecommunications Union, UN Educational, Scientific, and Cultural Organization, Universal Postal Union, World Health Organization, and World Meteorological Organization; World Intellectual Property Organization; International Bank for Reconstruction and Development; International Development Association; International Finance Corporation Multilateral Investment Guarantee Agency and International Center for Settlement of Investment Disputes; UN Conference on Disarmament; Economic Commission for Europe; UN High Commissioner for Refugees; Office for the High Commissioner for Human Rights; Commission of Human Rights; UN Conference on Trade and Development.

U.S.-ICELANDIC RELATIONS
U.S. policy aims to maintain close, cooperative relations with Iceland, both as a NATO ally and as a friend interested in the shared objectives of enhancing world peace; respect for human rights; economic development; arms control; and law enforcement cooperation, including the fight against terrorism, narcotics, and human trafficking. Moreover, the United States endeavors to strengthen bilateral economic and trade relations. A consistently reliable ally, Iceland vote with the United States on most major UN, NATO, and environmental issues.

In celebration of the 1,000th anniversary in the Year 2000 of Leif Eriksson's voyage to North America, the United States established a volunteer binational working-group to coordinate a number of millennium activities with the Government of Iceland and interested parties. These activities highlighted, among other areas, shared culture, scholarship and research, scientific discovery and exploration, pioneer legacy, and the strong defense relationship between the countries.

Principal U.S. Officials
Ambassador--Barbara J. Griffiths
Deputy Chief of Mission--Doria Rosen
Political/Consular Officer--William Moeller
Economic/Commercial Officer--Edwin Brown
Administrative Officer--Paul Blankenship
Communications Officer--Walter Yates
Public Affairs Officer--David Mees
Regional Security Officer--Ray Yates

The U.S. Embassy in Iceland is located at Laufasvegur 21, Reykjavik [tel. (354) 562-9100]. The embassy's web site is www.usa.is