People | Geography | History | Economy | Government



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, 94% of the nation's inhabitants live in urban areas (localities with populations greater than 200) and about 63% live in the 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. The Icelandic alphabet contains letters not found in modern English. For example, Þ is transliterated as "th", and ð is transliterated as "d". About 84% of the population belongs to the state church, the Evangelical Lutheran Church, or other Lutheran Churches. However, Iceland has complete religious freedom, 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 or Magnusdottir, 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 Halldor Kiljan Laxness. The literacy rate is 99.9%, and literature and poetry are legendary passions 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. Today, Kristjan Johannsson and Gardar Thor Cortes are Iceland's most famous opera singers, while pop singer Bjork and progressive rock band Sigur Ros are well known internationally.

Nationality:
Noun--Icelander(s). Adjective--Icelandic.
Population (January 1, 2011): 318,452.
Annual population growth rate (2010): 0.26%.
Ethnic group: Relatively homogenous mixture of descendants of Norwegians and Celts.
Religion: Evangelical Lutheran, 84.4%.
Language: Icelandic.
Education: Compulsory up to age 16. Attendance--99%. Literacy--99.9%.
Health: Infant mortality rate (2010)--2.2/1,000. Life expectancy (2010)--men 79.5 years, women 83.5 years.
Work force 178,600 (2008): Commerce--32.2%; manufacturing--9.7%; fishing/fish processing--4.1%; construction--9.8%; transport and communications--6.4%; agriculture--2.5%; government, education, and health--28.8%. Unemployment (January 2011): 8.5%.


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. Twenty percent of the land is used for grazing, and 1% is cultivated. The inhabited areas are on the coast, particularly in the southwest.

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.

Official Name: Republic of Iceland
Area: 102,845 sq. km. (39, 709 sq. miles); about the size of Virginia or twice the size of Ireland.
Cities: Capital--Reykjavik (pop. 167,596). Other towns--Kopavogur (16,186), Hafnarfjordur (15,151) Akureyri (14,174).
Terrain: Rugged.
Climate: Maritime temperate.
Highest elevation: Vatnajokull Glacier, at 2,119 meters (6,952 ft.).


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 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.


ECONOMY

Iceland, a stable democracy with a dynamic consumer economy, suffered an economic crisis in October 2008. The banking sector collapsed, and the Icelandic Government turned to the International Monetary Fund (IMF) for assistance.

In the years before the crisis, Iceland enjoyed an economic boom with several years of strong economic growth spurred by economic reforms, deregulation, and low inflation. The economy suffered an initial setback in spring 2006 when credit rating agencies and other international financial firms released a number of reports raising questions about the activities and stability of Iceland's major banks and the state of the Icelandic economy. These reports were widely covered in the international financial press, causing a marked drop in the value of shares listed on the Icelandic stock exchange and of the Icelandic krona (ISK), but the market recovered temporarily.

The financial sector was hit hard by the global credit crisis beginning in 2007. In the first 6 months of 2008, the Icelandic krona began devaluing and inflation rose to nearly 12%. Difficulties increased as Icelandic banks could not get financing on the global market and, with liabilities estimated at approximately 10 times GDP, they were forced to turn to their lender of last resort, the Central Bank of Iceland. The Financial Supervisory Authority took possession of the three large commercial banks, and Iceland turned to the IMF for a $5 billion loan package that included bilateral loans from the Nordics and other countries. A letter of intent sent to the IMF outlined the strategy for the recovery of the economy. Its main components were to stabilize the currency, establish trust in Iceland’s monetary policy, revise fiscal policy to meet the increased debt burden, and restructure the banking system. The Executive Board of the IMF approved the loan package in November 2008, subject to Iceland following the proposed economic recovery program, and subsequently disbursed the first tranche of the loans. Several reviews of the program had been conducted as of January 2011, allowing Iceland to draw disbursements.

The financial crisis resulted in a dramatic rise in unemployment from less than 2% to 9.3% in March 2010, and widespread business closures and bankruptcies. Political turmoil resulted in the resignation of the cabinet and installation of an interim government in January 2009 and early elections, as well as the replacement of the Central Bank and Financial Supervisory Authority leadership. At the end of 2008, inflation was at 18.6% and the currency had depreciated by roughly 90%. Inflation has since subsided to a large degree, dropping to 2.5% in December 2010. The government has made good progress in restructuring the banking system. Following the takeover of the three big commercial banks, new banks were established around Icelandic assets, transferred from the old banks. The majority shares of two of the new banks have been sold to private investors, while the government still holds a majority stake in the third one. The old banks are still in receivership.

In April 2010, the Special Investigatory Commission (known informally as the Truth Commission) released a 2,000-page report on the banking meltdown. The report detailed the banks’ questionable practices, all while the banking sector exploded exponentially in size. It provided the basis for investigation by the Special Prosecutor, who has since arrested some suspects and frozen their assets. In response to the report, three members of parliament took temporary leaves of absence in 2010; two of them returned to parliament in 2011. A parliamentary review committee established to determine whether ministerial responsibilities were breached recommended that four government ministers be indicted and tried by the Court of Impeachment. In September 2010, parliament voted to indict only one, former Prime Minister Geir Haarde, who will stand trial in the Court of Impeachment.

As a small and undiversified economy, Iceland depends heavily on imports for consumption and industry. Its main exports are aluminum and marine products. Aluminum exports exceeded marine product exports in value for the first time in 2008. The tourism industry is the third-largest provider of foreign currency to the economy. Other important exports include ferro-silicon alloys, equipment and electronic machinery for fishing and fish processing, and pharmaceuticals. 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, primarily in the aluminum sector. In February 2011, a U.S. company signed an investment agreement with the Government of Iceland to build a silicon metal facility in southwest Iceland. The agreement represents the largest new foreign direct investment in Iceland since the economic collapse of 2008. A Trade and Investment Framework Agreement (TIFA) with the United States was signed in January 2009.

Iceland's relatively liberal trading policy was strengthened by accession to the European Economic Area in 1994 and by the World Trade Organization (WTO) Uruguay Round agreement, which also brought significantly improved market access for Iceland's exports, particularly seafood products. The agricultural sector, however, remains heavily subsidized and protected. 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, EU, and EEA countries. However, following the financial turmoil in fall 2008, movements of capital to and from Iceland were restricted by the Rules on Foreign Exchange issued by the Central Bank. These rules are intended to be temporary measures to strengthen and stabilize the exchange rate of the Icelandic krona. In August 2009, the Central Bank published a strategy on how to lift the restrictions. In November 2009, the first step of the strategy, permitting the inflow of foreign currency for new investments and the outflow of capital converted to foreign currencies from such investments was implemented. Subsequent phases will be introduced as conditions allow, but the Central Bank of Iceland has been acquiring ISK-denominated assets held by foreign entities in order to make it easier to lift capital controls.

Iceland has no railroads. Organized road building began around 1900 and has greatly expanded in the past decade. The current national road system connects most of the population centers along the coastal areas and consists of about 13,000 kilometers (8,125 mi.) of roads, of which about 4,800 kilometers (2,982 mi.) are paved. Regular air and sea service connect Reykjavik with the other main population centers.

Iceland has felt the economic impact of the April to May 2010 Eyjafjallajokull volcano eruption. In the short term, tourism and transportation were disrupted. In the longer term, the ash and flooding hurt some of Iceland’s most productive agricultural lands, including the area that produces about 12% of Iceland’s dairy products, 15% of its cattle, and 17% of its horses.

GDP (2010): $13.24 billion.
GDP growth rate: (2007) 3.8%; (2008) 1.3%; (2009) -6.5%; (2010 est.) -3.5%.
Per capita GDP (2010): $39,668.
Inflation rate: (2008) 18.1%; (2009) 7.5%; (2010) 2.5%.
Central government budget (2010): $6.4 billion.
Annual budget deficit (fourth quarter 2010): $800 million.
Net central government debt: (2007) 10.3% of GDP; (2008 estimated) 41.3% of GDP; (2009 estimated) 78% of GDP; (2010) 79.7% of GDP.
Natural resources: Marine products, hydroelectric and geothermal power.
Agriculture: Products--fish, potatoes, turnips, carrots, tomatoes, cucumbers, cereal grains, livestock, milk, and other dairy products.
Industry: Types--aluminum smelting, fishing and fish processing technology, ferro-silicon alloy production, hydro and geothermal power, tourism, information technology.
Trade: Exports of goods (2010)--$4.8 billion: marine products 39.3%; industrial products 55.47%; agricultural products 1.5%; and miscellaneous 3.73%. Partners (2010)--EEA 83.5% (Netherlands 34%, Germany 13.9%, U.K. 10%, Spain 4.8%, Norway 4.2%); U.S. 4.5% ($218.6 million). Imports (2009)--$3.8 billion: industrial supplies 32.8%; capital goods, parts, accessories 22.8%; consumer goods 14.6%; fuels and lubricants 13.05%; food and beverages 9.7%; transport equipment 6.8%. Partners (2010)--EEA 61% (Germany 7.5%, Norway 9.0%, Netherlands 8.5%, Denmark 7%, Sweden 5.2%, U.K. 5.09%); U.S. 8.04% ($306 million); China 6.0%; Japan 2.4%.





GOVERNMENT

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), the expectation is that the president should play the same limited role as a monarch in a traditional parliamentary system. President Olafur Ragnar Grimsson has referred legislation to referendum three times (one time the legislation was withdrawn before the referendum could be held), and the current government is considering appointing a constitutional assembly to propose changes to the constitution.

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.

POLITICAL CONDITIONS

Iceland's current government consists of a majority coalition between the center-left Social Democratic Alliance (SDA) and the leftist, environmentally focused Left-Green Movement (LG). The SDA-LG coalition, which holds 34 out of the 63 seats in parliament, was elected on April 25, 2009 in early parliamentary elections that were prompted by the country's economic crisis in the fall of 2008. The Chair of the SDA party, Johanna Sigurdardottir, is Iceland's first female Prime Minister and LG Chair Steingrimur J. Sigfusson serves as the country's Finance Minister. The government has initiated significant economic reforms and submitted Iceland's application to join the European Union (EU).

There are five political parties represented in parliament:

Social Democratic Alliance: Formed in 2000 from three leftist parties--the Social Democratic Party, the People's Alliance, and the Women's List--the SDA was created to challenge the long-dominant Independence Party. Though this effort failed initially, under the leadership of Ingibjorg Solrun Gisladottir, the SDA eventually formed a coalition government with the Independence Party (IP) in 2007. It is now the senior member in a government coalition with the LG. The party has worked to reconcile the widely varying foreign policy views of its members, which range from strong support for NATO membership to pacifism and neutrality. The SDA is also the most openly pro-EU of Iceland's political parties.

Left Green Movement: The LG was founded in 1999 by a group of politicians who did not agree with the planned merger of the leftist parties in Iceland that resulted in the SDA. 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). The LG captured 22% of the vote and 14 seats in the 2009 election and joined the SDA as the junior partner in the coalition government. As its name implies, the party is focused on a Nordic socialist model of governance with a strong emphasis on environmental issues. It formally opposes EU membership for Iceland but is open to change should the Icelandic public demand it.

Independence Party: The IP was formed in 1929 and is the center-right political party in Iceland. Iceland's recent political upheaval follows nearly 2 decades of relative stability under the IP, much of it marked by an Independence-Progressive coalition that was in power from 1995-2007. Longtime IP leader David Oddsson was Prime Minister from 1991-2004, making him the longest-serving prime minister in Europe. The IP elected parliamentarian Bjarni Benediktsson to follow former Prime Minister Geir Haarde as Party Chairman in late March 2009, after Haarde announced in January his intent to leave politics while undergoing treatment for esophageal cancer. Following the economic collapse of 2008, the IP undertook a thorough review of its policy on joining the EU, concluding that the question should be decided by a national referendum at the conclusion of accession negotiations with Brussels. Party support plummeted to 24% (16 seats) in the elections in April 2009, from 37% (25 seats) in the 2007 elections.

Progressive Party: The centrist agrarian Progressive Party has been a party to government for over 30 of the past 40 years. Its support dropped from 23% (15 seats) in the 1995 parliamentary election to 12% (7 seats) in 2007. The party, however, rebounded slightly in 2009 receiving 15% of the vote and nine seats in parliament. The Progressive Party has faced internal instability in the past few years, and power struggles have led to frequent change in the party's leadership. Current Chairman Sigmundur David Gunnlaugsson was elected at the party's national congress in January 2009, following the sudden resignation of Gudni Agustsson in November 2008. Agustsson himself had replaced Jon Sigurdsson after the party's disastrous showing in the 2007 elections.

Citizens' Movement: The Citizens' Movement was the only new party to successfully use protests about the government's management of the economic crisis in 2008-2009 to launch itself into prominence. Subsequently, internal strife has torn the party apart. All four members resigned from the party; one is now an independent member of Parliament and the other three formed a parliamentary group called The Movement, which has no constituency.

Iceland's current President is Olafur Ragnar Grimsson, a former political science professor who led the far-left People's Alliance in 1987-1995 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 and was re-elected again on June 26, 2004. In 2008, Grimsson was again re-elected by default. 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. 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.

Principal Government Officials
President--Olafur Ragnar Grimsson
Prime Minister--Johanna Sigurdardottir
Foreign Minister--Ossur Skarphedinsson
Minister of Finance--Steingrimur J. Sigfusson
Minister of the Interior--Ogmundur Jonasson
Minister of Fisheries and Agriculture--Jon Bjarnason
Minister of Industry, Energy and Tourism--Katrin Juliusdottir
Minister for the Environment--Svandis Svavarsdottir
Minister of Economic Affairs--Arni Pall Arnason
Minister of Welfare--Gudbjartur Hannesson
Minister of Education, Science and Culture--Katrin Jakobsdottir
Speaker of Althingi--Asta Ragnheidur Johannesdottir
Ambassador to the U.S.--Hjalmar W. Hannesson
Ambassador to the UN--Gunnar Palsson
Ambassador to NATO--Thorsteinn Ingolfsson
Ambassador to the EU--Thorir Ibsen

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

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.

Government
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.



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