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Iceland Modern History

In 1944, when World War II was still going on, Iceland became a republic by dissolving a union with Denmark. After the end of the war, the United States had to maintain its air base at Keflavík in exchange for taking responsibility for Iceland's defense. The agreement with the United States and the Icelandic entry into the NATO Alliance in 1949 created a fierce and long political battle.

Since Denmark had been occupied by Germany, Iceland was occupied in May 1940 for the purpose of preventing British troops. The following year, the United States took over military control of Iceland, and the Americans established an air base at Keflavík for air bridge intermediaries to the Allies in Europe.

  • ABBREVIATIONFINDER: List of most commonly used acronyms containing Iceland. Also includes historical, economical and political aspects of the country.

Following a referendum, the Icelandic parliament, the parliament, decided to cancel the union with Denmark before the end of the Second World War (see Older History). On June 17, 1944, Iceland was declared an independent republic. The first government became a coalition consisting of the Independence Party, the Social Democrats and the Socialist Party.

The US called home its troops in 1946, but the US Air Force had to retain the landing rights at the airport itself built at Keflavík. This was a contentious decision in Iceland and led to the then government being divided.

Contemporary History of IcelandNATO membership, economic upturn

In 1949, Iceland became a member of the Western Defense Alliance NATO but maintained that no foreign troops could be deployed to the country in peacetime. NATO accession also faced strong domestic opposition.

Iceland lacked its own defense forces, while the tension between East and West increased in the context of the Korean War 1950-1953. Therefore, within the framework of NATO cooperation, Iceland entered into a defense contract with the United States in 1951. This meant that the Americans were also allowed to use Keflavík as a military base and station troops there in peace time, as well as assuming responsibility for Iceland's defense.

Government crises and recent elections characterized Iceland's domestic politics for a long time, but from 1959 to 1971 a coalition ruled between the Independence Party and the Social Democrats. It was a period of strong economic upturn thanks to good fishing catches. Social reforms were implemented and living standards were raised.

In order to protect the important fisheries, between 1952 and 1975 Iceland expanded its fishing limits gradually from 4 to 200 nautical miles. This led to conflicts with Britain and Norway and so-called fishing wars (see Agriculture and Fisheries). In 1970, Iceland joined the free trade organization Efta to improve its trade opportunities.

Women in politics

In 1980, Vigdís Finnbogadóttir became Iceland's and the world's first elected female president. Three years later, the Women's List was elected to everything. It was the first time a feminist party had taken a seat in one of the world's parliaments. President Vigdís became a unifying national figure during difficult years when Iceland entered a recession in the late 1980s, mainly due to poor fishing. The crisis continued in the early 1990s, and the government tightened its budget, introduced price controls and devalued the currency, the krona.

In the 1991 election, the Independence Party went ahead and again formed a coalition with the Social Democrats. New Prime Minister became Independent Party's colorful party leader Davíð Oddsson, who was mayor of Reykjavík.

The economic problems continued and were followed by political ones. Since Iceland gained access to the EU internal market through the EEA Agreement in 1994, the Social Democrats demanded that Iceland join the EU as well. But the Independence Party said no, and after the 1995 election, the coalition split. Oddsson and the Independence Party instead formed a government with the EU-critical Progress Party, whose leader Halldór Ásgrímsson became Foreign Minister.

From fishing nation to financial operator

Deregulations, privatizations and tax cuts contributed to reversing seven years of economic decline in 1995. Increasing fish catches and large foreign investment in the aluminum industry also led to growth in the second half of the 1990s. Iceland also developed into a competitive IT nation and an international financial player.

Finnbogadóttir left the presidential office in 1996. The successor was the former left-wing politician and Professor Ólafur Ragnar Grímsson, who was re-elected several times.

The bourgeois coalition retained its majority in the 1999 general election. The following year, most of the left opposition merged into the new Social Democratic Party Alliance. But on the far left was the newly formed party Left-Green, which won popular support for its fight against plans to build a giant dam for hydropower in sensitive nature in eastern Iceland.

The Independence Party leader Oddsson dominated domestic politics and was eventually accused of power-ups by the opposition. The Alliance's prime ministerial candidate, Ingibjörg Sólrún Gísladóttir, demanded greater transparency in politics, but the government retained a scarce majority in the 2003 general election.

The EU becomes a matter of war

The debate about a possible Icelandic EU membership became increasingly intense. Both the government and the opposition were divided on this issue. The Progress Party talked about the possibility of an Icelandic EU membership, while the Independence Party continued to say no. The alliance wanted Iceland to apply for EU membership, but the Left-Greens were opposed. The debate was mainly about the consequences for fishing, where the opponents did not want Iceland to share control of its fishing waters with the EU countries (see Economic overview).

According to the government parties' coalition agreement, Halldór Ásgrímsson took over the prime minister's post in 2004 and handed over responsibility for foreign policy to Oddsson. A year later, Oddsson left politics and became head of the Central Bank of Iceland. Ásgrímsson resigned as prime minister in 2006, and Geir Haarde from the Independence Party took over as head of government.

The Independence Party and the Progress Party had ruled during a period of strong economic growth and rising living standards. However, the success was based, among other things, on increased investments in the energy-consuming aluminum industry and on hydropower development, which led to protests from the environmental movement. Therefore, the environment became the main battle issue before the 2007 general election.

Contested dam building

The environmental movement in particular opposed the decision to build a huge power plant pond, Kárahnjúkar, in an area of ​​sensitive nature in eastern Iceland. The dam project was accompanied by the construction of an aluminum smelter that would increase exports and provide jobs in a depopulation area. The protests against this favored the Left-Green, which advanced strongly in the 2007 election. However, the ruling Independence Party also increased slightly, while the coalition partner Progress Party backed down. The majority of the two government parties in everything shrank to a single mandate, and the Progress Party chose to leave the government.

The Social Democratic Alliance became the Independence Party's new partner in the government. Despite various political programs, the parties agreed in a coalition, which emphasized both business-friendly business climate and increased investment in social welfare. The new government gained a stable majority in everything, and Haarde continued as prime minister with the leader of the Social Democrats Ingibjörg Sólrún Gísladóttir as foreign minister.

However, Iceland's relationship with the EU soon became a matter of dispute between the two coalition parties. Although large parts of the business community advocated Icelandic EU membership and a transition from the króna to the euro, the business-friendly Independence Party remained skeptical. The alliance was the only party in everything that seemed open to Iceland to join the EU. Icelandic opinion was divided on this issue.

Banking crisis and deep depression

From the end of the 1990s, Icelandic finance companies, banks and venture capitalists had acquired companies in the UK, Scandinavia and the US, primarily. Investments were several times larger than Iceland's entire gross domestic product (GDP). The banks' lending was soaring and critics warned that the overheated economy would collapse.

When the global financial crisis erupted in the autumn of 2008, the Icelandic financial bubble burst. The krona's value dropped dramatically, inflation rose, companies went bankrupt and unemployment rose rapidly. The country was hit by an acute banking crisis at a time when property prices were falling. In order to prevent economic collapse, the government took control of the major banks Kaupthing (Kaupþing), Landsbanki and Glitnir. The state issued guarantees for savers in Iceland but not for bank customers abroad. However, the Treasury was not enough for the rescue operation, and Iceland was forced to negotiate crisis loans from the International Monetary Fund (IMF) and the other Nordic countries.

In order to obtain international loans, Iceland was forced to give up demands from the UK and the Netherlands for compensation to British and Dutch savers who lost money when the Icelandic internet bank Icesave went bankrupt. As a result, the pressure on the Icelandic economy increased, unemployment increased dramatically and many Icelanders found it difficult to pay their private loans.

The pothole revolution, power change

The same autumn, Icelanders held large demonstrations in Reykjavík demanding the resignation of the government. During the so-called saucepan revolution, protesters knocked with pots outside everything and in the beginning of 2009 finally forced the government away. The Alliance and the Left-The Greens formed a transitional government pending new elections.

In the April 2009 election, the Independence Party, which had been in power for nearly two decades, was punished. It had to bear responsibility for the economic crisis and made its worst choice to date. The Alliance and the Left-Green together gained a majority in everything. Social Democrat Jóhanna Sigurðardóttir became prime minister and left leader Steingrimur Sigfússon was appointed finance minister.

The new left government's top priority was to get Iceland's economy back on its feet. The target was a state budget in balance by 2013 and unpopular and extensive cuts in state costs were to be expected.

Soon, internal conflicts arose around the sensitive issue of a future EU membership for Iceland. When everything in April 2009 finally voted to apply for EU membership, the Alliance was in favor while parts of the Left-The Greens voted against.

The tours around Icesave

In the spring of 2009, Icelanders protested against the so-called Icesave law, which meant that it was the taxpayers instead of Icesave's owners who would pay compensation to the British and Dutch bank customers who lost money when Icesave went bankrupt. At the same time, the Netherlands threatened to suspend Iceland's EU application unless Iceland fulfilled the agreement. Britain went even further and put Iceland on a kind of terrorist list to freeze Icelandic assets. The anger of the Icelanders was now turned against London and The Hague. Residents' EU resistance increased.

The conflict around Icesave threatened to topple the pressured government for a couple of years. Despite intensive negotiations, it was impossible to reconcile the demands of the home opinion with the claims of the British and the Dutch. Since everything at the end of 2009 had bowed to increased demands for compensation from the two EU countries, President Grímsson in January 2010 vetoed the new so-called Icesave law. Also in February 2011, the president stopped a new deal on Icesave. The Icelandic people also opposed the law in two referendums, in March 2010 and in April 2011.

With the conflict over Icesave unresolved, in late 2011, Iceland was dragged before the EFTA court, charged with discrimination against foreign customers in the bankruptcy. At the same time, bankruptcy trustees found new assets in Icesave in the autumn of 2011, and the owners began to pay compensation to the foreign creditors. Thus, Iceland's taxpayers did not have to pay the bill. In January 2016, the tense conflict around Icesave came to an end when Iceland had fully repaid the money to the UK and the Netherlands.

Haarde before national law

In September 2010, everything put the former Prime Minister Geir Haarde before the national court for his role in the banking crisis. At the same time, many Icelanders and judges considered that a number of other elected politicians and senior civil servants had escaped their responsibilities, and some therefore regarded the judicial procedure as unfair. Haarde was released in the spring of 2012 on three of four charges and escaped punishment. In April 2010, an investigation into the banking crisis had identified Haarde, but also Davíð Oddsson and the then Finance Minister Árni M. Mathiesen, who participated in the responsibility for the crisis.

In June 2012, Grímsson was re-elected for a fifth term as president.

The government won an important political victory when the EFTA Court in January 2013 ruled that Iceland had not discriminated against British and Dutch bank customers in connection with Icesave's bankruptcy.

 
 

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