ICELAND

Every citizen 18 years or older can run for parliament, with the exception of Supreme Court judges (Hæstiréttur), those who have been convicted of a serious felony after having reached 18 years of age, and those who have been sentenced to four months or more in custody. With a change in the electoral law in 2009, the parliament’s Ombudsman (Umboðsmaður Alþingis), who was previously barred from running for a parliamentary seat, was granted this right. The legal restrictions on Supreme Court judges and those with a criminal record do not apply in local elections, but the 18-year-old minimum age is the same. In local elections, citizens from other Nordic countries who have maintained a permanent residence in Iceland for three consecutive years can be candidates. The registration process for candidates and parties is completely transparent and fair.

Formally, all parties or candidates have equal access to the media. No restrictions based on race, gender, color, language or any other such factors exist. However, the largest media organizations have some tendency to favor the bigger parties or more well-known candidates in their coverage. Therefore, parties already in parliament or serving in local councils are better positioned than new parties or new candidates running for parliamentary or local council seats.

The voting procedure is completely unrestricted, with no special registration required. Any citizen registered as a voter in his or her district simply has to show up on election day and show a valid identity card. Every person 18 years of age or older has the right to vote.

According to a 2006 law on political party finances, public grants to political parties are of three kinds. First, any political party or movement with one or more member serving in parliament or which attained 2.5% of the total vote in the last election receives an annual grant sized according to its share of the vote. Second, parties in the parliament receive an annual disbursement according to the number of serving members. Parties in opposition also receive a special grant from the state. Third, every municipality with more than 500 inhabitants has to pay grants to every party with one member or more in the local council or which attained at least 5% of the vote in the previous local election. The same law also governs private contributions to political organizations and candidates. For example, parties are not allowed to accept more than ISK 300,000 (about €1,700) from any private actor, company or individual.
The National Audit Office (Ríkisendurskoðun) monitors the finances of parties and candidates, and is tasked with publishing an annual summary of their finances, including total outlays as well as income. This income must be classified by origin, companies and other legal entities contributing to the parties’ electoral campaigns. Similar rules apply to contributions to candidates during pre-election (prófkjör) periods.
These laws went into force in January 2007. At the same time, the political parties made an agreement governing the maximum amount of money to be spent on TV, radio and newspaper advertisements in the 2007 election. This amount was at that time ISK 28 million (€161,000). However, it proved easy to circumvent this limit. There is currently no upper legal limit on advertising expenditure. These laws on party finances have been under revision since 2009.
In accordance with the 2006 law, the National Audit Office published a report on political party finances during the 2002 – 2006 period. The report showed that during this period, three of the four main parties (all except the Left Greens) accepted large private donations. From 2002 to 2006, the Progressive Party accepted the equivalent of ISK 13,000 (€74) per vote cast in the 2007 parliamentary election. The Independence Party accepted the equivalent of ISK 5,000 (€28) per vote cast, and the Social Democrats accepted the equivalent of ISK 4,000 (€23) per vote cast. These figures do not include donations to individual candidates and local party associations. The largest donors were the three main commercial banks and affiliated companies. The donations were made during the boom before the financial crash of 2008, which brought down the banks and several affiliated firms.

Until the late 1980s, all radio and TV stations were owned by the state. The state monopoly in this market was abolished by law in 1986. Since that time, private stations have gained momentum and are now a significant part of the media market. Even so, there were only nine private TV stations in 2008 compared with 12 in 2005. There is one state-run TV station. Even though the government respects the independence of the media, the law does not provide full protection against government influence or intervention. The Act on Radio and TV (Útvarpslög) has regulated radio and TV since 2000.
In international comparison, the Icelandic mass media has been described as working in an “exceptionally open and free media environment” (Freedom House, 2004). The legal environment can be described as having the characteristic of negative freedom – that is, freedom from restrictions instead of being subject to obligations and responsibilities (positive freedom).
During the boom after 2000, a frenzied competition for control of the media took place, focusing especially on the TV sector but also encompassing the newspaper business. The three main business groups in Iceland each had a bank and a newspaper in their portfolio, a common feature in preludes to past financial crises around the world. After the crash of 2008, the ownership of the oldest and second-largest newspaper (Morgunblaðið) was transferred from a bankrupt banker to an owner of fishing quotas. The paper is currently edited by a former prime minister, and in keeping with the interests of the owner, is strongly supportive of the fishing lobby and strongly opposed to EU membership. In effect, the government under this prime minister enriched the quota owners by handing them hugely valuable common-property fishing quotas free of charge, and then, in an evident quid pro quo, one such owner bought a newspaper and installed the former prime minister as editor.

The ownership of media in Iceland can be divided into three blocs, two of which are in the private sector and one owned by the government. The government runs one of the two largest television stations and two of the largest radio stations in Iceland. In 2010, Iceland had one state-owned TV station (RUV – Sjónvarp) and two state-owned radio channels (RUV – Rás1 and Rás2). There are three private nationwide TV channels and two nationwide private radio channels, owned by separate companies. There are also two large newspapers published six days a week, owned by two different business groups (Morgunblaðið and Fréttablaðið). Morgunblaðið has for decades been considered to be the newspaper of the right-wing Independence Party (Sjálfstæðisflokkurinn), and remains so under its new ownership. In 2009, a former prime minister from the Independence Party became the chief editor, a controversial appointment in view of the editor’s role in the financial collapse of the country, first as prime minister and then as Central Bank governor. Fréttablaðið is a free newspaper, without paid subscribers. It is owned by one of the companies belonging to Baugur Group, now bankrupt, and another key player in the economic collapse in 2008 and associated events. Due to an old conflict between the Baugur Group and various right-wing politicians, particularly the above-mentioned former prime minister, Fréttablaðið has been considered by some as the newspaper of the left wing, especially the Social Democrats. From that perspective, ownership of the media in Iceland can be viewed as being fairly balanced, politically speaking, in a country of 320,000 people. At the same time, both main papers, especially Morgunblaðið, are widely viewed as being partial in favor of their owners. Morgunblaðið is said to have lost a third of its subscribers when the former prime minister was appointed editor.

The Information Act (Upplýsingalög) took effect in 1997. The act guaranteed, with some restrictions, the right of access to official information. Memoranda, working documents and material related to Council of State (Ríkisráð), cabinet and ministerial meetings are exempted from the act. These exemptions have led to accusations that documents are deliberately mislabeled to keep them inaccessible. The act does not apply to correspondence prepared for court proceedings, job applications, registrations, enforcement proceedings, property attachments, injunctions, sales in execution, moratoria on debts, compositions, liquidations, the division of estates at death or other official divisions, investigations, or prosecutions in criminal cases.
Sensitive financial and personal information, as clarified in the Act on Processing and Protection of Personal Data Act No. 77/2000, are not accessible unless permission is obtained from the person involved. Access to restricted information is available once the measures are complete, or after a period of 30 years for general information or 80 years for personal information (under the National Archives Act No. 66/1985). Information regarding security, defense of the state or international commercial activities is also exempted from the act. Refusal of requests to access information can be appealed to the Information Committee, whose members are appointed by the prime minister. No other government or judicial body can overrule the decisions of the Information Committee.
Sensitive financial or personal information, as clarified in the Act on Processing and Protection of Personal Data Act No. 77/2000, is not accessible unless permission is obtained from the person involved. Access to restricted information is available once the relevant programs are complete, or after a period of 30 years for general information and 80 years for personal information (under the National Archives Act No. 66/1985). Information regarding security, defense of the state and international commercial activities is also exempted from the act. Refusal of information requests can be appealed to the Information Committee, whose members are appointed by the prime minister. No other government or judicial body can overrule the decisions of the Information Committee.

The Icelandic state respects and protects civil rights, and as a rule, the courts effectively protect citizens’ rights. Confronted with evidence that the state has disregarded civil rights, the courts would in most cases rule against the government. Even so, the inequitable nature of the fisheries management system, under which boat owners are granted fishing quotas free of charge, recently prompted the United Nations Committee on Human Rights to declare the system a violation of human rights, and to instruct the Icelandic government to rectify the system by removing the discriminatory element. This assessment is binding. The government replied to the U.N. committee by repeating its earlier arguments, which the committee had already evaluated and rejected. As of the time of writing, the government was awaiting the committee’s reaction. Beyond this issue, the government has not satisfactorily dealt with accusations by politicians, including a former foreign minister, that the telephones of politicians and others were wiretapped as recently as 20 years ago without court orders as required by law. A police investigation was conducted in 2008 without witnesses having been freed from their duty to remain silent, and hence was inconclusive.

Iceland’s constitution guarantees every individual’s right to speak, think, assemble, organize, worship or petition without government or private interference or restraints. These basic individual political rights and liberties cannot be threatened by any state institution without violating the constitution, and cannot be changed without amending the constitution.

The constitution guarantees every person equal human rights without regard to gender, religion, opinion, national origin, race, color, property, birth or other status. More specific provisions are to be found in the Penal Code (Almenn hegningarlög No. 19/1940), the Administrative Procedure Act (Stjórnsýslulög No. 40/1993) and the Equality Act (Lög um jafna stöðu og jafnan rétt kvenna og karla No. 10/2008). The Supreme Court can rule and has ruled in accordance with those acts and the constitution. The Equality Act states that equal gender rights must be guaranteed in all areas of society, and that discrimination in pay, hiring and employment is against the law. The Center for Gender Equality (Jafnréttisstofa) is intended to monitor the implementation of these laws and is obliged to refer all major cases to the courts. However, despite the fact that equal rights are guaranteed by law, the reality is that discrimination occasionally occurs in Iceland, especially against women, disabled persons and foreigners. Apparent discrimination may in many cases reflect market outcomes rather than willful discrimination.

The Icelandic state authorities and the state administration respect the rule of law, and as a rule make decisions accordingly. Therefore, their actions are generally predictable. However, there have been cases where court verdicts and government actions have been appealed to and overruled by the European Court of Human Rights. There have also been examples of Supreme Court verdicts that have been overruled by the European Court of Justice.
A recent case of a different kind has a bearing on legal certainty. The Supreme Court ruled in June 2010 that bank loans indexed to foreign currencies rather than to domestic prices were in violation of a law passed by parliament in 2001. This means that the asset portfolios of the failed Icelandic banks after their collapse in 2008 contained loans that turned out to be illegal. The amounts at stake are large. How the matter will be resolved remains to be seen. The example shows that the entire banking system broke the law without attracting the attention of the government or any of its institutions, including the Central Bank and the Financial Supervisory Authority.

The courts – district courts as well as the Supreme Court – operate with some notable exceptions free of pressure from either the government or powerful groups and individuals. The jurisdiction of the Supreme Court to rule on whether the government and administration have acted in conformity with the law is beyond question. Even so, opinion polls in recent years have shown that only about 30% of the public expresses confidence in the judicial system. Judges are appointed by the minister of justice and human rights (previously, the minister of justice and ecclesiastical affairs). All vacancies are advertised, and the hiring procedure is transparent. However, there have been cases in which the minister’s selections of Supreme Court or district court judges have caused controversy. In at least two recent cases, the minister of justice was accused – and in one case was subsequently reprimanded in court – for favoring candidates who were close relatives of former Prime Minister Davíð Oddsson (1991 – 2004), one in the Supreme Court (Oddsson’s nephew) and one in the District Court of North East Iceland (Oddsson’s son). Virtually all of the country’s 52 judges were appointed by justice ministers from the two parties that governed Iceland in coalition from 1995 to 2007. From 1927 to the present, with the exception of six years, the minister of justice came from one of those two parties, which now find themselves together in opposition for the first time.
More broadly, the separation of powers in Iceland can be considered as somewhat weak. The executive branch, led by cabinet ministers, drafts most of the legislation passed by the government majority in the parliament. In that sense, the parliament is weak. The above-cited example of the recruitment procedure for judges is a further example of the strength of the executive power in Iceland, coming at the expense of the judicial and legislative branches. In 2009, Iceland applied for membership in the European Union. In late 2009, the EU offered a reaction to some of the information provided about the state administration and the political system. One of the remarks offered by the EU concerned the recruitment procedures for judges.

All judges, both in the Supreme Court and in district courts, are appointed by the minister of justice and human rights alone, without any required cooperation withvother government bodies. However, all vacancies on the Supreme Court are advertised, and the appointment procedure is at least formally transparent. As part of the appointment process, an evaluation committee is appointed and usually recommends one applicant. However, the minister has no obligation to follow that recommendation. In a controversial case, a Supreme Court judge was appointed in 2003 against the recommendation of the evaluation committee. This person was a close relative of the serving prime minister. Most or all Supreme Court justices have been appointed by the minister of justice drawn from the right-wing Independence Party. This party has been in government for 64 of the 76 years since the foundation of the Republic of Iceland in 1944. In an article in Morgunblaðið, one of the two large newspapers, the leader of the Progressive Party (Framsóknarflokkurinn) recently wrote that the fact that the Independence Party has had this appointment power for decades spreads suspicion and unease about the appointment of judges, undermining public confidence in the courts. This is a widely held view in Iceland. A new bill on the courts, including the appointment of judges, lay before parliament as of the time of writing.
The process of appointing Supreme Court judges can be said to be formally transparent, but since only one person, the minister of justice, has the final say, and since the same party – or rather two parties, the Independence Party and the Progressive Party – has had this power for decades, the neutrality of the Supreme Court can be questioned.

Corruption among officeholders has not been a serious problem in Iceland. It does occur in the form of politicians granting favors, and in some instances, paying for personal goods with public funds. Post-2006 regulations on political party support might also prevent any such problems in the future, as political parties were not previously required by law to disclose the sources of their funds. It is very rare that officeholders in Iceland are put on trial for corruption. In May 2007, however, shortly before the elections, it came to the media’s attention that the girlfriend of the son of Minister of Environmental Affairs Jónína Bjartmarz had been granted Icelandic citizenship on a fast track. The minister stated that she had had no knowledge of the matter, and remained in office. No legal process followed as a consequence of this issue.
The state has no policy specifically addressing corruption, under the premise that no such policy is necessary. By contrast, the Swedish government recently (2007) set up a new Corruption Unit to investigate private as well as official corruption. To be sure, Transparency International’s corruption perception indices for Iceland suggest that corruption – in the narrow sense of abusing public office for private gain through bribery – is largely absent. Yet while other, more subtle forms of corruption are harder to quantify, they almost surely exist. The collapse of the Icelandic banks in 2008 and the subsequent investigation by, inter alia, the parliament’s Special Investigation Commission (SIC), has brought to light the subservience of the government and state administration to the banks. This was expressed through weak restraints on their phenomenally rapid growth, as well as lax supervision during the pre-bust boom period. Moreover, it has come to light that three of the four main political parties, as well as individual politicians, accepted large donations from the banks and affiliated concerns. Public officials are not required to declare their assets or potential conflicts of interest. However, the SIC reported that of 63 members of parliament, 10 owed the failed banks €1 million or more each at the pre-crash exchange rate of the króna, with their personal debts ranging from €1 million to €40 million. The average debt of the 10 members of parliament, including the leader of the Independence Party, his deputy, and five other party comrades, was €9 million.
Many appointments to public office, in the courts as well as in the central bank, are politically motivated rather than based on merit – appointment corruption might thus be the right term for this persistent practice.

The government’s general strategy is to support the future-oriented development of the country’s economy through regulatory policy. After the collapse, this will most likely be done by strengthening the Financial Supervisory Authority (FME), whose role as the supervisory authority in the years before the collapse has been highly criticized. This will, without doubt, also lead to the further strengthening of the capacity and efficiency of the national Competition Authority. The clear-cut assignment of tasks to institutions was decreased in the late 1990’s by the closure of the National Economic Institute (Þjóðhagsstofnun). The separation of the Financial Supervisory Authority and the Central Bank of Iceland may have had the same effect, but merging these two bodies again is already under discussion in the wake of the 2008 collapse.
Following the 2008 financial collapse, Iceland’s economic policy has conformed to an economic reconstruction program supported by the International Monetary Fund (IMF) and the Nordic countries, whose financial contribution to the program is essential to its implementation. The stand-by program supported by the IMF is well designed, combining stringent temporary capital controls to prevent the króna from depreciating further with continued monetary restraint and fiscal adjustment equivalent to about 15% of GDP during 2010 – 2015, taking the form both of public expenditure cuts and tax increases. Implementation of the program has been delayed due to political squabbling in Iceland, thereby delaying the gradual relaxation of the capital controls. Originally, the IMF envisaged that economic growth in Iceland would resume two years or so after the crash. Now it seems clear that recovery will take longer. Because of the depreciation of the króna, a situation expected to last for some time, it will take several years for Iceland’s national per capita income to regain parity with the rest of the Nordic region.
By applying for EU membership in 2009, the government has signaled its intention to abide by European standards and to strengthen Iceland’s institutional setup, including regulatory policy. After the collapse of 2008, the State Prosecutor’s Office and the Financial Supervisory Authority (FME), which failed so abysmally to reign in the banks before the crash, have been strengthened. This will probably also lead to the further strengthening of the capacity and efficiency of the national Competition Authority. This constitutes a significant reversal with respect to previous practice. When the National Economic Institute, a decades-old institution set up to offer impartial economic counsel to the government, was no longer found obliging enough a few years ago, it was disbanded on the grounds that the recently privatized banks’ unfailingly optimistic economic departments, among others, could fill the gap. When the Competition Authority a few years ago raided the offices of oil companies, which were later found guilty of illegal price collusion, the Authority was summarily abolished and then reincarnated under new, more compliant management.

To the extent that a labor market policy has been followed in Iceland, it has generally been successful. Unemployment has been very low for many decades, with few exceptions. At the end of 2007, the unemployment rate was just below 1% of the labor force, which by international comparison is very low. Things changed dramatically in the autumn of 2008 as a result of the economic collapse, the bankruptcy of the three biggest banks and a dramatic deterioration in the government’s fiscal situation. The unemployment rate rose to 8% in 2009 and 10% in 2010, a startling increase in Iceland even if these numbers are not high by European standards. The IMF expects the unemployment rate to decrease to 3% by 2014. If this turns out to be the case, this will be the longest spell of significant unemployment in the history of the republic. A new reality now faces the Icelanders. Earlier, the government was in the habit of keeping unemployment at bay through lax fiscal and monetary policies that caused high levels of inflation. Further, during the pre-bust boom period, the overheating of the economy exacerbated the underlying problems. Regionally driven policy motivated infrastructural investments such as the construction of the Kárahnjúkar power plant in the eastern part of Iceland, followed by a large aluminum smelter in nearby Reyðarfjörður, the funding of which contributed to the overheated economy.

The government has, and still does, put special emphasis on fostering innovation and entrepreneurship in the use of geothermal energy. Former debate on whether geothermal energy resources should be privatized and opened to foreign investment came to an end in late 2007, even before the economic collapse, with the so-called REI affair. In the autumn 2007, a merger was proposed between Reykjavík Energy Invest, a subsidiary of the publicly owned Reykjavík Power Company (Orkuveita Reyjavíkur, OR), and the privately owned energy investment company, Geysir Green Energy. However, citing the risk of putting public money into risky investments in the energy sector, the city council of Reykjavík subsequently decided that OR should withdraw from the merger process.
Generally, Icelandic government policy has been supportive of innovation and entrepreneurship, but has not managed to guarantee economic competitiveness. Innovation, entrepreneurship and competitiveness have been emphasized in government enterprise policies, both in terms of general policy and regional policy. These are still a focus in the new government’s policy, as seen in its 2010 presentation of the so-called Offensive Plan (Sóknaráætlun), a 10-year plan for strengthening the economic system of the whole of Iceland.

At the close of the review period, Iceland remained embroiled in a deep economic and political crisis sparked by the collapse of its three main banks in 2008. There is a heated debate over the extent to which the country’s economy should be rebuilt by further investments in energy, which might then be sold to foreign enterprises such as aluminum smelters. One of the two parties currently in government, the Left Green Movement (Vinstri hreyfingin grænt framboð), is reluctant to take further steps toward this kind of enterprise policy, mainly because of the party’s environmental policy. With the Ministry of Environmental Affairs in its portfolio, the Left Greens are in a position to delay ongoing plans to build aluminum smelters in the Reykjanes peninsula and the Húsavík region in the northeast. Therefore, investment plans in heavy industry, at least as a tool for emerging from crisis, remain stalled.

Before the collapse in 2008, tax policy was regressive, explicitly designed to favor high-income earners. In the years before the collapse, the tax burden on higher-income companies and individuals was lightened and made heavier for lower-income groups. Corporate income taxes were lowered from 18% to 15% in the spring of 2008. Statistics Iceland reports that the Gini index of inequality and the 20/20 ratio (the ratio of the incomes of the richest fifth of the population to that of the poorest fifth) increased more in Iceland than in other European countries from 2003 to 2006. Indeed, this description applies to the broader period from 1993 to 2008, after which the crash produced a sudden reduction in inequality as capital gains collapsed. Economic history shows that increased inequality is often a precursor of financial crises.
Working in a totally different environment today, the post-crash government has plans to increase the corporate income tax rate. In 2009, the government introduced a new three-bracket tax system for individuals, which took effect in 2010. Taxes for low-income earners have been lowered, while taxes for others have been increased. The government has also increased the tax on capital gains from 10% to 15%. This tax policy seems unlikely to affect competitiveness adversely. Even though the capital gains tax is now higher then before, the corporate tax remains at the same level as in 2008. These changes are intended to reverse the trend toward increasing inequality, bringing Iceland closer to neighboring countries.
Due to the exceedingly tight fiscal position of the government, tax policy is under constant review. In mid-2010, the IMF presented a report suggesting, at the government’s invitation, a variety of progressive and efficiency-enhancing ways by which public revenue could be increased by up to 2% of GDP. It remains to be seen whether the government will choose to raise taxes further along the lines suggested by the IMF, or whether it will stick to its earlier intention to cut public spending drastically. The government has committed itself to increasing total taxes from 38% of GDP in 2009 to 44% in 2014, and to reducing government expenditure from 53% to 41% of GDP over the same period, a tall order.

The economic collapse in 2008 increased the country’s foreign debt dramatically. Gross public debt rose from 29% of GDP at the end of 2007 to 105% of GDP at the end of 2009. Hence, the crisis has increased gross public debt by about 75% of GDP. Net public debt, that is, the government’s foreign debt minus its foreign assets, stood at 73% of GDP at the end of 2009, and is projected to drop to 61% by 2014. In its advice to the Icelandic government, the IMF emphasizes the importance of sustainability. Hence the IMF’s insistence on a major turnaround in the country’s fiscal position through a mixture of revenue increases and expenditure cuts. The IMF has expressed the view that, provided the fund’s fiscal program is adhered to, Iceland’s public debt is sustainable, including the Icesave debt to Great Britain and the Netherlands associated with the collapse of Landsbanki Islands. Negotiations between the three governments produced an agreement by which Iceland must pay the United Kingdom a sum of GBP 2.35 billion and the Netherlands about €1.3 billion over the 2016 – 2023 period. The sum of the two figures is equivalent to about half of Iceland’s GDP in 2009, and seems likely, with the assumption of a reasonable rate of asset recovery, to overstate by a significant margin the ultimate cost involved for Iceland. The Icelandic government expects to be able to recover between 75% and 95% of Landsbanki’s deposit claims.
Clearly, it is going to be difficult for Iceland’s government to restore and sustain rapid economic growth over the next few years while facing such serious budgetary policy constraints. A further complicating factor is the uncertainty associated with the Supreme Court’s June 2010 ruling that bank loans indexed to foreign currencies were illegal. As of the time of writing, the financial ramifications of this ruling had yet to be worked out.

Health care policies have in recent times provided high-quality health care to all Icelandic citizens, in an increasingly efficient manner. However, this has varied to some extent, as the capital area and Akureyri in the north have experienced significant advantages compared with other, more peripheral parts of the country. This has meant that patients in more remote regions have had to travel to get more specialized medical help. The University Hospital in Reykjavik (LSH), the largest hospital in Iceland, has for some years been in difficult financial straits, as the government has been unwilling to provide additional public funds or to permit the hospital to raise revenue on its own through means such as levying patient service fees. The resulting shortage of staff, especially nurses, can be a threat to patient safety due to work pressures and long hours. After the economic collapse in 2008, the situation deteriorated due to heavy cutbacks in the health sector across the country. Some departments within hospitals have been closed, and services have been cut back in others. Due to a massive reduction in the purchasing power of salaries, the threat of a mass exodus of medical doctors, an especially footloose profession, looms over the health care system.

In the years prior to the 2008 economic collapse, inequality increased in Icelandic society more rapidly than elsewhere in Europe. The main source of this development was a regressive tax policy, including a creeping reduction in real terms in the level of income at which low-income households were exempted from paying income tax. This development increased the tax burden of low-income wage earners due to rather high levels of inflation. The government in power since 2009 has begun to readjust the tax system in favor of low-income households, in an attempt to improve their situation. However, as a consequence of the significant cutbacks in the public sector, pensions and social reimbursements have been cut as well. Therefore, it is difficult to say whether the situation of disadvantaged groups has improved or not. Since 2009, the strain on charity organizations that provide food and clothes free of charge to the needy has increased markedly. This suggests that the economic crisis has increased the risk of social exclusion and that the government has not been fully able to stem this development through its social policy. Even so, medical statistics on emergency room admissions, the use of antidepressants and the incidence of suicides do not suggest significant changes in trends since before the crash. On balance, the evidence on social exclusion is therefore mixed.

Icelandic family policy has long supported the participation of women in the labor force. In a comparative perspective, Iceland indeed has one of the world’s highest rates of labor market participation by women. The government’s family policy has encouraged men and women to share the burden of child rearing. For example, in 2005, almost 90% of eligible fathers used their right to take a three-month parental leave. As a consequence of the collapse in 2008, and as a part of the ensuing economic crisis, state payments during parental leave have been reduced from 80% of an individual’s salary to 75%. The ceiling for this payment was also lowered. Since men have on average higher wages than women, this reduction in payment levels could discourage men from taking parental leave.

Pension policy is partly based on a tax-financed, means-tested public social security program, and partly on occupational pension funds and voluntary savings encouraged through the provision of tax incentives. The pension funds, with employee contributions of 4% of total wages and a complementary employer contribution of 8%, are aimed at giving retirees a pension equivalent to 56% of their average working-life wages. Employees can opt to pay a further 4% of their wages, with a 2% employer contribution, into a voluntary savings program. In the past, it has appeared that Iceland’s pension policy was both conducive to poverty prevention and fiscally sustainable. However, the economic collapse caused heavy losses for most if not all of these pension funds, which had invested in stocks in the Icelandic banks that collapsed in 2008 as well as in additional companies that went bankrupt. These losses have caused most of these pension funds to reduce payments to their members, imposing a further reduction in the living standards of the elderly. Recent reports suggest that the pension funds are on their way to a robust recovery, however. More broadly, the pension funds have been pressured by the government and the banks to invest locally in projects considered to be helpful to strengthening the country’s economic recovery. It remains to be seen whether the pension funds can withstand those political pressures.

The laws on the civil rights of immigrants in Iceland are mainly based on Danish and Norwegian models, as well as implementing Iceland’s obligations under the European Economic Area (EEA) agreement. The Danish law on immigrants is considered to be one of Europe’s most restrictive, largely by making it difficult for citizens outside the EEA to move to Denmark. Iceland too has a law on immigrants from EEA/EU countries and a separate law governing immigrants from non-EEA/EU countries (Önnudóttir, 2009). The latter law focuses on the need for foreign labor in the country and grants citizens from outside the EES/EU only temporary work permits. The authorities provide instruction in the Icelandic language for foreign citizens.
Citizens from other Nordic countries are eligible to vote in local government elections after having maintained their legal domicile in the country for three consecutive years. Other foreign citizens have to wait five years for this right (Lög um kosningar til sveitarstjórna No. 5, 1998). The right to vote in parliamentary elections presupposes Icelandic citizenship.
The Information Center for foreigners (Alþjóðahús) offers services for individuals in need of information and assistance on all kinds of issues. This is an intercultural center welcoming all kinds of practical questions concerning the basic rights of foreigners. Thus, despite rather strict laws on immigration, considerable effort is made to integrate immigrants. At the same time, a special institution for handling foreigners (Útlendingastofnun, UTL), operating under the auspices of the recently renamed Ministry of Justice and Human Rights, has been criticized in the press for routinely expelling foreign citizens on weak grounds. The UTL’s apparently foreigner-unfriendly stance manifests itself on the body’s website, which is solely in Icelandic with no English translation provided.

Iceland maintains no military force, a unique state of affairs in the world today with the sole additional exception of Costa Rica. The North Atlantic Treaty Organization (NATO) maintained a U.S. military base in the country from the end of World War II until 2006. The U.S. government withdrew its military from the base against the wishes of the Icelandic government, but an agreement between Iceland and the United States was signed stating the U.S. government’s commitment to defend Iceland if necessary. It was also noted that consultation and communication about security issues would be strengthened. Iceland is a founding member of NATO, with participation dating back to 1949, as well as of the Organization for Security and Cooperation in Europe (OSCE). In April 2007, Norway and Denmark signed memoranda of understanding with Iceland regarding surveillance, rescue and military operations in the North Atlantic. In May 2008, the Icelandic and British governments signed an agreement governing the British Air Force’s surveillance activities in the Icelandic navigation zone.

Iceland’s police force has long suffered from a staffing shortage. This could, of course, affect the level of internal security. However, Iceland has always been a secure place to live, with relatively few assaults, burglaries or other crimes against citizens. Thus, this type of crime does not present an everyday threat to citizens, even if recent years have seen a significant increase in random assaults in downtown Reykjavik on weekend night.
The economic collapse in 2008 changed many aspects of society. One is that the grand coalition government of 2007 – 2009 was forced from power as a result of riots in early 2009. To be sure, these were relatively peaceful riots, but ultimately helped lead to the formation of a minority government of Social Democrats and the Left Green Movement, which went on to win a parliamentary majority in the election of 2009. These riots and protests at the end of 2008 and in early 2009 led to some minor injuries and some arrests. Nevertheless, circumstances rather than police efficiency continue to ensure that Iceland is a safe place to be. That said, drug-smuggling has increased recent years.

Environmental policy has not been a high priority on Iceland’s political agenda. The Ministry of the Environment was established only in 1990. The present government has decided to rename the ministry the Ministry of Environment and Resources. Icelandic law does not say much about or guarantee the protection, preservation and sustainability of natural resources. The country is rich in energy and water resources on land, and has substantial sea fisheries. There has been little discussion over the years about ways to preserve these energy and water resources, reflecting an apparently rather widespread belief that these resources are more or less unlimited. However, since the mid-1980s, the government has taken action to limit overfishing by setting quotas. Environmentalists’ opposition to using geothermal or hydropower to drive large aluminum smelters has grown rapidly since the controversial Kárahnjúkar power plant project of 2003 – 2008. Since entering the government in early 2009, the Left Green Movement (Vinstri hreyfingin grænt framboð) has been in charge at the Ministry of the Environment, exercising or at least expressing a more careful approach to nature as well as a reluctance to grant permission to new energy projects.

Public and private spending on research and development (R&D) in Iceland increased from 2% of GDP in 1998 to 3% in 2007, one of the highest levels in the OECD region. About 40% of this expenditure, or 1% of GDP, was provided by the government. The increase in R&D activity to some extent reflects the ongoing transformation of the Icelandic economy from agriculture and fisheries to manufacturing and services, with the emergence of new private firms in biotechnology, pharmaceuticals, and some high-tech manufacturing, among other new sectors. The government fosters research and innovation in the fields of geothermal energy, hydrogen power, genetics and information technology, and has lately made an effort to spur innovation. Innovation Center Iceland (NýsköpunarmiðstöðÍslands), a government institute, was established in 2007 with the merger of the Technical Institute of Iceland (IceTec) and the Icelandic Building Research Institute (IBRI). It operates under the Ministry of Industry and receives funding from both the public and private sectors.

Public expenditure on education has increased in recent years. However, there are some concerns that need to be addressed. First, teacher pay has been inadequate in comparison with private sector salaries. Previously, this meant that every year it proved difficult to fill vacant jobs at primary and secondary schools. Low pay resulted in a large number of underqualified teachers. The economic crisis has changed this, however. Salaries have decreased in the private sector as well, and the tight job market has attracted qualified teachers back to the schools.
Second, and more seriously, the average Icelander aged 25 to 64 has up to two fewer years of schooling than the OECD average. This means that Iceland’s labor force is on average less well educated than it should be. Finally, Iceland’s universities have long been seriously underfunded, even during the boom years. There are seven universities, two private but supported by state grants and five state institutions, including two agricultural colleges. Due to the economic crisis, the government is considering plans to rationalize the university sector either by reducing the number of universities or by inducing more cooperation between them. It is not clear whether this is possible to do without reducing the quality of the education provided. Equity is mainly preserved by the student loan system, which makes it possible for students to pay their fees and living costs while studying either in Iceland or abroad. The University of Iceland, the largest of the seven by far (with 15,000 students), is not permitted by law to levy tuition.