A Political and Economic Dictionary of Western Europe, First Edition
Iceland is a small island located beneath the Arctic Circle in the far north-west of Europe. Geologically Iceland is a relatively new island, formed by volcanic activity. It is still regularly affected by earthquakes and volcanic eruptions. (The volcano Heimaey on the Westman Islands erupted early in the morning on 23 January 1973.) Situated in the North Atlantic Ocean, Iceland has adopted a mid-Atlantic stance, fostering relations with the USA and the European Union (EU). A member of the North Atlantic Treaty Organization, Iceland hosts troops of the US army, but has no army of its own.
Area: 103,000sq km; capital: Reykjavík; population: 282,000 (2001).
Iceland became an independent republic in 1944 following centuries of rule by Denmark. The Icelandic head of state is the non-executive President who is elected every four years. Since 1996 this has been Ólafur Ragnar Grímsson. Legislative power is vested with the Althingi and executive power with a coalition government which has been headed since 2004 by Prime Minister Halldór Ásgrímsson.
Unlike other Nordic states, politics in Iceland are not dominated by social democratic parties. For long Icelandic politics involved four main parties: the conservative Independence Party, the moderate Progressive Party, the Social Democratic Party and the left-wing People’s Alliance. The conservative Independence Party has participated in the majority of coalition governments in the last 50 years. Most recently it governed continuously in 1991–2004 under Prime Minister David Oddsson, first in a coalition with the social democrats and then, from 1995, with the Progressive Party. Conservative governments have presided over high levels of economic growth and low unemployment and have liberalized the economy and restructured the welfare state.
In 1983 a significant new political force emerged. The Women’s Alliance campaigned for legislation that specifically promoted women’s and children’s interests. It campaigned on issues of equality in the workplace, to increase the representation of women in politics, and to change the political culture: the Women’s Alliance was a grass roots movement that had no leader and agreed policy through consensus rather than by vote. At the height of its success in 1987 it won 10.1% of the vote and six seats in the Althingi. Since then its share of the vote and number of seats in the Althingi have fallen as mainstream parties have addressed the issues it raised. Following elections to the Althingi in 1999 a radical restructuring of the left occurred, whereby three parties—the Social Democratic Party, the People’s Alliance and the Women’s Alliance—combined to form the Alliance Party. A new party, Left-Green Alliance, was founded as concerns about the use of Iceland’s natural resources grew; and a Liberal Party was also founded. At the most recent election to the Althingi, held on 10 May 2003, the Independence Party won 33.7% of the vote and formed a coalition with the Progressive Party. The coalition which has worked together since 1995 was initially led by David Oddsson of the Independence Party. As part of a post-election agreement he relinquished the role of head of government to Halldór Ásgrímsson on 15 September 2004.
Iceland strongly defends its independence and sovereignty and has never applied to join the EU, though it has been a member of the European Free Trade Association since 1970 and of the European Economic Area since 1 January 1994. The Independence Party is opposed to EU membership on the grounds of national independence and economic interest. It is only the social democrats and some business interests who have campaigned for Iceland to consider membership and the Progressive Party has shown some willingness to discuss membership. Iceland’s opposition to EU membership can also be explained by the economy’s reliance on the fishing industry. Iceland strongly protects the fishing waters around the island and has expanded its territorial waters three times since the end of the 1950s. Icelandic fishermen have exclusive rights to fish in the 322-km zone around the island. EU membership would mean adopting the EU’s common fisheries policy and sharing these waters and fish stocks with fishermen from other EU states.
Economy: Iceland has a wealthy economy and its citizens enjoy one of the highest standards of living in the world. Its prosperity largely derives from the fishing industry which still employs around 10% of Iceland’s workers and supplies two-thirds of the country’s exports. Concerns about the sustainability of Iceland’s fish stocks have led to the introduction of quotas and attempts to find alternative sources of economic growth and prosperity.
GNP: US $8,152m. (2001); GNP per caput: $28,910 (2001); GNP at PPP: $8,135m. (2001); GNP per caput at PPP: $28,850 (2001); currency: króna; unemployment: 3.3% (2002).
Iceland introduced quotas on major fish stocks in 1984 in order to prevent over-fishing and to maintain sufficient stocks for future generations. Owners of fishing vessels were given quotas free of charge, according to their fishing experience, but formally the fish stocks remain the joint property of the nation. The introduction of quotas led to the concentration of fishing within a smaller number of larger firms as these bought up the fishing rights of smaller companies. The number of quota holders fell by 26% in 1990–94. Iceland abandoned commercial whaling following the international moratorium in 1986, but the government reintroduced ‘scientific whaling’ in 1990.
As alternatives to fishing, Iceland has in recent years begun to exploit its natural resources to supply hydro-electric power to other nations, and it is also developing geothermal science, the production of aluminium and new scientific ventures. The private firm DeCODE Genetics was established in Iceland to research the genetic basis of various diseases because of the unique genetic constitution of its population. Iceland also has a booming tourist industry. A Nordic economy, Iceland has a well-developed welfare state, which is supported by politicians of the left and the right. With a less influential social democratic movement than other Nordic states, welfare coverage is more modest than on mainland Scandinavia. The Icelandic welfare state supports a highly educated population, with some 8,000 Islanders going abroad each year to study—mainly to the USA, the United Kingdom and Germany—and with 90% returning later to Iceland to work. Iceland has a high rate of labour-market participation among women.
In the 1980s the Icelandic economy experienced a series of problems. It had high levels of foreign debt and high inflation rates, which peaked at 25% in 1988. The króna was devalued three times in that year: by 6% in February, 10% in May, and 3% in September. From the early 1990s onwards Iceland underwent a process of rapid economic liberalization. This was a consequence of the country’s membership of the European Economic Area which required member states to open up markets to all products except fish and food. Iceland also lifted capital controls, privatized banks and liberalized its telecommunications sector. The election of 1991 led to a coalition being formed between the conservative Independence Party and the Social Democratic Party, headed by Prime Minister David Oddsson. His governments cut public spending radically, continued the process of privatizing state industries and implemented far-reaching tax reforms. The government also reduced the scope of the welfare state, decreasing the numbers of public-sector employees, particularly in hospitals, shifting some of the responsibility for pension provision to individuals, and increasing the official retirement age to 70. A significant national agreement on the labour market was signed in 1990 between social partners. As a consequence, by the mid-1990s Iceland’s rate of inflation had fallen to zero and then stabilized at around 2%. However, the country experienced unemployment for the first time (a rate of about 5%) as the fishing industry suffered the consequences of declining fish stocks.
Iceland’s economy has experienced high levels of growth since the late 1990s. The economy grew by an average of 4.1% per year in 1994–98 and by 6% in 1999. This represented faster growth than that achieved by any other advanced industrial country for this period and it was twice the average rate of growth of the European Union. Unemployment fell to around 2% and Iceland even started to import labour, for example from Poland, to work in the fishing industry. The country still has a large current account deficit, however, and inflation has risen again, to around 3%. There are also increasing concerns that the rewards of economic growth are not being equally apportioned and that the profits from the nation’s fishing stocks are being distributed unjustly.
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