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COUNTRY BRIEFS


BACKGROUND

Iceland, the least populated and most isolated of the Nordic countries, is located in the North Atlantic Ocean. Iceland covers an area of 103,000 square kilometres and has a population of approximately 300,000.

While Iceland is not a member of the European Union, it is a member of the European Free Trade Association (EFTA) and the European Economic Area, which entitles it to access the EU internal market. Iceland is a member of NATO.

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POLITICAL OVERVIEW

Iceland is a parliamentary republic with legislative powers vested in the Althing (parliament). The Head of State, President Ólafur Ragnar Grímsson, is now serving his fourth term in office. The Icelandic presidential election scheduled for 28 June 2008 was cancelled after no challenger registered to run against President Grímsson. The next Presidential election will be held in June 2012.

The Althing is made up of 63 members directly elected by proportional representation for four year terms. Until 29 January 2009, Iceland was governed by a coalition government comprising the centre-right Independence Party and the centre-left Social Democratic Alliance. That government was disbanded on 26 January 2009 following unprecedented public protests over the government’s handling of the economy and the resignation of Prime Minister and leader of the Independence Party, Mr Geir H. Haarde.

On 27 January 2009, President Grimsson asked the leader of the Social Democratic Alliance, Ingibjörg Sólrún Gísladóttir, to form an interim government. This transition government, comprising the Social Democratic Alliance and the Left-Green Movement, was formed on 1 February 2009, and Ms Jóhanna Sigurðardóttir (Social Democratic Alliance) was appointed as interim Prime Minister. She was tasked with stabilising the country’s failing economy and preparing for the elections on 25 April 2009.

At the 25 April 2009 elections the transition government won a majority (34 out of 63 seats) in the Parliament. This is the first time the centre-left has won a majority in the Icelandic Parliament. The leader of the Social Democratic Alliance, Ms Sigurðardóttir, continued as Prime Minister. Ms Sigurðardóttir is strongly in favour of Icelandic membership of the EU and of the introduction of the Euro in Iceland. The Icelandic Government formally applied to join the EU on 16 July 2009.

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ECONOMIC OVERVIEW

As one of the smallest countries in the world, Iceland’s economy is particularly vulnerable to global economic fluctuations and has been severely affected by the global financial and economic crisis. The Icelandic economy experienced high levels of volatility in 2008 and suffered a collapse in the banking system. In October 2008, the government took control of the three big Icelandic commercial banks. On 24 October 2008, the International Monetary Fund (IMF) announced an IMF rescue package totalling US$2.1 billion for Iceland to address the effects of the global financial crisis. The IMF forecast in December 2008 that Iceland’s GDP could fall by 10 per cent in 2009. Iceland’s government expects inflation to average 13.1 per cent in 2009 and unemployment to average 7.8 per cent for 2009 and approach 11 per cent towards the end of the year.

Seventy per cent of Iceland’s energy is renewable, resulting in an environmental, economical and social advantage for the country. Ninety five per cent of Icelandic homes are heated by geothermal energy, at five times less cost than heat generated from oil. Iceland does not import coal or oil for heating.

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BILATERAL RELATIONSHIP

Australia's relations with Iceland are friendly with whaling the only major issue of disagreement. Iceland rejoined the International Whaling Commission in 2002 after having left the organization in 1992.

Around 70 Australians are currently living in Iceland. Tourist traffic in both directions is low. There is a small Icelandic community in Australia of around 450 people.

In October 2002, the then Minister for Communications, Information Technology and the Arts, Senator the Hon Richard Alston, visited Iceland and met President Grímsson.

In August 2008, Australia and Iceland, together with the United States, signed a Memorandum of Understanding on cooperation in geothermal technology.

The Australian Ambassador to Iceland is accredited from Denmark. The Icelandic Ambassador to China has non-resident accreditation to Australia. Iceland has Honorary Consulates in Canberra, Sydney and Melbourne.

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BILATERAL ECONOMIC AND TRADE RELATIONSHIP

Two-way trade between Iceland and Australia in 2008 totalled A$31 million. Major exports in 2008 to Iceland totalled under A$6 million, including alcoholic beverages; aluminium; and pumps for liquids and parts. Major imports in 2008 from Iceland totalled A$25 million, including plastic plates, sheets and film; animal oils and fats; and medicaments (including veterinary).

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Last Updated: November 2009

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