Iceland Unitary state

History and trends

Iceland is a semi-presidential Republic. Its Constitution was adopted on 17 June 1944.

The country was ruled successively by Norway and then by Denmark (Treaty of Kiel, 1814).

The 1918 constitution stated that Iceland was an independent state in a personal union with Denmark. The country’s location made it strategically important in World War II. The United Kingdom occupied the island for defensive purposes on 10 May 1940. The United States took over the occupation in 1941.

A referendum was held on 23 May 1944 and Iceland became an independent republic on 17 June 1944.

Although its proximity to Greenland means it is closer to the American continent, Iceland is culturally and historically linked to Europe. Its capital and largest city is Reykjavik. Almost the entire population speaks Icelandic, which became the official language in June 2011.

After World War II, Iceland aligned with the Allies before adopting a policy of neutrality. Domestically, the country has a fully functioning democratic system that produces coalition governments, often alternating between centre-left and centre-right. The population enjoys a high standard of living, although inflation can sometimes prove problematic.

The global financial crisis of September 2008 onwards had a greater direct impact on Iceland than almost any other European country because of the importance of its banking system to the national economy. The collapse of the system caused the Icelandic króna to lose around 60% of its value, triggered rampant inflation and left many households and businesses bankrupt. The financial crisis quickly spread to the rest of the economy, which plunged into recession (-6.6% in 2009), as unemployment spiked from 1% to 8%. The country’s three biggest banks – Glitnir, Landsbanki and Kaupthing – all had to be nationalised, strict capital controls were introduced, and the government turned to the International Monetary Fund (IMF) for a bailout.