Iceland - language, government, economy, cities, history, tourism, people, education, religion, agriculture, climate

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Iceland (Icelandic, Ísland), island republic in the North Atlantic Ocean, located between Greenland and Norway. The northern tip of Iceland reaches the Arctic Circle. Iceland is roughly the size of the state of Virginia. Oval in shape, Iceland measures about 485 km (300 mi) from east to west and about 360 km (190 mi) from north to south. Unlike nearby Greenland, Iceland is generally considered to be a part of Europe.

Geologically, Iceland is not very old. It was formed by volcanic eruptions during the last 60 million years. A large number of volcanoes are still active on the island. Earthquakes are frequent, and hot springs bubble to the surface in volcanic areas, especially in the southwest. Steam rising from hot springs in a southwestern bay gave rise to the name of Iceland’s capital city, Reykjavík, which is an Icelandic term meaning “Smoky Bay.” Today, abundant geothermal energy provides much of Iceland’s heating needs.

Despite its northerly location, Iceland is not an Arctic country. The island’s climate is tempered by the warm waters of the North Atlantic Drift—a part of the Gulf Stream. The seacoast is open for ships nearly all year-round. It is closed only in the north and east during the winter, when ice descends from the polar region.

Icelandic culture derives from the island’s 9th-century Viking settlers. Icelanders are proud of their Viking heritage, and many people can trace their family roots to the earliest settlers. The Icelandic language is closely related to Old Norse, the language of the Vikings, and it has changed very little since ancient times. Because of this, Icelanders can easily read the medieval Icelandic sagas—the history and folklore of early settlers—in the language they were originally written (see Icelandic Literature).

Icelanders inhabit a rugged land with few mineral or agricultural resources. About three-quarters of the island is barren of vegetation. Plant life consists largely of grasslands, which are grazed by livestock, especially sheep, cattle, and sturdy Icelandic ponies. Many varieties of fish live in the surrounding ocean waters, and the fishing industry has traditionally been a cornerstone of Iceland’s economy. Today, fishing and fish processing account for more than half of Iceland’s total exports.


Iceland lies about 1,000 km (620 mi) west of Norway and 300 km (185 mi) southeast of Greenland. It is encircled by the Denmark Strait, the Norwegian Sea, and the Arctic and Atlantic Oceans. To the southwest of Iceland lie the small Vestmannaeyjar Islands.

Iceland’s coast is indented by many bays and fjords, except in the south, where the shore is mostly sandy. Three large peninsulas jut out from Iceland’s west coast. The most prominent is Vestfjarda Peninsula. Iceland’s coastline has a total length of 4,988 km (3,099 mi).

Iceland is located on a volcanically active region of the Mid-Atlantic Ridge. Volcanic eruptions have created vast uninhabitable lava tablelands with mountainous outcroppings. Elevations in the uplands, which cover about half the country, average from about 610 to 915 m (about 2,000 to 3,000 ft). Hvannadalshnúkur (2,119 m/6,952 ft), in the southeast, is the highest summit.

Snowfields and glaciers cover nearly 15 percent of Iceland’s surface. Vatnajökull, a glacier in the southeast, has an area of 8,456 sq km (3,265 sq mi). Iceland has numerous small lakes and many swift-flowing rivers broken by dramatic waterfalls. None of the rivers is navigable, but many hold significant waterpower potential.

Lowlands in Iceland are situated mainly along the southwestern coast. Lowlands occupy about 25 percent of the island’s total area. The bulk of the Icelandic population lives along the coast, particularly in the southwest.

Iceland is remarkable for its numerous volcanoes, craters, and hot springs, and for the frequency of its earthquakes. More than 100 volcanoes, including at least 25 that have erupted in recorded history, rise on the island. In 1963 a volcanic eruption off Iceland’s southern coast created the small island of Surtsey. Among Iceland’s best-known volcanoes are Hekla (1,491 m/4,892 ft), which has erupted many times, and nearby Laki, with about 100 separate craters. Many eruptions have caused widespread devastation, including the 1783 eruption of Laki in which more than 9,000 Icelanders died. Where ice fields overlay volcanoes, the latter sometimes erupt through the ice, causing spectacular ice explosions.

Hot springs rise to the surface across Iceland. Particularly numerous in the volcanic areas, the springs occur as geysers (a word of Icelandic origin), as boiling mud lakes, and in various other forms. The famous Geysir in south central Iceland—the oldest geyser in recorded history and generally regarded as one of the most spectacular—erupts at irregular intervals (usually from 5 to 36 hours), ejecting a column of boiling water up to about 60 m (about 200 ft) in height. Most homes and industrial establishments in the Reykjavík area are heated by water piped from nearby hot springs.

Climate in Iceland

Although Iceland touches the Arctic Circle, the island’s climate is relatively mild. This is because an ocean current called the North Atlantic Drift carries relatively warm waters along Iceland’s shores. As a result, climatic conditions are moderate across most of the island. The mean annual temperature at Reykjavík is about 5°C (about 41°F), with a range from -1°C (31°F) in January to 11°C (52°F) in July.

The northwestern, northern, and eastern coastal regions are subject to the effects of polar currents and drifting ice, and temperatures are generally lower. Violent windstorms are common during much of the winter season. Annual precipitation ranges between about 1,270 and 2,030 mm (about 50 and 80 in) along the southern coast, but only about 510 mm (about 20 in) along the northern coast. The southern slopes of some of Iceland’s interior mountains receive up to about 4,570 mm (about 180 in) of moisture per year.

Plants and Animals in Iceland

Iceland does not sustain a great variety of indigenous plants. Grasslands and heather (see Heath) are abundant along the southern coast and provide pasturage for sheep and other livestock. Extensive forests probably existed on the island in prehistoric times, but present-day trees, such as birch and spruce, are relatively scarce. Bilberries and crowberries are the only kinds of fruit native to the island.

The arctic fox was the only land mammal living in Iceland at the time of the first human settlement. Ancient Viking settlers brought a breed of pony to Iceland that today is called the Icelandic pony, a surefooted, muscular animal that for centuries has been used as a beast of burden. Reindeer were introduced about 1770; mice and other rodents were brought in on ships. Neither reptiles nor frogs and toads are found. About 100 species of birds inhabit the island. Many of these species are aquatic, among them the whistling swan and several varieties of duck. The eider duck is valued for its down. Gulls are common along the seashore. Whales and seals live along the coast, as do cod, haddock, halibut, and herring. Salmon and trout thrive in Iceland’s freshwater rivers and lakes.


Icelanders are one of the most homogenous peoples in the world. They are predominantly of Nordic origin, descendants of the hardy people who emigrated from Norway to Iceland in the Middle Ages. There are also some Celtic influences from Irish and Scottish immigrants who arrived from the British Isles (see Celts). The population of Iceland (2009 estimate) is 306,694.

Numerous times in its history, Iceland has suffered major population losses due to epidemics, volcanic eruptions, and earthquakes. Beginning in the mid-20th century, many rural Icelanders began moving to coastal towns and villages. Today, some 93 percent of the people now live in cities and towns. About 60 percent of Iceland’s total population lives in Reykjavík. The overall population density is 3.1 persons per sq km (8 per sq mi).

Principal Cities of Iceland

Reykjavík (population, 2005 estimate, 113,022) is the capital and chief port. Other towns are Akureyri (16,308), on the northern coast; Kópavogur (25,803), Hafnarfjörður (22,000), and Keflavík (7,637), on the western coast near Reykjavík; and Vestmannaeyjar (4,640), on the tiny island of Heimaey off the southern coast.

Religion and Languages spoken in Iceland

The state church of Iceland is the Evangelical Lutheran church (see Lutheranism). About 90 percent of Icelanders are affiliated with the church. Complete religious freedom exists, however. Free Lutherans and Roman Catholics make up a small minority.

The language is Icelandic, which has remained closer to the Old Norse of Iceland’s original Viking settlers than to the other Scandinavian languages. See Icelandic Language; Icelandic Literature.

Education in Iceland

Literacy in Iceland approaches 100 percent of the adult population. Education is free through the university level and is compulsory for all children between the ages of 6 and 16. The leading institution of higher education is the University of Iceland (1911), in Reykjavík. The country also has a technical college and colleges of agriculture and music as well as teacher-training schools.

The principal libraries of Iceland are the University Library, the National Library, and the City Library, all located in Reykjavík. The capital is also the site of the Museum of Natural History; the National Museum, containing a major collection of Icelandic antiquities; and an art gallery housing the work of the Icelandic sculptor Einar Jónsson.

Literature and Culture of Iceland

Because the Icelandic language has changed so little over the centuries, Icelanders can read literature produced in Iceland during the 12th and 13th centuries with little difficulty. The most famous Icelandic writings of this period are the sagas. Modern Icelandic writers have produced a substantial body of literature. The Icelandic writer Halldór Laxness won the Nobel Prize in literature in 1955. Laxness adapted the lyrical beauty of the old Icelandic sagas to modern use in his novels about the people of Iceland.

Contemporary Icelanders are prodigious readers. It is said that the people of Iceland read more books per capita than the people of any other country.

In medieval Iceland, the most widely practiced crafts were woodcarving, silversmithing, and sculpturing in stone for church decoration. Folk arts found expression in wood carvings and textiles. Woodcarvings and tapestries from Iceland’s early history have been preserved in the National Museum in Reykjavík.

In medieval times, church choral singing was the dominant form of musical expression. Protestant hymns grew in importance in the 17th century, following Iceland’s adoption of Lutheranism. Choir singing remains very popular. Folk music, derived mainly from Nordic music, has a long history in Iceland. Iceland’s folk traditions inspire vibrant pop and rock genres in modern Iceland, including the music of the singer Björk and the internationally famous folk band Islandica.


Private enterprise forms the basis of the economy of Iceland, but the government exercises a considerable degree of control and supervision over key sectors. Until the close of the 19th century, most people raised livestock and crops, with fishing as a supplementary source of income. By the middle of the 20th century, however, fishing and fish processing had become the major industries.

Hydroelectric and geothermal energy sources are abundant in Iceland. Hydroelectric power has promoted the development of modern industrial enterprises, including the energy-intensive aluminum industry. Geothermal energy provides nearly all of Iceland’s heating and hot water needs. In recent decades, Iceland’s economy has diversified into services, software production, and biotechnology. The Iceland Stock Exchange (ICEX), founded in 1985, has encouraged the growth of financial services by establishing a platform for domestic trading in equities, bonds, and mutual funds. Tourism has grown steadily since the mid-20th century, and whale watching draws tens of thousands of visitors every year.

In 1970 Iceland became a member of the European Free Trade Association (EFTA) trading bloc established a decade earlier by Austria, Denmark, the United Kingdom, Norway, Portugal, Sweden, and Switzerland. Most Icelanders remain opposed to membership in the European Union (EU), largely because of Iceland’s national interest in maintaining strict control over its territorial fishing resources.

The deregulation of the financial industry in the late 20th century helped usher in a booming economy as the 21st century began. Banking eclipsed the fishing industry as the bulwark of Iceland’s economy. With the financial crisis that began in 2008, however, the government seized control of Iceland’s major banks, which lost their profitability.

Agriculture of Iceland

Iceland’s landscape is generally inhospitable for agriculture, and less than 1 percent of the island’s total land area is under cultivation. However, about 20 percent of the land is suitable for livestock grazing. Sheep farming has always been the most important form of animal husbandry. In the summer, the sheep graze in pastures and in the mountains. In the fall, they are driven into pens and sorted according to owners’ marks, as they have been for centuries. Iceland produces large quantities of dairy products, wool, mutton and lamb, and chicken eggs. Hay is the most important fodder crop.

Iceland’s principal food crops include turnips and potatoes. A variety of flowers, vegetables, and fruits are grown in greenhouses heated by hot springs.

Fishing in Iceland

Fishing and fish processing are the most important Icelandic industries. Food products, including fresh and processed fish, account for 53 percent of Iceland’s exports.

Iceland is one of the world’s leading producers of cod. Other major products of Iceland’s fishing industry include capelin, haddock, crustaceans, herring, redfish, and saithe (see Pollock). Large fish processing plants operate in many coastal towns.

Fishery protection is a major concern for Icelanders. In 1975 Iceland extended its territorial fishing zone from 80 km (50 mi) to 320 km (200 mi) from the coastline in an attempt to protect its fisheries from foreign fleets, especially British trawlers. The controversial move led to a so-called Cod War with the United Kingdom, the third and most serious such conflict since the late 1950s. But Britain, along with other European governments, eventually recognized the new limit.

In response to international pressure, Iceland suspended all whaling operations in 1989. However, Iceland strongly condemned the international moratorium on whaling imposed by the International Whaling Commission (IWC) in 1986 (see Whaling). In 1992 Iceland withdrew from the IWC (although it was reinstated as a member in 2002). In 1999 Iceland’s legislature, the Althing, recommended the resumption of whaling. Icelandic lawmakers disputed the designation of some species of whales as endangered and claimed that other species threatened Iceland’s commercial fish population. In August 2003 Iceland resumed limited whaling, claiming the hunt was for scientific purposes. The move provoked widespread international criticism. Iceland came under further criticism in 2006 when the fisheries ministry announced that it was resuming commercial whaling. The ministry said Iceland was dependent on marine resources and would keep its catch within sustainable limits by taking 9 fin whales (an endangered species) and 30 minke whales each year.

Mining in Iceland

Iceland has few mineral resources, and profitable development has been difficult. Minerals of commercial value include pumice, diatomite, and spar—a transparent mineral sold to optical companies. Icelanders manufacture large quantities of cement for concrete, a material from which most modern buildings in Iceland are constructed due to the lack of forest cover on the island.

Manufacturing in Iceland

Aside from fish processing, manufacturing is largely for domestic consumption needs. Principal products include clothing, shoes, soaps, and chemicals. Book production is also a large trade in Iceland. Some electrical appliances are made. In addition, plants producing aluminum (from imported bauxite) and ferrosilicon have been established to take advantage of Iceland’s abundant energy resources.

Currency and Banking of Iceland

The monetary unit of Iceland is the króna, consisting of 100 aurar (64.10 krónur equal U.S. $1; 2007). Currency is issued by the state-owned Central Bank (1961).

Foreign Trade in Iceland

The yearly value of Iceland’s imports is often greater than that of its exports, although the country’s foreign trade balances occasionally. In 2007 imports cost $6 billion, and exports earned $4.3 billion. Major imports include refined petroleum, machinery, transportation equipment, textiles and clothing, chemicals, basic manufactures, and foodstuffs. Exports of metal and ores, including a significant amount of aluminum, account for 24 percent of total exports. The country’s main trade partners are the United Kingdom, the United States, Germany, Denmark, the Netherlands, Sweden, France, Norway, and Japan.

Transportation and Communications in Iceland

Iceland has 12,972 km (8,060 mi) of roads. Most roads are located in coastal areas. The island has no railroads or navigable rivers. The country has several seaports, including Arkanes, Keflavík, Reykjavík, and Siglufjörður. Icelandair, the national airline, provides domestic and international air service, and is one of Iceland’s largest employers.

There are three daily newspapers published in Iceland, with a combined circulation of about 100,000. They are Frettabladid, Morgunbladid, and DV. Telephone and telegraph services are owned and administered by the government; the state monopoly on radio and television broadcasting ended in 1986. Public television and radio broadcasting networks are operated by the Icelandic National Broadcasting Service.


Iceland is governed under a constitution that became effective when the country achieved full independence from Denmark in 1944. Iceland has no official armed forces of its own except for a small number of coast guard personnel. Iceland is a member of the North Atlantic Treaty Organization (NATO), and it permits the United States to base military forces on the island.

Executive of Iceland

The head of state of Iceland is a president, who is elected by universal suffrage by persons aged 18 and older to a four-year term. The president has little formal power. The country’s chief executive is a prime minister, who is responsible to the parliament. The prime minister, assisted by a cabinet of ministers, holds real executive power.

Legislature of Iceland

The parliament of Iceland is the Althing, which has met almost continually since its establishment in AD 930. The Althing is considered the oldest parliament in Europe and is often referred to as “the grandmother of parliaments.” The power of the Althing declined after 1262, and it ceased to function from 1800 to 1843—the year it became a consultative assembly. It regained the full powers of a legislature in 1904.

The Althing was converted from a bicameral to a unicameral system in 1991. It has 63 members, 54 elected to four-year terms under a system of proportional representation and 9 allotted to the political parties based on their relative vote totals in the elections.

Political Parties of Iceland

The leading political organizations of Iceland are the center-right Independence Party; the social democratic Alliance coalition; the Progressive Party, a liberal agrarian group; the Left-Green Movement; and the free-market oriented Liberal Party. Governments in Iceland are generally formed by coalitions.

Local Government of Iceland

Iceland is divided into about 100 municipalities. The municipalities have significant autonomy and administer many important local affairs. These include responsibility for primary and secondary education; infrastructure, such as road maintenance, electric power, and water supply; and the provision of health and social welfare. Each municipality is governed by an elected council.

Judiciary in Iceland

The highest tribunal of Iceland is the supreme court, made up of a chief justice and seven other justices appointed by the president. Other judicial bodies include district and special courts.


Irish monks are known to have visited Iceland before AD 800, but it remained largely unsettled until about 870. Norwegian Viking Ingólfur Arnarson is generally considered the first permanent settler. Arnarson established his farm at Reykjavík, now the capital.

During the next 60 years, other settlers flocked to the island from the Scandinavian countries and the British Isles. In 930 Icelanders set up their first central governing assembly, the Althing.

Headless State

The commonwealth founded by the Icelanders was a republic without executive authority or any head of state. Legislative and judicial powers were wielded by the Althing, but enforcement was the responsibility of the aggrieved party, sometimes assisted by a powerful chieftain. Nevertheless, the state prospered for more than 300 years. The land had ample resources of fish, seal, and fowl, and grazing lands were extensive. Icelandic traders were active in Scandinavia, the continental European countries, and the British Isles, and culture flourished in a golden age that produced the great body of medieval Icelandic literature. Late in the 10th century Icelanders colonized Greenland, and early in the 11th century, according to one tradition, Leif Eriksson, the Icelandic explorer, reached the shores of North America (Vinland), although attempts at settlement there were frustrated.

Icelanders accepted Christianity by arbitration in 1000, and the church gradually destabilized secular authority. Notably, it undermined the old political order, in which the pagan priests served as secular chieftains (see Paganism). Furthermore, the church sought foreign support in its struggle with secular powers. Iceland was under the archbishopric of Nidaros (now Trondheim), Norway. King Håkon IV of Norway, aided by the internal squabbles of Icelandic politicians, ruthlessly exploited the situation. In 1262-1264 his ambition was fulfilled when Icelanders recognized him as their king.

Foreign Domination and Decline in Iceland

Foreign domination brought with it a long decline of Icelandic fortunes. This was especially true after the country, along with Norway, passed to the Danish crown in 1380. As Denmark sought to expand its shipping and commerce, it did not want the lucrative Icelandic trade to flow to England or Germany, the two countries that had the greatest interest in the island. Gradually, the Danish managed to reduce the trading activities of these nations in Iceland, and by the middle of the 16th century they had virtually ceased. At the same time, the royal authority greatly increased its interference in other spheres of Icelandic life.

In 1550 Lutheranism was forced on the nation, a feat crowned with the execution without trial of the last Roman Catholic bishop, Jón Arason, and two of his sons. Half a century later, in 1602, a trade monopoly was instituted. From that time until 1787, commerce with Iceland was permitted only to licensed merchants, who would buy their charters from the Crown for exorbitant fees with the knowledge that they could recoup their investment manifold from their captive customers. Consequently, prices for necessities, such as grains, lumber, and metal goods, soared, while Icelandic products—mostly wool and fish—were undervalued because their prices were established by the same merchants. In the long run, this system of economic oppression reduced Iceland to utter destitution.


In 1660 King Frederick III of Denmark assumed autocratic powers in his homeland. Two years later Icelandic leaders were forced, under threat of arms, to accept the absolute monarchy in Iceland. The abrogation of the Althing’s legislative powers, as well as the denial of its judicial role, quickly followed. The country now stood stripped of all political power.

During the 18th century, Icelanders reached the lowest point of their national existence. At the end of the Age of Settlement in 930, some 60,000 to 90,000 people are estimated to have lived in the country. By the early years of the 18th century, when the first national census was taken, the population was down to 50,000. A series of disasters, including a smallpox epidemic in 1707-1709, famines in the middle of the century, and the eruption of the volcano Laki in 1783, further reduced the nation to some 35,000 inhabitants, most of them paupers. Due to such hardship, Denmark seriously considered evacuating all the remaining Icelanders to the heathlands of the Jutland Peninsula.

Turning Point

In the 18th century, however, national fortunes reached a turning point. Shortly after the middle of the century an enterprising Icelandic official established some cottage industries in Reykjavík, then a mere collection of huts. Although his effort eventually failed, it provided inspiration for other attempts that improved conditions in the country. The first tangible sign of this was the modification of the trade monopoly in 1787, allowing commerce with any Danish subject.

Although the 19th century began with the total suspension of the Althing, it eventually became an age of reawakening. The waves of revolution on the European continent brought about the end of absolutism in Denmark, and soon the Icelanders began to clamor for their own national rights. In this struggle they were led by the scholar-politician Jón Sigurdsson, now revered as a national hero. The Althing was reconvened in 1843; trade was made free to all nations in 1854; and 20 years later a new constitution was promulgated, granting the Althing partial control over domestic finances.

Rapid Progress

Until this time, the Icelandic economy had remained practically medieval. With financial authority established within the country, Iceland began to progress at a relatively fast pace. At the same time the struggle for independence continued. In 1904 Iceland attained home rule, and in 1918 Denmark finally recognized Iceland’s status as an independent kingdom. For the next 25 years, however, under the Treaty of Union, it was bound to Denmark in a personal union under Christian X. During this time, until World War II (1939-1945), great economic strides were made, despite the lean years of the worldwide depression.

When Denmark was occupied by Nazi Germany in April 1940, Iceland was cut off from its head of state. A month later, it, too, was occupied, but by British troops. In May 1941 the Icelandic government appointed Sveinn Björnsson, a former minister to Denmark, as regent.

The Treaty of Union ran out in 1943, and by early 1944, given that Denmark was still occupied, Icelanders decided to act unilaterally to terminate it. In a national referendum, with 98.6 percent of eligible voters participating, 97.3 percent voted to sever all ties with Denmark, and 95 percent chose a republic. The Icelandic republic was accordingly proclaimed at Thingvellir on June 17, 1944, with Sveinn Björnsson as the first president.

Free but Occupied

Paradoxically, Iceland celebrated its final deliverance from alien rule while still occupied by another foreign power. In 1941 the Icelandic government had been pressed by Britain and the United States to ask for U.S. protection, primarily to free the British occupation troops for service elsewhere. Contrary to contractual obligations, however, the United States did not withdraw its forces at the end of the war, instead requesting permanent military bases in the country. These were refused. A compromise agreement was made in 1946, permitting the United States control of the Keflavík airport for six and a half years. Before that pact expired, Iceland became a founding member of the North Atlantic Treaty Organization (NATO), and in 1951, during the Korean War, the United States again obtained Icelandic permission to station troops in the country, this time under a NATO umbrella.

This U.S. presence in Iceland, uninterrupted since 1941, has been profoundly divisive for Icelanders; while overwhelmingly sympathetic to Western democracies, Icelanders remain split on the issue of basing U.S. troops on their land. In 1985 the Althing unanimously passed a resolution declaring Iceland a nuclear-free zone, a measure that banned the entry of nuclear weapons into Iceland.

Protecting the Fisheries

Another fundamental question of national existence since World War II has involved Iceland’s efforts to protect its fisheries from foreign fleets. In 1958 Iceland decided to extend its fisheries jurisdiction from 6 to 20 km (4 to 12 mi); the British responded by sending warships to protect their trawlers in Icelandic waters. A so-called Cod War that resulted lasted until 1961, but it was renewed with two extensions of Icelandic jurisdiction over adjacent waters—to 80 km (50 mi) in 1972 and 320 km (200 mi) in 1975. The last extension triggered the most serious of the cod wars, a conflict that resulted in casualties. In 1976 Iceland temporarily severed diplomatic ties with Britain, marking the first such break between two NATO members. It was not until 1977 that Icelanders finally became the undisputed masters of their most vital resources.

Since that time, however, Iceland has become embroiled in several heated fishing disputes with other countries in areas near its territorial waters. In the early 1990s, a conflict between Iceland and Norway broke out over fishing rights in a part of the Barents Sea claimed by Iceland. A similar dispute arose between Iceland and Denmark in 1996 over fishing rights in waters between Greenland and Iceland.

Despite Iceland’s success in securing exclusive rights to its enlarged territorial fishing grounds, the mechanization of the fishing industry eventually took a heavy toll on fish stocks. Overfishing in the 1970s and 1980s led to a decline by about one-third to one-half of the most valuable fishing stocks in Icelandic waters. Declining revenues caused by overfishing, combined with high inflation and excessive borrowing abroad, resulted in a prolonged period of high inflation and low economic growth in Iceland. Efforts to limit overfishing, including restrictions on cod fishing and a reduction in the size of Iceland’s fishing fleet, produced some signs of a recovery in fish stocks. As a result, Iceland increased fishing quotas in the 1990s and early 2000s.

Recent Political and Economic Developments in Iceland

In 1980 Vigdís Finnbogadóttir was elected president, becoming the world’s first popularly elected female head of state. She served until 1996, when she was replaced by Ragnar Grímsson. In 2000 the parliament voted to give Grímsson a second term in office without an election, due to the president’s popularity and the lack of opponents.

In September 2004, Halldór Ásgrímsson, leader of the liberal and agrarian-oriented Progressive Party, took over as prime minister, leading a coalition government with the center-right Independence Party. Ásgrímsson’s rise to the post of prime minister was part of a deal that permitted the Progressive Party/Independence Party coalition to remain in power. Ásgrímsson’s predecessor, Independence Party leader David Oddsson, had served as Iceland’s prime minister since April 1991. Oddsson became foreign minister in the new government.

Ásgrímsson was succeeded by Geir Haarde of the Independence Party in June 2006. Haarde remained prime minister following May 2007 parliamentary elections. The results of that election, however, necessitated an end to the partnership between the Independence Party and the Progressive Party. Instead, Haarde fashioned a coalition between the Independence Party and the Social Democrats. The elections saw the Progressive Party lose seats, declining from 12 to 7, while the Independence Party increased its total from 22 to 25, and the Social Democrats won 18 seats.

Environmental issues appear to increasingly concern Icelandic voters. Although Iceland’s economy has been invigorated in recent years by the growth of an aluminum smelting industry, voters in the May 2007 parliamentary elections sent a cautionary note about the possible environmental impact of the industry. Voters punished the Progressive Party, which advocated the continued building of smelters by foreign aluminum companies such as ALCOA, while electing Social Democrats and Left Greens, who called for a halt in construction while environmental impact studies are performed.

During the 1990s and early 2000s Iceland’s economy experienced significant economic growth, spurred in part by the diversification of manufacturing and the deregulation of financial services. New industries, including software development and biotechnology, became important elements of Iceland’s growing economy. Icelanders began to enjoy a standard of living among the highest in the world as the 21st century began. One key to Iceland’s modern success was its high standard of education and cultural life. Despite hundreds of years of abject poverty, most Icelanders remained literate and educated. Thus, they were well-prepared to adapt quickly to new technological trends of the 20th and early 21st centuries.

The deregulation of the financial services industry helped lead to an economic boom as Iceland’s banks became lenders to businesses throughout the European Union (EU) and other parts of the world. The global financial crisis in 2008, however, brought Iceland’s banking system crashing down. Although the banks largely managed to avoid investments in the mortgage-backed securities that brought calamity to the rest of the banking industry, they remained vulnerable, especially due to a rapid decline in the value of Iceland’s currency, the króna.

In October 2008 the government took control of some of Iceland’s largest banks as the króna lost half its value in relation to the euro and inflation exploded at 12 percent. By November a bailout package totaling $10.2 billion had been arranged, including a $2.1 billion loan from the International Monetary Fund aimed at shoring up the króna. Denmark, Finland, Norway, and Sweden added another $2.5 billion to help Iceland stabilize its exchange rate and ease its debt crisis. Germany, the Netherlands, and the United Kingdom offered aid of roughly $5 billion, largely so that Iceland could repay the citizens of those countries who had deposits in Iceland’s banks.

The financial crisis led to the collapse of Iceland’s government in January 2009. By February 1 a caretaker government had been created as a result of a center-left coalition between the Social Democrats and the Left-Green Movement. The parliament selected Johanna Sigurdardottir as Iceland’s first female prime minister and the world’s first openly gay head of government. She presided over the caretaker government until elections scheduled for April 2009. In those elections the center-left coalition won a majority of seats (34), and Sigurdardottir continued on as prime minister. The center-right Independence Party, which many voters identified with Iceland’s economic problems, suffered its worst defeat in decades, winning only 16 seats in the 63-member parliament.

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