Iceland’s status performance holds steady at rank 10.
The financial crisis delivered a crippling blow to Iceland’s banking and economic system. Within one week in October 2008, the country’s three main banks (comprising 85% of the banking system) collapsed triggering a sharp decline in economic indicators. It was the deepest and most rapid financial crisis recorded in peacetime history, and the first of such magnitude in an advanced country.
In early 2009, the Social Democrats left the coalition with the right-wing Independence Party and formed a new minority government with the Left Green Movement. General elections in April 2009 resulted in a majority for this new coalition.
At rank 13, Iceland’s democracy is in good shape.
Candidacy procedures are well established, and the voting procedure is free of restrictions. All parties and candidates have equal access to media.
The media environment is open, free and balanced, although the two main papers are considered partial to their owners.
The state respects and protects civil rights, and the courts effectively protect citizens. The constitution guarantees basic individual political rights and liberties. The Icelandic state authorities and administrative bodies act in accordance with the rule of law.
Iceland fell by 7 ranks in the economic policy performance category, reflecting its difficulty in handling the consequences of the 2008 banking crisis.
The crisis affected all areas of the economy, serving a serious blow to the labor market, tax collection and the federal budget at once. A parliamentary report identifies the Icelandic government, central bank and financial supervisory authority as negligent in exercising their duties before the crash.
The economic policy aganda pursued by the new Social Democrats/Left Green coalition centers on implementing the IMF-supported rescue package inherited from the previous government, with some progress made.
At rank 7, Iceland’s rating on social affairs has slid slightly relative to the SGI 2009.
Inequality was on the increase even before the economic crisis of 2008. The government’s social policy has to date seemed unable to arrest this development.
High-quality health care is provided in a relatively efficient manner. Labor market participation rates by women are among the highest in the world.
Pension policy is conducive to poverty prevention as well as to fiscal sustainability; however, pension funds’ heavy crisis-related losses damaged the private pillar of the pension system.
The laws governing immigrants’ civil rights are primarily based on Danish laws, which are considered to be among Europe’s most restrictive.
The country maintains no military force, a unique state of affairs in the world today. From 1946 to 2006, NATO maintained a US military base on Iceland. The US government withdrew its military from the base against the wishes of the Icelandic government.
Iceland has always been a secure place to live, with relatively few assaults, burglaries and other crimes against citizens. Riots and protests at the end of 2008 and in early 2009 led to some minor injuries and some arrests. Internal security is somewhat mitigated by the fact that there has for a long time been a shortage of staff in the police force.
Iceland ranks 7th in the SGI’s resources category.
Environmental policy has not been a high priority on the political agenda for some time. However, the Left Green Movement has been in charge at the Ministry of the Environment since early 2009, exercising or at least expressing a more careful approach to nature.
The country’s pre-crisis R&D spending topped the OECD’s list. The government fosters research and innovation in the fields of geothermal energy, hydrogen power, genetics and information technology, and has lately increased efforts to spur innovation.
Public expenditure on education has increased in recent years. However, the average Icelander aged 25 to 64 has up to two years of schooling less than the OECD average.