Iceland was one of the poorest countries in Europe until mid last century. Agriculture and fishing was the main economic activity and the industrial revolution never really reached Iceland, except perhaps in the fishing industry. Politics was marked by the struggle for independence until 1918, when Iceland became an automomous, independent nation, sharing the King and foreign policy with Denmark.
Iceland was occupied by the British and the US during world war II and no real fighting took place. But a large army was placed in Iceland which called for various economic activities and there was good market for Icelandic fish in the UK. After the war Iceland benefitted from the Marshall aid and standard of living improved rapidly. Commercial restrictions were gradually lifted and early 1960´ Iceland joined the EFTA – the European Free Trade Association.
Iceland was also founding member of NATO and accepted that US military forces were stationed in Iceland from 1951 until 2006, when the US decided to withdraw their forces. Iceland was an important strategic point during the cold war and the US maintained massive air and sea surveillance at that time.
Main political parties in the 20 century were the right wing Conservatives, holding on average about 35% of the votes, the Social Democrats with approximately 25%, the Progressive Party (the Cooperative movement) with some 20% and far left parties and some minor parties, with the remaining 20%. Coalition majority governments with different participants were almost a rule and very often the Social Democrats joined forces with the parties farther to the left.
With increased prosperity the standard of living increased and a reasonably good welfare system was established, with basic social services such as health care and education free of charge for all citizens. 1992 Iceland joined the European Economic Area, togeather with Norway with special agreements with the EU but without formal membership.
2002 – 2008 was a very prosperous time for the Icelandic economy and the average per capita income was among the highest in the world. Icelanders were investing all over the world, the finance sector was booming, as well as construction and housing sector. The state had almost paid up all debts and there was a huge budget surplus.
And then the big crash! All the banks collapsed and they had become so big that it was out of question that the state could come to rescue. Practically the whole stock market was wiped out, bonds and shares became worthless, the Icelandic krona was heavily devalued, housing market collapsed, loans escalated, unemployment reached almost 10%, companies and individuals were forced into bankruptcy, inflation was two digits and individual purchasing power was greatly reduced.
The present left wing goverment is presently working with the AGS trying to restore the economy, with little visible results. Budget and social services have been cut and many people are suffering and relying on help from charity organizations.
Many people are asking for reform and revision of goals and vision. More weight on humanitarian and social values and less on financial issues. Without employment and enough funds to support moderate living standards such visions sound empty for those who suffer.