I accept that cookies will be stored on my computer

Iceland: a long road back

FOI has investigated Iceland's strategic situation. The country is going through three simultaneous crises: one financial, one involving the country's security and one related to the country's domestic conditions.

Niklas Granholm and Johannes Malminen, security policy analysts at FOI, performed the study, which indicates it will take a long time before Iceland recovers from the crises. Even if the acute risk of state bankruptcy has been averted and a certain amount of economic recovery can be discerned, the financial crisis is far from over. The course of economic restructuring to follow in the wake of the crisis and that will in time create new conditions for growth and competition is still not clear.

Iceland's national debt is currently 90% of the GNP, and the tough social challenges following on the heels of the crisis are obvious. Icelanders voted a resounding "no" in two referendums on the negotiated agreements for the Icesave affair. Icesave was an Internet bank that went out of business in autumn 2008. The result of the referendums probably means that the financial crisis will be aggravated and prolonged since the dispute will now have to be resolved in the EFTA Court.

- The situation in Iceland is important for Sweden because as our Nordic neighbour, the country's crises impact us in different ways. We hope the situation will improve, even if it takes time. Iceland's strengths include its young and well-educated population, inexpensive energy, strong fishing industry, extensive aluminium production and biotechnical success. On the whole, the country should be able to position itself and take advantage of the globalised world. The alternative is to retreat and isolate itself as a result of the crises. Sweden can gain by making a long-term commitment to Iceland's development, says Niklas Granholm.

After 65 years of military presence, the U.S. left Iceland in 2006, which drastically changed the defence and security policy situation in the country. Iceland is a member of NATO. It does not have its own military forces, but it does have an advanced coast guard. The withdrawal caused resentment on the part of many Icelanders, as well as in the security policy establishment. However, the withdrawal was viewed upon as a positive development among those who do not believe Iceland needs military defence.

At the same time, development over the past few years has entailed increased military activity around Iceland, which has altered what is considered normal. This primarily pertains to Russian strategic aviation, as well as naval forces that now regularly navigate around Icelandic waters. The activity causes uncertainty about Russia's intentions.

At the same time the country is struggling with the financial crisis and the security policy situation, there is internal dissatisfaction with how the crises are being handled. Iceland has also applied for EU membership. Negotiations are ongoing and will be followed by a referendum in a few years. There is suspicion towards the EU in terms of fishing, which is very central for Iceland. Icelanders are concerned that membership in the EU will lead to fish stocks being threatened. Fishing is currently responsible for half of the GNP, and may play a decisive role in terms of whether Iceland joins the EU.”

The geostrategic pattern in the Artic and the North Atlantic is also undergoing change, which is impacting Iceland to an increasing extent. More energy and mineral extraction, increased shipping and overlapping territorial claims are the result. Iceland's strategic fundamental conditions have been subjected to quick and extensive change. Despite Iceland's small size, the imminent consequences on Swedish, Nordic, European and global level cannot be ignored.

FOI, Swedish Defence Research Agency

Swedish Defence Research Agency
SE-164 90 Stockholm

Phone +46 8 555 030 00
Fax +46 8 555 031 00

Follow us in social media

Follow us on FacebookFollow us on Linkedin


About the website

About cookies