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Iceland country profile

27 August 2006
by eub2 -- last modified 27 January 2010

Iceland is the westernmost European country, holding a strategic location between Greenland and Europe. The country is a potential candidate for EU membership.


Area: 103,000 sq. km. (39,600 sq. mi.); about the size of Virginia or slightly larger than Ireland.
Cities: Capital--Reykjavík (pop. 117099). Other towns--Kópavogur (27,835), Hafnarfjörður (24,111), Akureyri (16,887).
Terrain: Rugged.
Climate: Maritime temperate.
Highest elevation: Hvannadalshnjúkur at Vatnajökull Glacier, at 2,111 meters (6,925 ft.).

Nationality: Noun--Icelander(s). Adjective--Icelandic.
Population (April 1, 2007): 309,699.
Annual growth rate: 2.6%.
Ethnic group: Relatively homogenous mixture of descendants of Norwegians and Celts.
Religion: Evangelical Lutheran, 86%.
Language: Icelandic.
Education: Compulsory up to age 16. Attendance--99%. Literacy--99.9%.
Health: Infant mortality rate--2.9/1,000. Life expectancy--men 79.4 years, women 83 years.
Work force (2007, 176,300): Commerce--30.7%; manufacturing--9.5%; fishing/fish processing--5.0%; construction--8.7%; transport and communications--7.0%; agriculture--3.8%; government, education, and health--27.7%; other services--7.6%. Unemployment (2007): 2.0%.

Type: Semi-presidential, parliamentary.
Independence: 1918 (became "sovereign state" under Danish Crown); 1944 (establishment of republic).
Constitution: 1874.
Branches: Executive--president (head of state), prime minister (head of government), cabinet (12 ministers). Legislative--63-member unicameral parliament (Althingi). Judicial--Supreme Court, district courts, special courts.
Subdivisions: 26 administrative districts and 79 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.

GDP (2006): $18.4 billion.
GDP growth rate (2005): 5.8%; (2006): 2.6%.
Per capita GDP (2006): $53,766.
Inflation rate (2007): 4%.
Budget (2007): $6 billion.
Annual budget surplus (2006): 1.4% of GDP.
Net public debt (2007): 17% of GDP.
Foreign aid as part of 2005 budget: 0.18% of GDP.
Natural resources: Marine products, hydroelectric and geothermal power.
Agriculture: Products--potatoes, tomatoes, cucumbers, turnips, livestock.
Industry: Types--aluminum smelting, fishing and fish processing technology, ferro-silicon alloy production, hydro and geothermal power, tourism, information technology.
Trade: Exports of goods (2006)--$3.9 billion: marine products 51.2%, industrial products 38.3%, agriculture 1.8%, and miscellaneous 8.7%. Partners--EU 74.8% (U.K. 18%, Germany 17%, Netherlands 11%, Spain 6%, Denmark 5%); U.S. 10.8% ($421 million); Japan 2.1%. Imports (2006)--$6.9 billion: industrial supplies 27%; capital goods, parts, accessories 23%; consumer goods 20%; transport equipment 21.1%; food and beverages 9%; fuels and lubricants 8%. Partners--EU 64.7% (Germany 13%, Denmark 9%, U.K. 8%, Sweden 7%, Netherlands 7%); U.S. 12.8% ($208 million); EFTA 9%; Japan 4.1%.

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 Reykjavík, the average temperature is 11°C (52°F) in July and -1°C (30°F) in January.

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 than 200) and about 60% live in the Reykjavík 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 Pétur, would hold the surname Pétursson and Pétursdóttir, 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 and 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 of the 20th century is the 1955 Nobel Prize winner Halldór 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 Ásgrímur Jónsson, Jón Stefánsson, and Jóhannes Kjarval, all of whom worked during the first half of the 20th century. The best-known modern sculptor, Ásmundur Sveinsson (1893-1982), drew his inspiration from Icelandic folklore and the Sagas for many of his works. Today, Kristján Jóhannsson is Iceland's most famous opera singer, while pop singer Björk and progressive rock band Sigur Rós are well known internationally.

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 (Alþingi) 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 limited home rule, which was expanded in scope in 1904. The constitution, written in 1874, was revised in 1903, and a minister for Icelandic affairs, residing in Reykjavík, 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 Keflavík. 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 make arrangements for Iceland's defense. A bilateral defense agreement signed on May 5, 1951, remains in force, even though the U.S. military forces are no longer permanently stationed in Iceland. Iceland is the only NATO country with no standing military of its own.

The president, elected to a 4-year term, has limited powers. 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--a power that has only once been exercised), the expectation is that the president should play the same limited role as a monarch in a traditional parliamentary system.

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 in six constituencies. 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--Ólafur Ragnar Grímsson
Prime Minister--Geir H. Haarde
Foreign Minister--Ingibjörg Sólrún Gísladóttir
Minister of Finance--Árni M. Mathiesen
Minister of Justice and Ecclesiastical Affairs--Björn Bjarnason
Minister of Agriculture and Fisheries--Einar Kristinn Guðfinnson
Minister of Communications--Kristján L. Möller
Minister of Industry and Nordic Cooperation--Össur Skarphéðinsson
Minister for the Environment--Þórunn Sveinbjarnardóttir
Minister of Commerce--Björgvin G. Sigurðsson
Minister of Health--Guðlaugur Þór Þórðarson
Minister of Social Affairs--Jóhanna Sigurðardóttir
Minister of Education, Science and Culture--Þorgerður Katrín Gunnarsdóttir
Speaker of Althingi--Sturla Böðvarsson
Ambassador to the UN--Hjálmar W. Hannesson
Ambassador to NATO--Gunnar Gunnarsson
Ambassador to the EU-- Stefán Haukur Jóhannesson

transliteration key:
Þ is "th" ð is "d"

Iceland's current government coalition was formed after the May 2007 parliamentary elections by the conservative Independence Party (IP) and the center-left Social Democratic Alliance. The two parties hold a large majority in parliament, with 43 out of 63 seats.

The current government replaced a coalition of the Independence Party and the Progressive Party (PP) that had been in power since 1995. Longtime IP leader Davíð Oddsson was Prime Minister 1991-2004, making him the longest-serving prime minister in Europe (from 1991 to 1995, the IP was in coalition with the Social Democratic Party). PP chairman and former Foreign Minister Halldór Ásgrímsson took over as Prime Minister on September 15, 2004, as part of a post-election deal with the Independence Party, and Oddsson became Foreign Minister. Oddsson retired from his ministerial position September 27, 2005, with former Finance Minister Geir Haarde becoming Foreign Minister. Oddsson also announced his intention shortly to step down as IP chairman, with Haarde elected to the post at a party national conference in October. In early June 2006 Ásgrímsson announced his withdrawal from politics as Prime Minister, parliamentarian, and chairman of the Progressive Party. Haarde became the third Prime Minister during the current electoral term on June 15, 2006, and Valgerður Sverrisdóttir (Progressive Party) took over as Foreign Minister. In May 2007 the Independence Party and the Social Democratic Alliance formed a new government after an abysmal showing by the Progressive Party. Geir Haarde continued as Prime Minister, and the chairman of the Social Democratic Alliance, Ingibjörg Sólrún Gísladóttir, took over the reins at the Ministry for Foreign Affairs.

The centrist agrarian Progressive Party has been a party to government for over 30 years in the past 4 decades. Its support dropped from 23% in the 1995 parliamentary election to 12% in 2007. The party has dealt with internal instability in the past few years, and power struggles have lead to frequent change in the party's leadership. Chairman Jón Sigurðsson stepped down after the 2007 elections and was replaced by the deputy chairman, Guðni Águstsson.

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 splinter party called the Left Green Movement, led by former deputy People's Alliance leader Steingrímur Sigfusson. With this defection, 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. Their 31% (20 seats) showing in 2003 recaptured this ground but did not suffice to topple the government. The Left Greens won a respectable 9% of the vote (5 seats) in 2003, but in the 2007 election they improved significantly, with 14% of the total vote (9 seats). Another new faction, the Liberal Party, won just over 7% (4 seats) in 2003 based on its strong opposition to the current fishing management system, and clung to roughly 6% in 2007.

Despite the poor electoral showing in 1999, the three left-wing parties decided to merge formally in 2000, creating a new party, the Social Democratic Alliance, led by Ingibjörg Sólrún Gísladóttir. 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 to pacifism and a desire for neutrality.

Iceland's current President is Ólafur Ragnar Grímsson, a former political science professor who led the far-left People's Alliance in 1987-95 and served as Finance Minister in 1988-91. Although Grímsson 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. He was re-elected again on June 26, 2004. Once in office, a president can generally count on serving as many terms as he or she likes, assuming good behavior. 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. President Grímsson has occasionally drawn criticism that he breaches the bounds of presidential etiquette by being too outspoken on sensitive political issues.

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, and pharmaceuticals. Information technology and life sciences and related services are important growth areas. The vast majority of Iceland's exports go to the European Union (EU) and the European Free Trade Association (EFTA) countries, followed by the United States and Japan. The U.S. is by far the largest foreign investor in Iceland, and the country's largest supplier of imported services (e.g., financial and franchise services, movies/TV programs/music, tourism). 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.

In recent decades, Iceland's economy has been prone to inflation due to periods of rapid growth and its dependence on just a few key export sectors (i.e., fish, and increasingly tourism and aluminum production), which can fluctuate significantly from one year to the next. 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 around 4% in the 1990s. Due to several years of strong economic growth, Iceland experienced the most positive economic period in its history during that decade. However, as with many advanced countries, Iceland's economy experienced a mild recession during 2002 due to global conditions. That recession was short-lived, and healthy growth of 3% was registered during 2003. In 2005 the economy boomed, growing 5.8%, and inflation was close to the Central bank's upper limit (4%) at 3.95%, while unemployment decreased to about 3.2%. The economy suffered a setback in spring 2006 when credit rating agencies and other international financial firms released a number of reports raising questions about the state of the Icelandic economy and the activities and stability of Iceland's major banks. These reports were widely covered in the international financial press, causing a marked drop in the value of the Icelandic krona and of shares listed on the Icelandic stock exchange. Since then the situation has calmed down, but there is no question that certain imbalances have emerged in the Icelandic economy, including a high current account deficit, high inflation and high private sector debt levels. It remains an open question whether these imbalances render Iceland particularly vulnerable to an economic crisis. Foreign confidence in the Icelandic economy is important to maintain the country's skillful use of foreign capital. Icelandic businessmen have become well known for risk taking, decisiveness, and swiftness in their investments. Wealthy Icelanders have successfully invested overseas, especially in the retail and real estate markets in Denmark and U.K. and telecom, pharmaceutical, banking, and financial sectors in Eastern Europe. This recent success has for the first time created a "super-rich" elite in Icelandic society.

Iceland has few proven mineral resources. Abundant hydroelectric and geothermal power sources allow over 90% of the population to enjoy electricity and heating from these natural resources. The Kárahnjúkar hydroelectric project is the largest single station, with capacity of 690 megawatts (mw). The other major hydroelectric stations are at Búrfell (270 mw), Hrauneyjarfoss (210 mw), Sigalda (150 mw) and Blanda (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, particularly aluminum smelting plants. Iceland-based Nordural Aluminum is a wholly owned investment by Century Aluminum of Monterey, California. The plant employs more than 450 people and recently expanded to a production capacity of 220,000 tons per year. A new smelter owned by Alcoa, another U.S.-owned aluminum company, began operations in June 2007. The smelter will have a production capacity of 346,000 tons per year when fully operational. The Kárahnjúkar hydroelectric power plant, completed in early 2007, was built in connection with Alcoa's smelter. A total of over $2 billion has been invested in the power plant and smelter, the largest economic project in Icelandic history.

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 4,330 kilometers (2,706 mi.) paved. Regular air and sea service connects Reykjavík with the other main population 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 member of the European Free Trade Association in 1970 and entered into a free trade agreement with the European Community in 1973. Under the European Economic Area agreement, which took effect January 1, 1994, there is basically free cross-border movement of capital, labor, goods, and services between Iceland, Norway, and the EU countries.

The U.S. and Iceland signed a bilateral agreement in 1951 stipulating that the U.S. would make arrangements for Iceland's defense on behalf of NATO and providing for basing rights for U.S. forces in Iceland. In March 2006 the U.S. announced it would continue to provide for Iceland's defense but without permanently basing forces in the country; Naval Air Station Keflavik closed in September 2006 after 55 years. The Government of Iceland expressed disappointment, and even opposition politicians opposed to the U.S. military presence criticized the manner of the closing, but bilateral discussions ensued to explore new ways of ensuring the country's security, with an emphasis on a "visible defense." Negotiations concluded with a Technical Agreement on base closure issues (e.g., facilities return, environmental cleanup, residual value) signed on September 29, 2006, and a "Joint Understanding" on future bilateral security cooperation (focusing on defending Iceland and the North Atlantic region against emerging threats such as terrorism and trafficking) signed by the Secretary of State, Prime Minister Haarde and Foreign Minister Sverrisdóttir in Washington on October 11, 2006. The U.S. also cooperated with local officials to mitigate the impact of job losses at the Air Station, notably by encouraging U.S. investment in industry and tourism development in the Keflavík area. The Government of Iceland announced in spring 2007 that a large portion of the former base site would be converted into the university-level "Atlantic Center of Excellence" with operations scheduled to begin in fall 2007.

Cooperative activities in the context of the new agreements began almost immediately, with the arrival of the amphibious ship USS Wasp in Reykjavík on October 12, 2006 (the first U.S. Navy port visit since 2002) to demonstrate the Navy's rapid reaction capability and to support counterterrorism training by units of Iceland's Coast Guard and police. In November 2006 a U.S. Navy P-3 patrol aircraft arrived at Keflavík for joint search and rescue, disaster surveillance, and maritime interdiction training. Further joint endeavors, including a U.S.-led air defense exercise, are slated for the summer of 2007.

The Government of Iceland contributes financially to NATO's international overhead costs and recently has taken a more active role in NATO deliberations, planning, and peacekeeping. Iceland hosted the NATO Foreign Ministers' Meeting in Reykjavík in June 1987 and again in May 2002. Iceland hosted the NATO Military Committee in April 2007 and will host the NATO Parliamentary Assembly in October 2007.

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 summit in Reykjavík between President Reagan and Soviet leader Gorbachev, which set the stage for the end of the Cold War.

Iceland has greatly increased its international profile since the early 1990s. Since the mid-1990s, Iceland has opened a number of missions overseas for a total of 22, including an embassy in Beijing, giving Iceland a diplomatic presence in all five permanent member countries of the UN Security Council. Not coincidentally, it has announced its candidacy to serve on the UN Security Council in 2009-2010. In the past few years, Iceland has also established missions to the Council of Europe in Strasbourg and to the Organization for Security and Cooperation 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 helping 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 over 100 experts in various occupations (police officers, nurses, doctors, lawyers, engineers, journalists, etc.) who will be specially trained and prepared to deploy to trouble 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. With the formal establishment of the ICRU, the government decided to increase the number of deployed peacekeepers to 50 by 2006. The key emerging niche capability of the ICRU is airport administration following the successful management of the airport in Pristina, Kosovo, in 2003 and of the airport in Kabul, Afghanistan, in 2004-2005.

Icelanders have a strong emotional bond with the Baltic states, and Iceland prides itself on being the first country to have recognized these countries' 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 for 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 Union for the Publication of Custom Tariffs; Nordic Council; North-East Atlantic Fisheries Commission; North Atlantic Salmon Conservation Organization; the International Whaling Commission; 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.

Source: U.S. State Dept.

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