COMMISSION STAFF WORKING DOCUMENT ICELAND 2010 Progress Report    accompanying the  COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL  Enlargement Strategy and Main Challenges 2010-2011
Date: 2010-11-09
Institutions: European Commission
Subjects: North Macedonia, accession to the European Union, enlargement of the Union, pre-accession strategy, report

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EUROPEAN COMMISSION 

Brussels, 9.11.2010 
SEC(2010) 1328 final 

COMMISSION STAFF WORKING DOCUMENT 

ICELAND 2010 PROGRESS REPORT 

accompanying the 

COMMUNICATION FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

Enlargement Strategy and Main Challenges 2010-2011 

{COM(2010) 660 final} 

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TABLE OF CONTENTS 

1. 

1.1. 

1.2. 

1.3. 

2. 

3. 

3.1. 

3.2. 

4. 

4.1. 

4.2. 

4.3. 

4.4. 

4.5. 

4.6. 

4.7. 

4.8. 

4.9. 

Introduction .................................................................................................................. 4 

Preface.......................................................................................................................... 4 

Context ......................................................................................................................... 4 

Relations between the EU and Iceland......................................................................... 5 

Political criteria ............................................................................................................ 6 

Economic criteria ......................................................................................................... 8 

The existence of a functioning market economy ......................................................... 8 

The capacity to cope with competitive pressure and market forces within the Union
.................................................................................................................................... 14 

Ability to assume the obligations of membership...................................................... 16 

Chapter 1: Free movement of goods .......................................................................... 17 

Chapter 2: Freedom of movement for workers .......................................................... 17 

Chapter 3: Right of establishment and freedom to provide services ......................... 18 

Chapter 4: Free movement of capital ......................................................................... 18 

Chapter 5: Public procurement................................................................................... 19 

Chapter 6: Company law............................................................................................ 20 

Chapter 7: Intellectual property law........................................................................... 20 

Chapter 8: Competition Policy................................................................................... 21 

Chapter 9: Financial Services..................................................................................... 21 

4.10.  Chapter 10: Information society and media ............................................................... 22 

4.11.  Chapter 11: Agriculture and rural development......................................................... 23 

4.12.  Chapter 12: Food safety, veterinary and phytosanitary policy .................................. 24 

4.13.  Chapter 13: Fisheries.................................................................................................. 25 

4.14.  Chapter 14: Transport policy ..................................................................................... 26 

4.15.  Chapter 15: Energy .................................................................................................... 26 

4.16.  Chapter 16: Taxation.................................................................................................. 27 

4.17.  Chapter 17: Economic and Monetary Policy ............................................................. 28 

4.18.  Chapter 18: Statistics.................................................................................................. 29 

4.19.  Chapter 19: Social Policy and employment ............................................................... 29 

4.20.  Chapter 20: Enterprise and industrial policy.............................................................. 30 

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4.21.  Chapter 21: Trans European Networks ...................................................................... 31 

4.22.  Chapter 22: Regional policy and coordination of structural instruments .................. 31 

4.23.  Chapter 23: Judiciary and fundamental rights ........................................................... 32 

4.24.  Chapter 24: Justice, freedom and security ................................................................. 33 

4.25.  Chapter 25: Science and research .............................................................................. 34 

4.26.  Chapter 26: Education and Culture ............................................................................ 35 

4.27.  Chapter 27: Environment ........................................................................................... 35 

4.28.  Chapter 28: Consumer and health protection............................................................. 37 

4.29.  Chapter 29: Customs Union ....................................................................................... 37 

4.30.  Chapter 30: External relations.................................................................................... 38 

4.31.  Chapter 31: Foreign, Security and Defence Policy.................................................... 39 

4.32.  Chapter 32: Financial Control.................................................................................... 40 

4.33.  Chapter 33: Financial and budgetary provisions........................................................ 40 

Statistical annex........................................................................................................................ 41 

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COMMISSION STAFF WORKING DOCUMENT 

2010 Progress Report 

1. 

INTRODUCTION 

1.1. 

Preface 

This  is  the  Commission's  first  report  to  the  Council  and  Parliament  on  progress  made  by 
Iceland since the Council's decision to open accession negotiations. 

This report: 

– briefly describes the relations between Iceland and the Union; 

– analyses the situation in Iceland in terms of the political criteria for membership; 

– analyses the situation in Iceland on the basis of the economic criteria for membership; 

–  reviews  Iceland’s  capacity  to  assume  the  obligations  of  membership,  that  is,  the  acquis 
expressed in the Treaties, the secondary legislation, and the policies of the Union. 

The  period  covered  by  this  report  is  from  February  to  early  October  2010.  Progress  is 
measured on the basis of decisions taken, legislation adopted and measures implemented. As a 
rule, legislation or measures that are under preparation or are awaiting parliamentary approval 
have not been taken into account. This approach ensures equal treatment across all reports and 
permits an objective assessment. 

The  report  is  based  on  information  gathered  and  analysed  by  the  Commission.  In  addition, 
many  sources  have  been  used,  including  contributions  from  the  government  of  Iceland,  the 
EU Member States, European Parliament reports and information from various international 
and non-governmental organisations. 

The Commission draws detailed conclusions regarding Iceland in its separate communication 
on enlargement based on the technical analysis contained in this report. 

1.2. 

Context 

Iceland  presented  its  application  for  membership  of  the  European  Union  in  July  2009. 
Subsequently,  the  Council  of  the  European  Union  requested  the  Commission  to  submit  its 
opinion on this application. 

The Commission concluded in its Opinion of February 2010 that Iceland meets the political 
criteria  and  can  be  considered  a  functioning  market  economy  which  should  be  able  to  cope 
with competitive pressures and market forces within the Union in the medium term provided 
that it swiftly implements the necessary policy measures and structural reforms.  

The Opinion also noted the good overall level of preparedness to take on the obligations of 
membership  in  the  medium  term  due  to  Iceland's  participation  in  the  European  Economic 

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Area. It, however, highlighted a number of areas (fisheries, agriculture and rural development, 
environment, free movement of capital and financial services) where serious efforts would be 
required  to  take  on  the  obligations  of  membership.  Finally,  the  Opinion  concluded  that 
Iceland's accession would have a limited overall impact on the European Union and would not 
affect the Union's capacity to maintain and deepen its own development.  

In light of these considerations, the Commission recommended that negotiations for accession 
to the  European Union  should be  opened with Iceland. The European Council subsequently 
decided in June in favour of opening negotiations. The first Intergovernmental Conference, 
officially launching accession negotiations, took place on 27 July 2010. Preparations for the 
screening exercise are on-going. 

1.3. 

Relations between the EU and Iceland 

Iceland and the European Union have been cooperating extensively across a broad range of 
areas for the last forty years.  

Iceland  joined  the  European  Free  Trade  Association  in  1970  and  has  been  a  party  to  the 
Agreement on the European Economic Area (EEA) since its entry into force in 1994.  

The first EU-Iceland Joint Parliamentary Committee met in October 2010.1 

Iceland has been associated with the development of the Schengen agreements since 1996 and 
has applied their provisions since 2001.  

Following Iceland’s membership application, the Commission proposed that Iceland becomes 
eligible  for  pre-accession  financial  support  under  the  Instrument  for  Pre-Accession 
Assistance  (IPA).  The  amended  IPA  regulation  entered  into  force  in  July  2010.  A  Multi-
annual Indicative Planning Document is expected to indicate the priorities for IPA support to 
Iceland  for  2011-2013.  IPA  financial  assistance  to  Iceland  will  be  channelled  through  three 
main tools: the Technical Assistance and Information Exchange (TAIEX) instrument, multi-
beneficiary programmes and a National Programme. 

The  EU  Delegation  in  Reykjavík  is  fully  operational:  it  opened  in  January  2010  and  found 
permanent premises where it is expected to move by the end of the year. 

Preparations are on-going for opening an EU information centre in Iceland in 2011. 

Iceland has been included in the EU Pre-Accession Fiscal Surveillance procedure, and has 
received an invitation to submit its first Pre-Accession Economic Programme with a medium-
term macroeconomic and fiscal programme, by January 2011. 

This  first  progress  report  assesses  the  developments  in  Iceland  since  the  publication  of  the 
Commission's Opinion. The reporting period for Iceland is therefore shorter than for the other 
countries  included  in  the  2010  enlargement  package  as  this  report  covers  the  period  from 
February 2010 to October 2010. Iceland's ability to assume the obligations of membership has 
been assessed in light of its participation in the European Economic Area (EEA) and taking 
into account exemptions granted under the EEA.  

1 

The European Parliament's rapporteur for Iceland is Mr Dan Preda.  

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2. 

POLITICAL CRITERIA 

The first progress report on Iceland confirms the assessment of the Commission's Opinion of 
February  2010  that  Iceland  meets  the  political  criteria.  Iceland  is  a  functioning  democracy 
with strong institutions and a stable constitutional and legal order. The judicial system is well 
established and the judiciary is of a high standard. Iceland's public administration remains, in 
general, efficient and free of political interference. As regards human rights and the protection 
of minorities, Iceland continues to safeguard fundamental rights.  

This chapter assesses political developments with a focus on the measures taken by Iceland to 
address  the  shortcomings  identified  in  the  Opinion,  in  particular  as  regards  judicial 
appointments and conflict of interests.  

The  coalition  government  remained  stable  over  the  reporting  period.  There  are  diverging 
views on the prospect of EU accession among the Icelandic political forces and population. A 
number of opposition parties as well as some members of the coalition oppose EU accession. 
Opinion polls show a mixed picture as regards EU membership. While membership as such 
remains  a  contested  issue,  support  for  the  accession  process  has  increased  at  the  end  of  the 
reporting period with a majority in favour of conducting accession negotiations.  

The domestic political  scene in  Iceland changed following the local elections of May 2010; 
new local parties won over ruling parties in several big municipalities (Kópavogur, Akureyri 
and Reykjavík). The leader of the Best Party was elected Mayor of Reykjavík in June and the 
council majorities in Iceland’s big municipalities changed.  

As  regards  internal  preparations  for  accession,  the  Chief  Negotiator,  who  reports  to  the 
Minister  of  Foreign  Affairs,  continued  to  coordinate  the  EU  accession  process.  The  Chief 
Negotiating Committee, established in November 2009, consists of 18 members. In addition, 
there  are  ten  negotiating  groups  (European  Economic  Agreement  I  and  II,  fisheries,  foreign 
and  security  affairs,  financial  affairs,  economic  and  monetary  affairs,  regional  policy  and 
coordination  of  structural  instruments,  justice  and  home  affairs,  agriculture  and  rural 
development, and legal matters).  

Legislation to elect an advisory constitutional assembly was adopted in June. The task of the 
assembly is to prepare a proposal to parliament for a new constitution. Among the issues to be 
addressed is delegation of powers by the State to international organisations. 

Ensuring translation of the acquis by the date of accession is likely to be a challenge given the 
size of the Icelandic administration and its financial constraints.  

The  independent  Special  Investigation  Commission  (SIC),  set  up  in  December  2008  to 
investigate and analyse the processes leading to the collapse of the banking system in Iceland, 
delivered  its  report  in  April  2010.  The  report  identified  the  rapid  growth  of  the  banking 
system, as well as the difficulties of the government authorities to respond to and assess the 
excessive risks taken by the banks, as the main causes of the economic collapse. The report 
concluded in particular that, shortly before the collapse, leading banks maximised the benefits 
accruing to the bigger shareholders to the detriment of the interests of all shareholders. The 
report pointed to the responsibility of key political actors, regulators and supervisory bodies in 
failing to enact and enforce sufficient regulatory authority over the financial markets in order 
to prevent it from jeopardising the whole economic system.  

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The  publication  of  the  SIC  report  led  to  a  wide  and  open  debate  in  Iceland  as  well  as  the 
establishment  of  an  ad  hoc  parliamentary  review  committee,  comprising  nine  MPs  from  all 
political parties. This committee was set up to analyse ministerial responsibilities in the period 
before  the  crisis  and  follow  up  on  the  SIC  proposals  for  new  legislation  to  prevent  another 
banking  crisis.  It  is  also  mandated  to  examine  the  role  of  the  media,  the  supervision  of 
financial  services,  the  activities  of  financial  actors  as  well  as  ethical  aspects  of  business 
practices.  In  September  2010  the  committee  delivered  its  opinion.  The  nine  members 
unanimously agreed with the main findings of the SIC and made a number of proposals for 
revision  and  reform.  The  majority  of  the  members  (seven  out  of  nine)  recommended  that 
certain former ministers be charged with gross negligence. The committee's recommendation 
was referred to the parliament that decided to indict only the former prime minister at the time 
of  the  banking  collapse,  thus  activating  the  Court  of  Impeachment  for  the  first  time  in  the 
country's history.  

The recommendations of the Special Investigation Commission and their follow-up measures 
have contributed to addressing some of the shortcomings identified in the Opinion. However, 
implementation of these recommendations requires a continuous follow-up. 

The Office of the Special Prosecutor, which was also created after the 2008 financial crisis, 
questioned 155 individuals and processed some 74 cases, of which 20 have been dismissed or 
discontinued.  The  Special  Prosecutor  mostly  investigated  cases  of  market  manipulation  and 
embezzlement. The Office of the Special Prosecutor also carried out arrests of individuals and 
filed two indictments in connection with the collapse of the banks.  

As far as the reform of the public administration is concerned, a committee of independent 
experts  was  set  up  in  January  2010  to  analyse  how  the  government  could  address  the  SIC 
conclusions. The committee delivered its report in May 2010 and recommended reducing the 
number of ministries with a view to creating stronger units and ensuring better coordination 
among  government  departments.  A  governmental  reshuffle  took  place  in  September  2010, 
reducing the number of ministers from twelve to ten with immediate effect.  

In accordance with the SIC conclusions, the committee of independent experts recommended 
further  strengthening  the  public  administration,  in  particular  through  better  training  of  civil 
servants  and  reinforcing  the  internal  procedures  and  the  monitoring  powers  of  the  public 
administration,  including  in  the  financial  sector.  A  new  programme  of  specialised  training 
within the public administration was launched in September. 

Iceland  also  started  to  address  shortcomings  identified  in  the  Opinion  as  regards  the 
predominance given to the Minister of Justice in judicial appointments. Further developments 
can also be noted in tackling possible conflicts of interests. 

The  Judiciary  Act  was  amended  in  May  2010  to  change  the  rules  on  the  appointment  of 
judges with the aim of strengthening the independence of the judiciary. The amendments are 
intended to reinforce the powers and composition of the evaluation committee. According to 
these  changes,  the  Minister  of  Justice  may  only  deviate  from  the  recommendation  of  the 
evaluation committee to appoint a judge if parliament approves a motion from the Minister to 
appoint another candidate. The full effect of these amendments requires a continuous follow-
up. 

As  regards  conflict  of  interests,  parliament  adopted  in  June  2010  a  bill  laying  down  the 
obligation to establish codes of conduct for all government officials and for members of the 

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Prime  Minister’s  Office,  under  the  supervision  of  the  parliamentary  Ombudsman.  It  also 
specifies  penalties  for  ministers  in  breach  of  their  responsibilities.  (See  also  Chapter  23  — 
Judiciary and fundamental rights). 

The amended Act on the finances of political parties, stipulating obligation of political parties 
and  their  candidates  to  provide  information  about  their  finances,  was  adopted  in  September 
2010.  This  new  legislation  addresses  the  GRECO  (Council  of  Europe's  Group  of  States 
against  Corruption)  recommendations  to  the  2006  law  of  political  finance:  it  provides  new 
rules  as  regards  donations  to  political  parties,  financing  of  elections  and  the  allocation  of 
public  funding  to  support  operational  activities  of  political  parties  through  annual 
contributions  from  the  state  Treasury.  (See  also  Chapter  23  —  Judiciary  and  fundamental 
rights). 

As  regards  human  rights  and  protection  of  minorities,  Iceland  continued  to  safeguard 
fundamental rights (e.g. economic and social rights, respect for and protection of minorities, 
cultural  rights)  and  to  ensure  a  high  level  of  cooperation  with  international  mechanisms  for 
the protection of human rights. 

In  September  2010,  14  cases  against  Iceland  were  pending  before  the  European  Court  of 
Human Rights (ECtHR). A judgement was issued in one case.  

The  new  media  law,  providing  for  limitations  on  the  ownership  of  media  companies,  the 
Council of Europe Framework Convention for the Protection of National Minorities and the 
UN Convention on the Rights of Persons with Disabilities remain to be ratified. 

3. 

ECONOMIC CRITERIA 

In  examining  economic  developments  in  Iceland,  the  Commission’s  approach  has  been 
guided by the conclusions of the European Council in Copenhagen in June 1993, which stated 
that membership of the Union requires the existence of a functioning market economy and the 
capacity to cope with competitive pressure and market forces within the Union. 

3.1. 

The existence of a functioning market economy 

Economic policy essentials 

Following the collapse of the country’s financial sector in October 2008, economic policy has 
been oriented towards stabilising the economy. Economic policy is formulated by the newly 
established  Ministry  of  Economic  Affairs  and  the  Ministry  of  Finance  in  cooperation  with 
other relevant ministries. The current IMF stand-by programme provides an important anchor 
for economic stabilisation. It has been implemented successfully so far, with some temporary 
delays.  Broad  political  consensus  on  the  key  essentials  of  a  market  economy  and  the 
preservation  of  the  welfare  state  remains.  However,  the  previous  political  cohesiveness  has 
been stretched by the negative effects of the crisis and the polarising domestic debates over 
causes  of  and  responsibilities  for  the  crisis.  The  country  has  been  included  in  the  EU  Pre-
Accession  Fiscal  Surveillance  procedure,  and  has  already  received  an  invitation  by  the 
Commission  to  submit  its  first  Pre-Accession  Economic  Programme  with  a  medium-term 
macroeconomic and fiscal programme, by January 2011.  

Macroeconomic stability 

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Following the banking sector crisis in October 2008, economic activity and domestic demand 
started to drop sharply. The decline of annual economic growth rates accelerated during 2009, 
leading  to  a  marked  fall  in  real  GDP  by  6.8%  for  the  year  as  a  whole.  The  recession  was 
strongly driven by a  50%  drop  in  total investments, particularly pronounced in construction 
and  the  services  sector,  and  a  16%  decline  in  private  consumption.  As  a  result,  domestic 
demand  made  a  large  negative  contribution  to  GDP  growth.  Shrinking  imports  as  well  as 
export growth turned the contribution of net exports positive. The economy contracted further 
in the first half of 2010, when real GDP fell by 7.3% year-on-year. Moreover, the quarterly 
growth rate (in seasonally adjusted terms) deteriorated from -1.2% in the first quarter to -3.1% 
in the second quarter, also indicating that the recession has not yet bottomed out. The rebound 
in  private  consumption,  which  started  growing  in  the  second  half  of  2009,  turned  out  to  be 
temporary  as  growth  rates  again  turned  negative  in  the  first  half  of  2010.  The  speed  of 
contraction of investment slowed somewhat but prospects for a rebound in investment growth 
remain  uncertain,  partly  owing  to  delays  in  energy-intensive  projects,  reflecting,  inter  alia, 
financing constraints in the corporate sector. In the third quarter of 2010, consumer sentiment 
and expectations have somewhat improved, but high frequency indicators do not yet suggest a 
growth  recovery.  As  a  result  of  the  crisis,  average  per  capita  income  (in  Purchasing  Power 
Standards) fell to 120% of the EU-27 average in 2009. Overall, the crisis led to a deep and 
prolonged recession and economic activity has not yet started to pick up.  

in 

lower  deficit 

External  deficits  have  shrunk  markedly  following  the  recession.  The  sharp  contraction  in 
domestic  demand  and  depreciation  of  the  exchange  rate  (around  50%  during  the  crisis) 
contributed to a substantial improvement in the balance of goods and services, which recorded 
a surplus of around 9% of GDP in 2009, compared to deficit of 3% a year before. The current 
account deficit fell from more than 20% of GDP in 2008 to 2.2% last year, also helped by a 
much 
income  balance.  Recent  developments  suggest  further 
improvements in external trade. In the first half of 2010, thanks to a good export performance, 
the  surplus  in  trade  of  goods  and  services  increased  to  around  10%  of  GDP,  compared  to 
around 7.5% in the first half of the previous year. However, the current account deteriorated 
and  its  deficit  increased  to  3.5%  (compared  to  a  surplus  of  2.8%  in  the  first  half  of  2009), 
mainly  due  to  a  three-fold  increase  in  the  deficit  of  the  income  balance.  More  recent 
merchandise trade data suggest some deterioration as exports dropped in August by 5% year-
on-year.  Overall,  external  deficits  have  shrunk  and  the  merchandise  trade  surplus  has 
continued to strengthen.  

the 

Total net capital inflows in 2009 were larger than the amounts needed to finance the current 
account deficit.2 As a result, gross official foreign exchange reserves held at the central bank 
increased by an amount equivalent to 1.7% of GDP. In 2010, reserves continued to increase 
and stood at around 38% of GDP in mid-2010, compared to 25% a year before. The increase 
in  reserves  partly  reflects  official  financing  provided  in  the  context  of  the  IMF  programme 
and through bilateral loans, totalling around 6% of GDP. The very high level of external debt 
continues to represent a key challenge to the Icelandic economy. Estimates of the size of the 
country’s  external  debt  have  been  rapidly  changing  following  the  financial  crisis,  due  to 
uncertainties about the impact of the collapsed banks on the level of foreign debt. Excluding 
the latter, the stock of gross foreign debt is now estimated at around 230% of GDP at mid-
2010, compared to a pre-crisis level (end-2007) of around 570% of GDP. The private sector 

2 

The  magnitude  and  direction  of  capital  inflows  remains  largely  influenced  by  ongoing  external  asset 
recovery and revaluation in the context of the winding-up and liquidation of the ‘old’ banks and by the 
existence of capital controls. Balance of payments statistics are volatile, comprising huge net errors and 
omissions positions. 

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accounts for two thirds of the external debt stock (the private non-financial sector for about 
55%).  Overall,  foreign  exchange  reserves  strengthened,  partly  backed  by  official  external 
financing, but foreign indebtedness remains considerable.  

The crisis seriously affected developments on the labour market as unemployment increased 
markedly and the number of employed dropped compared to pre-crisis levels. Those effects 
were still being felt through 2010, and adjustments in the over-leveraged construction sector 
have particularly contributed to unemployment. Elements of flexibility seem to have provided 
a degree of cushion, such as a reduced level of hours worked, increased part-time work and 
real wage flexibility. Nonetheless, according to the Labour Force Survey, the unemployment 
rate rose to 9% in the second quarter, from 7.7% in the first quarter, but was lower than the 
9.4% in the corresponding period of the previous year. Total employment levels increased by 
1.2% year-on-year in the second quarter, following a drop of 1% in the first quarter, bringing 
the average employment in the first half of the year to the same level as in the corresponding 
period  of  the  previous  year.  In  the  first  half  of  2010,  nominal  gross  wages  and  salaries 
increased by around 4%, similar to the wage growth rate in 2009. This translates into a real 
wage decline of 3% during the same period. However, since mid-2010, the growth of nominal 
wages accelerated to 6% in both July and August, which led to positive real wage growth by 
around  1.2%  Overall,  the  recession  has  led  to  a  significant  decline  in  employment  and 
increase in unemployment. 

Regarding monetary policy developments, increased stability of the exchange rate enabled the 
Central Bank to continue to gradually ease the monetary policy stance. In 2010, the key policy 
rate (i.e. the seven days collateralised lending rate) was cut several times to reach 6.25% by 
September.  This  compares  with  a  peak  rate  of  18%  at  end-2008  in  the  aftermath  of  the 
banking sector collapse. The Central Bank has followed and intends to continue a strategy of 
exchange rate  stabilisation supported  for the time  being by a regime  of  capital  controls  that 
have been reinforced since last November. The underlying trade surplus, improved terms of 
trade, and the declining risk premium have supported the appreciation of the Icelandic króna 
by around 15% vis-à-vis the euro during the first eight months of the year. This enabled the 
Central Bank to cease intervening on the foreign exchange market to support the króna since 
December  2009.  Indeed,  the  Central  Bank  began  foreign  exchange  purchases  in  August  to 
bolster  non-borrowed  reserves.  Under  the  current  policy  framework,  exchange  rate  risks 
continue  to  appear  rather  limited  over  the  short  term.  However,  looking  forward,  the 
temporary capital account  restrictions are to be gradually lifted  in  due time as the economy 
stabilises further; nevertheless, this could still entail potential risks. Annual inflation gradually 
came down to 6.6% in January 2010, from its peak of 18.6% in January 2009. It temporarily 
accelerated slightly to 8.5% in March on the back of increases in energy prices, indirect taxes 
and government fees, but continued to decelerate to 3.7% in September. Inflation expectations 
have  stabilised  and  inflation  risks  appear  relatively  balanced.  Low  domestic  demand  and 
falling house prices would lower the inflation rate, while further tax -and administrative price 
increases and wage pressures in the tradable sectors may exert some upward movements. A 
weaker  króna  and  therefore  higher  import  prices  would  immediately  be  felt  through  higher 
inflation as imported goods account for one third of the price index. Overall, exchange  rate 
stability and lower inflation have allowed some flexibility to reduce interest rates. However, 
capital  controls  are  still  in  place  and  their  gradual  lifting,  albeit  necessary,  represents  a 
significant challenge. 

Public finances suffered a marked deterioration in the wake of the October 2008 crisis with 
the general government deficit increasing to 9.9% of GDP in 2009, prompting the government 
to launch a series of fiscal adjustment measures in the context of the IMF programme which 

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continued into 2010. The 2010 budget foresees a reduction of the general government deficit 
by three and a half percentage points to 5.6% of GDP. To that extent, the budget comprises a 
series of additional fiscal measures on the revenue side, such as tax increases (VAT, excise 
duties, energy tax) and increases in social security contributions, as well as cuts in spending. 
Budget  implementation  in  the  first  half  of  2010  showed  an  increase  in  general  government 
revenues by close to 10% year-on–year, supported by higher VAT rates, excises and energy 
taxes as well as marked increase in social contributions which compensated for shortfalls in 
personal income tax collection. Overall, budget revenue execution was above plan, but some 
downside risks remain in the second half of the year due to a slower than expected economic 
recovery.  The  increase  in  total  spending  was  contained  at  4%,  helped  by  a  reduction  in  the 
wage  bill  (-2%),  cuts  in  social  spending  (-7%)  and  much  lower  capital  investments  (-27%). 
Some  planned  expenditure  cuts  remain  still  to  be  implemented  during  the  remainder  of  the 
budget  year.  The  general  government  deficit  in  the  first  half  of  2010  amounted  to  3.5%  of 
projected annual GDP, lower than the 4.6% recorded in the first half of 2009.  

Looking  forward,  fiscal  risks  remain  significant.  The  2011  budget  can  be  considered  as  an 
expression  of  the  government's  commitment  to  continued  fiscal  consolidation.  In  order  to 
achieve  a  primary  surplus,  the  budget  contains  fiscal  measures  equivalent  to  around  3%  of 
GDP, including freezes on wages and transfers and significant cuts in spending, which may 
however  be  difficult to implement. Moreover, the budget is based on optimistic growth and 
revenue assumptions and necessary revisions are likely to lead to a higher budget gap, unless 
the  government  introduces  additional  spending  cuts  or  tax  increases,  posing  additional 
challenges. Risks are also related to contingent liabilities. Additional financing requirements 
will  result  from  government  guarantees  provided  for  the  Housing  Financing  Fund,  which 
indicated the need for recapitalisation. The costs are currently estimated at 2-3% of GDP. A 
Supreme Court decision of June 16th 2010 declaring foreign–exchange-indexed loans illegal 
originally introduced considerable uncertainty in the financial system. Before the crisis, banks 
offered such loans linked to a basket of foreign currencies with lower interest rates. However, 
with  the  collapse  of  the  króna,  debt  and  debt  payments  in  króna  increased  correspondingly. 
Following  a  second  Court  ruling  on  this  matter  in  mid-September,  which  provided  some 
clarifications, the authorities announced legislation to convert illegal foreign currency private 
household  indexed  loans  to  domestic  currency  loans.  These  conversions  will  reduce  the 
outstanding principles of the loans considerably. While the second ruling has reduced risks to 
the  financial  system  compared  to  the  initial  decision,  uncertainty  over  the  precise  financial 
implications remains, notably on the treatment of corporate sector loans. The ruling is likely 
to  weaken  the  banks’  equity  base,  potentially  requiring  an  injection  of  fresh  capital  by  the 
government.  Furthermore,  other  significant  contingent  liabilities  arise  from  a  potential 
settlement  of  Icesave,  the  total  amount  being  dependent  on  recovery  rates  for  Landsbanki’s 
assets  and  interest  rates  to  be  agreed  on  deposit  insurance  guarantee  obligations.  Overall,  a 
process of fiscal consolidation has been launched, primarily supported by tax increases, while 
the  implementation  of  projected  spending  cuts  remains  a  challenge.  Significant  fiscal  risks 
arise from contingent liabilities mainly related to the financial sector. 

Gross general government debt increased from around 30% of GDP in 2007 to 88% at end-
2009.  The  increase  resulted  from  the  cyclical  effects  on  the  budget  balance,  government 
borrowing to strengthen foreign currency reserves as well as from the costs of financial sector 
restructuring.  The  latter  comprises  the  restructuring  and  recapitalisation  of  the  three  large 
domestic  banks  as  well  as  the  capital  injection  into  the  central  bank  to  cover  losses  from 
central  bank  loans  to  banks  granted  on  weak  collateral.  Further  progress  has  been  made  in 
establishing  a  medium-term  public  debt  management  framework.  This  aims  to  lengthen  the 
average maturity of public debt to 4.5 years by 2011, smooth the profile of debt coming due 

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and  reduce  the  share  of  debt  denominated  in foreign currency. To that  end,  the  government 
concluded agreements on bond buy-backs and other debt regulations. Overall, the government 
has  taken  measures  to  reduce  refinancing-  and  currency  risks  in  view  of  the  high  level  of 
public debt. 

The  policy  mix,  with  a  strong  focus  on  exchange  rate  stabilisation  and  fiscal  consolidation, 
has been supportive in re-establishing a higher degree of macroeconomic stability. In response 
to  higher  trade  surpluses  and  exchange  rate  appreciation  the  central  bank  has  introduced  a 
careful  easing  of  monetary  conditions  by  lowering  base  rates  in  successive  steps.  Efforts  to 
strengthen  public  revenues  and  implement  spending  cuts  have  continued  with  a  view  to 
lowering the public savings-investment gap. However, continued fiscal adjustments remain a 
challenge and the implementation of the 2011 budget will be an indication as to what extent 
fiscal consolidation will progress. Finally, macroeconomic stabilisation occurred in a situation 
of temporary protection through capital account restrictions. Looking forward, their removal 
will remain a key policy challenge.  

Interplay of market forces 

Prices of goods and services continued to be determined by supply and demand conditions. As 
a  member  of  the  EEA,  Iceland  has  already  liberalised  most  economic  sectors  and  removed 
special  government  protection  in  most  sectors.  In  the  context  of  the  crisis,  the  government 
took  over  the  domestic  operations  of  the  three  major  banks  that  had  collapsed.  Following 
recapitalisation  and  restructuring,  the  banks’  equity  was  sold  to  foreign  creditors.  The 
government at this time still retains majority ownership (81%) of one of the three banks (NBI) 
and  minority  stakes  in  the  other  two  banks.  The  private  sector  accounts  for  73%  of  GDP. 
Some sectors remain in government ownership, such as the postal services, broadcasting, and 
parts of the financial sector (including the state-owned Housing Financing Fund). Moreover, 
the  energy  sector  remained  predominantly  publicly  owned  (by  the  central  and  local 
governments),  offering  attractive  wholesale  contracts  to  industry,  mostly  aluminium 
companies. Overall, market mechanisms are to a large extent driven by free prices and private 
ownership, with the exception of some strategic sectors. Efficient financial intermediation is 
still hampered by the ongoing but still incomplete bank restructuring process. 

Market entry and exit 

Starting  a  business  is  facilitated  by  a  generally  low  administrative  burden  and  a  supportive 
regulatory framework. The business environment remained characterised by low bureaucratic 
hurdles  and,  in  general,  efficient  administration.  However,  high  barriers  to  market  entry 
continue to exist in some strategic sectors that are not covered by the EEA such as fisheries, 
energy,  air  transport  and  real  estate.  Of  these,  restrictions  on  investment  in  fisheries  are  the 
only ones that apply to EEA-residents. The recession has significantly affected company start-
ups.  New  business  registration  dropped  further  by  around  8.5%  in  the  first  six  months  of 
2010.  Bankruptcy  proceedings  are  generally  straightforward  and  take  less  time  than  the 
OECD average. However, the financial crisis has put a large part of the corporate sector under 
severe financial distress. The number of insolvent companies increased by close to 8% in the 
first  half  of  2010  and  the  construction  sector  accounted  for  the  largest  share.  Firms  are 
suffering from a significant gross debt overhang as outstanding loans to the corporate sector 
amount to roughly 300% of GDP. Around 9% of outstanding debt is owed by firms already in 
bankruptcy. Half of outstanding loans to larger companies and one third of loans to SMEs are 
in  default,  based  on  the  book  value  of  the  loan.  Under  these  difficult  circumstances,  a  new 
insolvency regime has been adopted to support large-scale corporate debt restructuring. Since 

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court capacity is insufficient to handle a large number of cases, the new regime aims to keep 
cases out of court to the extent possible while securing creditors’ rights. Overall, high barriers 
to  market  entry  for  non-residents  remain  in  key  strategic  sectors  and  market  exit  is 
complicated by a large corporate sector debt overhang. 

Legal system 

The legal system continued to support a business-friendly investment climate. It offers good 
protection and enforcement of property rights and provides a clear and stable framework for 
agents to take economic decisions in a situation of legal certainty.  

Financial sector development 

The  reconstruction  of  the  banking  sector  has  progressed.  The  market  remains  dominated  by 
the  three  ‘new’  banks  that  emerged  from  the  financial  collapse  in  autumn  2008.  They  have 
been recapitalised and are now much smaller in size compared to pre-crisis levels, focusing on 
domestic  operations.  Domestic  credit  to  the  private  sector  is  estimated  at  110%  of  GDP  in 
mid-2010, only a fraction of the pre-crisis level. The government retains majority ownership 
in  one  of  the  banks,  and  minority  stakes  in  the  other  two  banks;  with  the  majority  stakes 
(indirectly)  owned  by  non-residents.  However,  the  banks  are  faced  with  significant 
vulnerabilities  as  asset  quality  is  subject  to  considerable  uncertainty.  Assets  are  largely 
denominated  in  or  indexed  to  foreign  exchange  whereas  liabilities  are  in  domestic  currency 
and  at  variable  interest  rates.  Private  households  and  businesses  are  faced  with  significant 
operational problems and default is widespread. Efforts have been made at private sector debt 
restructuring, but due to its complexity, the process has advanced more slowly than expected. 
The  sheer  magnitude  of  balance  sheet  imbalances  poses  a  significant  challenge  to  financial 
sector  stability,  in  spite  of  banks’  currently  rather  high  capital  adequacy  ratios  (16%).  Non-
performing  loan  ratios  are  exceptionally  high.  Currently,  just  under  one  fifth  of  the  banks’ 
restructured loans are being paid on time, while 40% are in default. Write-offs are likely to 
increase,  weakening  the  profitability  and  capital  base  of  banks.  In  addition,  the  Supreme 
Court  decisions  on  loans  indexed  to  a  foreign  exchange  clause  could  further  erode  the 
financial situation of the domestic banks. Furthermore, banks are currently relying to a large 
extent  on  domestic  deposits.  This  source  of  financing  has  been  growing  slowly  despite  the 
government’s blanket deposit guarantee, which has recently been increased. Looking forward, 
the deposit base could weaken as other investment opportunities arise (and capital controls are 
lifted). At the same time, foreign direct investment and access to foreign credit still remains 
limited. The restructuring and recapitalisation of the savings banks has further progressed, but 
savings banks remain burdened with foreign exchange risks due to balance sheet mismatches. 
Overall,  banking  sector  restructuring  has  further  progressed,  but  significant  vulnerabilities 
remain with respect to banks’ asset quality and capitalisation.  

Further progress has been made in strengthening bank regulatory and supervisory practices. A 
new legal framework aims to improve risk management systems and governance, strengthens 
provisions  on  large  exposures  and  connected  lending,  and  enhances  fit  and  proper 
requirements  for  major  shareholders.  Moreover,  the  discretionary  powers  of  the  Financial 
Supervisory  Agency  have  been  strengthened,  inter  alia  through  the  setting  up  of  a  large 
exposures  credit  registry  to  reinforce  control  and  transparency.  Also,  deposit  insurance 
regulations are being revised to bring coverage into line with EU legislation.  

The  non-banking  financial  sector  comprises  the  government-owned  Housing  Finance  Fund, 
investment banks, leasing companies, payment card companies and investment credit funds. 

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Total credit provided by the sector grew by 10% in 2009, reaching the equivalent of 60% of 
GDP, but the increase was largely due to loan indexation rather than to new borrowing. The 
government-owned Housing Financing Fund represents two thirds of the sector’s total assets 
and private households constitute by far the largest group of the Fund’s borrowers. However, 
many  of  the  institutions  continued  to  suffer  from  equity  problems,  a  weak  capital  base  and 
uncertainties  with  respect  to  future  financing.  The  financial  situation  of  the  Housing 
Financing  Fund  has  been  undermined  by  the  weakening  performance  of  its  loan  portfolio, 
which  had  induced  the  Fund  to  introduce  household  debt  restructuring  measures  and  to 
encourage  its  borrowers  to  utilise  government  programmes.  Increases  in  defaults  led  to  a 
significant decline in the equity ratio below the envisaged long-term threshold. A government 
capital  injection  is  currently  being  considered.  Overall,  a  large  part  of  the  non-banking 
financial sector remains confronted with significant credit risks and weak equity ratios.  

Since the collapse of markets in late 2008, domestic equity markets have been playing a much 
smaller  role  in  financial  intermediation.  The  lack  of  confidence  in  the  equity  market  is 
reflected  in  extremely  low  turnover,  which  in  2009  reached  4%  of  the  2008  turnover.  The 
market  value  of  all  listed  companies  stood  at  17%  of  GDP  (end-April  2010),  compared  to 
120%  prior  to  the  crisis.  In  contrast  to  equity  markets,  turnover  on  bond  markets  seems  to 
have recovered rather strongly, also due to rising demand for government-guaranteed bonds 
following  the  failure  of  the  domestic  banks.  The  market  capitalisation  of  all  listed  bonds 
increased  to  close  to  100%  of  GDP  (end-April).  Overall,  domestic  financial  markets  have 
somewhat  recovered  on  the  back  of  a  more  lively  bond  market  while  confidence  in  equity 
markets remains rather weak.  

3.2. 

The  capacity  to  cope  with  competitive  pressure  and  market  forces  within  the 
Union 

Existence of a functioning market economy 

Given the serious impact of the banking crisis, the country’s economy has not yet recovered a 
level of  macro-financial  stability allowing for an efficient allocation of economic resources. 
The  balance  sheets  of  private  households  and  non-financial  firms  have  been  seriously 
damaged  and  a  large  number  of  firms  are  in  the  process  of  or  about  to  enter  into  debt 
restructuring.  Under  these  circumstances,  investment  activity  remains  markedly  restrained, 
holding back the recovery process. An efficient allocation of resources remains rather limited 
in  parts  of  the  economy,  also  due  to  financial  sector  weaknesses  and  capital  restrictions. 
Overall, there remains scope for improving the functioning of markets. 

Human and physical capital 

The  economic  crisis  severely  affected  the  labour  market  situation.  The  unemployment  rate 
increased from 3% in 2008 to 7.2% in 2009; the activity rate dropped from close to 87% to 
around 85%. Moreover, the unemployment rate of the young population has doubled to 16% 
and  the  share  of  long-term  unemployed  has  risen  markedly.  The  government  continued  to 
implement active labour market policies aimed at retraining and upgrading skills of the labour 
force.  However,  with  unemployment  well  above  equilibrium  levels,  human  capital  remains 
significantly  underutilised.  The  crisis  has  also  led  to  an  increase  in  outward  migration  of 
professionals  and  high-skilled  workers.  Despite  the  crisis,  education  spending  has  slightly 
increased  to  around  7.8%  of  GDP  in  2009  (from  7.6%  in  2008),  but  is  foreseen  to  drop  in 
2010 and 2011. The country enjoys a strong capital endowment and the basic infrastructure is 
in line with the high income level of the economy.  

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Abundant geothermal sources have attracted substantial foreign investment in the aluminium 
and  hydropower  sectors  over  the  past,  but  the  financial  crisis  has  put  several  investment 
projects on hold. The share of investment in GDP has fallen markedly in the context of the 
crisis,  from  around  30%  over  previous  years  to  12%  in  2009.  Investments  in  the 
manufacturing sector (aluminium, food processing) have been particularly affected, but they 
have  also  dropped  in  the  energy  and  construction  sector.  At  the  same  time,  the  fall  in  real 
estate  activities  reflects  also  some  normalisation  following  the  earlier  ‘boom’  years.  Public 
investments have also  fallen, from 4%  to 3% of GDP, with  the largest declines in transport 
infrastructure. Inward FDI was negative in 2009 as foreign investors reduced their exposure; 
however, the net FDI balance remained positive as residents reduced outward investments to a 
much larger extent. The total stock of inward FDI remained at around 75% of GDP.  

Spending on research and development has remained high at around 2.7% of GDP. 

Overall,  the  country  enjoys  good  basic  infrastructure,  abundant  natural  resources,  and  a 
generally well educated population. Investments remain concentrated in a few manufacturing 
sectors.  

Sectoral and enterprise structure 

Although  some  new  segments  in  manufacturing  and  services  have  expanded  over  the  past 
years,  in  particular  in  some  high-tech  areas  such  as  software  production  and  biotechnology, 
the  economy’s  industrial  sector  is  characterised  by  a  limited  degree  of  diversification.  The 
relatively  small  industrial  sector  (excluding  construction),  mainly  steel  manufacturing, 
represents roughly 9% of output and one fifth of employment. The share of the service sector 
in total output declined somewhat in the context of the crisis, mainly due to reduced economic 
activity in the real estate, retail trade and financial sectors. However, services still account for 
two thirds of the economy and almost three quarters of employment. Tourism and transport 
continued  to  be  an  important  source  of  foreign  exchange  income  in  2009,  accounting  for  a 
quarter  of  total  export  earnings.  However,  in  the  first  half  of  2010,  the  number  of  foreign 
tourists dropped by 1.2% year on year, probably due to volcanic activity. Lastly, the share of 
construction  in  GDP  has  fallen  markedly,  from  around  10%  of  GDP  over  previous  years  to 
7.4%  in  2010,  reflecting  adjustments  in  an  over-leveraged  sector  as  well  as  completion  of 
large energy-related projects.  

Regarding network industries, energy production is predominantly publicly owned, but third 
party access to transmission and distribution is granted. Non-nationals are not granted market 
access to production. The telecommunication sector is liberalised and privately owned while 
government interventions remain limited to infrastructure investments in remote areas. 

The importance of small firms in the economy remains high, accounting for 99% of the total 
and 70% of employment and output.  

Overall,  the  country’s  industrial  sector  remained  not  very  diversified  and  the  construction 
sector is in a process of deleveraging.  

State influence on competitiveness 

The relatively small agriculture sector continued to benefit from government subsidies, import 
protection,  and  a  system  of  production  quotas.  Certain  industries,  such  as,  energy,  air 
transport and fishing remain heavily protected from foreign competition as non-residents from 
the EEA and/or third countries are not granted access to markets. The level of state subsidies 

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amounts to 1.8% of GDP. The fishing industry, however, does not receive any kind of state 
support from the budget but its future structure and performance is to a large extent contingent 
upon  choices  to  be  made  by  the  state  as  regards  the  domestic  allocation  of  fishing  quotas. 
Energy  production  remained  in  government  ownership,  with  large  consumers  being  offered 
relatively  favourable  electricity  prices.  Following  its  intervention  in  the  banking  sector,  the 
state continued to divest by selling its shares; it retains majority ownership of one of the three 
new banks. The government announced that it will continue the restructuring of the savings 
banks sector. While the government announced it would give creditors a chance to hold most 
of  the  equity,  the  process  will  involve  some  state  support.  The  Housing  Financing  Fund 
remained  state-owned  and  indicated  it  requires  recapitalisation  with  public  funds.  State 
interference  remains  significant  in  some  areas,  including  the  banking  sector  as  long  as  its 
restructuring and privatisation is not completed.  

Economic integration with the EU 

Iceland is an open economy with total trade in goods and services representing around 95% of 
GDP. The country’s export structure is not very diversified. Marine products and aluminium 
account  for  two  thirds  of  merchandise  exports.  The  share  of  services,  mainly  travel  and 
transport,  has  increased  to  around  one  third  of  total  exports.  The  import  structure  is  much 
more diversified, reflecting the country’s dependence on a wide range of manufactured goods 
and some commodities. The EU has continued to  be the  largest trading partner. Its share in 
Icelandic  merchandise  exports  increased  to  over  80%  (January  to  April  2010,  from  around 
75% a year before), and half of the country’s imports originate in the EU. Overall, integration 
with the EU in the areas of trade and investment remained high.  

In  2009,  real  wages  declined  on  average  by  7.3%  as  annual  inflation  (12.3%)  was 
significantly  higher  than  the  growth  of  average  nominal  wages  (3.9%).  The  increase  in 
nominal  labour  costs  was  more  pronounced  in  the  non-tradable  sectors  (e.g.  construction) 
compared  to  the  tradable  sector  (e.g.  manufacturing,  transport,  storage,  communication). 
Rough  estimates  point  to  a  slight  deterioration  of  average  labour  productivity  in  2009, 
suggesting an increase in unit labour costs. The exchange rate of the króna vis-à-vis the euro 
has appreciated by around 15% in the first nine months of 2010. In real effective terms (trade-
weighted  and  adjusted  for  price  differentials)  a  similar  significant  appreciation  took  place, 
suggesting  a  deterioration  in  price  competitiveness  vis-à-vis  the  main  trading  partners.  An 
analogous picture arises for the real exchange rate when measured on the basis of unit labour 
costs. Overall, recent changes in indicators suggest a real appreciation of the króna. However, 
this reflects a gradual rebound from the strong overshooting in the aftermath of the financial 
crisis, when the domestic currency lost half of its value vis-à-vis the euro.  

4. 

ABILITY TO ASSUME THE OBLIGATIONS OF MEMBERSHIP 

This section examines Iceland’s ability to assume the obligations of membership – that is, the 
acquis as expressed in the Treaties, the secondary legislation and the policies of the Union. It 
also  analyses  Iceland’s  administrative  capacity  to  implement  the  acquis.  The  analysis  is 
structured in accordance with the list of 33 acquis chapters. In each sector, the Commission's 
assessment  covers  progress  achieved  during  the  reporting  period,  and  summarises  the 
country's overall level of preparations. 

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4.1. 

Chapter 1: Free movement of goods 

Iceland is highly aligned and applies, with a few exemptions, the acquis in this field due to its 
EEA membership.  

No additional developments can be reported in the area of general principles. The legislation 
on alcoholic beverages remains to be adopted. 

to  horizontal  measures,  Iceland  continued 

With  regard 
the  acquis  on 
standardisation and metrology. No developments can be reported in the areas of conformity 
assessment,  accreditation  and  market  surveillance.  The  latest  changes  in  the  acquis  in  the 
field  of  conformity  assessment,  covering  the  establishment  of  a  common  framework  for  the 
marketing of products, have not yet been incorporated into the EEA Agreement and thus have 
not been fully implemented. Internal and external coordination of market surveillance requires 
further improvement. 

to  apply 

In March 2010 the EFTA Surveillance Authority sent a reasoned opinion to Iceland for failure 
to  implement  EU  legislation  laying  down  uniform  rules  for  the  names,  composition  and 
labelling of textile products.  

As regards the old approach product legislation, Iceland’s alignment with the acquis is well 
advanced.  No  additional  developments  can  be  reported  in  the  automotive  sector,  where 
Iceland  accepts  vehicles  produced  and  marketed  according  to  technical  requirements  and 
standards other than the international ones on which EU legislation is based. 

Iceland  continued  to  apply  the  acquis  in  the  areas  of  new  and  global  approach  product 
legislation and procedural measures. 

Conclusion 

Overall, Iceland continues to be highly aligned with the acquis in the area of free movement 
of  goods.  No  new  developments  can  be  reported  on  horizontal  measures  and  on  the  old 
approach product legislation. 

4.2. 

Chapter 2: Freedom of movement for workers 

Iceland applies the acquis in this field due to its EEA membership, with a few derogations. 

Iceland  continued  over  the  reporting  period  to  apply  the  acquis  on  access  to  the  labour 
market and to fully participate in the European Employment Services network (EURES).  

Progress can be reported under the coordination of social security systems. Preparations for 
electronic  data  exchange  within  the  Electronic  Exchange  of  Social  Security  Information 
(EESSI)  system,  which  was  put  into  place  in  the  EU  in  May  2010,  advanced  over  the 
reporting  period.  A  steering  group  has  been  established  to  introduce  the  EEESI  system  in 
Iceland and work on the installation of an Access Point is in progress. 

Conclusion 

Overall, Iceland continues to apply the acquis in the area of free movement of workers. The 
preparations to apply the new regulations for social security coordination are on track. 

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4.3. 

Chapter 3: Right of establishment and freedom to provide services 

Iceland  has  already  reached  a  high  level  of  alignment  and  applies  a  substantial  part  of  the 
acquis in this field due to its EEA membership.  

No developments can be reported in the area of right of establishment.  

There  has  been  limited  progress  in  the  area  of  freedom  to  provide  cross-border  services. 
The  horizontal  law  transposing  the  Services  Directive  and  the  bill  with  sector-specific 
legislative  amendments  required  by  this  Directive  have  not  been  adopted  yet.  Work  on  the 
Point of Single Contact, required by the Services Directive, has advanced; but adoption of the 
above-mentioned legislative texts is required before the Icelandic Point of Single Contact can 
be made operational.  

The  EFTA  Surveillance  Authority  decided  in  June  2010  to  bring  a  case  before  the  EFTA 
Court against Iceland as it considers that the Icelandic rules are in breach of the freedom to 
provide  services  and  the  Posting  of  Workers  Directive.  The  case  concerns  legislation 
regarding foreign undertakings posting their workers in Iceland for temporary work.  

Restrictions as regards the right of establishment and the freedom to provide services in the 
fisheries sector remain in place. 

No developments can be reported in the area of postal services. In May 2010, the Ministry of 
Transport, Communications and Local Government requested from the EFTA Surveillance an 
adaptation  regarding  the  implementation  of  the  Third  Postal  Directive.  The  goal  of  this 
adaptation is to allow Iceland to take necessary steps to ensure the interests of consumers as 
well as the smooth functioning of the postal market as a whole.  

Some  progress  can  be  reported  in  the  area  of  mutual  recognition  of  professional 
qualifications.  The  main  Directive  on  the  recognition  of  professional  qualifications  was 
incorporated into national law and partly implemented through national regulations. However, 
technical  implementation  remains  to  be  achieved.  For  this  reason  the  EFTA  Surveillance 
Authority decided in July 2010 to bring Iceland before the EFTA Court regarding its failure to 
fully  implement  the  EEA  rules  corresponding  to  the  Directive  on  the  recognition  of 
professional qualifications. Iceland has still to put in place all necessary changes. 

Conclusion 

The  overall  alignment  with  the  acquis  in  the  field  of  right  of  establishment  and  freedom  to 
provide services is at a satisfactory level. However, the current rules are not in line with the 
Services Directive and the Third Postal Directive. The restrictions to foreign investment in the 
fisheries  sector  remain  in  place.  Further  efforts  have  to  be  undertaken  to  complete  the 
framework for mutual recognition of professional qualifications. The administrative capacity 
for  effective  implementation  and  enforcement  of  EU  rules  and  policies  needs  to  be  further 
strengthened. 

4.4. 

Chapter 4: Free movement of capital 

Iceland  has  already  reached  a  high  level  of  alignment  and  applies  a  substantial  part  of  the 
acquis in this field due to its EEA membership.  

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In  November  2008,  against  the  background  of  the  financial  crisis,  Iceland  took  protective 
measures  which  restrict  capital  flows  between  Iceland  and  EEA  Member  States. 
Comprehensive exchange controls are still in force on transactions between Iceland and other 
countries. Certain controls were further tightened in April and November 2009 with a view to 
facilitating  closer  monitoring  of  the  rules  while  capital  inflows  in  foreign  currency  for  new 
investment were authorised. 

As regards capital movements and payments, Iceland introduced in April 2010 new rules on 
foreign exchange which reduce the maximum amount of foreign currency that can be bought 
for  travel.  The  new  rules  provide  for  a  revision  of  the  foreign  exchange  regime  every  six 
months  in  close  cooperation  with  the  IMF.  An  amendment  to  the  Act  on  foreign  exchange, 
adopted  in  June  2010,  extended  the  validity  of  the  clause  on  capital  flow  restrictions  from 
November  2010  to  August  2011,  thus  giving  the  Central  Bank  the  power  to  restrict  or 
temporarily  suspend  any  or  all  categories  of  capital  movements  and  related  exchange 
transactions.  These  provisions  are  not  in  line  with  the  EU acquis.  The  permanent  exception 
which  restricts  foreign  investment  in  fisheries  remains  in  place.  No  development  can  be 
reported in lifting the investment restrictions applied to third country (non-EEA) nationals in 
the sectors of energy, air transport and real estate. 

No developments can be reported in the areas of payment systems and in the fight against 
money  laundering.  The  Act  laying  down  measures  implementing  the  third  Anti-Money 
Laundering  Directive  remains  to  be  fully  implemented.  The  administrative  capacity  of  the 
Financial Intelligence Unit needs to be further strengthened.  

Conclusion 

Overall,  Iceland  applies  the  acquis  on  free  movement  on  capital,  with  some  exceptions. 
Significant  and  sustained  efforts  are  needed  to  remove  the  existing  restrictions  on  capital 
movements,  including  foreign  investment  in  fisheries.  The  administrative  capacity  of  the 
Financial Intelligence Unit requires further strengthening. 

4.5. 

Chapter 5: Public procurement 

Iceland is fully aligned with the general principles of the acquis.  

The entire acquis in this chapter is covered by the EEA Agreement, with the exception of two 
technical Directives and the new Remedies Directive. Iceland has implemented the main body 
of the acquis on public procurement in line with its EEA obligations. 

Regarding administrative capacities, no developments can be reported. 

There has been some progress as regards the award of public contracts, where preparations 
for implementation of the two technical directives have started. 

Little progress has been made in the area of remedies. The law on remedies, transposing the 
new EU directive, has yet to be adopted.  

Conclusion 

Overall  alignment  in  the  field  of  public  procurement  is  very  good  as  Iceland  has  already 
implemented  the  main  body  of  the  acquis  and  is  currently  preparing  full  implementation. 

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However,  administrative  capacity  remains  to  be  further  enhanced  to  ensure  proper 
implementation of public procurement policy at all levels.  

4.6. 

Chapter 6: Company law 

Iceland  has  already  reached  a  high  level  of  alignment  and  applies  a  substantial  part  of  the 
acquis in the field of company law due to its EEA membership.  

Good progress was made in the area of company law. Transposition of the 2007 Directive on 
the exercise of certain rights of shareholders in listed companies was completed and notified 
to  the  EFTA  Surveillance  Authority  in  January  2010.  The  European  Commission’s 
Recommendations  of  April  2009  on  remuneration  policies  in  the  financial  services  sector 
were incorporated into national law and entered into force in June 2010.  

In the area of corporate accounting, no developments can be reported on the implementation 
of parts of the Directive amending certain provisions on annual and consolidated accounts or 
on  the  implementation  of  the  Regulations  on  equivalence  of  accounting  standards. In  April 
2010, the EFTA Surveillance Authority delivered a reasoned opinion to Iceland for failure to 
incorporate  the  Commission  Regulation,  as  amended  in  2009,  on  international  accounting 
standards. Some elements of the legislation leading to the reasoned opinion, have since been 
implemented by Iceland. 

Iceland continued to apply the acquis on auditing.  

Conclusion  

Overall, Iceland has already reached a high level of alignment and applies a substantial part of 
the acquis in the field of company law. However, full alignment with accounting standards is 
not yet achieved. 

4.7. 

Chapter 7: Intellectual property law 

Iceland  has  already  reached  a  high  level  of  alignment  and  applies  a  substantial  part  of  the 
acquis in the field of intellectual property law due to its EEA membership.  

Iceland  continued  to  implement  the  acquis  on  copyright  and  neighbouring  rights.  A  new 
amending  bill  was  adopted  in  June.  However,  only  one  collecting  society  is  legally 
recognised. The legal recognition of copyright collecting societies has not been reviewed or 
extended.  The  Ministry  of  Education,  Science  and  Culture  is  responsible  for  extending 
collective licensing.  

Good progress can be reported in the area of industrial property rights, with the adoption in 
December 2009 of revised legislation on trademarks. However, no developments can be noted 
as regards implementation of the rules on trademark exhaustion and supplementary protection 
certificates for medicinal products.  

A  comprehensive  enforcement  policy,  which  is  not  covered  under  the  EEA,  remains  to  be 
developed and adopted. 

Conclusion 

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Overall, Iceland has already reached a high level of alignment and applies a substantial part of 
the  acquis  in  the  field  of  intellectual  property  law.  A  comprehensive  enforcement  policy 
remains to be adopted. 

4.8. 

Chapter 8: Competition Policy 

Iceland  has  already  reached  a  high  level  of  alignment  and  applies  a  substantial  part  of  the 
acquis in the field of competition due to its EEA membership.  

Iceland  has  reached  a  high  level  of  alignment  in  the  field  of  anti-trust,  including  mergers 
and  no  developments  can  be  reported.  Some  further  monitoring  of  the  quality  and 
enforcement of the decisions of the Icelandic Competition Authority and of the aid measures 
adopted following the economic crisis remains necessary.  

Iceland  notified  the  EFTA  Surveillance  Authority  of  several  state  aid  measures  taken  in 
response  to  the  financial  crisis.  These  state  aid  measures  relate  to  the  restructuring  of  the 
banking  system,  the  recapitalisation  of  savings  banks  and  the  permission  for  the  Housing 
Financing Fund to purchase mortgage loans secured against collateral in residential property. 
Iceland also provided information on the restructuring of its main insurance company. 

Conclusion 

Overall, Iceland has already reached a high level of alignment and applies a substantial part of 
the acquis in the field of competition. Further monitoring of the state aid measures taken in 
response to the financial crisis is necessary. 

4.9. 

Chapter 9: Financial Services 

Iceland  is  highly  aligned  and  applies  a  substantial  part  of  the  acquis  in  this  field  due  to  its 
EEA membership. 

Good progress has been made on financial conglomerates with the adoption in June 2010 of 
the  Act  on  insurance  activities.  This  completes  the  implementation  of  the  Financial 
Conglomerates Directive and consequently of the acquis in this field.  

the  Financial  Supervisory  Authority  (FME)  and 

Iceland adopted in June 2010 a bill amending the Act on financial undertakings with a view to 
improving  the  overall  regulatory  and  supervisory  framework.  The  bill  strengthens  the 
supervisory  powers  of 
introduces 
improvements  in  the  regime  for  and  monitoring  of  large  exposures  by  inter  alia  creating  a 
separate  national  registry,  laying  down  stricter  rules  on  financial  institutions’  trading  their 
own stock and prohibiting lending with collateral in own shares. It also introduces provisions 
for good business practices. The new framework is to be supplemented with further measures 
to be adopted by the FME and by an agreement between the FME and the Central Bank on the 
operation of the large exposures registry.  

In banking, little progress has been made on rules regarding a new coverage level (at present 
maximum  € 50,000  per  account  holder)  of  the  de posit  guarantee  scheme,  where  legislation 
has yet to be adopted.  

Regarding  Icesave,  in  December  2009  the  Icelandic  parliament  passed  a  law  authorising  a 
state guarantee on the obligations of the Icelandic depositors insurance scheme, putting into 
effect the Icesave agreement between Iceland, the UK and the Netherlands of October 2009. 

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However, in January 2010, the Icelandic President refused to sign the bill. In accordance with 
the  provisions  of  the  Icelandic  constitution  the  bill  was  subsequently  put  to  a  referendum 
which, in March, resulted in a 93.6% ‘No’ vote with a 62.7% participation rate. Since then, 
talks among the three parties have slowed down. In June Iceland’s Finance Minister contacted 
the UK Chancellor of the Exchequer and the Dutch Minister of Finance to reconfirm Iceland’s 
commitment  to  repay  the  Icesave  loans  and  suggested  restarting  negotiations.  Meetings 
between Icelandic, UK and Dutch representatives took place in July and in September.  

In May the EFTA Surveillance Authority (ESA) issued a letter of formal notice on Iceland’s 
application  of  the  EU  Deposit  Guarantee  Directive,  on  the  ground  that,  by  failing  to  ensure 
payment  of  the  minimum  amount  of  compensation  to  Icesave  depositors  in  the  UK  and  the 
Netherlands within certain time limits, Iceland had failed to comply with its obligations under 
the  Directive  and  the  principle  of  non-discrimination.  Iceland  had  until  early  September  to 
respond to the letter. The European Commission indicated that it supported the legal analysis 
of ESA. At this stage the Icesave dispute still remains unresolved. 

Some  progress  can  be  reported  in  the  area  of  insurance  and  occupational  pensions.  Since 
the adoption in June 2010 of the Act on insurance activities, Iceland has been implementing 
the  provisions  of  the  Reinsurance  Directive.  However,  some  provisions  concerning  the  Life 
Assurance  Directive  as  well  as  the  Insurance  Group  Directive  and  the  Insurance  Mediation 
Directive remain to be transposed.  

No developments can be reported in the area of financial market infrastructure.  

Iceland  has  already notified  the  implementation of all relevant EU legislation in the area of 
securities markets and investment services and no developments can be reported. However, 
ongoing and upcoming reviews of several securities markets directives remain to be carried 
out in order to transpose amending directives. 

No development can be reported on administrative capacity. 

Conclusion 

Overall alignment in this area is good, although the reforms introduced are, for the moment, 
only partial. However, implementation is not complete in some key areas, notably insurance 
and  securities.  The  supervisory  capacity  needs  further  improvement.  The  Icesave  dispute 
remains unresolved at this stage. 

4.10.  Chapter 10: Information society and media 

Overall, Iceland has already reached a high level of alignment and applies a substantial part of 
the acquis in this field due to its EEA membership.  

Some progress can be reported in the area of electronic communications and information 
technologies,  with  the  entry  into  force  in  April  2010  of  the  new  regulation  on  roaming. 
Iceland's legislation is not yet in line with the Directive on data retention, which is not part of 
the  EEA  Agreement.  The  EU  electronic  communications  reform  package,  as  amended  in 
2009, has yet to be adopted. Discussions have been carried out over the reporting period on 
the need for greater independence of national regulatory authorities. 

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No  further  developments  can  be  reported  in  the  area  of  information  society  services. 
Regarding  the  transposition  of  the  Directive  on  conditional  access,  legal  protection  was  not 
extended to conditional access devices other than broadcasting services decoders.  

As regards audiovisual policy, the Audiovisual Media Services Directive was not transposed 
into national law. Iceland continued to participate in the MEDIA 2007 Programme. 

Conclusion 

Overall, Iceland has already reached a high level of alignment and applies a substantial part of 
the acquis in the field of the information society and media. However, the provisions of the 
telecoms reform, the Audiovisual Media Services Directive and the policies introduced by the 
recent adoption of the European Digital Agenda remain to be implemented. 

4.11.  Chapter 11: Agriculture and rural development 

As  regards  horizontal  issues,  no  legislative  developments  can  be  reported.  However,  the 
administration has been concentrating on gaining a better understanding of the acquis in the 
area. The limited administrative capacity has not been addressed.  

Preparations for the establishment of administrative structures, in particular the setting-up of 
an EU-compliant paying agency and an integrated administration and control system (IACS), 
remains  at  a  very  early  stage.  A  working  group  involving  stakeholders  was  set  up  over  the 
reporting  period  to  review  the  administrative  structures  in  Iceland  with  a  view  to  designing 
appropriate  structures  in  order  to  meet  the  acquis.  The  emphasis  was  put  on  the  paying 
agency, management and control structures. A working group was formed in May to analyse 
the current land registration system. 

No  developments  can  be  reported  to  align  with  EU  rules  on  support  measures.  As  regards 
payment, Iceland is in a position to disseminate information each year on beneficiaries. The 
current  support  system  already  requires  the  administration  to  have  detailed  information  on 
direct payments beneficiaries. This applies to dairy farming, sheep farming and horticulture. 

A  strategy  for  agricultural  statistics  was  finalised  in  September  by  a  task  force  including 
Statistics Iceland in cooperation with the Ministry of Fisheries and Agriculture.  

No developments can be reported as regards the single Common Market Organisation.  

In the field of rural development experts are working on a plan to set out how Iceland could 
coordinate its rural development strategies within the EU framework. A formal working group 
on rural development is still to be set up. Appropriate structures including a rural development 
paying agency remain to be set up. 

No  developments  can  be  reported  in  the  areas  of  quality  policy  and  organic  farming, 
although the latter is covered by the EEA Agreement and largely in line with the acquis. 

Conclusion 

Overall,  Iceland’s  agricultural  policy  is  not  in  line  with  the  acquis  and  no  new  legislative 
developments can be reported. Working groups were set up to review basic instruments and 
institutions  for  managing  the  common  agricultural  policy.  The  resources  for  addressing  the 
necessary preparations in this chapter will require strengthening. 

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4.12.  Chapter 12: Food safety, veterinary and phytosanitary policy 

Progress  can  be  reported  as  regards  general  food  safety  with  the  entry  into  force  in  March 
2010 of the new Food Law Package, which brings Iceland further into line with EU acquis. 
The  new  legislation  reinforces  the  powers  of  the  central  competent  food  and  veterinary 
authority  (CCA-MAST)  in  the  area  of  food  and  feed  controls.  The  CCA-MAST  is  now 
responsible  for  the  inspection  of  businesses  producing  foods  of  animal  origin  and  for 
accrediting  laboratories  for  the  official  control.  Laboratories  for  measuring  salmonella  were 
designated in June 2010. However, the exact distribution of control tasks between central and 
public  health  authorities  is  still  under  discussion  and  inspections  plans  have  not  yet  been 
prepared. 

The  legal  powers  of  the  central  competent  food  and  veterinary  authority  over  the  local 
competent authorities and the reference laboratories were not reinforced. Central oversight of 
the  effectiveness  of  controls  remained  limited.  The  CCA-MAST  has  not  signed  inspection 
contracts with all reference laboratories. 

In  the  veterinary  sector,  Iceland  continued  to  benefit,  under  the  EEA  Agreement,  from  an 
exemption from EU rules on trade in live animals and germplasm enabling it to prohibit all 
imports  of  live  animals  except  for  fish  and  fish  germplasm.  Icelandic  legislation  was, 
however, slightly amended in December 2009 to enable the food and veterinary authority to 
allow the import of frozen pig semen under special conditions. Iceland already largely fulfils 
the acquis on identification and registration of animals. The general Act on protection against 
infectious  diseases  is  in  line  with  EU  acquis  on  zoonoses.  Iceland  also  adopted  rules 
transposing EU legislation on contaminates that are expected to enter into force in November 
2011. However,  no developments can be reported in aligning with the acquis in the area of 
import of live animals. 

Limited progress can be reported as regards the placing on the market of food and feed with 
the entry into force in March 2010 of provisions in line with the acquis on animal by-products 
not  intended  for  human  consumption.  However,  these  provisions  only  cover  fish  products. 
The  hygiene  package  remains  to  be  fully  implemented.  A  national  upgrading  plan  to  bring 
food  establishments  in  line  with  the  hygiene  rules  remains  to  be  prepared.  There  is  no 
collection  system  and  incineration  facilities  for  carcasses  that  are  potentially  infected  with 
transmissible spongiform encephalopathy (TSE). 

Iceland is not in line with the acquis on novel foods and genetically modified foods; which is 
not  covered  by  the  EEA.  The  competent  authority  cannot  test  the  full  range  of  pesticide 
residues.  With  the  exception  of  the  entry  into  force  in  2010  of  EU  requirements  on  feed 
hygiene, the acquis on specific rules for feed as well as on the placing on the market and the 
use of feed is not transposed. 

No developments can  be reported  in the phytosanitary policy. The capacities of  accredited 
laboratories remain to be enhanced. EU rules on plant protection products and plant health are 
not applied. 

Conclusion 

Overall,  Iceland  is  partially  in  line  with  the  acquis  on  food  safety,  veterinary  and 
phytosanitary  policy.  Efforts  are  required  to  strengthen  administrative  and  laboratory 
capacities and to close the remaining gaps with regard to the acquis on the hygiene package, 
plant protection products, novel foods and genetically modified foods. 

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4.13.  Chapter 13: Fisheries 

As  regards  resource  and  fleet  management  the  working  group  reviewing  the  fisheries 
management system continued its work over the reporting period and delivered a final report 
in September. The administration has been working on gaining a better understanding of the 
acquis in the area. No developments can be reported in lifting the restrictions to the internal 
market acquis regarding the right of establishment and the freedom to provide services as well 
as the free movement of capital in the fisheries production and processing sectors.  

The  overall  design  and  implementation  of  Icelandic  fisheries  policy  is  similar  to  that 
implemented  in  the  EU.  Iceland  continued  to  subscribe  to  the  principles  of  sustainable 
resources  management  and  has  incorporated  the  precautionary  approach  and  the  ecosystem 
approach  as  guiding  principles  for  decision  making  in  its  basic  fisheries  legislation.  Iceland 
continued  to  manage  its  fish  stocks  according  to harvest  rules,  similar  in  effect  to  the  EU’s 
long-term management plans, but these rules have not been translated into legislative acts. In 
addition,  alignment  with  the  acquis  on  harvesting  stocks  at  a  level  that  provides  maximum 
sustainable  yield  has  not  yet  started.  Iceland  implements  a  policy  of  relatively  low 
intervention:  there  is  no  fleet  capacity  policy,  no  funds  for  direct  subsidies  and  no  market 
intervention.  The  relevant  administrative  authority  is  the  Ministry  of  Fisheries  and 
Agriculture,  assisted  by  the  Icelandic  Directorate  of  Fisheries  and  the  Marine  Research 
Institute.  Overall,  adequate  administrative  structures  are  in  place.  An  EU-compatible  vessel 
registry has not been set up.  

No  developments  can  be  reported  in  the  area  of  inspection  and  control.  However, 
preparations were made with a view to ratifying the 2009 Agreement on port state measures to 
prevent, deter and eliminate illegal, unreported and unregulated fishing.  

There  have  been  no  developments  as  regards  structural  actions  and  state  aid.  Iceland 
provides only very limited support to the fisheries sector. Preparations for the implementation 
of  the  European  Fisheries  Fund  (EFF),  including  the  setting-up  of  management  and  control 
systems, have not started. 

In the area of market policy, Iceland has a limited but efficient legislative and administrative 
framework  which,  however,  is  not  in  line  with  the  EU  acquis  as  regards  the  common 
organisation  of  markets  for  fisheries  products.  There  are  no  commercial  minimum  sizes  of 
fish products and/or freshness types and unrestricted landing of herring for other than human 
consumption is allowed. 

In the area of international agreements, Iceland has started to prepare for amendments to its 
legislation  with  a  view  to  accepting  the  1993  FAO  Agreement  to  promote  compliance  with 
international conservation and management measures by fishing vessels on the high seas.  

Iceland  is  a  party  to  arrangements  which  involve  direct  cooperation  between  the  Coastal 
States  of  the  North-East  Atlantic.  Through  such  arrangements,  these  Coastal  States  jointly 
manage the highly migratory stocks straddling the respective economic zones. In relation to 
mackerel,  Iceland  was  formally  recognised  as  a  Coastal  State  in  2010  but  it  has  not  been 
possible to reach an agreement on the management of mackerel stock for 2010 between the 
Coastal States. Iceland’s rapidly expanded fishery of mackerel over the last three years is an 
issue of widespread concern within the EU, also with regard to the principles of sustainable 
resources management.  

Conclusion 

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Overall, Iceland has a fisheries policy which has similar objectives to those being pursued in 
the EU, but some rules differ substantially. No new development can be reported in aligning 
with  the  EU  common  fisheries  policy.  Particular  attention  needs  to  be  paid  to  the  internal 
market acquis regarding the right of establishment, the freedom to provide services as well as 
the  free  movement  of  capital  in  the  fisheries  production  and  processing  sectors  where  the 
restrictions  in  place  are  not  in  line  with  the  acquis.  Mechanisms  for  implementing  and 
monitoring EU support measures remain to be set up.  

4.14.  Chapter 14: Transport policy 

Iceland already applies a significant part of the acquis on transport policy. 

No developments can be reported in the area of road transport. Implementation of the acquis 
regarding social legislation, technical equipment, public passenger transport services and road 
transport activities remains unfulfilled.  

There are no rail or inland waterway transport sectors in Iceland.  

Good progress can be reported in the area of combined transport, where Directives on the 
establishment  of  common  rules  for  certain  types  of  combined  transport  of  goods  between 
Member States have been implemented as well as the Decision on Community guidelines for 
the development of the trans-European transport network. Combined transport is in the case 
of  Iceland  mainly  restricted  to  road  transport,  since  there  are  no  railway  systems  or  inland 
waterways.  

There has been some progress with regard to air transport, with the implementation of the 
acquis  in  areas  including  exchange  of  flight  data  and  information  on  civil  aviation 
occurrences. However, no developments can be reported in aviation security or in lifting the 
restrictions  on  direct  foreign  investment  in  the  aviation  sector.  Regarding  air  traffic 
management, the independence of the national Supervisory Authority needs to be ensured.  

The  acquis  alignment  is  pending  in  several  areas  of  maritime  transport,  including  marine 
equipment, training, and safety rules on passenger ships. The ESA has launched infringement 
proceedings in two cases (on minimum level of training of seafarers in September 2009 and 
on  Marine  equipment  in  December  2009).  No  development  can  be  reported  in  ensuring 
freedom  of  establishment  with  regard  to  ship  registration,  or  in  the  area  of  satellite 
navigation. 

Conclusion 

Overall,  Iceland  applies  a  substantial  of  the  acquis  on  transport  policy.  However,  the 
restrictions to foreign investment in air and maritime transport have not been brought into line 
with the acquis. The independence of the Supervisory Authority in air transport remains to be 
ensured. 

4.15.  Chapter 15: Energy 

Some  progress  can  be  reported  with  regard  to  security  of  supply  and  the  internal  energy 
market.  The  Directive  on  measures  to  safeguard  security  of  electricity  supply  and 
infrastructure  investment  was  implemented  through  the  Electricity  Act  approved  by 
parliament  in  December  2009.  The  steering  group  with  the  task  of  developing  a 
comprehensive  energy  policy  for  Iceland  issued  its  first  consultation  paper  in  May  2010.  It 

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worked  out  steps  to  increase  energy  security,  in  particular  through  participation  in  the 
International Energy Agency. The Ministry of Industry, Energy and Tourism started to reflect 
on  whether  and  how  the  independence  of  the  National  Energy  Authority  can  be  further 
strengthened. However, the process of adopting key legislation with respect to oil stocks has 
not been launched.  

Against the background of existing restrictions in energy sector, the Icelandic government has 
appointed an independent task force to investigate and report whether the acquisition of one 
of Iceland's geothermal energy companies by a Swedish subsidiary of a Canadian company is 
within  the  framework  of  the  Icelandic  law  and  the  EEA  regulations.  In  September,  the  task 
force acknowledged the legality of the acquisition. 

Iceland's  share  of  renewable  energy  in  its  gross  final  energy  consumption  has  been 
constantly  increasing  over  the  last  years.  The  preparations  and  consultations  with  a  view  to 
implementing the new Directive on renewable energy and establishing a national target and a 
national renewable energy action plan are at an early stage.  

No  development  can  be  reported  in  the  area  of  energy  efficiency.  Iceland  is  currently 
exempted  under  the  EEA  from  transposing  the  Directive  on  the  energy  performance  of 
buildings  into  national  law  and  from  implementing  the  Directive  on  the  promotion  of 
cogeneration  based  on  useful  heat  demand  in  the  internal  energy  market.  Iceland  does  not 
have  national  energy  saving  targets  and  implementation  of  the  acquis  on  energy  end-use 
efficiency is at an early stage.  

Iceland’s is highly aligned with the acquis in the area of nuclear energy, nuclear safety and 
radiation  protection.  Iceland  participates  in  the  Community  radiological  data  exchange 
system (EURDEP) and the European Commission is preparing to propose membership in the 
European Community Urgent Radiological Information Exchange. 

Conclusion  

Overall,  Iceland  continues  to  be  highly  aligned  with  the  acquis  in  the  field  of  energy. 
However, alignment in the areas of oil stocks, independence of the regulatory authority and 
energy efficiency is moderately advanced. 

4.16.  Chapter 16: Taxation 

A  working  group  on  taxation  started  in  early  2010  to  evaluate  the  overall  impact  of  acquis 
alignment  in  particular  as  far  as  the  VAT  Directive,  company  tax  legislation,  the  Savings 
Directive and means to achieve interconnectivity/interoperability with the EU are concerned. 

In the area of indirect taxation - VAT or excise duties - no developments can be reported. Tax 
legislation is only partly in line with the acquis, in particular on VAT and excise duties, with 
special reference to rates and product category definitions, including for alcohol and tobacco, 
petrol and diesel fuels, travellers’ allowances, warehousing, duty suspension and duty-free.  

With  regard  to  direct  taxation,  no  developments  can  be  reported  in  aligning  with  the 
provisions  of  the  Merger  Directive,  the  Interest  and  Royalties  Directive  and  the  Savings 
Directive. Further adaptation to ensure compliance in particular with the Parent-Subsidiaries 
Directive and the Capital Duty Directive and the explicit commitment to observe the Code of 
Conduct for business taxation did not start over the reporting period. Amendment of several 

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detailed provisions of Iceland’s legislation on the basis of European Court of Justice case law 
to ensure compliance with the acquis is also pending.  

Concerning  administrative  cooperation  and  mutual  assistance  and  operational  capacity 
and computerisation, no developments can be reported. A  central liaison office and excise 
liaison office remain to be established, and the implementation of acquis provisions relating 
to mutual assistance for assessment in direct tax matters has not started. The need to further 
adapt  the  administrative  organisation  to  meet  EU  acquis  on  mutual  recovery  assistance  has 
not  been  addressed.  Adaptation  of  the  IT  network  to  achieve  interconnectivity  and 
interoperability with the EU’s IT systems for taxation remains unfinished. 

Iceland has achieved substantial progress in the delivery of statistical data on taxation, in line 
with the acquis.  

Conclusion  

Overall, limited progress can be noted. Iceland’s tax legislation remains partially aligned with 
the acquis. Iceland has already achieved a good level of administrative capacity in the field of 
taxation. Nevertheless, liaison offices and IT interconnectivity remain to be set up. 

4.17.  Chapter 17: Economic and Monetary Policy 

No progress has been made in the area of monetary policy. Following the Act on the Central 
Bank of 2001, central bank functional, institutional, personal and financial independence, are 
not  in  line  with  the  EU  acquis.  National  legislation  foreseeing  the  financing  by  the  central 
bank of credit institutions other than in connection with the support of insolvent credit and/or 
other financial institutions is incompatible with the prohibition on monetary financing, unless 
it is established that the Central Bank acts only as a fiscal agent of the State. The 2001 Act on 
the  Central  Bank  of  Iceland  does  not  regulate  aspects  necessary  for  the  integration  of  the 
central bank into the European System of Central Banks. 

Some  progress  has  been  made  in  the  area  of  economic  policy.  Iceland  continued  to  submit 
fiscal  notifications  to  the  European  Commission.  As  a  candidate  country,  Iceland  is  being 
included into the pre-accession fiscal surveillance. The country is requested to submit its first 
Pre-accession  Economic  Programme  by  end-January  2011,  for  which  preparations  have 
started. However, inter-departmental coordination and communication needs to be improved. 
Administrative  capacity  needs  to  be  strengthened  with  a  view  to  formulating  and 
implementing  economic  policy  in  line  with  the  Treaty  on  the  Functioning  of  the  European 
Union.  

Conclusion 

Some progress can be reported in the area of economic policy while efforts are necessary to 
improve  departmental  coordination  in  preparing  the  Pre-accession  Economic  Programme. 
Several  shortcomings  still  exist  in  the  field  of  monetary  policy,  in  particular  regarding  full 
independence  of  the  central  bank  and  the  prohibition  of  monetary  financing  of  the  public 
sector. 

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4.18.  Chapter 18: Statistics 

Limited progress has been made in the area of statistical infrastructure. The coordination of 
the statistical system by Statistics Iceland, the national statistical institute, has improved and a 
cooperation  agreement  was  signed  between  Statistics  Iceland  and  the  Central  Bank  in  May 
2010. However, Statistics Iceland had to further reduce its staff level and operational budget. 
The  resources  available  for  statistics  are  not  sufficient  for  maintaining  and  advancing  the 
current level of operations. 

The main statistical classifications are in place and follow the acquis. Limited progress can be 
reported  on  classifications  and  registers.  Work  on  the  statistical  business  register  has 
progressed slowly.  

In  the  area  of  sector  statistics,  there  has  been  some  progress.  Work  on  a  strategy  for 
improving  agriculture  statistics  is  ongoing,  dealing  in  particular  with  how  to  move  the 
collection  of  statistical  data  from  the  Farmers  Association  to  Statistics  Iceland.  Statistics 
Iceland has started preparations for the farm structure survey to be conducted in autumn 2010 
but the budget for conducting the survey has not been allocated. As regards fisheries statistics, 
the methodological report was delivered to Eurostat in December 2009. The timeliness of data 
delivery has also been improved. Statistics Iceland has taken steps to improve the coverage of 
missing  variables  on  households  in  the  Icelandic  labour  force  survey.  The  financing  of  the 
housing and population census to be conducted in 2011 is not secured. Significant weaknesses 
remain  in  the  area  of  sector  statistics  such  as  business,  macroeconomic  and  agriculture 
statistics where further efforts are needed. 

Conclusion 

Overall  Iceland  is  already  highly  in  line  with  the  acquis  on  statistics.  However,  it  needs  to 
improve  the  availability  of  statistical  data  in  line  with  EU  methodology,  in  particular  in 
business, macroeconomic and agriculture statistics. Medium term funding of major statistical 
operations, such as the farm structure survey and the population and housing census, remains 
to be ensured. Human and financial resources have been further cut back. 

4.19.  Chapter 19: Social Policy and employment 

Iceland already implements substantial parts of the acquis. No additional developments can be 
reported in the fields of labour law and health and safety at work.  

Iceland has a well established tradition of a functioning social dialogue. In this context, the 
tripartite Stability Pact between labour, employers and government was signed in June 2009. 
It aimed to limit labour disputes by extending existing collective agreements and stimulating 
economic  recovery  through  investments  and  reforms  of  pension  funds.  However,  social 
partners were not systematically involved by the government in the decision-making process, 
which  led  to  their  withdrawal  of  the  Confederation  of  Icelandic  Employers  in  March  2010. 
The bi-partite social dialogue is functioning very well. In June 2010 the social partners signed 
an agreement on working place identification cards aimed at reducing illegal labour.  

Some  progress  can  be  reported  regarding  Iceland’s  employment  policy.  The  surveyed 
unemployment rate amounted to 9% in the second quarter of 2010, a small decrease compared 
the  2009  figures.  Youth  unemployment  remained  particularly  high.  Long-term 
to 
unemployment  has  particularly  affected  low-skilled  workers.  The  government  further 
developed  active  labour  market  measures  focusing  on  activation  and  training  of  the 

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unemployed. From January to April 2010, the Ministry of Social Affairs and Social Security 
launched  two  initiatives  aimed  at  mobilising  unemployed  youth.  Young  people  between  the 
ages  of  16  and  25,  who  had  been  unemployed  for  three  months  or  longer,  were  given  the 
opportunity  to  engage  in  various  activities  (jobs,  voluntary  work,  vocational  training).  The 
second  initiative  targeted  young  unemployed  immigrants  who,  after  a  language  placement 
test, were offered a language course at an appropriate level. Both projects had a high success 
rate. However, an overall employment strategy has not yet been prepared.  

No additional developments can be reported in terms of preparations for participation in the 
European Social Fund.  

Iceland continues to take appropriate social inclusion measures for the vulnerable groups in 
society,  based  on  the  Nordic  welfare  approach.  A  close  monitoring  and  evaluation  of  the 
social  situation  of  single  parent  families,  low  income  elderly,  children  and  social  assistance 
recipients is necessary. The aim would be to assess the impact of the economic crisis on those 
groups,  also  in  view  of  the  reduced  public  expenditure.  Iceland  took  part  in  the  2010 
European Year for combating poverty and social exclusion. 

Iceland managed to ensure the quality of social protection services over the reporting period 
against a difficult economic background. Overall, expenditures on social welfare were cut at a 
lower  rate  than  other  sectors  of  public  expenditure.  The  government  also  took  measures  to 
shelter the lower income groups from the effects of the crisis, e.g. with social protection, tax 
and debt relief measures.  

In the field of anti-discrimination, parliament legalised same-sex marriages in June 2010.  

Iceland’s  standards  in  the  field  of  equal  opportunities,  and  particularly  gender  equality, 
remained very high. In March 2010, parliament passed a law on gender quotas for the boards 
of  public  limited  companies,  whereby  such  companies  must  now  ensure  that  the  board 
consists  of  as  close  as  possible  to  an  equal  number  of  females  and  males.  Moreover, 
companies with 25 or more employees are required to disclose the number of male and female 
employees  as  well  as  the  number  of  men  and  women  in  management  positions.  Two  Equal 
Opportunities  Directives  on  gender  equality  in  social  security  and  on  access  to  goods  and 
services remain to be transposed. 

Conclusion 

Overall,  Iceland  has  already  reached  a  high  level  of  alignment  and  continued  to  apply  a 
substantial  part  of  the  acquis  in  this  chapter,  partly  due  to  its  EEA  membership.  Social 
dialogue  mechanisms  are  well  established,  although  the  current  financial  and  economic 
situation has affected the quality of tripartite dialogue. A comprehensive employment strategy 
remains to be worked out. 

4.20.  Chapter 20: Enterprise and industrial policy 

Iceland  has  already  reached  a  high  level  of  alignment  and  applies  a  substantial  part  of  the 
acquis in this field due to its EEA membership.  

No additional developments can be reported in the areas of enterprise and industrial policy 
principles,  and  sector  policies.  Work  continued  on  the  ‘Iceland  2020  strategy’  which  is 
aimed at setting socio-economic priorities of the country for the next decade.  

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In the field of enterprise and industrial policy instruments Iceland continued to participate 
in the enterprise and innovation programme (EIP) and to be a full member of the Enterprise 
Europe network. 

Against  the  fallout  of  the  financial  and  economic  crisis,  Iceland  was  not  in  a  position  to 
develop any specific industrial policy strategy and SMEs’ access to finance has not improved. 
Sector-specific  development  measures  or  initiatives  are  at  an  early  stage  of  preparation, 
including the area of green energy in the transport sector.  

Conclusion 

Overall,  alignment  in  the  area  of  enterprise  and  industrial  policy  is  at  high  level.  However, 
new measures in industrial and SME policy are needed in particular to address the challenges 
of the current economic difficulties.  

4.21.  Chapter 21: Trans European Networks 

Iceland continued to participate in the TEN-T network in line with the acquis and no further 
developments can be reported as regards transport networks.  

Good progress can be reported in the area of energy networks with the full transposition in 
April  2010  of  the  Regulation  on  conditions  for  access  to  the  network  for  cross-border 
exchanges  in  electricity.  However,  no  developments  can  be  reported  regarding  the 
establishment of a TEN-E-related policy.  

No  additional  developments  can  be  reported  in  the  area  of  telecommunication  networks, 
where  Iceland  continued  to  participate  in  the  ICT  Policy  Support  component  of  the 
Competitiveness  and  Innovation  Framework  Programme.  There  are  four  submarine 
communication  cables,  connecting  Iceland  to  the  Faroe  Islands,  Greenland,  Denmark, 
Scotland and Canada.  

Conclusion 

Overall, alignment with EU standards is already high and some progress can be reported in 
this chapter. However, TEN-E-related policy requires further development. 

4.22.  Chapter 22: Regional policy and coordination of structural instruments 

As  far  as  the  legislative  framework  is  concerned,  no  developments  can  be  reported.  The 
budget law  does not yet provide sufficient flexibility for transfers between  budget  lines and 
years. 

Iceland  set  up  two  working  groups  within  the  negotiating  team  on  regional  policy  and 
coordination of structural instruments in January and March 2010. The working groups started 
to  analyse  and  reflect  on:  (i)  the  required  administrative  capacity  and  its  institutional  set-up 
and  (ii)  application  of  the  NUTS  classification  to  the  Icelandic  system.  The  ongoing 
preparations  demonstrate  the  interest  and  the  commitment  of  the  national  and  regional 
authorities and social partners in the process.  

No  developments  can  be  reported  over  the  reporting  period  as  regards  the  institutional 
financial 
framework,  administrative  capacity,  monitoring  and  evaluation  and 
management and control.  

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Conclusion 

Iceland  is  at  an  early  stage  of  preparations  for  the  implementation  of  the  cohesion  policy 
instruments. Limited progress has been made under this chapter over the reporting period. An 
appropriate  needs  analysis,  including  identification  of  the  institutions  responsible  for  the 
implementation of the cohesion policy, remains to be performed. 

4.23.  Chapter 23: Judiciary and fundamental rights 

Iceland's judiciary is of a high standard and the judicial system is well established. 

Good  progress  can  be  reported  in  strengthening  the  independence  of  the  judiciary  with  the 
adoption  in  May  2010  of  amendments  to  the  Act  of  Judiciary  related  to  the  appointment  of 
judges. The amendments aim at reinforcing the powers and the composition of the Evaluation 
Committee and broaden its mandate to cover applications for the Supreme Court. According 
to  these  changes,  the  Minister  of  Justice  may  only  deviate  from  the  recommendation  of  the 
Evaluation  Committee  if  the  Parliament  approves  a  motion  from  the  Minister  to  appoint 
another candidate.  

It can not be excluded that there is a risk that the decision taken in such a case is based not on 
qualifications but on political grounds due to the involvement of a parliamentary vote. 

As  regards  training  of  judges,  the  Judicial  Council  continued  to  provide  training  over  the 
reporting period to district court judges and other lawyers in service of the district courts.  

No developments can be reported on disciplinary procedures for judges where the decision of 
the Committee on Judicial Functions to remove a judge is not binding and cannot be referred 
to any higher administrative authority.  

No developments can be reported in reviewing the role of the Minister of Justice in relation to 
the appointment and, to a lesser extent, the dismissal of prosecutors. 

The  Office  of  the  Special  Prosecutor  continued  to  carry  out  a  number  of  criminal 
investigations over the reporting period. (See also political criteria) 

Good progress can be reported in the anti-corruption policy.  

The Parliament adopted in June 2010 a bill providing for the obligation to establish, under the 
supervision of the Parliamentary Ombudsman, Codes of conduct for all government officials 
and  for  members  of  the  Prime  Minister's  Cabinet.  It  includes  provisions  to  train  the  public 
administration  on  ethics  related  issues,  gives  protection  to  whistle  blowers  and  specifies 
penalties  for  ministers  in  breach  of  their  responsibilities.  This  bill  aims  at  tackling  possible 
conflicts  of  interest  and  takes  into  account  parts  of  the  recommendations  of  the  Council  of 
Europe's group of states against corruption (GRECO). The UN Convention against Corruption 
is not ratified yet. However, effective prevention and awareness raising activities on all forms 
of corruption across the country are required. 

The ratification of the Council of Europe Civil Law Convention is still in process and all the 
relevant Ministries were informed about the need to change legislation accordingly.  

Iceland amended its legislation regarding the financing of political parties and the obligation 
of political parties and their candidates to inform about their finances. The relevant amended 
act on finances of political parties was adopted in September. 

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On  fundamental  rights,  Iceland  provides  for  a  high  level  of  protection  and  no  additional 
development can be reported. 

No  developments  can  be  reported  in  further  strengthening  the  independence  of  the  Data 
Protection  Authority  from  the  Government.  The  Additional  protocol  to  Council  of  Europe 
Convention  108  for  the  Protection  of  Individuals  with  regard  to  Automatic  Processing  of 
Personal Data remains to be ratified.  

On EU citizens' rights, no developments can be reported regarding the exception on the right 
to  vote  and  to  stand  in  local  elections  that  are  granted  to  citizens  of  Denmark,  Finland, 
Norway and Sweden after three years of residence against five years' residence to other EU 
citizens. These exceptions are not in line with EU acquis. 

Conclusion 

Overall,  Iceland's  judiciary  is  of  a  high  standard  and  Iceland  provides  for  a  high  level  of 
protection  on  fundamental  rights.  However,  the  new  provisions  on  conflict  of  interest  and 
financing of political parties as well as of the act of judiciary remain to be fully assessed. The 
legislation on citizens' rights and data protection is not yet in line with the acquis.  

4.24.  Chapter 24: Justice, freedom and security 

Being an associated member of the Schengen Agreement, Iceland already implements a large 
part of the acquis in the area of justice, freedom and security, in particular as regards external 
borders  and  visa  policy.  In  these  areas  the  Schengen  Agreement  is  being  correctly 
implemented by Iceland. Iceland also continues its involvement in Frontex and contributes to 
its activities.  

Overall, Iceland is advanced in the area of migration and the legislation is largely in line with 
the acquis. No additional developments can be reported in this area. Iceland needs to tackle 
some of the outstanding issues such as the absence of a specific scheme for researchers and as 
regards the right to family reunification. 

Overall,  Iceland  is  well  advanced  in  the  area  of  asylum  but  further  steps  are  necessary. 
Amendments  to  the  Act  on  Foreigners  were  adopted  in  September  on  the  rights  for  asylum 
seekers and refugees.  

In the area of judicial cooperation in civil and criminal matters, no developments can be 
noted  with  regard  to  joining  the  1996  Child  Protection  Convention  and  the  2007  Child 
Support  Convention  and  its  protocol  on  applicable  law.  Iceland  took  further  steps  over  the 
reporting period with a view to ratifying the Lugano Convention. No development with regard 
to judicial cooperation in criminal matters can be noted. Iceland continues a good cooperation 
with Eurojust. Overall, Iceland is well advanced in these areas. 

As  regards  police  cooperation,  the  fight  against  organised  crime  and  the  fight  against 
terrorism,  Iceland  ratified  the  UN  Convention  against  transnational  crime  (Palermo 
Convention) in May 2010 and its protocol on trafficking in persons in June. In relation to the 
implementation of the Palermo Convention, the Economic Crime Division serves as an asset 
recovery  office.  The  protocol  on  smuggling  of  migrants  and  the  protocol  on  illicit 
manufacturing and trafficking in firearms remain to be ratified.  

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In the area of police cooperation, Iceland signed the Agreement between the European Union 
and Iceland and Norway on the application of certain provisions of Council Decision on the 
stepping up of cross-border cooperation particularly in combating terrorism and cross-border 
crime  (Treaty  of  Prüm,  May  2005)  in  November  2009.  The  Agreement  still  needs  to  be 
ratified.  Iceland  also  continues  a  good  cooperation  with  Europol  and  implements  well  the 
operational agreement.  

A  law  amending  the  Police  Act  was  prepared  pending  parliamentary  approval.  It  includes 
provisions  on  the  division  of  Iceland  into  six  police  administrative  areas  instead  of  fifteen. 
These  entities  will  be  controlled  by  six  police  commissioners.  The  aim  is  to  reduce 
administrative  costs  by  cutting  down  executive  positions  and  increase  efficiency  and 
cooperation between the police commissioners.  

Iceland  has  not  ratified  the  Council  of  Europe  Convention  against  trafficking  in  human 
beings. Legislation to align with the convention by adding two new types of residence permits 
for victims of trafficking was passed in September.  

Overall,  Iceland  is  advanced  in  the  fight  against  money  laundering  (see  also  Chapter  4  — 
Free  movement  of  capital).  No  developments  can  be  reported  in  improving  the  statistics 
relating  to  the  number  of  investigations  initiated  each  year  on  the  basis  of  Suspicious 
Transaction  Reports,  the  number  of  freezing/seizing  orders,  prosecutions,  indictments, 
confiscation  orders,  actual  confiscations,  as  well  as  the  value  of  the  assets  and  properties 
frozen/seized and confiscated.  The  technical recommendations  of  the  Financial  Action Task 
Force (FATF) have not been implemented.  

Overall, Iceland is close to applying the EU rules on in the fight against terrorism.  

Overall, Iceland is advanced in the area of fight against drug trafficking. Iceland does not yet 
participate  in  the  work  of  the  European  Monitoring  Centre  for  Drugs  and  Drug  Addiction 
(EMCDDA).  No  developments  can  be  reported  in  the  areas  of  the  fight  against  drugs  or 
customs cooperation. Iceland is well advanced as regards customs cooperation. 

Overall, Iceland's legislation in the area of counterfeiting of the euro is broadly in line with 
the  acquis.  However,  Iceland  is  not  party  to  the  1929  International  Convention  on  the 
Suppression of Counterfeiting.  

Conclusion 

Overall, Iceland applies the Schengen Agreement and continues to be highly aligned with the 
acquis  in  the  field  of  justice,  freedom  and  security.  Further  efforts  are  needed  to  ratify  and 
implement relevant international instruments.  

4.25.  Chapter 25: Science and research 

Research policy is already well developed in Iceland. 

Iceland  continued  to  participate  in  the  EU’s  7th  Framework  Programme  for  research  and 
technological development and was particularly involved in the research themes dealing with 
health,  the  environment,  socio-economic  sciences  and  humanities.  The  participation  of 
Icelandic research entities in the framework programmes is generally strong, indicating well-
established cooperation with European partners.  

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Iceland remained involved in the European Research Area through its observer status in the 
the  EU’s  Scientific  and 
European  Research  Area  Advisory  Committee  (formerly 
Technological Advisory Committee) and other related advisory bodies.  

No  additional  development  can  be  reported  regarding  research  funding,  where  public 
spending  in  research  and  development  remained,  over  the  reporting  period,  higher  than  the 
EU average, with 2.7% of GDP in 2010.  

Conclusion 

Overall, Iceland continues to actively participate in the Framework Programme and is already 
involved  in  European  Research  Area  activities.  Iceland  is  thus  well  advanced  in  terms  of 
integration into the European Research Area.  

4.26.  Chapter 26: Education and Culture 

Overall, there has been further progress in the area of education, training and youth.  

Regarding cooperation in the field of policies, Iceland continued to participate very actively in 
the  open  method  of  coordination  in  the  field  of  education  as  a  member  of  the  European 
Economic  Area.  The  country  consolidated  its  performance  in  relation  to  the  EU-level 
benchmarks of the strategic framework for European cooperation in education and training. It 
has reached the EU target for 2020 for tertiary education attainment and participation in pre-
school  education,  as  well  as  for  adult  participation  in  lifelong  learning.  The  rate  of  early 
school  leavers  decreased  in  the  last  year,  although  it  is  still  above  the  EU  average.  Upper 
secondary completion rate remains below the EU average. 

Progress  can  be  noted  as  regards  the  access  to  education  for  EU  citizens,  where  there  were 
further developments regarding the transposition of the acquis.  

Regarding community programmes, Iceland continued to participate in the Lifelong Learning, 
Youth in Action and Erasmus Mundus programmes. 

In the area of culture, Iceland continued to participate in the Culture Programme 2007-2013 
and reiterated its interest in taking part in the open method of coordination once invited to do 
so.  

Conclusion 

In the field of education and culture, alignment with the acquis is already advanced and there 
has been some progress.  

4.27.  Chapter 27: Environment 

Iceland’s environmental policy is to a large extent in line with the EU acquis through the EEA 
Agreement.  

Horizontal  legislation  continued  to  be  largely  in  line  with  the  EU  acquis.  However,  no 
developments can be reported in adopting the pending law on environmental liability and in 
ratifying  the  Espoo  Convention  on  environmental  impact  assessment  in  a  transboundary 
context and the Aarhus Convention on access to information, public participation in decision-
making and access to  justice  in environmental matters. No legislation  was  adopted  over the 

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reporting period to ensure access to justice in environmental matters. An updated strategy on 
sustainable development, inter alia aiming at integrating environment into other policy areas 
was agreed by the Government in July. 

Air  quality  legislation  is  to  a  large  extent  in  line  with  the  acquis.  A  new  strategy  for  air 
quality  as  well  as  a  regulation  setting  a  maximum  level  for  hydrogen  sulphide  in  the 
atmosphere  and  the  rules  for  measuring  and  monitoring  it  and  informing  the  public  were 
adopted. A law transposing the National Emissions Ceilings Directive remains to be adopted.  

The waste management acquis is to a large extent transposed. The transposition of some of 
the  provisions  of  the  Waste  Framework  Directive  and  of  amendments  to  the  Batteries  and 
Mining Waste Directives needs to continue.  

Some  progress  can  be  reported  as  regards  water  quality.  A  law  aimed  at  aligning  and 
implementing  the  Water  Framework  Directive,  including  river  basin  management  plans, 
remains  to  be  adopted.  Iceland  continued  to  work  on  transposing  the  Marine  Strategy 
Framework Directive and the Floods Directive. The gaps related to bathing water quality have 
been identified by the Icelandic Environment Agency while measures remain to be taken.  

Nature protection is not covered by the EEA and poses a challenge: a task group was set up 
to  identify  gaps  in  the  national  nature  legislation  as  compared  to  the  Birds  and  Habitats 
Directives.  A  regulation  on  ballast  waters  was  adopted.  Work  is  ongoing  to  develop 
management plans for the National Parks. No developments can be reported in aligning with 
the acquis on protection of whales nor on the trade ban on seal products into the EU.  

As  industrial pollution control and risk management is to a large extent in line with the 
acquis, no development can be reported in the area.  

As regards chemicals, no developments can be reported in the area of laboratory animals and 
implementation  of  the  Regulation  on  Classification,  Labelling  and  Packaging  is  still 
outstanding. The Rotterdam Convention on the prior informed consent procedure for certain 
hazardous chemicals and pesticides in international trade remains to be ratified.  

Concerning climate change, Iceland is covered by the EU Emissions Trading Scheme (ETS) 
through the EEA Agreement. Implementing legislation in this area needs to be adopted and 
further steps taken to enhance implementation. Iceland associated itself with the Copenhagen 
Accord.  Iceland  keeps  on  fulfilling  its  reporting  obligations  under  the  UNFCCC  and  the 
Kyoto Protocol. The Environment Agency is analysing necessary steps to meet the acquis on 
substances that deplete the ozone layer. 

As  the  legislation  on  noise  is  in  line  with  the  acquis  and  is  being  implemented,  no  new 
developments can be reported in this area. 

Conclusion 

Overall,  Iceland  has  reached  a  high  level  of  alignment  and  applies  a  substantial  part  of  the 
acquis  in  this  chapter  due  to  its  EEA  membership  and  further  progress  can  be  reported. 
However, compliance with the nature protection acquis, in particular as regards protection of 
whales, seals and wild birds as well as conservation of natural habitats and of wild fauna and 
flora, remains to be achieved. The ratification of key multilateral environmental agreements 
such as the Espoo and Aarhus Conventions is pending.  

EN 

36 

   EN 

4.28.  Chapter 28: Consumer and health protection 

Iceland  has  already  implemented  a  significant  part  of  the  acquis  on  consumer  and  health 
protection. 

No developments can be reported in the field of consumer protection.  

As far as product safety-related issues are concerned, no market surveillance activities were 
carried  out  vis-à-vis  products  not  falling  under  sector-specific  EU  legislation,  with  the 
exception  of  decorative  articles.  With  respect  to  products  falling  under  sector-specific 
legislation, such as toys, electrical appliances and construction products, market surveillance 
consisted only in documentary checks without any assessment of whether such products may 
pose  a  risk  to  the  health  and  safety  of  consumers.  No  progress  can  be  reported  on  the 
processing of RAPEX notifications. 

There has been no development in the area of non-safety related issues. The transposition of 
the new acquis on credit agreements for consumers as well as on timeshares and injunctions 
remains outstanding. 

Good progress can be reported in the field of public health. Progress has  been  good  in the 
areas  of  blood  as  well  as  tissues  and  cells.  Alignment  with  the  acquis  is  completed  since 
Directive 2009/1353 has been incorporated into national law.  

There  has  been  good  progress  in  the  areas  of  communicable  diseases  and  cancer. 
Vaccinations against pneumococcal infections were approved in June 2010 and will start as of 
2011.  Vaccinations  of  all  12  year  old  girls  against  HPV  infection  and  cervical  cancer  were 
approved.  A  decision  on  when  to  start  these  vaccinations  has  yet  to  be  taken.  However, 
colorectal cancer screening has not started. 

Pictorial health warnings on tobacco products still need to be introduced. 

No legislative developments can be reported in the field of mental health. The issue is one of 
the priorities of the National Health Plan, and the measures taken by the Icelandic authorities 
are similar to those in the EU Member States. 

Conclusion 

Overall,  Iceland  has  already  implemented  a  significant  part  of  the  acquis  in  the  field  of 
consumers and health protection, partly due to its EEA membership and little progress can be 
reported.  However,  the  processing  of  RAPEX  notifications  requires  further  streamlining. 
Some further efforts are also needed in the field of public health.  

4.29.  Chapter 29: Customs Union 

Overall, the customs legislation of Iceland is to a large extent in line with the acquis. Iceland 
set up a working group to analyse the overall impact of aligning with the acquis in this area in 
January 2010.  

There  has  been  little  progress  in  the  area  of  the  customs  union.  With  regard  to  customs 
legislation,  no  developments  can  be  reported.  The  acquis  related  to  the  Combined 

3 

Allowing temporary derogations to certain eligibility criteria for whole blood and blood components donors. 

EN 

37 

   EN 

                                                 
Nomenclature,  valuation,  origin,  cash  controls,  control  of  drug  precursors,  duty-free  and 
measures to protect intellectual property rights is partially transposed. Iceland applies certain 
customs fees that are not in line with the acquis.  

There  has  been  no  development  on  administrative  and  operational  capacity.  The 
Directorate  of  Customs  is  measuring  its  operational  capacity  and  best  practices  against  the 
Customs Blueprints. Further efforts to ensure that the Iceland Customs Administration is able 
to  effectively  implement  the  EU  acquis  upon  accession  are  needed.  In  particular,  major 
preparations  for  interconnectivity  and  interoperability  with  the  EU’s  computerised  systems 
remain to be completed. 

Conclusion  

The customs legislation is largely in line with the acquis. However, further significant efforts 
are needed to meet EU rules on duty-free legislation and EU related practices.  

Iceland  has  a  good  level  of  administrative  capacity  in  the  field  of  customs.  Nevertheless, 
further  efforts  to  effectively  implement  the  EU  acquis  upon  accession  remain  to  be 
undertaken, including developing interconnectivity with the EU’s IT systems. 

4.30.  Chapter 30: External relations 

With  regard  to  the  common  commercial  policy,  Iceland  is  in  the  process  of  assessing  the 
adaptations required in order to align with the acquis.  

Iceland started work on a database providing an overview of all international agreements in 
the  area  of  external  relations  that  are  relevant  for  EU  relations.  The  database  will  indicate 
which  agreements  would  have  to  be  terminated  and  which  ones  would  have  to  be 
renegotiated.  This  overview  is  meant  to  become  the  basis  for  developing  an  action  plan 
needed in accession negotiations.  

The  Ministry  for  Foreign  Affairs  started  to  collect  information  in  order  to  further  align  its 
horizontal  limitations  and  sector-specific  commitments  under  the  General  Agreement  on 
Trade in Services (GATS) with those undertaken by the EU.  

In June 2010 Iceland introduced export controls on dual-use goods on the basis of the Act on 
the  control  of  services  and  items  that  may  have  strategic  significance,  which  is  intended  to 
implement the Regulation setting up the EU regime for the control of dual use goods. Iceland 
is not a member of the Kimberly process. An amendment to the Act on the control of services 
and items is in line with Regulation 2368/2002 covering the Kimberley process obligations.  

In  the  area  of  development  policy,  Iceland’s  Official  Development  Assistance  (ODA) 
amounted to approximately € 26.1 million, i.e.  0.32% of GNI, in 2009. For 2010, the estimate 
is approximately € 21.5 million, i.e. 0.28% of GNI.  

With regard to humanitarian aid approximately € 900,000 was allo cated to humanitarian and 
emergency assistance, approximately € 650,000 be ing channelled through NGOs and the rest 
through UN agencies. Revised guidelines from 2009 on cooperation with NGOs that provide 
humanitarian and  emergency assistance were issued in September. These guidelines include 
expanded  provisions  on  non-discrimination  and  thus  take  account  of  the  non-discrimination 
clause enshrined in the Humanitarian Aid Regulation.  

EN 

38 

   EN 

Conclusion 

Some  progress  can  be  reported  in  the  field  of  external  relations.  Iceland  has  started 
preparations  for  assessing  its  obligations  in  terms  of  the  need  to  amend  or  renounce  its 
international  agreements;  it  has  also  begun  preparations  related  to  the  common  commercial 
policy. Progress has also been made in the dual-use area. Measures need to be taken to assure 
that Iceland’s Official Development Assistance does not decline further.  

4.31.  Chapter 31: Foreign, Security and Defence Policy 

The  regular  political  dialogue  between  the  EU  and  Iceland  has  continued  to  cover  foreign 
policy issues.  

As  regards  the  common  foreign  and  security  policy  (CFSP),  Iceland  has  aligned  itself, 
when  invited,  with  68  out  of  74  relevant  EU  declarations  and  Council  decisions  (92  % 
alignment). 

all the relevant EU Council decisions and EU  declarations,  when requested, except in cases 
relating to Eritrea, two restrictive measures imposed against Liberia and specific measures to 
combat  terrorism  and  restrictive  measures  against  the  Democratic  People’s  Republic  of 
Korea. Furthermore, Iceland issued its own statement regarding the Israeli military operation 
against the flotilla.  

The Director-General for International and Security Affairs in the Ministry of Foreign Affairs 
acts as Political Director. The post of ‘European Correspondent’ is under preparation.  

With  regard  to  sanctions  and  restrictive  measures,  Iceland  has  implemented  all  United 
Nations Security Council Resolutions. There has, however, been no progress in implementing 
the Common Position on the application of specific measures to combat terrorism or the Joint 
Action  concerning  measures  protecting  against  the effects  of  the  extra-territorial  application 
of legislation adopted by a third country, and actions based thereon or resulting therefrom. 

No  particular  developments  can  be  reported  with  regard  to  conflict  prevention  or  non-
proliferation and the strategy on weapons of mass destruction/small arms and light weapons 
(WMD/SALW) as Iceland is already involved in these areas. 

Iceland  has  kept  up  its  good  cooperation  with  international  organisations,  such  as  the  UN, 
NATO, the OECD, the OSCE and the Council of Europe. It actively participated and played 
an  important  role  in  the  Arctic  Council,  the  Conference  of  Parliamentarians  of  the  Arctic 
Region  (CPAR),  the  Barents  Euro-Arctic  Council  (BEAC),  the  Northern  Dimension,  the 
Nordic Council of Ministers and the West Nordic Council. 

There  have  been  no  particular  developments  with  regard  to  security  measures  (classified 
information). 

As  regards  Common  security  and  defence  policy  (CSDP)  contributing  capacities,  no 
particular  developments  can  be  reported  in  the  field  of  civil  crisis  management.  Iceland 
continued to support EU civilian missions, such as in Kosovo (Eulex Kosovo), and the Eupol 
Mission in Afghanistan.  

Conclusion 

EN 

39 

   EN 

Overall,  Iceland  has  reached  a  good  level  of  alignment  in  the  area  of  foreign,  security  and 
defence  policy.  Iceland  has  aligned  with  most  EU  declarations  and  Council  decisions  and 
continues  to  participate  in  CSDP  operations.  It  continued  to  play  an  active  part  in  regional 
organisations in northern Europe. 

4.32.  Chapter 32: Financial Control 

Some progress can be reported in the initialisation of reforming the field of public internal 
financial control. A working group was set up in January 2010 in the Ministry of Finance; 
the group is currently evaluating the requirements for alignment with the acquis. However, no 
steps were taken over the reporting period with a view to better separating public internal and 
external financial control in accordance with international standards.  

No  measures  have  yet  been  identified  to  guarantee  the  constitutional  independence  of  the 
Icelandic  National  Audit  Office  (INAO)  or  to  reform  the  systems  of  internal  and  external 
audit.  

Iceland's  legislation  is  not  in  line  with  the  Convention  on  the  Protection  of  the  EU's 
Financial Interests. Institutional capacity for effective and efficient cooperation with OLAF 
needs to be further strengthened. In the field of protection of the Euro against counterfeiting 
Iceland  needs  to  further  develop  institutional  capacity  by  establishing  a  National  Central 
Office for centralisation, technical analysis and processing of information on counterfeit bank 
notes and coins, both Euro and other currencies. 

Conclusion 

Overall,  some  progress  can  be  reported  in  the  initialisation  of  reforming  the  field  of  public 
internal financial control. A gap assessment needs to be carried out in the areas of financial 
management  and  control  systems,  internal  audit  and  external  audit  to  take  into  account 
internationally accepted standards. Preparations regarding the protection of the EU´s financial 
interests remain to be enhanced. 

4.33.  Chapter 33: Financial and budgetary provisions 

The basic principles and institutions for the related policy areas affecting the traditional own 
resources  are  in  place  and  continued  to  function  well.  No  particular  developments  can  be 
reported regarding the functioning of the national VAT system. National accounts and GNI 
continued to be compiled based on ESA95 standards. 

Regarding  administrative  infrastructure  and  the  operational  management  of  the  own 
resources system, a working group has been set up in January to analyse the overall impact of 
aligning with the acquis. 

Conclusion 

Overall, there are no significant divergences between the underlying systems in Iceland and 
the EU as far as the own resources are concerned. There has been some progress under this 
chapter as Iceland has started to identify the required alignment with the acquis on financial 
and  budgetary  provisions.  Appropriate  coordination  structures  and  administrative 
strengthening will be needed for implementation of the rules on own resources. 

EN 

40 

   EN 

STATISTICAL DATA (as of 14 October 2010) 
Iceland 

Basic data 
Population (thousand) 
Total area of the country (km²) 

Note

2000 
279 

2002 
287 
103 000 103 000  103 000 103 000 103 000

2003 
288 

2004 
291 

2001 
283 

2005 
294 
103 000 

2006 
300 
103 000 

2007 
308 
103 000 

2008 
315 
103 000 

2009 
319 
103 000 

Statistical annex 

National accounts 
Gross domestic product (GDP) (million national currency) 
GDP (million euro) 
GDP (euro per capita) 
GDP (in Purchasing Power Standards (PPS) per capita) 
GDP per capita in PPS (EU-27 = 100) 
Real GDP growth rate (growth rate of GDP volume, national currency, % change on 
previous year) 
Employment growth (national accounts, % change on previous year) 
Labour productivity growth: GDP growth per person employed (% change on previous 
year) 
Real unit labour cost growth (national accounts, % change on previous year) 
Labour productivity per person employed (GDP in PPS per person employed, EU-27 = 
100)  
Gross value added by main sectors (%) 

Agriculture and fisheries 
Industry 
Construction 
Services 

Final consumption expenditure, as a share of GDP (%) 
Gross fixed capital formation, as a share of GDP (%) 
Changes in inventories, as a share of GDP (%) 
Exports of goods and services, relative to GDP (%) 
Imports of goods and services, relative to GDP (%) 

Industry 
Industrial production volume index (2000=100) 

Note

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

2009 

683 747 771 894  816 450 841 322 928 889 1 026 718 1 168 577 1 308 518 1 477 938  1 500 765 

8 830 

9 421 
10 660 
9 474 
33 500  31 000  32 900  33 600  36 400 
28400 
26600 
25100 
130.9 
129.8 
131.4 

26100 
131.8 

26000 
125.6 

9 709 

13 124 
44 400 
29300b 
130.2b 

13 316 
43 800 
29200 
123.2 

14 932 
48 000 
30400 
122.1 

10 276 
32 176 
30300 
120.7 

4.3 
2.0 

: 
: 

3.9 
1.7 

: 
: 

0.1 
-1.4 

: 
: 

2.4 
0.1 

: 
: 

7.7 
-0.4 

: 
: 

7.5 
3.3 

: 
: 

4.6 
5.1f 

: 
: 

6.0 
4.5f 

: 
: 

1.0 
0.8f 

: 
: 

8 692 
27 226 
28300 
119.9 

-6.8 
 -2.0f 

: 
: 

102.8 

103.7 

104.3 

101.2 

107.6 

105.4b 

98.7f 

96.8f 

98.0f 

99.9f 

1) 

9.0 
17.3 
8.6 
65.2 
84.0 
22.9 
0.4 
33.6 
40.9 

9.2 
19.2 
7.8 
63.8 
79.8 
21.5 
-0.3 
38.8 
39.9 

9.3 
16.8 
7.5 
66.4 
80.2 
18.2 
0.0 
37.4 
35.9 

7.9 
15.8 
7.5 
68.9 
83.3 
20.0 
-0.2 
34.3 
37.4 

6.8 
15.2 
8.8 
69.2 
82.2 
23.5 
-0.1 
34.1 
39.7 

6.2 
13.7 
10.4 
69.7 
84.0 
28.4 
-0.1 
31.7 
44.0 

Note

2000 
100.0 

2001 
104.3 

2002 
103.7 

2003 
104.5 

2004 
109.9 

2005 
107.2 

6.3 
15.3 
11.1 
67.3 
82.6 
34.0 
1.2 
32.2 
50.0 

2006 
113.0 

2006 
4.6 

5.6 
14.4 
11.6 
68.4 
81.7 
28.5 
0.5 
34.6 
45.3 

2007 
119.1 

2007 
3.6 

6.4 
17.5 
9.5 
66.6 
78.3 
24.4 
0.2 
44.5 
47.4 

2008 
132.0 

2008 
12.8 

7.7 
18.1 
5.3 
68.9 
77.5 
13.9 
-0.1 
53.0 
44.2 

2009 
125.3 

2009 
16.3 

Inflation rate 
Annual average inflation rate (HICP, % change on previous year) 

Note

2000 
4.4 

2001 
6.6 

2002 
5.3 

2003 
1.4 

2004 
2.3 

2005 
1.4 

EN 

41 

EN 

 
  
 
  
 
  
  
 
  
  
  
  
  
  
  
  
  
  
  
 
  
  
  
  
  
  
  
  
  
  
 
 
 
 
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
 
 
 
  
  
  
  
  
  
  
  
  
  
 
Balance of payments 
Balance of payments: current account total (million euro) 
Balance of payments current account: trade balance (million euro) 
Balance of payments current account: net services (million euro) 
Balance of payments current account: net income (million euro) 
Balance of payments current account: net current transfers (million euro) 

of which government transfers (million euro) 
Net foreign direct investment (FDI) (million euro) 
Foreign direct investment (FDI) abroad (million euro) 

of which FDI of the reporting economy in EU-27 countries (million euro) 

Foreign direct investment (FDI) in the reporting economy (million euro) 

of which FDI of EU-27 countries in the reporting economy (million euro) 

Public finance 
General government deficit/surplus, relative to GDP (%) 
General government debt relative to GDP (%) 

Financial indicators 
Gross foreign debt of the whole economy, relative to GDP (%) 
Gross foreign debt of the whole economy, relative to total exports (%) 
Money supply: M1 (banknotes, coins, overnight deposits, million euro) 
Money supply: M2 (M1 plus deposits with maturity up to two years, million euro) 
Money supply: M3 (M2 plus marketable instruments, million euro) 
Total credit by monetary financial institutions to residents (consolidated) (million euro) 
Interest rates: day-to-day money rate, per annum (%) 
Lending interest rate (one year), per annum (%) 
Deposit interest rate (one year), per annum (%) 
euro exchange rates: average of period - 1 euro = … national currency 
Effective exchange rate index (2000=100) 
Value of reserve assets (including gold) (million euro) 

External trade 
Value of imports: all goods, all partners (million euro) 
Value of exports: all goods, all partners (million euro) 
Trade balance: all goods, all partners (million euro) 
Terms of trade (export price index / import price index) 
Share of exports to EU-27 countries in value of total exports (%) 
Share of imports from EU-27 countries in value of total imports (%) 

EN 

Note

2) 

2) 

Note

Note
3) 
3) 

4) 

Note

42 

2000 
-957 
-516 
-160 
-269 
-10 
-11 
-241 
-427 
: 
185 
: 

2000 
1.7 
36.0 

2000 
107 
319 
1 000 
1 814 
4 113 
8 278 
13.5 
12.4 
6.9 

2001 
-382 
-68 
-18 
-285 
-11 
-13 
-192 
-386 
: 
194 
: 

2001 
-0.7 
40.5 

2001 
123 
318 
811 
1 672 
3 922 
7 737 
13.1 
12.0 
6.7 

2002 
145 
163 
-8 
-23 
14 
-10 
-254 
-347 
: 
93 
: 

2002 
-2.6 
44.5 

2002 
111 
296 
1 018 
1 854 
4 586 
8 061 
6.5 
8.2 
3.3 

2003 
-463 
-183 
-106 
-160 
-13 
-8 
-42 
-336 
: 
294 
: 

2003 
-2.8 
39.9 

2003 
140 
407 
1 242 
2 183 
5 358 
9 484 
5.1 
7.7 
2.8 

2004 
-1047 
-419 
-168 
-446 
-14 
-15 
-1 486 
-2 079 
: 
593 
: 

2005 
-2119 
-1 190 
-412 
-495 
-22 
-20 
-3 228 
-5 708 
: 
2 480 
: 

2006 
-3173 
-1 784 
-547 
-815 
-28 
-23 
-1 352 
-4 425 
: 
3 073 
: 

2007 
-2424 
-1 004 
-502 
-874 
-44 
-41 
-2 457 
-7 445 
: 
4 988 
: 

2004 
0.0 
36.0 

2005 
4.9 
26.0 

2006 
6.3 
30.3 

2007 
5.4 
28.5 

2007 
2004 
568 
179 
1641 
525 
4 688 
1 606 
7 399 
2 778 
6 126 
14 040 
13 108  21 996  27 752  36 359 

2005 
286 
901 
2 209 
3 886 
8 405 

2006 
444 
1380 
2 411 
4 137 
8 958 

7.6 
10.3 
6.3 

9.3 
12.0 
9.0 

16.2 
15.3 
12.8 

14.0 
15.3 
13.3 

2008 
-2274 
-46 
-194 
-2 010 
-24 
-27 
3 135 
2 574 
: 
561 
: 

2008 
-13.5 
70.5 

2008 
971 
2181 
3 855 
8 075 
12 117 
15 403 
18.3 
22.0 
15.0 

2009 
-232 
628 
330 
-1 128 
-62 
-38 
-1 838 
-1 902 
: 
64 
: 

2009 
-9.9 
87.8 

2009 
1005 
1922 
2 974 
5 863 
9 302 
9 721 
9.0 
11.5 
8.5 

72.580  87.420  86.180  86.650  87.140  78.230  87.760  87.630  143.830  172.670 
115.4 
434 

232.8 
2 696 

128.0 
1 774 

120.2 
1 785 

216.4 
2 533 

135.0 
400 

120.6 
439 

121.4 
647 

111.9 
785 

102.7 
901 

2000 
2573 
2057 
-516 
100.0 
68.7 
60.7 

2001 
2317 
2249 
-68 
102.5 
70.0 
59.0 

2002 
2207 
2371 
163 
103.7 
72.6 
58.2 

2003 
2291 
2107 
-184 
97.2 
73.7 
63.0 

2004 
2742 
2322 
-419 
95.1 
75.2 
59.8 

2005 
3682 
2492 
-1190 
94.7 
74.7 
61.4 

2006 
4558 
2774 
-1784 
101.2 
71.0 
56.9 

2007 
4520 
3492 
-1028 
101.0 
74.7 
59.1 

2008 
3292 
3246 
-46 
94.8 
75.9 
53.5 

2009 
2378 
2901 
523 
84.3 
77.7 
51.8 

EN 

 
  
 
 
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
 
 
 
 
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
Demography 
Natural growth rate: natural change (births minus deaths) (per 1000 inhabitants) 
Infant mortality rate: deaths of children under one year of age per 1000 live births 
Life expectancy at birth: male (years) 
Life expectancy at birth: female (years) 

Labour market 
Economic activity rate (15-64): share of population aged 15-64 that is economically active (%) 
Employment rate (15-64): share of population aged 15-64 that is in employment (%) 

Employment rate male (15-64) (%) 
Employment rate female (15-64) (%) 

Employment rate of older workers (55-64): share of population aged 55-64 that is in employment 
(%) 
Employment by main sectors (%) 

Agriculture 
Industry 
Construction 
Services 

Unemployment rate: share of labour force that is unemployed (%) 

Share of male labour force that is unemployed (%) 
Share of female labour force that is unemployed (%) 

Unemployment rate of persons < 25 years: share of labour force aged <25 that is unemployed (%) 
Long-term unemployment rate: share of labour force that is unemployed for 12 months and more 
(%) 

Social cohesion 
Average nominal monthly wages and salaries (national currency) 
Index of real wages and salaries (index of nominal wages and salaries divided by the CPI) 
(2000=100) 
Early school leavers - Share of population aged 18-24 with at most lower secondary education and 
not in further education or training (%) 

Note

Note

2000 
8.8 
3.0 
77.9 
81.5 

2000 
88.6 
86.6 
90.2 
82.8 

2001 
8.3 
2.7 
78.3 
82.9 

2001 
88.5 
86.5 
89.9 
82.9 

2002 
7.7 
2.2 
78.5 
82.3 

2002 
87.5 
84.7 
87.7 
81.6 

2003 
8.0 
2.4 
79.5 
82.3 

2003 
86.9 
83.3 
86.3 
80.1 

2004 
8.3 
2.8 
78.9 
82.8 

2004 
85.4 
82.3 
85.8 
78.8 

2005 
8.2 
2.3 
80.2 
83.3 

2005 
86.7 
83.8 
86.9 
80.5 

2006 
8.3 
1.4 
79.4 
83.0 

2006 
87.8 
84.6 
88.1 
80.8 

2007 
8.4 
2.0 
79.6 
83.4 

2007 
87.8 
85.1 
89.1 
80.8 

2008 
9.0 
2.5 
80.0 
83.3 

2008 
86.9 
83.6 
87.3 
79.6 

2009 
9.5 
1.8 
79.7 
83.3 

2009 
85.3 
78.3 
80.0 
76.5 

84.2 

85.6 

87.2 

83.0 

81.8 

84.3 

84.3 

84.7 

82.9 

80.2 

8.0 
16.0 
6.7 
69.3 
2.3 
1.8 
2.9 
4.7 

7.2 
15.7 
7.2 
69.9 
2.3 
2.0 
2.5 
4.8 

7.3 
14.7 
8.0 
70.0 
3.3 
3.6 
2.9 
7.2 

7.0 
14.6 
7.0 
71.3 
3.3 
3.6 
3.1 
8.2 

6.4 
14.7 
7.7 
71.2 
3.1 
3.2 
2.9 
8.1 

6.8 
14.2 
7.4 
71.6 
2.6 
2.6 
2.6 
7.2 

6.5 
12.4 
8.9 
72.2 
2.9 
2.7 
3.1 
8.2 

6.2 
11.8 
9.0 
73.0 
2.3 
2.3 
2.3 
7.2 

5.0 
12.3 
10.1 
72.6 
3.0 
3.3 
2.6 
8.2 

5.4 
12.5 
7.1 
75.0 
7.2 
8.6 
5.7 
16.0 

0.2 

0.3 

0.3 

0.2 

0.3 

0.3 

0.2 

0.2 

0.1 

0.4 

Note

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

2009 

225 000  249 000 266 000 284 000 301 000 336 000 377 000 414 000 446 000  433 000 

100.0 

103.7 

105.7 

110.6 

113.5 

121.8 

128.0 

133.8 

128.3 

111.2 

29.8 

30.9 

28.8 

20.3b 

24.9 

24.9 

25.6 

23.2 

24.4 

23.2 

Standard of living 
Number of passenger cars per 1000 population 
Number of subscriptions to cellular mobile telephone services per 1000 population 

Infrastructure 
Density of railway network (lines in operation, per 1000 km²) 
Length of motorways (thousand km) 

Note

Note

2000 
569.8 
758.4 

2000 
: 
0.011 

2001 
564.7 
865.9 

2001 
: 
0.011 

2002 
566.5 
903.7 

2002 
: 
0.011 

2003 
580.2 
962.5 

2003 
: 
0.011 

2004 
603.6 
992.5 

2009 
2007 
2005 
631.4 
646.5 
668.4 
1013.7  1049.3  1045.5  1055.0  1069.5 

2006 
647.5 

2008 
662.1 

2004 
: 
0.019: 

2005 
: 
0.019: 

2006 
: 
0.019: 

2007 
: 
0.019: 

2008 
: 
0.041 

2009 
: 
0.041 

EN 

43 

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Innovation and research 
Spending on human resources (public expenditure on education in % of GDP) 
Gross domestic expenditure on R&D in % of GDP 
Percentage of households who have Internet access at home (%) 

Environment 
Greenhouse gas emissions, CO2 equivalent (tons, 1990=100) 
Energy intensity of the economy (kg of oil equivalent per 1000 euro GDP) 
Electricity generated from renewable sources in % of gross electricity consumption 
Road share of inland freight transport (% of tonne-km)  

Energy 
Primary production of all energy products (thousand TOE) 
Primary production of crude oil (thousand TOE) 
Primary production of hard coal and lignite (thousand TOE) 
Primary production of natural gas (thousand TOE) 

Net imports of all energy products (thousand TOE) 
Gross inland energy consumption (thousand TOE) 
Electricity generation (thousand GWh) 

Agriculture 
Agricultural production volume index of goods and services (producer prices, previous year=100) 
Total utilised agricultural area (thousand hectare) 
Livestock: cattle (thousand heads, end of period) 
Livestock: pigs (thousand heads, end of period) 
Livestock: sheep and goats (thousand heads, end of period) 
Production and utilisation of milk on the farm (total whole milk, thousand tonnes) 
Crop production: cereals (including rice) (thousand tonnes, harvested production) 
Crop production: sugar beet (thousand tonnes, harvested production) 
Crop production: vegetables (thousand tonnes, harvested production) 

Note  2000 
6.7 
2.7 
: 

Note  2000 
110.8
343.4
99.9 
100.0

Note  2000 
2 306
0 
0 
: 
1 036
3 235
7 684

Note  2000 

e 

: 
120 
73 
4 
466 
104 
3 
: 
14 

2001 
7.0 
3.0 
: 

2001 
109.9
342.6
100.0
100.0

2001 
2 451
0 
0 
: 
947 
3 354
8 033

2001 
: 
120 
70 
5 
474 
106 
4 
: 
16 

2002 
7.6 
3.0 
78 

2002 
110.6
345.5
99.9 
100.0

2002 
2 462
0 
0 
: 
969 
3 388
8 416

2002 
: 
120 
67 
4 
470 
111 
5 
: 
14 

2003 
7.6 
2.8 
78 

2003 
109.6
336.5
99.9 
100.0

2003 
2 457
0 
0 
: 
937 
3 379
8 500

2003 
: 
120 
66 
4 
463 
108 
7 
: 
12 

2004 
7.5 
: 
81 

2004 
111.1
322.8
99.9 
100.0

2004 
2 519
0 
0 
: 
1 072
3 489
8 623

2004 
: 
120 
65 
4 
456 
112 
10 
: 
12 

2005 
7.6 
2.8 
84 

2005 
109.7
311.3
99.9 
100.0

2005 
2 636
0 
0 
: 
1 063
3 616
8 686

2005 
: 
120 
66 
4 
455 
109 
10 
: 
12 

2006 
7.6 
3.0 
83 

2006 
125.4
358.5
100.0
100.0

2006 
3 259
0 
0 
: 
1 099
4 349
9 930

2006 
: 
120 
69 
4 
456 
118 
11 
: 
20 

2007 
7.4 
2.7 
84 

2007 
132.6 
335.9 
100.0 
100.0 

2008 
7.6 
2.7 
88 

2008 
143.5 
522.9 
100.0 
100.0 

2009 
7.8 
: 
90 

2009 
: 
655.3 
100.0 
100.0 

2009 
2008 
2007 
4 819 
4 397 
3 946 
0 
0 
0 
0 
0 
0 
: 
: 
: 
877 
976 
1 070 
5 016 
5 696 
5 374 
11 976  16 468  16 835 

2007 
: 
120 
71 
4 
455 
126 
11 
: 
19 

2008 
: 
120 
72 
4 
459 
126 
15 
: 
19 

2009 
: 
120 
73 
4 
469 
126 
16 
: 
20 

: = not available 
b = break in series 
e = estimate 
f = forecast 
1) Fishing (predominantly marine fishing) represents between 80% (in 1999) and 77% (in 2008) of this share. 
2) The balance of payments sign conventions are used. For FDI abroad a minus sign means investment abroad by the reporting economy exceeded its disinvestment in the period, while an entry without 
sign  means  disinvestment  exceeded  investment.  For  FDI  in  the  reporting  economy  an  entry  without  sign  means  that  investment  into  the  reporting  economy  exceeded  disinvestment,  while  a  minus  sign 
indicates that disinvestment exceeded investment. 
3) This includes nominal foreign debt of the Icelandic banks currently in bankruptcy procedures 
4) Average annual exchange rate as published by the European Central Bank for years 2000-2008. This rate is very close to the rate published by the Central Bank of Iceland for all years except 2008. For 
2008, as a result of the financial crisis which lead to high exchange rate volatility and very narrow markets for the Icelandic Krona, the average annual rate published by the Central Bank of Iceland (127.46 
ISK for 1 EUR) differs by more than 10% from the ECB rate. For 2009, no ECB rate is available so that the rate published by the Central Bank of Iceland is used.  

EN 

44 

EN