The Republic of Iceland

The occupation

On 10 May 1940 British forces occupied Iceland to prevent Germany from taking the country, after Denmark had been occupied a month earlier. In 1941 the United States took over the defence of Iceland. At one point there were about 50,000 soldiers, almost as many as all the men in the country. The occupation had an enormous impact: unemployment disappeared, money poured in and Reykjavík changed rapidly. The period is often called "the blessed war", although many Icelandic seamen lost their lives because of the war.

The founding of the republic in 1944

Under the Act of Union of 1918, the union with Denmark could be terminated after 25 years. In a referendum on 20–23 May 1944, turnout was about 98%, and over 97% of voters approved ending the union and a new republican constitution. On 17 June 1944, Jón Sigurðsson's birthday, the republic was proclaimed at the Law Rock at Þingvellir. King Christian X of Denmark sent a telegram of congratulations, which was received with great joy.

Presidents of Iceland

Vigdís Finnbogadóttir was the first woman in the world to be democratically elected head of state. The president is elected directly for four years and resides at Bessastaðir on the Álftanes peninsula.

Iceland in international cooperation

• 1946 – joined the United Nations.
• 1949 – founding member of NATO, despite fierce protests at Austurvöllur.
• 1951 – defence agreement with the United States; military base at Keflavík until 2006.
• 1952 – founding member of the Nordic Council.
• 1970 – joined the European Free Trade Association (EFTA).
• 1994 – joined the European Economic Area (EEA).
• 2001 – joined the Schengen area.

From poverty to prosperity

In the first decades of the republic, fishing was the foundation of the economy. The herring boom of the 1950s and 1960s brought great wealth, but when the herring disappeared in 1967–1968 a recession followed and many people emigrated. The extension of the fishing limits and the Cod Wars gave Icelanders control over their fishing grounds. Inflation was high in the 1970s and 1980s, but the "national consensus" agreement of 1990 brought stability.

The banking crash and recovery

After the privatisation of the banks around the turn of the century, the banking system grew rapidly to many times the size of the economy. In October 2008 Glitnir, Landsbankinn and Kaupþing collapsed within a few days. Prime Minister Geir H. Haarde ended his televised address with the words "God bless Iceland". The Pots and Pans Revolution, a change of government, capital controls and the Icesave dispute followed. The economy recovered within a few years, partly because of the tourism boom.