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Iceland has a left–right multi-party system. Following the 2016 parliamentary election, the biggest parties are the centre-right Independence Party (Sjálfstæðisflokkurinn), the Left-Green Movement (Vinstrihreyfingin – grænt framboð) and the Icelandic Pirate Party (Píratar). Other political parties with seats in the Althing are the Progressive Party (Framsóknarflokkurinn), the Reform Party (Viðreisn), Bright Future and the Social Democratic Alliance (Samfylkingin). Many other parties exist on the municipal level, most of which run only locally in a single municipality.

Iceland was the first country in the world to have a political party formed and led entirely by women. Known as the Women's List or Women's Alliance (Kvennalistinn), it was founded in 1983 to advance the political, economic, and social needs of women. After participating in its first parliamentary elections, the Women's List helped increase the proportion of female parliamentarians by 15%. Although it disbanded in 1999, merging with the Social Democratic Alliance, it left a lasting influence on Iceland's politics: every major party has a 40% quota for women, and in 2009 nearly a third of members of parliament were female, compared to the global average of 16%. Following the 2016 elections, 48% of members of parliament are female.

In 2016 Iceland was ranked 2nd in the strength of its democratic institutions and 13th in government transparency. The country has a high level of civic participation, with 81.4% voter turnout during the most recent elections, compared to an OECD average of 72%. However, only 50% of Icelanders say they trust their political institutions, slightly less than the OECD average of 56% (and most probably a consequence of the political scandals in the wake of the Icelandic financial crisis).


Iceland is a representative democracy and a parliamentary republic. The modern parliament, Alþingi (English: Althing), was founded in 1845 as an advisory body to the Danish monarch. It was widely seen as a re-establishment of the assembly founded in 930 in the Commonwealth period and suspended in 1799. Consequently, "it is arguably the world's oldest parliamentary democracy." It currently has 63 members, elected for a maximum period of four years. The president is elected by popular vote for a term of four years, with no term limit. The elections for president, the Althing, and local municipal councils are all held separately every four years.

The president of Iceland is a largely ceremonial head of state and serves as a diplomat, but may veto laws voted by the parliament and put them to a national referendum. The current president is Guðni Th. Jóhannesson. The head of government is the prime minister who, together with the cabinet, is responsible for executive government. The cabinet is appointed by the president after a general election to the Althing; however, the appointment is usually negotiated by the leaders of the political parties, who decide among themselves after discussions which parties can form the cabinet and how to distribute its seats, under the condition that it has a majority support in the Althing. Only when the party leaders are unable to reach a conclusion by themselves within a reasonable time span does the president exercise this power and appoint the cabinet personally. This has not happened since the republic was founded in 1944, but in 1942 regent Sveinn Björnsson, who had been installed in that position by the Althing in 1941, appointed a non-parliamentary government. The regent had, for all practical purposes, the position of a president, and Sveinn would later become the country's first president in 1944.

The governments of Iceland have always been coalition governments, with two or more parties involved, as no single political party has ever received a majority of seats in the Althing throughout the republican period. The extent of the political power possessed by the office of the president is disputed by legal scholars, in Iceland; several provisions of the constitution appear to give the president some important powers, but other provisions and traditions suggest differently. In 1980, Icelanders elected Vigdís Finnbogadóttir as president, the world's first directly elected female head of state. She retired from office in 1996. In 2009, Iceland became the first country with an openly gay head of government when Jóhanna Sigurðardóttir became prime minister.

Administrative divisions

Iceland is divided into regions, constituencies and municipalities. The eight regions are primarily used for statistical purposes. District court jurisdictions also use an older version of this division. Until 2003, the constituencies for the parliamentary elections were the same as the regions, but by an amendment to the constitution, they were changed to the current six constituencies:

  • Reykjavík North and Reykjavík South (city regions);
  • Southwest (four non-contiguous suburban areas around Reykjavík);
  • Northwest and Northeast (northern half of Iceland, split); and,
  • South (southern half of Iceland, excluding Reykjavík and suburbs).

The redistricting change was made to balance the weight of different districts of the country, since previously a vote cast in the sparsely populated areas around the country would count much more than a vote cast in the Reykjavík city area. The imbalance between districts has been reduced by the new system, but still exists.

74 municipalities in Iceland govern local matters like schools, transport, and zoning. These are the actual second-level subdivisions of Iceland, as the constituencies have no relevance except in elections and for statistical purposes. Reykjavík is by far the most populous municipality, about four times more populous than Kópavogur, the second one.​

Foreign relations

Iceland, which is a member of the UN, NATO, EFTA, Council of Europe and OECD, maintains diplomatic and commercial relations with practically all nations, but its ties with the Nordic countries, Germany, the United States, Canada and the other NATO nations are particularly close. Historically, due to cultural, economic and linguistic similarities, Iceland is a Nordic country, and it participates in intergovernmental cooperation through the Nordic Council.

Iceland is a member of the European Economic Area (EEA), which allows the country access to the single market of the European Union (EU). It was not a member of the EU, but in July 2009 the Icelandic parliament, the Althing, voted in favour of application for EU membership and officially applied on 17 July 2009. However, in 2013, opinion polls showed that many Icelanders were now against joining the EU; following 2013 elections the two parties that formed the island's new government – the centrist Progressive Party and the right-wing Independence Party – announced they would hold a referendum on EU membership.


Iceland has no standing army, but the Icelandic Coast Guard which also maintains the Iceland Air Defence System, and an Iceland Crisis Response Unit to support peacekeeping missions, perform paramilitary functions.

The Iceland Defense Force (IDF) was a military command of the United States Armed Forces from 1951 to 2006. The IDF, created at the request of NATO, came into existence when the United States signed an agreement to provide for the defense of Iceland. The IDF also consisted of civilian Icelanders and military members of other NATO nations. The IDF was downsized after the end of the Cold War and the U.S. Air Force maintained four to six interceptor aircraft at the Naval Air Station Keflavik, until they were withdrawn on 30 September 2006. Since May 2008, NATO nations have periodically deployed fighters to patrol Icelandic airspace under the Icelandic Air Policing mission. Iceland supported the 2003 invasion of Iraq despite much domestic controversy, deploying a Coast Guard EOD team to Iraq, which was replaced later by members of the Iceland Crisis Response Unit. Iceland has also participated in the ongoing conflict in Afghanistan and the 1999 NATO bombing of Yugoslavia. Despite the ongoing financial crisis the first new patrol ship in decades was launched on 29 April 2009.

Iceland was the neutral host of the historic 1986 Reagan–Gorbachev summit in Reykjavík, which set the stage for the end of the Cold War. Iceland's principal historical international disputes involved disagreements over fishing rights. Conflict with the United Kingdom led to a series of so-called Cod Wars, which included confrontations between the Icelandic Coast Guard and the Royal Navy over British fishermen, in 1952–1956 due to the extension of Iceland's fishing zone from 3 to 4 nmi (5.6 to 7.4 km; 3.5 to 4.6 mi), 1958–1961 following a further extension to 12 nmi (22.2 km; 13.8 mi), 1972–1973 with another extension to 50 nmi (92.6 km; 57.5 mi); and in 1975–1976 another extension to 200 nmi (370.4 km; 230.2 mi).

According to the Global Peace Index, Iceland is the most peaceful country in the world, due to its lack of armed forces, low crime rate, and high level of socio-political stability. Iceland is listed in Guinness Records Book as "Country ranked most at peace" and "Lowest military spending per capita".


In 2007, Iceland was the seventh most productive country in the world per capita (US$54,858), and the fifth most productive by GDP at purchasing power parity ($40,112). About 85 percent of total primary energy supply in Iceland is derived from domestically produced renewable energy sources. Utilization of abundant hydroelectric and geothermal power has made Iceland the world's largest electricity producer per capita. As a result of its commitment to renewable energy, the 2016 Global Green Economy Index ranked Iceland among the top 10 greenest economies in the world. Historically, Iceland's economy depended heavily on fishing, which still provides 40% of export earnings and employs 7% of the work force. The economy is vulnerable to declining fish stocks and drops in world prices for its main material exports: fish and fish products, aluminium, and ferrosilicon. Whaling in Iceland has been historically significant. Iceland still relies heavily on fishing, but its importance is diminishing from an export share of 90% in the 1960s to 40% in 2006.

Until the 20th century, Iceland was among the poorest countries in Europe. Currently, it remains one of the most developed countries in the world. Strong economic growth had led Iceland to be ranked first in the United Nations' Human Development Index report for 2007/2008, although in 2011 its HDI rating had fallen to 14th place as a result of the economic crisis. Nevertheless, according to the Economist Intelligence Index of 2011, Iceland has the 2nd highest quality of life in the world. Based on the Gini coefficient, Iceland also has one of the lowest rates of income inequality in the world, and when adjusted for inequality, its HDI ranking climbs to 5th place. Iceland's unemployment rate has declined consistently since the crisis, with 4.8% of the labour force being unemployed as of June 2012, compared to 6% in 2011 and 8.1% in 2010.

Many political parties remain opposed to EU membership, primarily due to Icelanders' concern about losing control over their natural resources (particularly fisheries). The national currency of Iceland is the Icelandic króna (ISK). Iceland is the only country in the world to have a population under two million yet still have a floating exchange rate and an independent monetary policy.

A poll released on 5 March 2010 by Capacent Gallup showed that 31% of respondents were in favour of adopting the euro and 69% opposed. Another Capacent Gallup poll conducted in February 2012 found that 67.4% of Icelanders would reject EU membership in a referendum.

Iceland's economy has been diversifying into manufacturing and service industries in the last decade, including software production, biotechnology, and finance; industry accounts for around a quarter of economic activity, while services comprise close to 70%. The tourism sector is expanding, especially in ecotourism and whale-watching. On average, Iceland receives around 1.1 million visitors annually, which is more than three times the native population. Iceland's agriculture industry, accounting for 5.4% of GDP, consists mainly of potatoes, green vegetables (in greenhouses), mutton and dairy products. The financial centre is Borgartún in Reykjavík, which hosts a large number of companies and three investment banks. Iceland's stock market, the Iceland Stock Exchange (ISE), was established in 1985.

Iceland is ranked 27th in the 2012 Index of Economic Freedom, lower than in prior years but still among the freest in the world. As of 2016, it ranks 29th in the World Economic Forum's Global Competitive Index, one place lower than in 2015. According to INSEAD's Global Innovation Index, Iceland is the 11th most innovative country in the world. Unlike most Western European countries, Iceland has a flat tax system: the main personal income tax rate is a flat 22.75%, and combined with municipal taxes, the total tax rate equals no more than 35.7%, not including the many deductions that are available. The corporate tax rate is a flat 18%, one of the lowest in the world. There is also a value added tax, whereas a net wealth tax was eliminated in 2006. Employment regulations are relatively flexible and the labour market is one of the freest in the world. Property rights are strong and Iceland is one of the few countries where they are applied to fishery management. Like other welfare states, taxpayers pay various subsidies to each other, but with spending being less than in most European countries.

Despite low tax rates, agricultural assistance is the highest among OECD countries and a potential impediment to structural change. Also, health care and education spending have relatively poor returns by OECD measures, though improvements have been made in both areas. The OECD Economic Survey of Iceland 2008 had highlighted Iceland's challenges in currency and macroeconomic policy. There was a currency crisis that started in the spring of 2008, and on 6 October trading in Iceland's banks was suspended as the government battled to save the economy. The latest assessment by the OECD determined that Iceland has made progress in many areas, particularly in creating a sustainable fiscal policy and restoring the health of the financial sector; however, challenges remain in making the fishing industry more efficient and sustainable, as well as in improving monetary policy to address inflation. Iceland's public debt has decreased since the economic crisis, and as of 2015 is the 31th highest in the world by proportion of national GDP.

Economic contraction

Iceland had been hit especially hard by the Great Recession that began in December 2007, because of the failure of its banking system and a subsequent economic crisis. Before the crash of the country's three largest banks, Glitnir, Landsbanki and Kaupthing, their combined debt exceeded approximately six times the nation's gross domestic product of €14 billion ($19 billion). In October 2008, the Icelandic parliament passed emergency legislation to minimise the impact of the Financial crisis. The Financial Supervisory Authority of Iceland used permission granted by the emergency legislation to take over the domestic operations of the three largest banks. Icelandic officials, including central bank governor Davíð Oddsson, stated that the state did not intend to take over any of the banks' foreign debts or assets. Instead, new banks were established to take on the domestic operations of the banks, and the old banks will be run into bankruptcy.

On 28 October 2008, the Icelandic government raised interest rates to 18% (as of August 2010, it was 7%), a move forced in part by the terms of acquiring a loan from International Monetary Fund (IMF). After the rate hike, trading on the Icelandic króna finally resumed on the open market, with valuation at around 250 ISK per Euro, less than one-third the value of the 1:70 exchange rate during most of 2008, and a significant drop from the 1:150 exchange ratio of the week before. On 20 November 2008, the Nordic countries agreed to lend Iceland $2.5 billion.

On 26 January 2009, the coalition government collapsed due to the public dissent over the handling of the financial crisis. A new left-wing government was formed a week later and immediately set about removing Central Bank governor Davíð Oddsson and his aides from the bank through changes in law. Davíð was removed on 26 February 2009 in the wake of protests outside the Central Bank.

Thousands of Icelanders have moved from the country after the collapse, and many of those moved to Norway. In 2005, 293 people moved from Iceland to Norway; in 2009, the figure was 1,625. In April 2010, the Icelandic Parliament‘s Special Investigation Commission published the findings of its investigation, revealing the extent of control fraud in this crisis. By June 2012, Landsbanki managed to repay about half of the Icesave debt.

According to Bloomberg, Iceland is on the trajectory of 2% unemployment as a result of crisis-management decisions made back in 2008, including allowing the banks to fail.


Iceland has a high level of car ownership per capita; with a car for every 1.5 inhabitants; it is the main form of transport. Iceland has 13,034 km (8,099 mi) of administered roads, of which 4,617 km (2,869 mi) are paved and 8,338 km (5,181 mi) are not. A great number of roads remain unpaved, mostly little-used rural roads. The road speed limits are 30 km/h (19 mph) and 50 km/h (31 mph) in towns, 80 km/h (50 mph) on gravel country roads and 90 km/h (56 mph) on hard-surfaced roads.

Route 1, or the Ring Road (Icelandic: Þjóðvegur 1 or Hringvegur), was completed in 1974, and is a main road that runs around Iceland and connects all the inhabited parts of the island, with the interior of the island being uninhabited. This paved road is 1,332 km (828 mi) long with one lane in each direction, except near larger towns and cities and in the Hvalfjörður Tunnel (also the site of a toll) where it has more lanes. Many bridges on it, especially in the north and east, are single lane and made of timber and/or steel.

Keflavík International Airport (KEF) is the largest airport and the main aviation hub for international passenger transport. It serves several international and domestic airline companies. KEF is in the vicinity of the larger metropolitan Capitol areas, 49 km (30 mi) to the WSW of Reykjavík center, reachable only by bus services and passenger cars. Iceland has no passenger railways.

Reykjavík Airport (REK) is the second largest airport located just 1,5 km from the Capitol center. REK serves general aviation traffic and has daily- or regular domestic flights to 12 local townships within Iceland. REK also serves international flights to Greenland and the Faroe Islands, business and private airplanes along with aviation training.

Akureyri Airport (AEY) and Egilsstaðir Airport (EGS) are two other domestic airports with limited international service capacity. There are a total of 103 registered airports and airfields in Iceland; most of them are unpaved and located in rural areas. The second longest runway is at Geitamelur, a four-runway glider field around 100 km (62 mi) east of Reykjavík.

Six main ferry services provide regular access to various outpost communities or shorten travel distances.


Renewable sources—geothermal and hydropower—provide effectively all of Iceland's electricity and around 85% of the nation's total primary energy consumption, with most of the remainder consisting of imported oil products used in transportation and in the fishing fleet. Iceland expects to be energy-independent by 2050. Iceland's largest geothermal power plants are Hellisheiði and Nesjavellir, while Kárahnjúkar Hydropower Plant is the country's largest hydroelectric power station. When the Kárahnjúkavirkjun started operating, Iceland became the world's largest electricity producer per capita.

Icelanders emit 6.29 tonnes of CO2 in 2009 equivalent of greenhouse gases per capita. Iceland is one of the few countries that have filling stations dispensing hydrogen fuel for cars powered by fuel cells. It is also one of a few countries currently capable of producing hydrogen in adequate quantities at a reasonable cost, because of Iceland's plentiful renewable sources of energy.

On 22 January 2009, Iceland announced its first round of offshore licences for companies wanting to conduct hydrocarbon exploration and production in a region northeast of Iceland, known as the Dreki area. Two exploration licenses have been awarded.

In 2010 Iceland was noted by Guinness World Records as "The Greenest Country", reaching highest score by the Environmental Sustainability Index which measures a country's water use, biodiversity and adoption of clean energies with a score of 93.5/100.

As of 2012, the government of Iceland is in talks with the government of the United Kingdom about the possibility of constructing a high-voltage direct-current connector for transmission of electricity between the two countries. Such a cable would give Iceland access to a market where electricity prices have generally been much higher than those in Iceland. Iceland has considerable renewable energy resources, especially geothermal energy and hydropower resources, and most of the potential has not been developed, partly because there is not enough demand for additional electricity generation capacity from the residents and industry of Iceland, but the United Kingdom is interested in importing inexpensive electricity from renewable sources of energy, and this could lead to further development of the energy resources.

Education and science

The Ministry of Education, Science and Culture is responsible for the policies and methods that schools must use, and they issue the National Curriculum Guidelines. However, playschools, primary schools, and lower secondary schools are funded and administered by the municipalities. The government does allow citizens to Home educate their children, however under a very strict set of demands. Students must adhere closely to the government mandated curriculum, and the parent teaching must acquire a government approved teaching certificate.

Nursery school, or leikskóli, is non-compulsory education for children younger than six years, and is the first step in the education system. The current legislation concerning playschools was passed in 1994. They are also responsible for ensuring that the curriculum is suitable so as to make the transition into compulsory education as easy as possible.

Compulsory education, or grunnskóli, comprises primary and lower secondary education, which often is conducted at the same institution. Education is mandatory by law for children aged from 6 to 16 years. The school year lasts nine months, beginning between 21 August and 1 September, ending between 31 May and 10 June. The minimum number of school days was once 170, but after a new teachers' wage contract, it increased to 180. Lessons take place five days a week. All public schools have mandatory education in Christianity, although an exemption may be considered by the Minister of Education.

Upper secondary education, or framhaldsskóli, follows lower secondary education. These schools are also known as gymnasia in English. Though not compulsory, everyone who has had a compulsory education has the right to upper secondary education. This stage of education is governed by the Upper Secondary School Act of 1996. All schools in Iceland are mixed sex schools. The largest seat of higher education is the University of Iceland, which has its main campus in central Reykjavík. Other schools offering university-level instruction include Reykjavík University, University of Akureyri, Agricultural University of Iceland and Bifröst University.

An OECD assessment found 64% of Icelanders aged 25–64 have earned the equivalent of a high-school degree, which is lower than the OECD average of 73%. Among 25- to 34-year-olds, only 69% have earned the equivalent of a high-school degree, significantly lower than the OECD average of 80%. Nevertheless, Iceland's education system is considered excellent: the Programme for International Student Assessment currently ranks it as the 16th best performing, above the OECD average. Students were particularly proficient in reading and mathematics.

According to a 2013 Eurostat report by the European Commission, Iceland spends around 3.11% of its GDP on scientific research and development (R&D), over 1 percentage point higher than the EU average of 2.03%, and has set a target of 4% to reach by 2020. A 2010 UNESCO report found that out of 72 countries that spend the most on R&D (100 million US dollars or more), Iceland ranked 9th by proportion of GDP, tied with Taiwan, Switzerland, and Germany and ahead of France, the UK, and Canada.