COMMISSION STAFF WORKING PAPER ICELAND 2011 PROGRESS REPORT
Date: 2011-10-12
Institutions: European Commission
Subjects: Iceland, accession criteria, pre-accession aid

EUROPEAN COMMISSION 

Brussels, 12.10.2011 
SEC(2011) 1202 final 

COMMISSION STAFF WORKING PAPER 

ICELAND 2011 PROGRESS REPORT 

Accompanying the document 

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN 
PARLIAMENT AND THE COUNCIL 

Enlargement Strategy and Main Challenges 2011-2012 

{COM(2011) 666 final} 
{SEC(2011) 1200 final} 
{SEC(2011) 1201 final} 
{SEC(2011) 1203 final} 
{SEC(2011) 1204 final} 
{SEC(2011) 1205 final} 
{SEC(2011) 1206 final} 
{SEC(2011) 1207 final} 

 
 
 
 
  
 
 
 
TABLE OF CONTENTS 

1. 

1.1. 

1.2. 

1.3. 

2. 

2.1. 

2.2. 

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 .................................................................................................................. 3 

Preface.......................................................................................................................... 3 

Context ......................................................................................................................... 3 

Relations between the EU and Iceland......................................................................... 4 

Political criteria ............................................................................................................ 5 

Democracy and the rule of law .................................................................................... 5 

Human rights and the protection of minorities ............................................................ 7 

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

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

The capacity to cope with competitive pressure and market forces within the Union
.................................................................................................................................... 13 

Ability to assume the obligations of membership...................................................... 17 

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 ............................................................... 23 

4.11.  Chapter 11: Agriculture and rural development......................................................... 24 

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 .................................................................................................... 27 

4.16.  Chapter 16: Taxation.................................................................................................. 28 

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

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

4.19.  Chapter 19: Social policy and employment ............................................................... 30 

4.20.  Chapter 20: Enterprise and industrial policy.............................................................. 31 

4.21.  Chapter 21: Trans European Networks ...................................................................... 32 

4.22.  Chapter 22: Regional policy and coordination of structural instruments .................. 32 

4.23.  Chapter 23: Judiciary and fundamental rights ........................................................... 33 

4.24.  Chapter 24: Justice, freedom and security ................................................................. 35 

4.25.  Chapter 25: Science and research .............................................................................. 36 

4.26.  Chapter 26: Education and culture............................................................................. 37 

4.27.  Chapter 27: Environment ........................................................................................... 37 

4.28.  Chapter 28: Consumer and health protection............................................................. 40 

4.29.  Chapter 29: Customs Union ....................................................................................... 40 

4.30.  Chapter 30: External relations.................................................................................... 41 

4.31.  Chapter 31: Foreign, Security and Defence Policy.................................................... 42 

4.32.  Chapter 32: Financial control..................................................................................... 43 

4.33.  Chapter 33: Financial and budgetary provisions........................................................ 43 

Statistical Annex ...................................................................................................................... 45 

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1. 

INTRODUCTION 

1.1. 

Preface 

This is the Commission's second 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  October  2010  to  September  2011.  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 
enables 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 reports1 and information from various international 
and non-governmental organisations. 

The Commission draws detailed conclusions regarding Iceland in its separate communication 
on enlargement2, based on the technical analysis contained in this report. 

1.2. 

Context 

Further  to  the  Commission's  Opinion,  the  June  2010  European  Council  decided  to  open 
accession negotiations with Iceland. Negotiations were officially opened in July 2010 and the 
screening exercise subsequently started in November 2010. 

Iceland has been a party to the Agreement on the European Economic Area (EEA) since its 
entry into force in 1994. 

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

1 
2 

The European Parliament's rapporteur for Iceland is Mr Dan Preda. 
Enlargement Strategy and Main Challenges 2011-2012 - COM(2011) 666.  

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1.3. 

Relations between the EU and Iceland 

As a member of the EEA, Iceland regularly transposes and implements the acquis adopted in 
this  framework.  It  also  participates  in  EEA  meetings  on  a  regular  basis.  The  EFTA 
Surveillance  Authority  (ESA)  continues  to  monitor  Iceland's  performance  under  the  EEA. 
Overall, Iceland's track record in implementing its EEA obligation remains satisfactory. Some 
shortfalls  are  still  to  be  noted  in  areas  such  as  financial  services,  food  safety  and  free 
movement of capital. Temporary safeguards adopted on some restrictions of capital flows in 
the aftermath of the financial crisis remain in place.  

Iceland  participated  in  the  multilateral  economic  dialogue  between  the  Commission,  EU 
Member  States  and  Candidate  Countries  in  the  context  of  the  pre-accession  fiscal 
surveillance. The exercise included a meeting at Ministerial level in May in Brussels. These 
meetings  focused  on  the  main  challenges  posed  to  Iceland  by  the  Copenhagen  economic 
criteria. 

Bilateral  meetings  between  Icelandic  parliamentarians  and  Members  of  the  European 
Parliament  continue  to  take  place  on  a  regular  basis.  The  second  EU-Iceland  Joint 
Parliamentary Committee met in Reykjavik in April 2011 and the third in Brussels in October 
2011. 

Iceland's ability to assume the obligations of membership has also been assessed in the light 
of its participation in the European Economic Area (EEA) and taking into account exemptions 
granted under the EEA.  

The Commission carried out its assessment of Iceland's compliance with the acquis, i.e. the 
screening exercise, from November 2010 to June 2011.  

This  screening  exercise  represents  the  first  step  of  the  accession  negotiations.  It  led  to  the 
opening  of  the  first  four  chapters  of  negotiation  at  the  Accession  Conference  of  June  2011. 
Two  of  these  four  chapters,  namely  science  and  research  and  education  and  culture,  have 
been provisionally closed. 

Financial  assistance  is  provided  to  Iceland  under  the  Instrument  for  Pre-Accession 
Assistance  (IPA),  since  Iceland  was  included  as  a  beneficiary  country  in  July  2010.  The 
strategic priorities for Iceland under IPA were defined in a Multi-Annual Indicative Planning 
Document  (MIPD)  for  the  period  2011  to  2013  with  a  budget  of  €28  million.  The  strategy 
identifies two objectives: (a) to further enhance Iceland's ability to assume the obligations of 
membership,  by  supporting  the  institutional  capacity  building  for  transposition  and 
implementation  of  the  acquis  and  (b)  to  reinforce  Iceland's  institutional  capacity  in  its 
preparations  for  participation  in  and  implementation  of  the  Structural  Funds  and  other  EU 
funds.  The  first  National  IPA  Programme  for  Iceland  was  adopted  in  October  2011  with  a 
budget of € 12 million.  

Iceland  continued  to  benefit  from  the  Technical  Assistance  and  Information  Exchange 
Instrument (TAIEX), targeted on chapters which are not or only partially covered by the EEA 
and where there are significant divergences with the acquis.  

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2. 

POLITICAL CRITERIA 

This  chapter  assesses  the  political  criteria,  focusing  on  the  progress  made  by  Iceland  in 
addressing  the  shortcomings  identified  last  year,  in  particular  as  regards  reinforcing  the 
independence of the judiciary and the anti-corruption policy framework. 

As  a  deeply  rooted  and  well-functioning  democracy,  Iceland  continues  to  meet  the  political 
criteria  as  stated  in  the  Commission's  Opinion  of  February  2010  and  the  November  2010 
Progress Report on Iceland. 

2.1. 

Democracy and the rule of law 

Icelandic institutions are stable and the rule of law is guaranteed. The judicial system is well 
established and the judiciary is of a high standard. The governance at national and local levels 
is effective and transparent. The public administration continues to be generally efficient and 
free  of  political  interference.  Human  rights  and  the  protection  of  minorities  are  legally 
guaranteed and respected in practice.  

The elections for an advisory constitutional assembly held in November 2010 were annulled 
in January 2011 by the Supreme Court, due to flaws mainly relating to insufficient secrecy of 
the ballot. The parliament decided to appoint the 25 persons that came first in the elections as 
members of a constitutional council, which held its first formal meeting in April 2011. The 
constitutional council has an identical role and mandate to that of the constitutional assembly: 
to review the Constitution and propose changes to parliament on issues that cover, inter alia, 
the  division  of  powers  between  legislative  and  executive,  the  presidential  office  and  the 
democratic participation of the population, the independence of the judiciary, environmental 
issues including the ownership of and the right to harness natural resources, the status of the 
State church and the delegation of powers by the State to international organisations.  

Legislative business has been completed or initiated, with a view to strengthening the role and 
efficiency of parliament. A law amending the parliament's rules of procedure was adopted by 
the Icelandic parliament, the Althingi, in June 2011. Its aims are to strengthen the parliament's 
oversight role, increase the rights and responsibilities of the opposition and establish a special 
constitutional  and  surveillance  committee.  The  law  is  based  on  the  recommendations  of  the 
Special Investigation Committee (SIC)3 and reflects the procedural guidelines of the Council 
of Europe on the rights and responsibilities of the opposition in parliament. In October 2010 
new  rules  on  the  parliamentary  procedure  on  EEA  matters  came  into  force.  They  stipulate 
inter  alia  that  the  parliament  should  be  involved  in  the  preparation  process  for  the 
transposition into Icelandic legislation of new EU acts incorporated into the EEA Agreement. 

The unity of the coalition government was tested on several occasions during the reporting 
period,  most  significantly  in  the  vote  on  the  2011  budget.  In  the  wake  of  the  April  2011 
referendum, where 60% of the electorate rejected the Icesave agreement reached in December 
2010 (See also chapter 9 - financial services), the government faced a no-confidence vote in 
Parliament.  

There continue to  be  diverging  views on the prospect  of  EU  accession  among  the  Icelandic 
political  forces  and  population,  which  are  reflected  in  intensive  debate.  Opinion  polls 

3 

The  independent  Special  Investigation  Committee  was  set  up  in  December  2008  to  investigate  and 
analyse the process that led to the collapse of the banking system. It issued its report in April 2010. 

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continued  to  show  a  mixed  picture  as  regards  EU  membership.  Support  for  continuing  the 
accession  negotiations  process  remained  high  during  the  reporting  period.  As  part  of  the 
parliament's  EU  information  strategy,  a  dedicated  website  was  launched  in  June  2011,  to 
serve as a forum for objective and factual information about Iceland's EU accession process.  

As regards internal preparations for accession, the Chief Negotiating Committee and the ten 
negotiating groups were actively involved in the screening meetings (November 2010 - June 
2011).  Translation  resources,  in  terms  of  funding  and  manpower,  have  been  increased 
extensively, including through EU financial assistance, in order to make progress on the task 
of translating the acquis by the date of accession.  

Good progress can be reported in further implementing the recommendations of the Special 
Investigation  Committee  (SIC)  and  improving  the  already  generally  efficient  public 
administration.  The  number  of  ministries  was  reduced  from  12  to  10  in  January  2011, 
following  the  merger  of  four  ministries  (ministries  of  health,  social  affairs,  justice  and 
transport)  into  two,  namely  the  Ministry  of  Welfare  and  the  Ministry  of  Interior.  Further 
consolidation  of  the  ministries  is  planned,  with  the  overall  objective  of  enhancing 
administrative capacity and coordination.  

In  September  2011,  a  bill,  amending  the  legal  framework  of  the  central  government,  was 
adopted  in  order  to  increase  flexibility  in  restructuring  the  ministries,  strengthen  the 
coordinating role of the Prime Minister, clarify the supervisory functions of ministries vis-à-
vis agencies, ensure access to the civil service on a non-discriminatory basis and a transparent 
procedure  for  higher  administrative  positions  to  be  filled,  and  strengthen  the  policy  making 
capacity  of  ministries.  According  to  the  new  law,  the  restructuring  of  ministries  has  to  be 
approved by the parliament through a parliamentary resolution, instead of adopting a new law, 
as was the case in the past. 

Overall,  the  state  of  local  democracy  is  in  compliance  with  the  European  Charter  on  Local 
Self-Government.  The  Additional  Protocol  to  the  Charter  of  Local  Self-Government  on  the 
right to participate in the affairs of a local authority remains to be ratified.  

Legislative  work  is  also  ongoing  to  improve  regulatory  practice,  simplify  administrative 
procedures and improve access to official documents. In February 2011, a working group was 
set up by the Prime Minister in order to review whether non-discrimination and transparency 
are sufficiently ensured in the process of partial or full privatisation of state enterprises. The 
working  group  issued  its  proposals  in  September  2011.  A  committee  has  been  set  up  to 
prepare  a  report  on  reducing  the  number  of  independent  complaints  bodies,  to  be  issued  by 
October 2011.  

A  programme  of  specialised  training  for  civil  servants,  the  Administrative  School,  was 
established  in  September  2010.  The  School  is  carrying  out  inter  alia  courses  on 
administration  law,  information  law,  the  role  and  operation  of  ministries  and  project 
management.  

The independence of the judiciary was strengthened. In May 2011, the process of appointing 
three judges in the Supreme Court took place according to the rules of the amended Judiciary 
Act. However, the implementation of the new rules on appointing judges and prosecutors still 
requires further monitoring. The limited tenure of only five years for prosecutors other than 
the Public Prosecutor and the Deputy Public Prosecutor needs to be addressed.  

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In order to strengthen the efficiency of the judiciary,  the number of judges of  district courts 
was temporarily increased from 38 to 43 and the number of Supreme Court judges from 9 to 
12  in  order  to  deal  with  the  additional  case-load  following  the  financial  crisis.  (See  also 
Chapter 23 — Judiciary and fundamental rights). 

In March 2011, in line with the SIC recommendations, the Court of Impeachment convened to 
rule on issues relating to the investigation by the Parliament prosecutor in the case against the 
former  Prime  Minister  at  the  time  of  the  financial  crisis.  In  May  2011,  the  parliament's 
prosecutor issued an indictment against the former Prime Minister. 

The  Office  of  the  Special  Prosecutor  continued  to  carry  out  raids  leading  to  the  arrest  of 
several former employees of the old Landsbanki for alleged fraudulent business practices in 
the  bank.  Currently,  88  cases  relating  to  the  collapse  of  the  Icelandic  banks  are  being  dealt 
with, in which 216 individuals have the legal status of accused persons. A total of three cases 
concerning  the  collapse  of  the  banks  have  been  referred  to  the  Courts.  Investigations 
conducted  by  the  Financial  Supervisory  Authority  on  possible  offences  in  financial 
undertakings have been referred to the Special Prosecutor for further investigation in 54 cases. 
The  Office  was  merged  into  a  single  agency  with  the  Economic  Crime  Department  of  the 
National Commissioner of Policy in September 2011. 

Good  progress  can  be  reported  in  the  further  reinforcement  of  the  anti-corruption  policy 
framework. 

As  regards  conflict  of  interests,  the  law  adopted  in  June  2010  lays  down  an  obligation  to 
establish  a  series  of  codes  of  conduct  for  ministers,  ministerial  staff,  political  advisors  and 
civil servants in general. The first code of conduct applicable to ministers was established in 
March  2011.  Iceland  ratified  the  UN  Convention  against  corruption  in  February  2011  (See 
also Chapter 23 — Judiciary and fundamental rights). 

Iceland's General Penal Code has still to be amended following the December 2010 Interim 
Compliance Report of the Council of Europe's Group of States against Corruption (GRECO) 
on incrimination of corruption offences. 

The State Auditor monitors the implementation of the September 2010 amended law on the 
finances of political parties.  

2.2. 

Human rights and the protection of minorities (see also chapter 23 - Judiciary & 
fundamental rights) 

As  regards  human  rights  and  protection  of  minorities,  Iceland  continued  to  safeguard 
fundamental rights, including economic and social rights, and to strengthen their protection. 
In September 2011, 4 allocated to a decision body applications against Iceland were pending 
before the European Court of Human Rights (ECtHR).  

A  new  media  act,  which  includes  provisions  on  freedom  of  expression  and  sets  up  a  media 
regulatory  authority,  was  adopted  by  the  Parliament  in  April  2011.  Issues  regarding 
ownership  concentration  on  the  Icelandic  media  market  and  the  role  of  the  Icelandic  State 
Broadcasting in the advertising market remain to be addressed. In order to further develop the 
legislative framework in these areas, two committees were appointed and started to work in 
summer 2011.  

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The  amendment  to  the  law  on  Child  Protection  was  adopted  in  June  2011.  It  includes 
provisions  on  the  division  of  responsibilities  between  the  state  and  the  municipalities 
regarding children who are considered best off placed outside their home, in another home or 
in an institution.  

The  UN  Convention  on  the  Rights  of  Persons  with  Disabilities  and  the  Council  of  Europe 
Framework Convention for the Protection of National Minorities 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 

Economic  policy  has  continued  to  be  oriented  towards  stabilising  the  economy  from  the 
severe  recession  that  the  country  experienced  following  the  collapse  of  the  banking  sector. 
Cooperation  with  the  IMF  provided  an  important  anchor  for  economic  stabilisation.  The 
authorities  managed  to  deliver  key  policies  laid  down  in  the  IMF  programme  leading  to  its 
successful  completion  in  August  2011.  The  country  also  managed  to  re-enter  international 
capital  markets  with  a  successful  US$  1  billion  bond  issue  in  mid-2011.  Broad  political 
consensus on the key essentials of a market economy and the preservation of the welfare state 
continues  to  be  strongly  embedded  in  Iceland's  society.  A  three-year  collective  wage 
bargaining  agreement  for  the  private  sector  was  concluded  in  the  spring,  which  reduces 
uncertainty for businesses and consumers, but the ensuing wage increases put additional strain 
on  the  economy,  in  particular  the  non-tradable  sector,  and  on  public  finances.  The  previous 
political  cohesiveness  within  Iceland  remains  stretched  by  the  negative  effects  of  the  crisis. 
The country was included in the EU's multilateral pre-accession fiscal surveillance procedure 
and submitted its first Pre-Accession Economic Programme (PEP) in January 2011. It sets out 
an  ambitious  medium-term  fiscal  framework  which,  however,  is  based  on  a  somewhat 
optimistic macroeconomic scenario and not fully underpinned by  comprehensive supporting 
structural reform measures. 

Macroeconomic stability 

Following  the  collapse  of  its  financial  sector  in  October  2008,  the  Icelandic  economy  went 
into a deep and long recession. Real GDP continued to fall in 2010, by 4%, which was larger 
than  expected  decline,  following  a  6.8%  drop  in  2009.  The  recession  bottomed  out  in  the 
second half of 2010, when the economy started to recover mildly, based on stronger private 
consumption  and  a  stronger  export  performance  by  non-aluminium  and  non-maritime 
products. In the first half of 2011, the recovery continued with a real GDP increase of 2.5% 
backed by consumption and investment growth, whereas real exports declined. However, the 
recovery is tentative. Annual growth decelerated in the second quarter compared to the first 
quarter.  Moreover,  stronger  consumption  growth  has  been  largely  driven  by  transitory 
measures,  such  as  one-off  pay  increases,  pension  withdrawals,  temporary  subsidies  and 
transfers,  and  debt  relief  measures  provided  to  households.  Balance  sheet  vulnerabilities 

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remain  in  both  the  corporate  and  household  sectors  and  continue  to  impede  a  stronger 
resumption  of  growth.  As  a  result  of  the  crisis,  average  per  capita  income  (in  Purchasing 
Power  Standards)  fell  to  110%  of  the  EU-27  average  in  2010,  from  117%  a  year  before. 
Overall,  the  economy  continued  to  recover,  however,  at  an  uneven  and  moderate  pace,  and 
risks and uncertainties persist with respect to the sustainability of growth. 

External  deficits  have  shrunk  markedly  following  the  recession.  The  sharp  contraction  in 
domestic demand and depreciation of the exchange rate (around 50% in 2008/09) contributed 
to a further improvement in the balance of goods  and services, which recorded a surplus of 
10% of GDP in 2010, after 8.4% in 2009. The current account deficit in 2010 stood at 11.2% 
of GDP, down from 11.7% in 2009, reflecting mainly the improvements in trade in goods and 
services.  However,  the  reported  current  account  balance  remains  heavily  influenced  by 
accrued  interest  of  banks  in  winding-up  proceedings  which  do  not  reflect  any  current  (or 
future)  outflow  of  funds.  Corrected  for  these  factors,  the  current  account  recorded  a  much 
lower deficit of 2.4% of GDP in 2010, according to the Central Bank's estimates. In the first 
half  of  2011,  the  annualised  current  account4  slightly  widened  to  11.6%  as  a  lower 
merchandise  trade  surplus  was  only  partly  compensated  for  by  a  stronger  services  and  net 
factor income balance.  Merchandise  trade data for  July  and August point to stronger  export 
growth of around 25 and 33% year-on-year, respectively. However, cumulative export growth 
in 2011 has been weaker than the growth of imports, reversing the trend seen in 2010 which 
supported  a  strengthening  of  the  current  account. Overall,  the  current  account  deficit  fell  in 
2010,  but  developments  in  2011  so  far  point  to  a  smaller  trade  surplus  as  compared  to  the 
previous year.  

Total net capital  inflows in 2010 and in the first half of 2011 were larger  than  the  amounts 
needed  to  finance  the  current  account  deficit.  As  a  result,  gross  official  foreign  exchange 
reserves held at the Central Bank increased by an amount equivalent to 20% of GDP in the 
twelve months to July, reaching 57% of GDP. The increase in reserves partly reflects official 
financing provided in the context of the IMF programme and through bilateral loans as well as 
foreign  exchange  interventions  to  bolster  non-borrowed  reserves.  A  very  high  level  of 
external  debt  continues  to  pose  a  key  challenge  to  the  Icelandic  economy.  Official  debt 
statistics  report  the  stock  of  gross  foreign  debt  at  867%  of  GDP  (end-2010).  However, 
corrected for foreign debt of banks and holding companies in winding up proceedings and of 
one  single  international  company  (the  pharmaceutical  company  Actavis)  headquartered  in 
Iceland  but  with  most  of  its  operations  abroad,  Iceland's  total  external  debt  appears  to  be 
considerably lower. The Central Bank estimates the 'corrected' external debt stock at around 
200% of GDP and Iceland's net international investment position at a negative 23% of GDP. 
This  compares  favourably  with  a  pre-crisis  external  debt  of  around  570%  of  GDP.  Overall, 
foreign  exchange  reserves  strengthened,  partly  backed  by  official  external  financing,  and 
recent  estimates  of  Iceland's  net  international  investment  position  suggest  a  much  lower 
external indebtedness compared to the pre-crisis period.  

The labour market remains weak with unemployment close to historically high levels at 7.5% 
in 2010 and the number of employed significantly lower compared to pre-crisis levels. These 
crisis-related  effects  continued  to  be  felt  in  the  first  half  of  2011  as  unemployment  reached 
8.5% in the second quarter of 2011, only slightly lower than in the same period of 2010. The 
level of total employment fell by 1% year-on-year in the first quarter and rose marginally in 
the  second  quarter  (0.3%).  Data  on  registered  unemployment  point  to  a  fall  in  the  average 

4 

As measured as a four quarter moving average 

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unemployment  rate  in  the  first  eight  months  of  2011,  to  7.7%  as  compared  to  8.4%  in  the 
same  period  a  year  before.  Elements  of  labour  market  flexibility  seem  to  have  provided  a 
degree  of  cushion,  such  as  a  reduction  in  the  number  of  hours  worked  (which  remain  6.5% 
below pre-crisis levels), increased part-time work net migration and labour market measures 
prevented  an  even  larger  increase  in  unemployment.  At  the  same  time,  weak  labour  market 
conditions continued to have a serious effect on long-term unemployment which increased to 
around 25% of total unemployment in the second quarter of 2011, around 8 percentage points 
higher than the same period a year ago. Also, the youth unemployment rate as a share of total 
unemployment  remained  high  at  nearly  19%.5  Despite  high  unemployment,  the  annual 
average growth of gross wages continued to accelerate in 2011 to 7.1% in June. Thus, average 
wage growth in the first half of 2011 reached 5%, compared to around 4% in the first half of 
2010. The dis-inflation process has pushed real wage growth into positive territory since the 
second half of 2010, leading to average real wage increases of around 2% in the first half of 
2011, but the recent rise in inflation will lead to a decline in average real wages. Overall, the 
labour  market  remains  seriously  affected  by  the  deep  post-crisis  recession  with  high 
unemployment rates, particularly among the youth and long-term unemployed. 

The monetary policy easing implemented since March 2009 came to an end in late 2010 when 
policy rates had reached historically low levels (4% compared to the peak of 18% in March 
2009) and the policy focus moved increasingly towards the preparation for a gradual lifting of 
capital controls. In August 2011, policy rates were raised for the first time since March 2009, 
by 0.25 percentage points to 4.25%, in reaction to rising inflationary pressures. After annual 
inflation  had  fallen  below  the  Central  Bank's  official  2.5%  inflation  target  in  early  2011, 
inflation accelerated markedly to 5% in July and August as a result of a weaker exchange rate, 
rising  oil-,  house-  and  food  prices  and  strong  pass-through  effects  from  unexpectedly  high 
wage  increases  negotiated  in  the  collective  wage  agreements  of  May.  These  factors  have 
worsened  the  inflation  outlook,  and  inflation  expectations  have  risen  markedly.  Overall, 
monetary  policy  has  been  tightened  slightly  as a  result  of  a  significantly  worsened  inflation 
outlook. 

The  Central  Bank  has  followed  and  intends  to  continue  a  strategy  of  exchange  rate 
stabilisation supported for the time being by a system of capital controls. The underlying trade 
surplus,  improved  terms  of  trade,  and  the  declining  risk  premium  have  supported  a 
strengthening the Icelandic króna by over 16% vis-à-vis the euro in 2010. However, in early 
2011  the  króna  started  to  weaken,  partly  due  to  large  purchases  of  foreign  exchange  by  the 
Central Bank at end2010. In the first half of 2011, the króna lost some 8.3% of its value vis-à-
vis the euro, but again slightly appreciated since then. The Central Bank continued to abstain 
from intervening in the foreign exchange market to support the króna since December 2009 
but it purchased foreign exchange through auctions to bolster non-borrowed reserves. Under 
the  current  policy  framework,  while  exchange  rate  risks  appear  limited  over  the  short  term, 
they  could  become  more  prominent  in  view  of  the  need  to  gradually  liberalise  capital 
movements.  

The first step towards lifting capital controls was taken in October 2009 when restrictions on 
inflows  of  new  capital  were  abolished.  A  revised  strategy  for  lifting  capital  controls  was 
approved by the government in March 2011 following a proposal from the Central Bank. The 
revised strategy was devised in consultation with the IMF. In a first step, it focuses mainly on 

5 

Prior to the crisis, long term  unemployment stood at 3.5% and the youth unemployment rate at 6.5% 
(first quarter of 2008) 

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reducing the risk of outflows from large holdings of króna by non-residents. These holdings 
are estimated at around 30% of GDP. The second step of the strategy foresees a liberalisation 
of  on-shore  króna  holdings.  First  steps  of  the  revised  strategy  were  taken  in  mid-2011, 
whereby  the  Central  Bank  bought  foreign  króna  holdings  in  two  auctions  to  re-sell  them  to 
domestic pension funds. While the first auction was entirely successful, pension funds proved 
to  be  reluctant  to  purchase  króna  holdings  in  the  second  auction,  probably  as  a  result  of 
increased risk aversion in international capital markets. The authorities aim to lift the controls 
gradually as conditions permit; nevertheless, this could still entail potential risks.  

Following a marked deterioration of public finances in the wake of the crisis, the authorities 
took  a  series  of  fiscal  consolidation  measures  to  reduce  the  fiscal  deficit  by  around  3 
percentage points in 2010, from 10% of GDP in 2009. While the measures were successful in 
reining in spending and strengthening the revenues, the revised general government deficit in 
2010 remained at virtually the same level as in 2009, as measured in % of GDP, as the overall 
budget  spending  was affected by called guarantees for the Housing Financing Fund and the 
Agricultural  Fund.  The  2011  budget  framework  adopted  in  late  2010  initially  foresaw  new 
fiscal  measures  amounting  to  around  2.7%  of  GDP  with  most  of  the  adjustment  on  the 
expenditure side (2% of GDP). This was a change to the structure of fiscal adjustment in 2009 
and  2010  which  was  largely  based  on  revenue  measures.  The  first  half  of  the  year  showed 
strong  revenue  performance  and  spending  below  projections.  Total  general  government 
revenues  increased  by  3.9%  and  total  spending  by  0.9%  year-on-year.  The  general 
government  balance  recorded  a  deficit  of  2.5%  of  (annual)  GDP,  compared  to  a  deficit  of 
3.1%  in  the  first  half  of  2010.  However,  in  the  context  of  the  three-year  collective  wage 
agreement  adopted  in  Spring,  the  government  took  additional  spending  commitments, 
comprising  additional  public  investment  as  well  as  social  protection,  active  labour  market 
policy  and  education  measures.  As  a  result,  expenditure  measures  in  2011  are  expected  to 
account  for  1%  of  GDP  instead  of  2%  as  initially  foreseen.  Moreover,  the  government 
decided to moderate the medium-term fiscal adjustment path by postponing the achievement 
of a sizeable fiscal surplus by one year from 2013 to 2014. Fiscal risks remain significant as 
growth could turn out to be lower than expected. Risks could also arise also from contingent 
liabilities related to government guarantees for public companies and a possible further need 
to recapitalise the State Housing Financing Fund, which suffers from uncertain asset quality 
and low capital ratios. Finally, litigation risks are related to the still unsettled Icesave-dispute 
and  the  Supreme  Court's  ruling  on  the  Emergency  Law.  A  decision  overturning  the  Law 
would have significant implications for Iceland's public finances. Overall, expenditure-based 
fiscal consolidation remains challenging and possible risks arise from contingent liabilities.  

Gross general government debt increased from 88% of GDP in 2009 to 93% at end-2010 and 
debt  levels  remain  high  compared  to  pre-crisis  levels  of  around  30%.  Further  progress  has 
been  made  in  establishing  a  medium-term  public  debt  management  framework.  A  medium-
term debt management strategy was published in February 2011 and the positive reception by 
market  participants  bodes  well  for  the  implementation  of  the  2011  annual  borrowing  plan 
which  foresees  accessing  international  markets  in  the  course  of  the  year.  In  June,  Iceland 
issued international bonds in the amount of US $1 billion with a 5-year maturity at an interest 
rate of 4.99%. This was the first international issue after the onset of the crisis two and a half 
years  ago.  The  transaction  was  well-received  by  global  investors  and  the  amount  was  two 
times  oversubscribed.  The  average  maturity  profile  of  the  public  debt  portfolio  has  been 
extended  to  over  4  years,  including  through  debt  buy-back  operations.  Finally,  a 
comprehensive legislation to strengthen local government fiscal frameworks and finances has 
been submitted to Parliament. It foresees strict limits on municipal borrowing, a rolling three-

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year balanced budget and the introduction of a new data- based and more effective monitoring 
system. The new framework is set to become fully operational in budget year 2012. Overall, 
in view of the high level of public debt, the authorities have taken further measures to reduce 
refinancing risks and to strengthen local government finances.  

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,  but  the 
recent fiscal easing and a worsened inflation outlook require a continuation of a tight policy 
mix.  In  this  respect,  the  2012  budget  and  medium-term  fiscal  plans  will  be  a  test  for  the 
government's  commitment 
to  continued  fiscal  adjustment.  Finally,  macroeconomic 
stabilisation  occurred  in  a  situation  of  temporary  protection  through  capital  account 
restrictions. Looking forward, their gradual 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  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  transferred  to  their  foreign  creditors  as  a  compensation  for  net  domestic  assets 
transferred  to  the  new  banks.  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 
government  has  also  become  a  large  investor  in  the  remaining  savings  banks  system.  The 
system  has,  however,  been  reduced  substantially  with  the  exit  of  the  two  largest  savings 
banks. The government's stake in the financial firms is held at arm's length from the political 
process via a special agency.  

The  private  sector  accounts  for  around  75%  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, but public ownership remains significant in some 
sectors, partly as a result of the crisis.  

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 entry exist in the 
fishing,  agriculture  and  energy  sectors,  which  are  not  covered  by  the  EEA.  Icelandic 
legislation  contains  prohibitions  on  foreign  ownership  in  the  fisheries,  energy,  air  transport 
and real estate sectors. Of these, restrictions on investment in fisheries are the only ones that 
apply to EEA nationals. The recession has significantly affected company start-ups. Despite 
some  pick-up  in  March,  the  number  of  newly  registered  private  limited  companies  declined 
by  6.5%  year-on-year  in  the  first  half  of  2011  and  remained  at  around  60%  of  pre-crisis 
levels.  Bankruptcy  proceedings  are  generally  straightforward.  However,  the  financial  crisis 
has put a large part of the corporate sector under severe financial distress. Actions have been 
taken to address this problem, including expediting out-of court procedures and by increasing 
the  number  of  judges  and  their  assistants.  The  number  of  insolvent  companies  increased 
rapidly by some 50% in the first half of 2011, compared to the same period in 2010. Overall, 

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high barriers to market entry for non-residents remain in key strategic sectors and market exit 
is complicated by large corporate sector indebtedness.  

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  restructuring  of  the  banking  sector  has  been  largely  completed  even  though  further 
operational and financial restructuring is required to allow for the resumption of bank lending 
and the required consolidation in the sector. 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 banking sector credit to the private sector is estimated at 90% of GDP at 
the  end  of  2010,  somewhat  lower  than  the  year  before  and  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 and financial imbalances are likely to persist for some time. Assets 
are largely denominated in or indexed to foreign exchange6 whereas liabilities are in domestic 
currency and at variable interest rates. Balance sheet imbalances pose a significant challenge 
to financial sector stability, in spite of banks' currently high capital adequacy ratios, reported 
well above 12% of tier 1 capital. Private households and businesses are faced with significant 
operational problems and nonperforming loans are exceptionally high (at about 40% of total 
loans). In reaction, the government has put private sector debt restructuring at the forefront of 
its economic policy. Various programmes, including debt relief programmes for household's 
mortgages and a voluntary framework for SMEs have gained pace. In addition, the use of the 
Financial  Supervisory  Authorities  prudential  powers  is  meant  to  support  this  process.  The 
banking  sector  seems  sufficiently  strong  to  bear  the  burden  of  debt  restructuring,  as  the 
difference  between  loan  and  book  value  implies  a  high  level  of  buffers  to  offset  potential 
losses after restructuring.  

On the funding side, banks are currently relying to a large extent on domestic deposits. The 
banks'  exceptional  liquidity  experienced  in  early  2010  has  been  reduced  as  investors  seek 
higher  returns  and  the  lower  policy  rate  has  led  to  falling  deposit  rates  in  the  banks.  The 
blanket guarantee on deposits remains in place and the government has put before parliament 
a draft law establishing a new deposit guarantee scheme fully in line with EU regulations and 
foreign  direct  investment  and  access  to 
a  €100,000  deposit  guarantee.  At  the  same  time, 
foreign  credit  still  remains  limited.  The  operational  restructuring  of  the  savings  banks  has 
further progressed, but there remains scope for a further consolidation of the sector. Overall, 
banking sector restructuring has further progressed, but significant vulnerabilities remain with 
respect to banks' asset quality.  

6 

The share of domestic currency assets has increased following the judgement by the Supreme Court on 
the illegality of foreign currency indexation of some loans. 

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Progress  has  been  made  in  strengthening  bank  regulatory  and  supervisory  practices,  but 
supervision needs to be strengthened further to bring it in line with international best practice. 
A  Basel  Core  Principles  Assessment  of  Effective  Bank  Supervision  was  concluded  in  mid-
April 2011. On this basis, the FME has developed a 2-year action plan to address remaining 
supervisory gaps.  

The  non-banking  financial  sector  comprises  the  government-owned  Housing  Finance  Fund, 
investment banks, leasing companies, payment card companies, investment credit funds and 
insurance companies. The government injected €206 million into the Housing Financing Fund 
to raise its capital to about 2% of risk-weighted assets, still far below the 5% pre-crisis level. 
The government is currently working on a comprehensive review of the Fund's operations and 
its  position  within  the  restored  financial  system,  expected  to  be  completed  by  end-2011. 
Leasing  companies  and  payment  card  companies  were  fully  recapitalised  in  early  2011 
without  public  support.  Total  credit  provided  by  the  sector  fell  by  8.5%  in  the  first  half  of 
2011 compared to the same period in 2010 as leasing companies wrote down foreign indexed 
loans  in  accordance  with  the  2010  court  rulings  and  a  related  law  passed  in  late  2011.  The 
market of both non-life and life insurances expanded through 2010 with total assets increasing 
by around 6%. Insurance firms also strengthened their equity base. Profits were lower than a 
year before, partly due asset revaluation needs. Overall, a number of steps have been taken to 
restore  the  non-banking  financial  sector  but  an  overhaul  of  the  Housing  Financing  Fund's 
operations remains a challenge in view of reducing the government's contingent liabilities.  

Domestic equity markets continue to play a much smaller role in financial intermediation than 
before the crisis in late 2008. Turnover in the equity market in 2010 remained muted at only 
2% of the 2008 pre-crisis turnover. Despite an annual increase of 28%, the total market value 
of all listed shares remains at only 17% of GDP compared with the pre-crisis level of 120% of 
GDP  (end-March  2011).  The  bond  market,  on  the  other  hand,  continues  to  be  rather  strong 
even though turnover remains at only 50% of the 2008 level and is dominated by government- 
and  government-guaranteed  bonds.  Overall,  domestic  financial  markets  have  somewhat 
recovered  on  the  back  of  a  more  lively  bond  market  while  confidence  in  equity  markets 
remains 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  is  slowly  recovering 
levels 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  and  despite  some  progress  in  private  debt 
restructuring, consumption and investment activity remain markedly restrained, holding back 
the  recovery  process.  An  efficient  allocation  of  resources  remains  limited  in  parts  of  the 
economy, also due to financial sector weaknesses and capital restrictions. Overall, challenges 
remain for improving the functioning of markets. 

Human and physical capital  

The  economic  crisis  severely  affected  the  labour  market  situation.  The  labour  participation 
rate has been reduced somewhat to 81.1% in 2010 from the 2007 pre crisis level of 83.3%, but 

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remains nonetheless high in international comparison. The share of people in part-time work 
has increased (to 27% from 23% prior to the crisis) and total hours worked have been reduced 
by around two hours to 39 hours a week in 2010. Outward migration may have prevented the 
unemployment rate from rising even faster, but net migration could be associated with a loss 
of  needed  skills,  even  though  the  total  number  halved  in  2010  compared  to  2009.  The 
structure  of  unemployment  remains  problematic  with  youth  and  low-skilled  workers 
representing  large  shares  of  the  unemployed.  The  rising  share  of  those  youths  neither  in 
education nor in the labour force has been pronounced. Under these circumstances, efforts to 
offer re-training and education are essential to reduce skills mismatches. Active labour market 
initiatives  and  life-long  learning  approaches  continued  to  be  carried  out  aimed  at  retraining 
and  upgrading  skills  of  the  labour  force.  Moreover,  the  government  introduced  measures  to 
grant all persons under the age of 25 years access to free secondary education. Total education 
spending  has  remained  at  around  7.8%  of  GDP  in  2010,  but  is  foreseen  to  drop  in  2011. 
Overall,  with  unemployment  still  very  high,  human  capital  remains  significantly 
underutilised. 

Abundant geothermal sources have attracted substantial foreign investment in the aluminium 
and  hydropower  sectors  over  the  past.  Even  though  the  financial  crisis  has  slowed  down 
investment, several new projects are now being prepared as access to international capital has 
been  gradually  restored  –  as  evidenced  by  the  successful  financing  by  the  state  power 
company Landsvirkjun in international financial markets. The share of investment spending in 
GDP reached only a low 13%, even slightly lower than a year before, and markedly below the 
30% pre-crisis share. Investments in all sectors have been affected. At the same time, the fall 
in real estate activities and construction reflects also some normalisation following the earlier 
'boom'  years.  Public  investments  have  also  fallen,  from  4%  to  under  3%  of  GDP,  with  the 
largest  declines  in  transport  infrastructure.  Net  FDI  inflows  turned  again  positive  in  2010, 
partly due to new FDI inflows and partly due to residents reducing their outward investments, 
raising the total stock of inward FDI to around 85% of GDP, up from 72% a year before. With 
respect to future investment potential, Iceland is implementing a large-scale mapping exercise 
of its energy resources to categorise them into areas for conservation and those available for 
exploitation.  Overall,  the  country  continues  to  benefit  from  good  basic  infrastructure, 
abundant natural resources, and an overall well-educated population.  

Sector and enterprise structure 

Although  some  new  segments  in  manufacturing  and  services  have  expanded  over  the  past 
years,  in  particular  in  high-tech  areas  such  as  software  production,  pharmaceuticals  and 
biotechnology,  the  economy's  industrial  sector  continues  to  be  characterised  by  a  limited 
degree  of  diversification.  The  relatively  small  industrial  sector  (excluding  construction), 
mainly  aluminium  manufacturing,  represents  roughly  9%  of  output  and  one-fifth  of 
employment. The share of construction in GDP has fallen markedly, from 11% in the boom 
year  of  2007  to  4%  in  2010,  reflecting  adjustments  in  an  over-leveraged  sector  as  well  as 
completion  of  large  energy-related  projects.  The  share  of  the  services  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.  The  importance  of  tourism  and 
transport as a source of foreign exchange income has been increasing, accounting for a quarter 
of total export earnings in the twelve months to June 2011, also as a result of the 20% yearly 
increase in foreign tourists  in  the  first  half  of  2011, which marked  a  significant turnaround. 
The importance of small firms in the economy remains high, accounting for 99% of the total 

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number of firms and 70% of employment and output. Overall, the country's industrial sector 
remains little diversified and the construction sector continues to deleverage. 

State influence on competitiveness  

The  level  of  state  subsidies  amounted  to  1.8%  of  GDP  in  2010.  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  protected  from  foreign  competition.  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  the  results  of  the  ongoing  policy  debate  as  regards  the  domestic 
allocation  of  fishing  quotas.  Energy  production  remained  largely  in  government  ownership, 
with  large  consumers  being  offered  relatively  favourable  electricity  prices.  Following  its 
intervention  in  the  banking  sector  the  government  retains  majority  ownership  in  one  of  the 
three new banks. The savings banks sector has also been largely restructured with the largest 
savings  bank  being  merged  with  a  commercial  bank.  While  the  government  announced  it 
would give creditors a chance to hold most of the equity, the process will most likely involve 
some  additional  state  support.  The  Housing  Financing  Fund  remained  state-owned  and  may 
require  additional  public  funds  to  bolster  its  capital  base.  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 
telecommunications sector is liberalised and privately owned while government interventions 
remain  limited  to  infrastructure  investments  in  remote  areas.  Overall,  state  interference 
remains significant in some areas including the banking sector. 

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  remains  little  diversified.  Marine  products  and 
aluminium account for two thirds of merchandise exports. The share of services, mainly travel 
and  transport,  remained  fairly  stable  in  2010  at  around  25%  of  total  exports,  and  increased 
slightly  in  early  2011.  The  import  structure  is  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 nearly 80% in 2010, up from around 75% a year before, and just over half of the 
country's  imports  originate  in  the  EU.  FDI  inflows  almost  exclusively  originate  from  EU 
partner  countries.  Overall,  integration  with  the  EU  in  the  areas  of  trade  and  investment 
remained very high.  

Rough estimates point to a slight deterioration of average labour productivity in 2010. As a 
result, unit labour costs are estimated to have increased, as real wage adjustments (a fall by 
0.6%  in  2010)  could  only  partly  compensate  for  lower  productivity.  In  2010,  the  exchange 
rate of the króna against the euro appreciated by around 16% in nominal and by around 13% 
in  real  terms  (adjusted  for  different  price  developments).  According  to  estimates,  the  real 
exchange  rate  remains  around  20%  below  its  long-term  average.  Overall,  despite  an 
appreciation  of  the  real  exchange  rate  in  2010,  Iceland  still  benefits  from  strong  price 
competitiveness  vis-à-vis  its  main  trading  partners  as  a  result  of  the  marked  depreciation  of 
the króna during the crisis.  

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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. 

4.1. 

Chapter 1: Free movement of goods 

Iceland has already reached a high level of alignment and, with a few exceptions, applies the 
acquis in this field due to its EEA membership.  

No  developments  can  be  reported  in  the  area  of  general  principles.  The  legislation  on 
alcoholic beverages has not been adopted. 

On horizontal measures, there is no update to report on the legislative framework in the field 
of  conformity  assessment.  Internal  and  external  coordination  of  market  surveillance  still 
require  further  improvement.  The  Icelandic  Board  for  Technical  Accreditation  has  not  yet 
been peer-evaluated.  

As  regards  the  'Old  Approach'  product  legislation,  Iceland's  alignment  with  the  acquis 
continues  to  be  well  advanced.  No  further  developments  can  be  reported  in  the  automotive 
sector, where alignment still needs to be reinforced. 

Iceland  continued  in  general  to  apply  satisfactorily  the  acquis  on  '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.  Further  improvements  are  needed  on  horizontal  measures  and  the  old  approach 
product legislation (automotive sector).  

4.2. 

Chapter 2: Freedom of movement for workers 

Iceland has already reached a high level of alignment and, with a few exceptions, applies the 
acquis in this field due to its EEA membership.  

No  additional  developments  can  be  reported  on  access  to  the  labour  market  and  on  full 
participation in the EURES (European Employment Services) network.  

Progress  can  be  reported  on  coordination  of  social  security  systems.  Preparations  for 
electronic  data  exchange  within  the  Electronic  Exchange  of  Social  Security  Information 
(EESSI)  system  are  advancing  under  the  auspices  of  the  dedicated  steering  group.  Regular 
meetings took place during the reporting period. Specialists from Icelandic health and social 
authorities benefited from training. Work on installation of an access point is advancing. 

The European health insurance card is in use in Iceland. 

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Conclusion 

Overall, Iceland continues to be highly in line with the acquis on freedom of movement for 
workers.  The  preparations  to  apply  the  new  regulations  on  social  security  coordination  are 
continuing smoothly. 

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 further developments can be reported on the right of establishment.  

There  has  been  good  progress  on  the  freedom  to  provide  cross-border  services.  Iceland 
notified the transposition of the Services Directive in July 2011, including various pieces of 
amending  sector-specific  legislation  and  a  Point  of  Single  Contact  has  been  launched. 
However, certain parts of Chapter III, Chapter IV, and Chapter VI of the Services Directive 
still remain to be transposed.  

Some  restrictions  on  the  right  of  establishment  and  the  freedom  to  provide  services  in  the 
fisheries sector are still in place (see also Chapter 13 - Fisheries). 

No progress can be reported in the area of postal services. The EEA Joint Committee has not 
yet  taken  a  decision  on  the  incorporation  of  the  Third  Postal  Directive  into  the  EEA 
Agreement,  and  consequently  has  not  yet  ruled  on  Iceland's  request  to  postpone  the 
implementation deadline of the Third Postal Directive for two years, e.g. until the end of 2012 
at the latest.  

Some progress can be reported on mutual recognition of professional qualifications. Two 
outstanding  national  regulations  needed  to  complete  implementation  of  the  directive  on 
mutual  recognition  of  professional  qualifications,  one  on  the  health  sector,  the  other  on 
vocational  training,  were  published  in  May  and  June  2011  respectively.  However,  the  main 
directive is still only partially implemented. Articles on application of the general system to 
professions  benefiting  from  automatic  recognition,  automatic  recognition  on  the  basis  of 
professional experience and minimum training conditions are still outstanding.  

Conclusion 

The overall level of alignment with the acquis on the right of establishment and freedom to 
provide services is satisfactory. However, completion of alignment with the Services directive 
and the transposition of the Third Postal directive remain to be achieved. The administrative 
capacity for effective implementation and enforcement of EU rules and policies needs to be 
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.  

Some developments can be reported on capital movements and payments. In  March 2011 
the  Icelandic  government  approved  a  revised  strategy  for  liberalisation  of  capital  accounts. 
The  strategy  was  prepared  by  the  Central  Bank  in  cooperation  with  key  ministries  and  the 

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Financial Supervisory Authority and in consultation with the International Monetary Fund. In 
September 2011, the parliament approved this strategy and extended the capital controls until 
31  December  2013.  Iceland  notified  the  EEA  Joint  Committee  of  this  decision.  The 
government may lift the controls at an earlier date if conditions permit this. This timeframe is 
deemed  necessary  to  allow  a  phased  and  conditional  liberalisation  of  the  capital  controls 
without threatening the financial stability of the country. The above extension of the capital 
controls is still not in line with the EU acquis.  

The  liberalisation  strategy  is  divided  into  two  main  phases  and  maintains  a  gradual,  non-
discriminatory approach without setting a timetable. Phase I provides for measures to reduce 
distressed investors' offshore króna holdings and to channel offshore krónur into the Icelandic 
economy  and  the  Treasury's  long-term  funding.  To  this  end,  two  first  foreign  currency 
auctions  were  held,  in  May  and  July  2011.  Once  sufficient  progress  has  been  made  under 
Phase  I,  Phase  II,  entailing  liberalisation  of  onshore  króna  holdings,  can  begin,  provided  an 
assessment  of  the  balance  of  payments  outlook  indicates  that  reserves  will  be  adequate  and 
other economic preconditions have been met.  

No  developments  can  be  reported  as  regards  restrictions  on  foreign  investment  in  fisheries 
(see  also  Chapter  13  -  Fisheries).  These  provisions  are  not  in  line  with  the  acquis.  Some 
progress  can  be  reported  in  the  area  of  payment  systems.  A  bill  on  implementation  of  the 
directive on payment services was adopted in September 2011. However, work is in progress 
on  transposition  of  the  new  EU  directive  on  settlement  finality  in  payment  and  security 
settlement systems and of the new EU directive on e-money.  

Little progress can be reported in the fight against money laundering. Iceland has addressed 
some of the technical deficiencies of its Financial Intelligence Unit. However, in June 2011, 
the Financial Action Task Force (FATF) placed Iceland into a process of 'enhanced follow-up' 
on  account  of  its  failure  (over  the  last  five  years)  to  address  a  number  of  shortcomings 
identified in its evaluation report, including the under-resourcing of its financial intelligence 
unit. The third Anti-Money Laundering (AML) directive is thus still not fully implemented in 
Iceland.  

Conclusion 

Overall, Iceland largely applies the acquis on free movement on capital, although alignment 
with  the  acquis  remains  incomplete  due  to  extensive  capital  restrictions  still  in  place.  The 
legislative  framework  was  further  reinforced  over  the  reporting  period.  The  administrative 
capacity of the Financial Intelligence Unit still requires further strengthening.  

4.5. 

Chapter 5: Public procurement 

The entire acquis in this chapter is covered by the EEA Agreement, with the exception of one 
technical directive and the defence procurement directive. Iceland is continuing to implement 
the main body of the acquis on public procurement in line with its EEA obligations. 

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

Regarding administrative capacity, no further developments can be reported.  

There  has  been  little  progress  on  award  of  public  contracts.  The  directive  on  defence 
procurement  remains  to  be  transposed  into  Icelandic  legislation.  An  e-procurement  action 

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plan was discussed at ministerial level during the reporting period but no such plan has been 
presented yet. A specific public procurement advisory council has not yet been established.  

Transposition  of  the  remedies  directive  and  the  two  related  technical  directives  is  still 
outstanding. 

Conclusion 

Overall, the level of alignment and implementation in the field of public procurement remains 
satisfactory, with the exception of the remedies and defence procurement directives.  

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.  

Little  progress  was  made  in  the  area  of  company  law.  Legislation  on  reporting  and 
documentation requirements in the case of mergers and divisions was submitted to parliament 
in March 2011 and has yet to be adopted. It aims at completing alignment with the Second, 
Third and Sixth Company Law Directives and with the directive on cross-border mergers of 
limited liability companies. Alignment with the directive on shareholders' rights remains to be 
completed. 

Little progress was made on corporate accounting. Draft  legislation implementing parts of 
the directive amending certain provisions on annual and consolidated accounts along with the 
regulation  on  equivalence  of  accounting  standards was  adopted  in  September  2011.  The 
infringement case initiated following the reasoned opinion issued by the EFTA Surveillance 
Authority in November 2010 was subsequently closed. 

Iceland  continued  to  apply  the  acquis  on  auditing.  A  new  regulation  on  quality  control  of 
auditors' work was adopted in October 2010. Two new regulations were adopted in 2011, one 
covering the continuous education of auditors, the other the listing of auditors and audit firms. 
Alignment with the international standards on audits remains to be achieved.  

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 
and international standards in audit remains to be 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. 

Progress  has  been  made  in  the  area  of  copyright  and  neighbouring  rights.  Following  the 
incorporation  into  Icelandic  legislation  of  the  bulk  of  the  Copyright  Act  last  year,  five  new 
collecting  societies  obtained  legal  status  during  the  reporting  period.  Iceland  continued  to 
cooperate with the European Observatory on Counterfeiting and Piracy on soft-law issues.  

No development can be reported on industrial property rights.  

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Some  progress  can  be  reported  on  enforcement.  The  working  group,  made  up  of 
representatives  from  two  ministries  and  three  agencies,  continued  to  discuss  enforcement 
policy regularly, to raise awareness of IPR issues amongst consumers in Iceland. The group is 
also  working  on  establishing  a  website  providing  with  information  and  possibly  details  of 
administrative  and  judicial  proceedings  against  IPR  infringements  and  on  establishing  a 
warning  system  based  on  agreements  between  right-holders  and  telecommunications 
operators. The enforcement directive remains to be fully transposed. 

Conclusion 

Overall, Iceland has already reached a high level of alignment with the acquis on intellectual 
property law and has the administrative capacity necessary to implement it. Steps have been 
taken to improve Iceland's enforcement policy. 

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. 

The institutional framework was further reinforced with the adoption, in February 2011, of the 
Act  amending  the  Competition  Law  with  a  view  to  strengthening  the  powers  of  the 
Competition Authority. The Authority can take action against any situation or conduct in the 
market that prevents, restricts or distorts competition, even in the absence of a breach of the 
Competition Law.  

Iceland continues to maintain a high level of alignment in the field of antitrust and mergers 
and no developments can be reported. 

As regards State aid measures taken in response to the financial crisis, in December 2010 the 
EFTA  Surveillance  Authority  (ESA)  opened  a  formal  investigation  procedure  on  the  aid 
measures in favour of the Glitnir, Kaupthing and Landsbanki banks and their successors. In 
March  2011  the  ESA  provisionally  approved  rescue  aid  of  ISK  33  billion  (approximately 
€ 123.8  million)  for  the  Icelandic  Housing  Fina ncing  Fund,  subject  to  abolition  of  the 
mortgage  loan  scheme  and  recovery,  by  the  end  of  October  2011  at  the  latest,  of  any 
incompatible  and  unlawful  aid  granted.  The  ESA  also  approved  an  Icelandic  scheme  for 
innovation companies with the aim of improving and fostering research and development.  

In  February  2011,  under  the  existing  aid  procedure,  the  ESA  asked  Iceland  to  bring  the 
financing arrangements for the State radio station into line with the rules on State aid to public 
service  broadcasting.  Iceland  agreed  in  May  to  take  the  necessary  steps  to  eliminate  any 
incompatible aid resulting from the financing scheme and has until the end of December 2011 
to do so. 

Conclusion 

Overall, Iceland has already reached a high level of alignment and applies a substantial part of 
the acquis in the field of competition. 

4.9. 

Chapter 9: Financial Services 

Iceland has 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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There  has  been  limited  progress  in  the  cases  of  banks  and  financial  conglomerates. 
Legislation  on  a  new  deposit  guarantee  scheme,  based  on  the  new  EU  acquis,  including 
minimum  coverage  of  € 100,000,  was  presente d  to  parliament  in  November  2010.  The 
parliamentary  approval  procedures  are  continuing.  In  the  area  of  banking  supervision,  the 
Central  Bank  of  Iceland  and  the  Financial  Supervisory  Authority  signed  a  new  cooperation 
agreement  in  January  2011  to  enhance  financial  stability  by  means  of  better  integration  of 
micro  and  macro  supervision.  The  two  institutions  are  currently  working  on  designing  a 
registry to improve monitoring of large exposures. The directive on the prudential assessment 
of  acquisitions  in  the  financial  sector  was  implemented  in  2010.  The  amended  Act  on 
Financial  Undertakings  was  adopted  in  September  2011.  It  brings  the  national  legislation 
further in line with the directive on banks affiliated to central institutions, certain own funds 
items, large exposures, supervisory arrangements, and crisis management. 

The  Capital  Requirements  Directive  (CRD  II)  has  not  yet  been  fully  transposed.  Work  is 
advancing on formulating and implementing rules concerning: good business practices; loans 
secured  by  mortgages  on  shares  or  guarantee  capital  certificates  issued  by  undertakings; 
remuneration  policies;  calculation  of  the  amount  of  exposure;  what  constitutes  secure 
collateral;  evaluation  of  connections  between  parties  for  the  purposes  of  the  rules  on  large 
exposures; exceptions from internal auditing units for financial undertakings; and qualifying 
holdings outside the financial sector. 

In  December  2010  a  new  agreement  on  Icesave  was  reached  between  the  governments  of 
Iceland,  the  United  Kingdom  and  the  Netherlands  and  was  eventually  adopted  in  February 
2011  by  the  parliament.  The  Icelandic  President  declined  to  sign  the  Icesave  bill  into  law, 
thereby creating the conditions for a referendum in April, in which almost 60% of Icelandic 
voters rejected the bill. 

The  government  confirmed  that  the  outcome  of  the  referendum  would  not  affect  the 
commencement of the payments to the UK and the Netherlands from winding up the estate of 
Landsbanki,  due  to  start  later  in  2011.  Repayments  are  expected  to  start  before  the  end  of 
2011,  subject  to  a  final  ruling  of  the  Supreme  Court  on  priority  creditor  status  of  deposit 
holders. In May 2011 the government sent its reply to the letter of formal notice of May 2010 
from the EFTA Surveillance Authority (ESA). In June 2011 the ESA decided to proceed with 
the  second  step  of  the  infringement  procedure,  i.e.  to  issue  its  reasoned  opinion,  which 
reiterates the findings set out in the letter of formal notice. This legal analysis is shared by the 
European Commission. Iceland's government provided the answer to the EFTA Surveillance 
Authority's  reasoned  opinion  at  the  end  of  September.  The  Authority  is  now  examining  the 
response  in  detail  before  deciding  on  further  action  in  this  case.  At  this  stage,  the  Icesave 
dispute remains unresolved.  

Good  progress  can  be  reported  in  the  fields  of  insurance  and  occupational  pensions:  the 
outstanding  issues  regarding  implementation  of  the  reinsurance  directive,  the  life  insurance 
directive, the insurance groups directive and the financial conglomerates directive were fully 
addressed over the reporting period. 

In March 2011 the Ministry of Economic Affairs published a new Regulation regarding assets 
covering technical provisions of insurance companies.  

In  January  2011  the  Financial  Supervisory  Authority  published  new  guidance  on  risk 
management for insurance undertakings. This guidance is partly based on future solvency II 
requirements.  A  committee  is  working  on  a  bill  on  implementation  of  the  solvency  II 

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Directive.  The  Financial  Supervisory  Authority  started  work  on  new  rules  regarding 
calculation  of  the  adjusted  solvency  of  insurance  groups  in  order  to  align  them  with  the 
calculation  of  the  solvency  of  financial  conglomerates.  These  new  rules  will  change  the 
method for implementing the insurance groups directive. Work also continued on other rules 
such  as  on  financial  independence,  assessment  of  qualifications  and  remuneration  of  board 
members and chief executive officers. 

No developments can be reported in the areas of financial market infrastructure, securities 
markets and investment services.  

Some  progress  can  be  reported  on  the  administrative  capacity.  The  staff  of  the  Financial 
Supervisory Authority had been increased to nearly 100 by the end of 2010. The number of 
full-time equivalent posts is expected to increase to 117 by the end of 2011, of which 17 will 
be  temporary  jobs  to  respond  to  the  large  scale  of  the  investigative  tasks  entailed  by  the 
banking collapse.  

Conclusion 

Overall, alignment in the area of financial services is good, although the reforms introduced 
remain  partial.  Implementation  is  not  complete  in  some  key  areas,  notably  insurance  and 
securities,  and  the  supervisory  capacity  needs  further  improvement.  The  Icesave  dispute 
remains unresolved. 

4.10.  Chapter 10: Information society and media 

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

No  progress  can  be  reported  in  the  areas  of  electronic  communications  and  information 
technologies.  The  2009  EU  electronic  communications  reform  package  (revised  regulatory 
framework) has not been incorporated into the EEA Agreement and, therefore, has not been 
transposed into national law. The EU directive on data retention and the regulation on the .eu 
top-level  domain  have  not  been  transposed.  No  developments  can  be  reported  on 
strengthening the independence of the national regulatory authorities.  

No further progress can be reported in information society services, where legal protection 
for  conditional  access  devices  needs  to  be  extended  to  decoders  for  purposes  other  than 
broadcasting services. Furthermore, the e-commerce directive remains to be fully transposed. 
Iceland  continued  to  participate  in  the  Information  and  Communication  Technologies  (ICT) 
Policy Support component of the EU Competitiveness and Innovation Programme.  

Good progress was achieved regarding audiovisual policy, where Iceland passed a new law 
on  media  and  broadcasting  in  April  2011  with  the  aim  of  transposing  the  EU's  Audiovisual 
Media Services (AVMS) directive. However, the new legislation fails fully to transpose the 
AVMS directive and several gaps still remain. Apart from not fully transposing a number of 
articles of the AVMS directive, the Icelandic Media Act also introduced provisions that could 
create  an  unjustified  restriction  of  the  rules  on  freedom  of  expression.  Other  provisions  are 
contrary to the principle of freedom of reception and retransmission laid down in the AVMS 
directive. 

The digital switchover is planned for the end of 2012, but the method remains to be decided. 

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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  revised 
communications  regulatory  framework  remains  to  be  transposed  and  several  gaps  in 
transposition  in  the  field  of  audiovisual  policy  and  information  society  services  need  to  be 
closed. 

4.11.  Chapter 11: Agriculture and rural development  

As  regards  horizontal  issues,  no  new  legislative  developments  can  be  reported.  The 
administration continued to study the acquis and the structures necessary to implement it in 
order  to  prepare  for  future  membership.  The  limited  administrative  capacity  remains  to  be 
addressed. 

The Farmers' Association and the Minister of Fisheries and Agriculture signed an agreement 
in October 2010. It covers, in particular, the rural development measures for 2011 and 2012 
and  includes  significant  budget  cuts  in  this  sector.  Due  to  the  economic  situation,  the 
agreement is valid for two years, instead of the usual four-year period,.  

Working  groups  were  set  up  in  March  2011  to  analyse  and  prepare  for  institutional  issues 
within  the  EU  framework  and  on  the  market  and  support  system.  They  include  both  civil 
servants and stakeholders. Iceland continued analysing the current land registration system. It 
also  started  a  pilot  project  in  connection  with  the  Land  Parcel  Identification  System  (LPIS) 
with the aim of providing maps and technical support.  

No progress can be reported with the single common market organisation. 

A working group on rural development was set up in March 2011 to analyse and prepare a 
plan to set out how Iceland could coordinate its rural development  strategies  within  the EU 
framework.  

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

Conclusion 

Overall,  Iceland's  agricultural  policy  is  not  in  line  with  the  acquis  and  no  new  legislative 
alignment  has  been  undertaken.  The  appropriate  administrative  structures  in  this  area  will 
need to be set up.  

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

Iceland partially applies the acquis on food safety, veterinary and phytosanitary policy due to 
its EEA membership. 

No progress can be reported on general food safety since adoption of the Food Law aiming at 
harmonisation  with  the  EU  hygiene  package.  Full  implementation  of  these  provisions  is 
expected to start in November 2011. Official controls related to production and placing on the 
market of fishery products are not carried out in line with the legislation in force within the 

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European Economic Area (EEA). Some developments can be reported towards clarifying the 
distribution of control tasks between central and public health authorities with the finalisation, 
over  the  reporting  period,  of  a  number  of  cooperation  agreements  at  municipal  level.  The 
central  food  and  veterinary  authority  still  has  to  sign  inspection  contracts  with  all  reference 
laboratories. 

In  March  2011,  Iceland  supplemented  its  legislation  in  the  veterinary  sector  with  the 
adoption  of  a  Law  on  exports  of  horses.  Iceland  continued  to  benefit,  under  the  EEA 
Agreement,  from  an  exemption  from  EU  rules  on  trade  in  live  animals  and  germ  plasm 
enabling  it  to  prohibit  all  imports  of  live  animals  except  fish  and  fish  germ  plasm.  No 
developments can be reported in this area. Iceland's legislation on imports of live animals and 
animal health is not in line with the acquis. 

Limited progress can be reported as regards the placing on the market of food and feed with 
the  start,  over  the  reporting  period,  of  work  on  a  national  upgrading  plan  to  bring  food 
establishments into line with the hygiene rules. However, the hygiene package is expected to 
be  fully  implemented  in  November  2011.  On  animal  by-products,  no  developments  can  be 
reported on setting  up  collection  systems and incineration facilities for carcasses potentially 
infected with transmissible spongiform encephalopathy (TSE). 

As  regards  food  safety  rules,  some  developments  can  be  reported  on  genetically  modified 
foods with the adoption, in December 2010, of legislation on the labelling and traceability of 
genetically modified food and feed. The part of the legislation dealing with feed entered into 
force in September 2011. However, Iceland's legislation on novel foods and specific rules for 
feed  are  not  in  line  with  the  acquis.  A  new  regulation  on  release  into  the  environment  of 
genetically modified organisms was adopted in July 2011. 

Some  progress  can  be  reported  on  phytosanitary  policy,  as  Iceland  started  preparing 
legislation on plant protection products. However, Icelandic legislation does not comply with 
EU rules on plant protection products and plant health. The capacity of accredited laboratories 
remains to be enhanced. 

Conclusion 

Overall,  Iceland  is  partially  in  line  with  the  acquis  on  food  safety,  veterinary  and 
phytosanitary policy. Iceland's legislation on live animals is not in line with the acquis and no 
new  development  can  be  reported  in  this  area.  The  hygiene  package  remains  to  be  fully 
implemented in November 2011. Further developments are needed in the legislation on plant 
protection products and novel food and overall administrative and laboratory capacity requires 
further strengthening. 

4.13.  Chapter 13: Fisheries 

No  new  developments  can  be  reported  in  a  number  of  areas  such  as  structural  action, 
market policy and State aid.  

As  regards  resource  and  fleet  management,  no  development  can  be  reported.  The 
restrictions on the internal market acquis regarding the right of establishment and the freedom 
to provide services and on the free movement of capital in fisheries production and processing 
remain in place.  

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In  the  areas  of  inspections  and  control,  no  new  developments  can  be  reported.  However, 
preparations for ratification of the 2009 FAO Agreement on port State measures to prevent, 
deter and eliminate illegal, unreported and unregulated fisheries continued. 

When it comes to international agreements, Iceland continued its preparations to ratify the 
1993  FAO  Agreement  to  promote  compliance  with  international  conservation  and 
management measures by fishing vessels on the high seas.  

It was not possible, over the reporting period, to reach an agreement on the management of 
the mackerel stocks for 2011 between the coastal States of the North-East Atlantic. Iceland's 
continued  expansion  of  mackerel  fisheries,  through  the  unilateral  setting  of  total  allowable 
catches,  continues  to  cause  widespread  concern  within  the  EU,  also  with  regard  to  the 
principles of sustainable resource management.  

Conclusion 

Overall,  Iceland  continues  to  apply  a  fisheries  policy  which  has  similar  objectives  to  those 
pursued in the EU, but some rules differ substantially. No developments can be reported. The 
Icelandic legislation is not in line with the acquis. Mechanisms to implement and monitor EU 
support  measures  remains  to  be  set  up.  The  existing  restrictions  on  foreign  investment  in 
fisheries and services are not in line with the acquis. 

4.14.  Chapter 14: Transport policy 

Iceland partly applies the acquis on transport policy due to its EEA membership.  

In January 2011 the Ministry of Justice and Human Rights was merged with the Ministry of 
Transport, Communications and Local Government to form the Ministry of the Interior. 

Some  progress  can  be  reported  in  the  area  of  road  transport.  Iceland  acceded  to  the 
European  Agreement  on  the  international  carriage  of  dangerous  goods  by  road  (ADR)  in 
February  2011.  However,  the  acquis  regarding  driving  licences,  roadworthiness  tests  for 
motor vehicles, road side check lists for inspections in the transport of dangerous goods, and 
road  infrastructure  safety  management  remains  to  be  fully  implemented.  Over  the  reporting 
period the EFTA Surveillance Authority (ESA) sent Iceland letters of formal notice regarding 
the outstanding transposition of the acquis on driving licences.  

There is no rail transport sector or inland waterways transport sector in Iceland. 

No further developments can be reported in the area of combined transport. In the absence 
of  railway  systems  and  inland  waterways,  combined  transport  in  Iceland  consists  mainly  of 
road transport. 

In  the  field  of  air  transport  there  has  been  good  progress.  The  National  Supervisory 
Authority  within  the  Icelandic  Civil  Aviation  Administration,  as  the  independent  body 
ensuring the application and monitoring of the  acquis in this field, is improving its security 
surveillance  capacity  and  a  new  aviation  security  plan  is  being  finalised.  In  June  2011,  the 
second  phase  of  the  Open  Skies  Agreement  with  the  USA  was  signed,  putting  Icelandic 
operators on equal footing with other operators in the EU with regard to flights to the USA. 
Several  other  areas  of  the  acquis  remain  to  be  transposed,  including  public  services 
obligations,  computerised  reservation  system,  single  European  Sky  II,  safety  and 
airworthiness of aircraft and aeronautical products. 

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Progress  can  be  reported  in  the  area  of  maritime  transport,  particularly  in  the  area  of 
security,  where  the  Maritime  Administration  actively  participated  in  the  corresponding 
committees. The outstanding acquis on marine equipment, training and safety rules has been 
transposed.  However,  the  acquis  on  rights  of  passengers  travelling  by  sea,  port  reception 
facilities for ship-generated waste and port State control remains to be transposed. 

No developments can be reported in the area of satellite navigation.  

Conclusion 

Overall, Iceland has a good level of alignment with the acquis on transport policy. However, 
the country still needs to transpose the relevant EU legislation on road and air transport.  

4.15.  Chapter 15: Energy 

Iceland partly applies the acquis on eergy due to its EEA membership.  

There has been some progress in the area of security of supply. The steering group in charge 
of  developing  a  comprehensive  energy  policy  for  Iceland  delivered  a  final  draft  report  in 
January  2011.  The  draft  report,  which  was  open  to  public  consultation  until  April  2011, 
focuses on an energy strategy for the future. Work has begun on how to implement legislation 
on  oil  stocks,  in  particular  with  regard  to  the  alternatives  that  may  exist,  administrative 
aspects and the obligations of the parties. Meetings with EU national experts in this field took 
place in April 2011. 

Limited progress can be reported in the area of the internal energy market. With regard to 
the  procedure  to  improve  the  transparency  of  gas  and  electricity  prices,  a  law  has  not  been 
adopted yet. In December 2010 a law amending the Electricity Act was adopted, postponing 
the  separation  of  competition  and  franchise  operations.  Incorporation  of  the  third  energy 
package directive into the EEA Agreement has not been finalised. The relations between and 
independence of the Competition Authority and the National Energy Authority have not been 
clarified yet. 

Little  progress  can  be  reported  in  the  field  of  renewable  energy,  where  the  National 
Renewable Energy Action Plan is still in the process of being drafted under the leadership of 
the  National  Energy  Authority.  Icelandic  legislation  is  still  not  in  line  with  the  2009 
renewable  energy  directive,  although  it  has  a  share  of  67%  of  renewable  energy  in  its  final 
energy  consumption.  Further  measures  are  envisaged  for  increasing  the  use  of  renewable 
energy in the transport sector. This sector remains the most challenging from the renewable 
energy perspective. Some progress can be reported in the area of energy efficiency. Iceland 
aligned  in  2010  with  the  directive  on  the  promotion  of  cogeneration,  based  on  useful  heat 
demand in the internal energy market. Under the EEA Agreement, Iceland has been exempted 
from  transposing  the  directive  on  energy  performance  in  buildings.  Substantial  parts  of  the 
energy efficiency acquis remain to be transposed, including the energy services directive and 
the  new  legislation  on  eco-design  and  labelling  of  end-user  products.  The  National  Energy 
Authority has initiated a project to raise awareness of the importance of energy efficiency and 
energy saving, both for companies and households. However, Iceland has no national energy-
saving  targets  and  implementation  of  the  acquis  on  energy  end-use  efficiency  is  still  at  an 
early stage. 

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There have been no further developments in the areas of nuclear energy, nuclear safety and 
radiation protection. 

Conclusion  

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

4.16.  Chapter 16: Taxation  

The  working  group  on  taxation  to  evaluate  the  overall  impact  of  acquis  legislation  and 
provide  a  gap  analysis  on  national  legislation  with  relevant  acquis  completed  its  work  in 
March  2011.  In  the  area  of  indirect  taxation,  few  developments  can  be  noted  over  the 
reporting period. Tax legislation remains only partly in line with the acquis, in particular on 
VAT - especially regarding definitions, exemptions, special VAT schemes or reimbursement - 
and excise duties, with special reference to rates and product category definitions, including 
for  alcohol  and  tobacco,  petrol  and  diesel  fuel,  travellers'  allowances,  warehousing,  duty 
suspension and duty-free goods.  

As  regards  direct  taxation,  no  further  developments  can  be  reported  on  aligning  the 
legislative framework with the acquis. An amendment to the Law on income tax, covered by 
the EEA, was adopted in December 2010 concerning the income of persons with limited tax 
liability  and  who  earn  no  less  than  75%  of  their  income  in  Iceland.  Laws  on,  inter  alia, 
inheritance tax and wealth tax were also adopted in December 2010. 

Regarding  administrative  cooperation  and  mutual  assistance,  operational  capacity  and 
computerisation, initial steps have been taken to measure the operational capacity and best 
practices  of  Iceland's  tax  system  against  the  EU  fiscal  blueprints  and  best  practices.  This 
included study trips and training seminars for the working group on taxation with experts on 
the  EU  fiscal  self  assessment  exercise  and  as  part  of  the  regional  blueprints  exercise  on 
customs  and  taxation.  The  final  report  was  submitted  in  September  2011.  The  process  of 
aligning with the acquis provisions relating to mutual assistance in indirect and direct taxation 
matters, including the establishment of a Central Liaison Office and an Excise Liaison Office, 
has  yet  to  start.  Iceland  needs  to  decide  as  soon  as  possible  on  a  strategy  to  achieve 
interconnectivity and interoperability of its IT systems for taxation with those of the EU.  

Conclusion  

Overall, some progress can be reported. Iceland's tax legislation remains partially aligned with 
the  acquis.  Iceland  continues  to  have  a  good  level  of  administrative  capacity  in  the  field  of 
taxation. Nevertheless, a strategy for achieving IT interconnectivity and interoperability with 
EU IT systems for taxation needs to be defined. 

4.17.  Chapter 17: Economic and Monetary policy 

No  progress  can  be  reported  on  monetary  policy,  including  in  the  functional,  institutional, 
personal  and  financial  independence  of  the  Central  Bank,  where  alignment  with  the  acquis 
remains incomplete. National legislation on Central Bank financing of credit institutions other 
than  in  connection  with  the  support  of  insolvent  credit  and/or  other  financial  institutions 
remains incompatible with the prohibition on monetary financing, unless it is established that 
the Central Bank acts only as a fiscal agent of the State.  

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With respect to economic policy, coordination between the Ministry of Economic Affairs and 
the  Central  Bank  has  improved,  albeit  insufficiently,  particularly  after  a  new  Ministry  of 
Economic  Affairs  was  established  in  October  2010  to  enhance  coordination  of  economic 
policy  and  between  macroeconomic  and  financial  sector  policies.  As  before,  regular  and 
frequent meetings are held between the Ministry of Economic Affairs and Central Bank staff.  

In  December  2010  the  Central  Bank  published  a  report  on  monetary  policy  in  Iceland, 
discussing  possible  frameworks  for  monetary  policy,  including  changes  to  the  present 
inflation-targeting framework. Iceland is included in the pre-accession fiscal surveillance and 
submitted its first Pre-Accession Economic Programme in January 2011. 

Conclusion 

There has been some progress in the area of economic policy, but further efforts on improving 
policy coordination remain necessary. No further developments can be reported in the field of 
monetary  policy  and,  overall,  alignment  with  the  acquis  in  this  area  remains  incomplete, 
notably on the independence of the Central Bank and the prohibition of monetary financing of 
the public sector.  

4.18.  Chapter 18: Statistics 

Iceland partly applies the acquis on statistics due to its EEA membership. 

Some  progress  has  been  made  in  the  statistical  infrastructure.  Cooperation  between 
Statistics  Iceland  and  the  Central  Bank  of  Iceland  is  good  and  has  been  strengthened. 
Statistics  Iceland  has  started  working  on  cooperation  agreements  with  the  Customs 
Department, the Environment Institute and the Energy Authority. Its operational budget has 
been cut further. As a result, some measures had to be postponed. Progress in other areas of 
capacity-building  continued  with  the  aid  of  study  visits,  working  groups  and  training. 
However, apart from statistics Iceland, the country has a number of other producers of official 
statistics  and  the  oversight  and  coordination  of  the  entire  national  system  needs  to  be 
strengthened.  

Some  progress  can  be  reported  on  classifications  and  registers.  The  main  statistical 
classifications  are  in  place  and  follow  the  acquis.  Work  on  upgrading  the  classification  on 
occupations  has  started.  The  statistical  business  register  is  not  yet  operational.  Concerning 
sector statistics, Iceland continued to follow its Strategy for Agricultural Statistics, presented 
in September 2010. This included Statistics Iceland hiring an additional three persons to work 
on Agricultural Statistics. Statistics Iceland also prepared plans and budget proposals on the 
production of Agricultural statistics beyond 2012, but so far no formal decisions on the budget 
proposals  have  been  taken.  The  Farm  Structure  Survey  was  launched  in  January  2011,  data 
collection  from  farmers  ended  in  May  and  processing  is  due  to  start  in  September  2011.  In 
June 2011 a law was adopted abolishing the Agricultural Statistics Service as of the beginning 
of 2012. The responsibility for agricultural statistics and the Farm Structure Survey has been 
moved to Statistics Iceland. The housing and population census started in April 2011 and is 
partly financed by unused appropriations from previous years and partly through EU support. 
Iceland has started to prepare for Intrastat. Gaps in national accounts, such as supply and use 
tables,  input-output  tables  and  sector  accounts,  need  to  be  filled.  Short-term  statistics  and 
structural business statistics need further development. Production of statistics following the 
new regulation on job vacancies has not yet begun, at least partly due to budgetary issues. The 
adult education survey and the continuing vocational training survey remain to be carried out. 

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Transmission  of  available  statistical  data  to  Eurostat  remains  to  be  improved.  Iceland  will 
need  to  ensure  that  resources  are  available  in  these  areas.  National  Accounts  are  compiled 
according  to  European  System  of  Accounts  (ESA  95)  but  neither  do  they  comprise  the 
required  supply  and  use  and  input-output  tables,  nor  a  set  of  full  sector  accounts.  Financial 
accounts  need  to  be  comprehensively  developed.  The  area  of  structural  business  and  short-
term statistics needs considerable development which is linked to the necessary establishment 
of  a  business  register.  As  concerns  other  sector  statistics,  preparations  in  the  area  of  sector 
statistics are advanced but incomplete. 

Conclusion 

Progress can be reported in the area of statistics. Production and provision of statistical data in 
line with EU methods, in particular on national accounts, businesses, the labour market and 
agriculture,  remain  to  be  improved.  The  implementation  capacity  of  the  statistical  office  is 
stretched to its limits. Allocation of sufficient resources remains a concern.  

4.19.  Chapter 19: Social policy and employment  

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

In  January  2011  the  administration  dealing  with  social  policy  and  employment  was 
reorganised, with the creation of the Ministry of Welfare. 

As a member of the EEA, Iceland has continued to implement a substantial part of the acquis 
in  the  field  of  labour  law.  In  the  reporting  period,  the  Icelandic  legislation  transposing  the 
posting of workers directive was found to be in breach of EU law by the EFTA Court. The 
EFTA Surveillance Authority launched in November 2010 an infringement procedure against 
Iceland  regarding  the  working  time  directive.  Subsequently,  in  April  2011,  a  bill  was 
introduced  in  the  parliament  set  to  make  changes  in  order  for  Iceland  to  comply  with  the 
directive.  

In the area of health and safety at work, a new legal act was adopted in February 2011 with 
the aim of transposing the EU directive on optical radiation.  

The  social  dialogue  continued  to  function  well  during  the  reporting  period.  In  May  2011, 
after five months of negotiations, a three-year collective wage agreement for the private sector 
was  ratified.  For  most  of  the  public  sector,  agreements  have  been  concluded  as  well.  The 
agreements are expected to ensure stability in the labour market.  

Progress  continued  as  regards  Iceland's  employment  policy.  The  new  Iceland  2020  Policy 
Statement,  adopted  by  the  government  in  January  2011,  sets  a  number  of  social  policy 
objectives  such  as  the  reducing  of  long  term  unemployment  to  under  3%.  These  were 
formulated  in  consultation  with  representatives  from  trade  unions  and  the  Confederation  of 
Icelandic  Employers  and  place  particular  emphasis  on  the  groups  at  risk  of  long-term 
unemployment  in  the  wake  of  the  financial  crisis.  The  government  has  continued  to 
implement active labour market policies focusing on young people. While these policies have 
been successful, an overall employment strategy still remains to be established. Overall, the 
labour market situation continues to be seriously affected by the economic crisis with young 
workers and the low skilled being hit the hardest.  

Preparations for participation in the European Social Fund are still at an early stage. 

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Iceland  has  continued  taking  appropriate  measures  for  social  inclusion  of  the  vulnerable 
groups  in  society.  Stakeholder  consultations  take  place  regularly  under  the  umbrella  of  a 
steering committee, led by the Ministry of Welfare, to monitor the welfare system. Financial 
assistance for poor households remains available from the municipal authorities, which decide 
themselves  on  the  amounts  to  be  paid.  Debt  mitigation  measures  and  financial  advice  to 
indebted households, adopted in the aftermath of the financial crisis, are still in place. A new 
law  concerning  people  with  disabilities  was  adopted  in  December  2010.  Under  this  law, 
services  for  people  with  disabilities  are  now  under  the  responsibility  of  the  municipal 
authorities.  Iceland  is  well  advanced  in  terms  of  social  inclusion  and  social  protection  of 
persons with disabilities. 

Iceland continues to guarantee the quality of social protection services, despite a lower share 
of  expenditure  than  in  the  EU  overall  and  the  difficult  economic  background.  As  regards 
healthcare,  pocket  payments  cover  about  10%  of  primary  healthcare  and  30%  of  specialist 
consultations. The relatively high effective retirement age helps to maintain the sustainability 
of  the  pension  system.  Some  of  the  pension  funds  affected  by  the  crisis  continued  to  cut 
pension rights and payments.  

The  two  anti-discrimination  directives  remain  to  be  transposed  in  Icelandic  law.  The 
Ministry  of  Welfare  submitted  a  proposal  for  a  new  law  to  implement  these  directives  to 
parliament in May 2011.  

Iceland's standards in the field of equal opportunities remain high and Iceland continues to 
be the world leader in gender equality. However, two equal opportunities directives remain to 
be  transposed,  one  on  gender  equality  in  social  security,  the  other  on  access  to  goods  and 
services.  

Conclusion 

Overall,  Iceland  has  reached  a  high  level  of  alignment  and  continued  to  apply  a  substantial 
part of the acquis in this chapter due to its EEA membership. Iceland issued the Iceland 2020 
Policy  Statement  which  sets  a  number  of  objectives  in  the  areas  of  social  policy  and 
employment.  Social  dialogue  mechanisms  continue  to  function  well,  and  a  three-year 
collective wage agreement for the private sector has been signed. However, a comprehensive 
employment strategy has yet to be drafted. 

4.20.  Chapter 20: Enterprise and industrial policy 

Iceland partially applies the acquis in this field due to its EEA membership. 

In the area of enterprise and industrial policy, the Iceland 2020 Policy Statement sets goals 
and  targets  related  to  enterprise  and  industrial  policy.  In  particular,  it  includes  specific 
quantitative goals on welfare, knowledge, R&D, sustainability and economic development by 
increasing  the  share  of  GDP  accounted  for  by  exports  of  high-tech  industrial  and  eco-
innovation  products.  Iceland  2020  is  an  outcome  of  the  Moving  Iceland  Forward  initiative 
which  was  prepared  in  consultation  with  a  wide  range  of  stakeholders.  Iceland  is  already 
familiar with the Small Business Act and participates in the SME performance review. 

In  the  area  of  enterprise  and  industrial  policy  instruments,  Iceland  is  continuing  to 
participate  in  the  Enterprise  and  Innovation  Programme  and  is  a  member  of  the  Enterprise 
Europe  Network.  The  performance  of  the  Icelandic  members  of  the  network  improved 

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steadily over the reporting period and has now reached satisfactory levels. At the same time, 
there is still room for further improvement, notably to stimulate enterprises to make fuller use 
of  the  services  offered  with  a  view  to  internationalisation  of  small  and  medium-sized 
enterprises (SMEs). Various financial support programmes for SMEs are in place. However, 
access to finance for SMEs is still affected by the financial crisis.  

Concerning  sectoral  policies,  a  new  policy  on  creative  industries  was  presented  in  August 
2011. 

Conclusion 

Overall,  alignment  in  the  area  of  enterprise  and  industrial  policy  remains  at  a  high  level. 
Measures have been taken on in industrial and SME policy to address the challenges posed by 
the post-crisis environment.  

4.21.  Chapter 21: Trans European Networks 

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

In the area of transport networks, Iceland participated in the TEN-T guidelines committee. 
TEN-T maps are currently being prepared in line with the revision of the TEN-T guidelines. 

No progress can be reported in the area of energy networks. A TEN-E-related policy remains 
to be established. 

Conclusion 

Overall, Iceland maintains a good level of alignment with the acquis in this chapter. However, 
a TEN-E-related policy needs to be developed. 

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

In relation to the legislative framework, as a member of the EEA, Iceland is at an advanced 
stage  with  alignment  with  Union  legislation  and  policies  in  areas  that  are  a  prerequisite  for 
proper implementation of the EU Cohesion Policy, such as public procurement, competition, 
non-discrimination  and  equality  between  men  and  women.  Further  efforts  are  needed  in  the 
area of the environment. Iceland's current budget planning system does not provide sufficient 
guarantees with a view to multiannual programme budgeting. 

No  decision  has  been  taken  concerning  setting  up  the  institutional  framework  for 
management of the Structural Funds. However, preparatory work is under way.  

As  regards  administrative  capacity,  a  comprehensive  training  action  plan  has  been  put  in 
place.  It  addresses  most  of  the  institutions  likely  to  be  involved  in  implementing  Cohesion 
Policy  and  covers  areas  relating  to  programme  and  project  preparation  and  management. 
Iceland needs to develop and implement a targeted capacity-building programme for all future 
stakeholders  involved  in  EU  Cohesion  Policy  once  programme  and  institutional  choices  are 
made.  

Progress  was  made  on  programming,  in  the  form  of  adoption  of  the  Iceland  2020  Policy 
Statement  in  January  2011,  a  long-term  planning  document  for  social  and  economic 

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development. It contains a number of policy targets relevant to regional policy. The statement 
provides  for  action  plans  for  each  district.  Based  on  the  objectives  of  the  policy  statement, 
long-term regional action and investment plans for the whole country are to be made. These 
will  serve  as  a  basis  for  preparing  the  strategy  and  programming  documents  required  by 
Cohesion Policy.  

No  particular  developments  can  be  reported  on  monitoring  and  evaluation.  Iceland 
continued  to  use  monitoring  systems  in  relation  to  the  EU  co-funded  programmes  in  which 
the  country  is  involved  due  to  its  EEA  membership.  Iceland  needs  to  mobilise  adequate 
resources for proper establishment of a monitoring and evaluation system for Cohesion Policy 
programmes.  

No particular development can be reported on financial management and  control. Iceland 
needs  to  put  in  place  its  financial  management  and  control  system  (including  internal  and 
external  audits)  for  the  Structural  Funds  and  to  pay  due  attention  to  separation  of  functions 
and the independence of key bodies such as the certifying authority and the audit authority.  

Conclusion 

Overall, some limited progress has been made in the area of regional policy and coordination 
of  structural  instruments.  A  comprehensive  action  plan  is  being  prepared  with  the  aim  of 
enhancing the administrative capacity in the area of Cohesion Policy. However, Iceland needs 
to  identify  the  institutions  responsible  for  implementation  of  the  Cohesion  Policy  and  to 
develop  appropriate  management  mechanisms,  including  financial  control,  monitoring  and 
evaluation.  

4.23.  Chapter 23: Judiciary and fundamental rights (see alsoPolitical criteria) 

Progress  can  be  reported  in  the  judiciary.  Iceland's  judiciary  continues  to  be  of  a  high 
standard and the judicial system is well established. In January 2011, the Ministry of Justice 
and  Human  Rights  was  merged  with  the  Ministry  of  Transport,  Communications  and  local 
Government into the Ministry of Interior. A law extending the mandate of the president of the 
Supreme Court board from two to five years was adopted in February 2011.  

Independence has been strengthened. As regards appointments and dismissals of prosecutors, 
the State Prosecutor and his Deputy are appointed by the Minister of Interior for an indefinite 
period  of  time,  whereas  other  prosecutors  are  appointed  by  the  Minister  of  Interior  for  five 
years. The limited term of office of prosecutors needs to be addressed. Prosecutors, the State 
Prosecutor and his Deputy cannot be dismissed unless a case against them is brought before 
the  Courts.  These  are  the  same  conditions  that  are  applied  to  Supreme  and  district  court 
judges.  Discussions  on  merging  all  eight  District  courts  into  one  court  and  on  the  possible 
establishment of a Court of Appeal are ongoing. The working group set up in December 2010 
to  look  into  the  establishment  of  an  Appeal  Court  for  civil  and  criminal  cases  delivered  its 
recommendations in June 2011. Its recommendations are ongoing public consultations. 

The  implementation  of  the  new  rules  on  appointing  judges  and  prosecutors  requires  further 
monitoring.  

As regards accountability, disciplinary procedures for judges are in place. The Committee on 
Judicial  Functions  acts  on  an  advisory  basis  and  any  decision  by  the  Minister  of  Interior  to 

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remove  a  judge  from  the  bench  has  temporary  effect.  It  can  only  become  permanent  if 
confirmed by a court. 

Measures were taken to improve the efficiency of the judicial system. A temporary increase in 
the number of district court judges (38 to 43) and Supreme Court judges (9 to 12) was decided 
by  the  parliament  in  February  2011  to  deal  with  the  increased  case-load  following  the 
financial crisis. This number will be reduced further as of January 2013. Three Supreme Court 
and five district court judges were appointed during the reporting period according to the rules 
of the revised Act of Judiciary. 

The Office of the Special Prosecutor was reinforced in order to continue conducting a number 
of criminal investigations in the wake of the financial crisis. The Office was merged with the 
Economic  Crime  Department  of  the  National  Commissioner  of  Police  in  September  2011. 
With this merge, the Office of the Special Prosecutor will also be in a position to investigate 
and  prosecute  serious  financial  and  economic  cases  in  addition  to  the  criminal  actions 
connected  with  the  operations  of  financial  undertakings.  In  June  2011,  a  law  amending  the 
law of the Special Prosecutor was amended to take into account the merge of the Office with 
the Economic Crime Department.  

Progress can be reported on anti-corruption policy with the ratification in February 2011 of 
the UN Convention against Corruption. In March 2011, a code of conduct for ministers was 
adopted in application of the June 2010 law. Codes are being prepared for Central government 
staff and for the civil service in general. A special implementation plan for ethical standards 
within  the  administration  was  launched  in  November  2010  under  the  auspices  of  the 
Coordination Committee on Ethical Standards for the Administration. The plan aims to ensure 
extensive consultations before codes of conduct are adopted and makes provision for training 
activities. Training activities on investigations of corruption cases also took place during the 
reporting  period.  The  General  Penal  Code  remains  to  be  amended  following  the  December 
2010 interim compliance report of the Council of Europe's Group of States against Corruption 
(GRECO) on incrimination of corruption offences.  

According  to  the  law  on  the  financing  of  political  parties  amended  in  September  2010, 
political parties have to provide their financial report by the beginning of October 2011, as a 
precondition  for  them  to  receive  State  funding.  The  State  Auditor  monitored  the 
implementation  of  the  amended  law  on  financing  of  political  parties.  During  the  reporting 
period, 7 out of 8 political parties have delivered their obligatory financial report for the year 
2009. No payments are executed if the information provided to the National Audit Office by 
the political party is not submitted or is not in line with the legal provisions. The impact and 
effects of the new legislation need to be  monitored.  The  GRECO  recommendation  on  party 
funding  regarding  the  independence  of  auditors  who  check  the  political  parties'  and 
candidates' accounts remains to be addressed.  

Some measures were taken during the reporting period to further strengthen the already high 
level of protection of fundamental rights. These concern in particular women's rights and the 
fight  against  domestic  violence:  in  March  2011,  the  Ministry  of  Welfare  presented  to  the 
Parliament  a  report  with  recommendations  on  various  actions  related  to  both  preventive 
measures  and  response  to  domestic  violence.  A  new  law  to  improve  the  functioning  of 
restraining  orders  and  the  removal  from  home  of  perpetrators  of  domestic  violence  was 
adopted in June 2011. 

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No progress can be reported on the protection of personal data. The Law on data protection is 
not  yet  fully  in  line  with  the  acquis,  in  particular  as  regards  the  transfer  of  data  to  third 
countries.  The  independence  of  the  Data  Protection  Authority  needs  further  strengthening. 
The  Authority  is  administratively  subject  to  the  Ministry  of  Interior,  which  allocates  and 
supervises the Authority's yearly budget. The rules on the appointment of the members of the 
board of directors by the Minister of Interior need to be reviewed. The Additional Protocol to 
the  Council  of  Europe  Convention  108  for  the  Protection  of  Individuals  with  regard  to 
Automatic Processing of Personal Data has not yet been ratified.  

There are no developments to report on EU citizen's rights. 

Conclusion 

Overall, Iceland's judiciary and anti-corruption policy continue to be of a high standard. The 
limited  tenure  of  prosecutors  other  than  the  Public  Prosecutor  and  the  Deputy  Public 
Prosecutor needs to be addressed. Iceland ensures continuous strengthening of its already high 
level  of  protection  on  fundamental  rights.  Progress  was  made  in  further  reinforcing  the 
independence of the judiciary and the anti-corruption policy framework. Further monitoring 
of the implementation of these measures is needed. The legislation on citizen's rights and data 
protection is not yet fully in line with the acquis. 

4.24.  Chapter 24: Justice, freedom and security 

As  an  associated  member  of  the  Schengen  Agreement,  Iceland  continued  to  implement  a 
large  part  of  the  acquis  in  the  area  of  justice,  freedom  and  security, in particular  as  regards 
external borders and visas. Iceland has continued to be actively involved in the activities of 
Frontex. Iceland is also participating in the Visa Information System (VIS).  

In January 2011, the amended Law on the restructuring of the government and its ministries 
came  into  force.  The  Ministry  of  Justice  and  Human  Rights  merged  with  the  Ministry  of 
Transport, Communications and Local Government to form the Ministry of the Interior. 

Iceland is advanced in the area of migration, but its legislation on long-term residents, special 
provisions for researchers and implementation of the EU Blue Card Directive still needs to be 
aligned. The same applies to family reunification.  

As  regards  asylum,  the  amendments  to  the  Act  on  foreigners  which  entered  into  force  in 
October  2010  broadened  the  definition  of  refugee  to  include  those  eligible  for  subsidiary 
protection. It also included provisions to tighten up the procedures and consolidate the rights 
of  asylum-seekers.  Work  has  started  with  a  view  to  joining  the  European  Asylum  Support 
Office (EASO). 

Progress can be reported in the area of judicial cooperation in civil and criminal matters. 
Iceland ratified the Lugano Convention on jurisdiction and the enforcement of judgments in 
civil  and  commercial  matters  in  January  2011  and  the  Convention  entered  into  force  as 
regards Iceland in May 2011. No new developments can be reported with regard to joining the 
1996 Child Protection Convention and the 2007 Child Support Convention and its protocol on 
applicable  law,  nor  with  cooperation  in  criminal  matters.  The  good  cooperation  between 
Iceland and Eurojust has continued.  

As regards police cooperation and the fight against organised crime, the protocols to the 
UN Convention against transnational crime (Palermo Convention) on smuggling of migrants 

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and  on  illicit  manufacturing  and  trafficking  in  firearms  remain  to  be  ratified.  The  specialist 
coordination  team  dealing  with  human  trafficking  continued  to  provide  training  for 
professionals and civil servants. It also provided safe refuges, protection, legal aid, emergency 
health  services  and  psychological  assistance  for  victims  of  human  trafficking  and  organised 
activities to build up their social abilities. Information and guidelines on human trafficking for 
police  officers  are  available.  They  include  information  on  the  difference  between  human 
trafficking and smuggling of people, misconceptions and identification of victims. A law was 
adopted  in  June  increasing  the  punishment  for  trafficking  in  human  beings  to  12  years. 
Iceland  has  not  ratified  the  Council  of  Europe  Convention  on  trafficking  in  human  beings. 
Iceland is continuing its good cooperation with Europol, in particular on investigations in the 
wake  of  the  financial  crisis.  Iceland  continues  to  be  advanced  in  the  fight  against  money 
laundering. No new development can be reported.  

Iceland  remains  well  advanced  in  the  fight  against  terrorism,  cooperation  in  the  field  of 
drugs and customs cooperation, where no further developments can be reported. 

As regards counterfeiting of the euro, see Chapter 32 - Financial control.  

Conclusion 

Overall, Iceland continues to apply the Schengen Agreement and is well advanced in aligning 
with the acquis in the area of justice, freedom and security. Further efforts are still needed to 
ratify and implement international instruments in the field of child protection, the fight against 
organised crime and currency counterfeiting.  

4.25.  Chapter 25: Science and research 

Iceland  has  already  achieved  a  high  level  of  alignment  and  applies  a  substantial  part  of  the 
acquis  in  this  field  due  to  its  association  with  the  EU  Framework  Programmes  and  its 
participation  in  the  European  Research  Area  governance  structures  under  the  EEA 
Agreement. 

Iceland's  framework  for  research  and  innovation  policy  is  in  line  with  and  comparable  to 
those of EU Member States. 

Iceland  continued  to  participate  in  the  7th  EU  Framework  Programme  for  research  and 
technological development (FP7) as associated country. Participation remained successful and 
was spread over all the thematic areas and specific programmes covered by FP7.  

Regarding  the  European  Research  Area  (ERA),  over  the  reporting  period  Iceland  took  a 
number  of  actions  which  further  facilitate  its  integration  into  the  ERA  and  strengthens  the 
research  and  innovation  capacity  at  national  level.  The  Iceland  2020  Policy  Statement  of 
January 2011 takes due account of the objectives of the ERA.  

Regarding  research  funding,  the  Policy  Statement  contains  actions  to  increase  the  level  of 
expenditure  in  R&D  currently  at  2.7%  of  GDP  to  reach  4%  of  GDP  by  2020,  with  70% 
coming from companies and 30% from public funds. To attain this objective, the government 
is expected to offer tax incentives to private companies for R&D spending.  

Conclusion 

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Overall,  Iceland  has  achieved  a  high  level  of  alignment  in  the  field  of  science  and  research 
and continued to participate actively in EU FP7. Furthermore, as a result of its involvement in 
European Research Area activities, Iceland is well advanced to meet the targets and objectives 
of the ERA and the Innovation Union. 

4.26.  Chapter 26: Education and culture 

Iceland has already implemented a substantial part of the acquis on education and culture, due 
to its EEA membership. 

No further developments can be reported in the fields of education, training, youth, culture 
and sport.  

As  regards  cooperation  on  policies,  Iceland  continued  to  participate  actively  in  the  open 
method  of  coordination  on  education.  Iceland's  share  of  30-34  year  olds  with  tertiary 
education  remains  above  the  EU  average  and  is  already  above  the  target  set  by  the  EU 
Education  &  Training  2020  framework.  The  rate  of  early  school-leavers  remains  above  the 
EU average. To improve this situation, the government put forward proposals in April 2011 to 
reduce the drop-out rate from upper secondary school and decrease youth unemployment. In 
the field of lifelong learning, Iceland remained above the EU average targets for 2020.  

Regarding  access  to  education  of  EU  citizens,  the  Ministry  of  Education  is  working  on 
amending its legislation on access for EEA citizens to loans from the Icelandic Student Loan 
Fund.  This  amendment  is  expected  to  enter  into  force  in  autumn  2011  and  will  introduce  a 
residence requirement for all beneficiaries.  

Iceland  continued  to  participate  in  several  EU  programmes,  including  Life-long  Learning, 
Youth in Action and Erasmus Mundus. It also continued to participate in the European Centre 
for  the  Development  of  Vocational  Training  and  nominated  representatives  to  take  part  as 
observers  in  the  Advisory  Committee  on  Vocational  Training.  The  Ministry  of  Education, 
Science and Culture is working on streamlining procedures and on achieving full compliance 
with  the  programme  management  requirements  for  the  Lifelong  Learning  and  Youth  in 
Action  Programmes.  So  far,  Iceland  is  not  participating  in  the  Europe  for  Citizens 
Programme. 

A  comprehensive  national  qualifications  framework  based  on  learning  outcomes  is  being 
developed. 

Iceland  continued  to  participate  in  the  EU  Culture  Programme  for  2007-2013  and  has 
reiterated its interest in participating in the open method of coordination on culture. 

Conclusion 

Overall, Iceland has achieved a high level of alignment in the field of education and culture. 

4.27.  Chapter 27: Environment 

As regards environment, Iceland's policy is to a large extent in line with the EU acquis due to 
its EEA membership.  

An integrated national strategy on environmental issues was introduced with the new Iceland 
2020  Policy  Statement.  It  contains  several  firm  environmental  targets  with  a  focus  on 

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sustainable  development,  especially  in  the  context  of  exploitation  of  natural  resources  and 
energy. Objectives include to become a pioneer in testing, producing and using eco-friendly 
fuels. Some progress has been achieved in the horizontal legislation. A law set to transpose 
the  environmental  liability  directive  was  presented  to  the  parliament  in  March  2011.  It 
includes provisions on damage to protected species and nature conservation areas. However, 
these  are  not  yet  in  line  with  the  EU  nature  acquis.  Legislation  set  to  implement  the  third 
pillar  of  the  Aarhus  Convention  was  adopted  by  parliament  in  September.  The  Aarhus 
Convention still has to be ratified. Transposition of the environmental crime directive is still 
pending. Legislation transposing the INSPIRE directive was adopted in May 2011.  

The  Ministry  of  the  Environment  is  preparing  amendments  to  the  environmental  impact 
assessment  legislation  which  are  expected  to  be  presented  to  parliament  in  2011.  The  main 
changes concern the criteria on which projects will be subject to screening in order to decide 
whether  an  environmental  impact  assessment  is  required.  No  developments  can  be  reported 
regarding  ratification  of  the  Espoo  Convention  on  environmental  impact  assessment  in  a 
transboundary context. 

Iceland's  air  quality  legislation  is  largely  in  line  with  the  EU  acquis.  However,  a  law 
transposing the National Emissions Ceilings Directive remains to be adopted. 

Good  progress  was  achieved  in  the  field  of  waste  management.  New  waste  management 
legislation was adopted by parliament in May 2011 with the aim of transposing a whole range 
of provisions of the EU waste framework directive, batteries directive and mining and waste 
directive and packaging waste directive.  

In  the  field  of  water  quality,  a  significant  step  was  taken  in  the  form  of  new  framework 
legislation, adopted in April 2011, transposing the water framework directive. New staff were 
recruited in the Environment Agency over the reporting period to work on water framework 
issues. Iceland still needs to take specific steps to transpose the remaining acquis, notably the 
marine strategy framework directive, bathing water directive and floods directive.  

As  regards  nature  protection,  the  Nature  Conservation  Act  is  being  reviewed  to  take  into 
consideration  the  birds  and  habitats  directives.  Meanwhile,  no  legislative  or  implementing 
measures can be reported to align with the acquis on protection of whales or with the trade 
ban on imports of seal products into the EU. Work has continued on developing management 
plans for the national parks. A management plan for Vatnajökull national park was adopted by 
the Minister of the Environment in February 2011. 

Iceland is well advanced on aligning with the EU acquis on industrial pollution, control and 
risk management. No further developments can be reported in this area. 

Some progress was achieved in the area of chemicals. Legislation aiming at transposing the 
EU  regulation  on  classification,  labelling  and  packaging  of  chemical  was  adopted  by 
parliament in May 2011. The amendments to the Registration, Evaluation, Authorisation and 
Restrictions  of  Chemicals  (REACH)  remain  to  be  fully  transposed  and  the  administrative 
capacity for its implementation needs to be strengthened. No developments can be reported as 
regards ratification of the Rotterdam Convention.  

As regards noise, in March 2011 the EFTA Surveillance Authority decided to take Iceland to 
court for failing to address the problem of road noise, as required by the Environmental Noise 
Directive.  

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As  regards  civil  protection  Iceland  continued  to  participate  in  the  EU  Civil  Protection 
Mechanism and contributed to the work of the EU Civil Protection Committee. 

As regards climate change Iceland's pledge for the post-2012 climate regime is at the level of 
-30% in comparison to 1990 with Iceland stating that this pledge requires them being able to 
use the provisions of Article 4 of Kyoto Protocol or similar arrangement and agreement with 
the  European  Union.  Iceland  regularly  associated  itself  with  the  EU  positions  on  climate 
change during the reporting period.  

As  regards  the  EU  Monitoring  Mechanism,  Iceland  continued  to  take  steps  towards 
compliance.  However,  some  adjustments  are  still  needed,  especially  in  the  timing  of  data 
compilation for both the greenhouse gas (GHG) inventory and GHG projections. 

Regarding emissions trading, Iceland in June adopted legislation to complete transposition of 
the  current  EU  emissions  trading  (EU  ETS)  and  aviation  directives.  However,  further  steps 
are needed to complete transposition and prepare to implement the revised EU ETS directive, 
in particular in so far as aviation, registries and auctioning are concerned.  

Iceland  adopted  an  implementation  plan  for  mitigation  of  greenhouse  gas  emissions  in 
November  2010  to  achieve  closer  alignment  with  the  EU  effort-sharing  decision.  Further 
efforts and capacity-building are, however, needed.  

Regarding  fuel  quality,  Iceland  still  needs  to  transpose  the  directive  on  specifications  for 
fuels.  As  regards  emissions  from  road  transport,  Iceland  still  needs  to  implement  the  EU 
regulation on emission standards for new cars and vans, primarily through setting up a scheme 
for monitoring and reporting of CO2 emissions.  

Iceland  continued  to  prepare  for  transposition  of  the  directive  on  the  geological  storage  of 
carbon  dioxide.  Iceland  needs  to  take  steps  to  align  with  some  remaining  pieces  of  EU 
legislation on ozone-depleting substances and fluorinated gases. It has not yet associated itself 
with the Declaration adopted at the 22nd meeting of the Parties to the Montreal Protocol on 
the global transition away from HCFCs and CFCs.  

As far as administrative capacity is concerned, the Environment Agency recruited two new 
members  of  staff  to  deal  with  the  ETS  aviation  issues.  The  inter-ministerial  committee  was 
reinforced  by  adding,  amongst  others,  a  representative  of  municipalities  and  by  holding 
consultations with business and civil society. 

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  there  has  been  further  progress. 
Institutional structures are mostly in place and in operation. Full compliance with the acquis 
on nature protection remains to be achieved, in particular in the cases of protection of whales, 
seals  and  wild  birds  and  conservation  of  natural  habitats  and  of  wild  fauna  and  flora.  The 
same applies to the water sector, in particular as regards alignment with the Marine Strategy 
Framework Directive. Further steps are also needed as regards climate change, in particular in 
the  areas  of  aviation,  registries  and  auctioning.  There  are  issues  on  which  Iceland  needs 
gradually to align with the EU positions in the international environmental fora. Iceland also 
needs to ratify outstanding important multilateral environmental agreements.  

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4.28.  Chapter 28: Consumer and health protection 

Iceland  partly  applies  the  acquis  on  consumer  and  health  protection  due  to  its  EEA 
membership.Limited progress can be reported in the field of consumer protection. 

Regarding product safety-related issues,  Iceland is broadly  in  line with the General Product 
Safety Directive (GPSD) and related measures. However, some amendments are necessary to 
the  Act  on  product  safety  and  official  market  control  which  transposes  the  GPSD.  The 
Commission  decision on  dimethylfumarate  remains  to  be  transposed.  Some  further  progress 
can be reported on the processing of RAPEX notifications in the reporting period.  

On non-safety-related issues, the consumer credit directive remains to be transposed as well 
as the acquis on timeshare contracts and injunctions.  

Some progress can be reported in the area of public health.  

Legislation on new pictorial health warnings on tobacco products entered into force in August 
2011. 

In the area of communicable diseases, a regulation was adopted in March 2011 to start new 
routine vaccinations of babies against pneumococcal ear infections. Alignment with the list of 
communicable diseases to be covered by the EU surveillance system remains to be completed. 
The colorectal cancer screening programme is yet to be implemented.  

No  further  progress  can  be  reported  in  the  field  of  mental  health,  where  Iceland's  measures 
and activities are similar to those of the EU Member States. 

Conclusion 

Iceland has already achieved a good level of alignment and applies a substantial part of the 
acquis in the fields of consumer protection and health. Further efforts to align with the acquis 
are necessary, especially regarding consumer protection, where intensified participation in the 
RAPEX system is needed. 

4.29.  Chapter 29: Customs Union 

The customs legislation of Iceland is partially in line with the acquis. The working group set 
up  to  analyse  the  overall  impact  of  aligning  with  the  acquis  in  this  area  and  provide  a  gap 
analysis on national legislation with relevant acquis completed its work in March 2011.  

Concerning  customs  legislation,  the  December  2010  amendments  to  the  Customs  Act 
changed provisions on temporary imports of rental cars. No developments can be reported on 
addressing  the  gaps  in  transposition  of  the  Combined  Nomenclature  and  on  the  value  of 
certain customs fees. 

There has been little progress on administrative and operational capacity. Initial steps have 
been taken to measure the operational capacity and practices of Iceland's Customs Directorate 
against the customs blueprints. This included study trips and training seminars with experts on 
the  EU  fiscal  self  assessment  exercise  and  as  part  of  the  regional  blueprints  exercise  on 
customs and taxation. The final report was submitted in September 2011. Additional efforts 
are necessary to ensure effective implementation of the acquis by the Customs Administration 
upon  accession.  The  interface  to  connect  the  national  IT  system  to  EU  customs  systems 

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(CCN/CSI) is not yet in place. Iceland needs to decide as soon as possible on a strategy to be 
followed in achieving the interoperability and interconnectivity of its IT systems for customs 
with those of the EU.  

Conclusion  

The customs legislation is largely in line with the acquis. Discrepancies in the legislation, in 
particular  in  the  fields  of  customs  rules,  procedures  with  economic  impact,  duty  free  and 
security  aspects  still  have  to  be  addressed.  Iceland's  administrative  capacity  in  the  customs 
field  remains  adequate.  Nevertheless,  preparations  for  effective  implementation  of  the  EU 
acquis upon accession still have to be initiated, in particular to develop interconnectivity with 
the EU-related IT systems. 

4.30.  Chapter 30: External relations 

With regard to the common commercial policy, Iceland continued to assess the adaptations 
required in order to align with the acquis.  

In  connection  with  the  World  Trade  Organisation  (WTO),  work  continued  on  collecting 
information  with  a  view  to  further  alignment  of  horizontal  limitations  and  sector-specific 
commitments  under  the  General  Agreement  on  Trade  in  Services  (GATS).  Iceland  has 
decided  to  participate  as  a  third  party  in  cases  WTO  DS400  and  DS401  (EU  seal  cases).  In 
this context, it took a position opposing the EU. As part of its preparations for membership, 
Iceland is expected to coordinate its positions in the WTO with the EU at an early stage. 

No  new  major  developments  can  be  reported  on  export  credits  and  dual-use  goods. 
Legislation  in  this  field  is  already  largely  in  line  with  the  acquis.  As  regards  dual  use, 
Iceland's application to join the Wassenaar Arrangement on export controls for conventional 
arms  and  dual-use  goods  and  technologies  is  being  processed.  The  implementing  regulation 
for the control of services and items of strategic significance of July 2011 is in line with the 
acquis. No new developments can be reported with regard to the Kimberley process: Iceland 
is  not  associated  with  this  process  and  its  legislation  on  exports  and  imports  of  rough 
diamonds is therefore not in line with the acquis. 

Work  is  continuing  on  a  database  of  all  international  agreements  in  the  area  of  external 
relations that are relevant to relations with the EU. Bilateral negotiations between China and 
Iceland  on  a  free-trade  agreement  continued  at  a  technical  level.  In  the  context  of  EFTA, 
Iceland  is  engaged  in  negotiations  with  Bosnia  and  Herzegovina,  Montenegro,  Hong  Kong, 
China, India, Indonesia, Russia, Belarus, Kazakhstan, Algeria and Thailand.  

Iceland is already a member of the WTO and has most GATS commitments in line with those 
of the EU. However, by accession to the EU, Iceland should bring its WTO commitments in 
line with the commitments undertaken by the EU.  

As  regards  development  policy,  a  resolution  on  a  strategy  for  Iceland's  development 
cooperation for the years 2011-2014 was adopted by parliament in June 2011. This is the first 
time that parliament has adopted a comprehensive strategy and action plan for development 
cooperation.  Part  of  the  strategy  is  to  increase  the  government  contribution  to  development 
aid from 0.21% of GNI in 2011 to 0.7% in 2019.  

Humanitarian aid is part of the strategy for Iceland's development cooperation. Iceland spent 
11%  of  its  official  development  assistance  on  humanitarian  and  emergency  assistance. 

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Revised  guidelines  for  cooperation  and  applications  have  been  issued,  including  the 
humanitarian aid sector.  

Conclusion 

Iceland is already highly aligned with the acquis in this area and some further progress can be 
reported  in  external  relations.  Further  progress  has  been  made  on  the  work  on  the  need  to 
amend or revoke Iceland's international agreements. However, Iceland has made no progress 
on  aligning  its  positions  with  the  EU  in  the  WTO.  Progress  has  been  made  in  the  fields  of 
development  cooperation  and  humanitarian  aid,  where  the  new  strategy  aims  at  increasing 
Iceland's official development assistance in the medium term.  

4.31.  Chapter 31: Foreign, Security and Defence Policy 

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

As  regards  the  common  foreign  and  security  policy  (CFSP),  during  the  reporting  period 
Iceland aligned itself, when invited, with 58 out of 67 relevant EU declarations and Council 
decisions (86 % alignment). Non alignment is largely due to technical reasons as in several of 
the cases implementing regulations are already in place.  

Iceland closed its Defence Agency in January 2011. Responsibility for defence, security and 
NATO  matters  remains  with  the  Ministry  for  Foreign  Affairs,  whereas  responsibility  for 
managing  the  tasks  of  the  former  Defence  Agency  now  falls  under  the  Ministry  of  the 
Interior.  

The Director-General for International and Security Affairs acts as the Political Director; the 
post of European Correspondent still has to be established. 

A  parliamentary  resolution  on  establishing  a  new  security  policy,  based  on  civilian  values, 
civilian institutions and the fact that Iceland has no military force, was adopted in September 
2011.  According  to  the  resolution,  the  Minister  of  Foreign  Affairs  should  appoint  a 
parliamentary committee to work on a proposal for a national security policy by June 2012. 

With regard to sanctions and restrictive measures, Iceland adopted the relevant decisions to 
implement  most  restrictive  measures  introduced  by  the  Council  Decisions.  Iceland  needs  to 
implement the Common Position on 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 action based thereon.  

No  further  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 highly compliant in these areas. 

Iceland  continued  its  good  cooperation  with  international  organisations,  such  as  the  UN, 
NATO, the OECD, the OSCE and the Council of Europe. It participated actively and played a 
key  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.  In  March  2011,  a  Resolution  on  an 
Icelandic "High North Policy" was adopted by parliament.  

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

As regards the common security and defence policy (CSDP) and contributing capacity, no 
developments  can  be  reported  in  the  field  of  civil  crisis  management.  Iceland  continued  to 
support EU civilian missions.  

Conclusion 

Overall, Iceland has reached a high level of alignment in this area. It has aligned with most 
EU declarations and Council Decisions when invited to do so. The adoption of a resolution on 
an  Arctic  policy  underlines  Iceland's  continuous  objective  to  play  an  active  part  in  regional 
organisations in Northern Europe and the Arctic region. 

4.32.  Chapter 32: Financial control 

Limited progress can be reported on public internal financial control (PIFC). The working 
group set up in January 2010 in the Ministry of Finance performed an initial assessment of the 
possible  gaps  and  weaknesses  in  Iceland's  PIFC  system  during  the  second  half  of  2010.  A 
detailed PIFC gap assessment still needs to be carried out and a policy paper to be prepared.  

No developments can be reported in the area of external audit. No measures have been taken 
to  further  strengthen  the  constitutional  independence  of  the  Icelandic  National  Audit  Office 
(INAO). Completion of the separation of internal and external audits by the end of 2011 needs 
to be monitored. No progress can be reported on further aligning Iceland's legislation with the 
Convention on the protection of the EU's financial interests and its protocols. Iceland also 
needs to designate the entity responsible for coordination and cooperation with the European 
Commission in the fight against fraud and on protection of the EU's financial interests.  

With regard to protection of the euro against counterfeiting, the Geneva Convention for the 
suppression of counterfeiting currency is currently being translated into Icelandic in view of 
being ratified (see also Chapter 24 - Justice, freedom and security). 

Conclusion 

Overall, Iceland's financial control system is largely in line with international standards and 
EU  best  practice.  Limited  legislative  progress  can  be  reported.  Targeted  action  is  required, 
including preparing a policy paper on public internal financial control and ensuring separation 
between internal and external audits. Preparations for protection of the EU's financial interests 
still have to be made.  

4.33.  Chapter 33: Financial and budgetary provisions 

The basic principles and institutions for the policy areas affecting traditional own resources 
(TOR)  continued  to  function  well,  with  a  significant  level  of  alignment.  Appropriate 
procedures and systems for accounting for TOR and making them available will have  to be 
put in place, in particular as regards the so-called 'A' and 'B' accounts. The system for writing 
off  irrecoverable  debts  also  needs  to  be  amended  and  post-clearance  auditing  on  traders' 
premises further developed.  

No particular developments can be reported on VAT resources. Iceland will need to develop 
the capacity to calculate accurately the weighted average rate.  

EN 

43 

   EN 

 
As regards GNI resources, Iceland already widely applies the ESA 95 standards. Alignment 
should continue.  

Regarding  the  administrative  infrastructure  and  operational  management  of  the  own 
resources system, a working group continued to analyse the overall impact of aligning with 
the acquis. The Ministry of Finance continued to manage and coordinate the preparations in 
the  pre-accession  period.  This  coordination  structure  will  need  to  be  strengthened  and 
formally  established.  Besides  steering  and  coordinating  pre-accession  preparations,  the 
coordinating  department  will  have  to  establish  the  organisational  and  procedural  links 
between the various institutions involved in own resources.  

Conclusion 

Overall,  Iceland  has  reached  a  good  level  of  alignment  in  the  policy  areas  underlying  and 
affecting  this  chapter.  It  has  continued  to  identify  the  required  alignment  with  the  acquis. 
Administrative preparations and concepts for setting up the own resources system are needed. 
A coordination structure remains to be formally established. 

EN 

44 

   EN 

 
STATISTICAL DATA (as of 30.09.2011) 
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 

2001 
283 

2004 
291 

2005 
294 
103 000 

2006 
300 
103 000 

2007 
308 
103 000 

2008 
315 
103 000 

2009 
319 
103 000 

2010 
318 
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) 

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

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) 

EN 

Note

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

2009 

2010 

683 747 771 894 816 450 841 490 930 141 1 025 740 1 168 602 1 308 530 1 481 986 1 497 672  1 537 106 

8 830 

10 674 
9 474 
9 421 
33 500  31 000  32 900  33 600  36 500 
25 100  26 100  26 600  26 000  28 400 
130 

9 711 

132 

132 

126 

131 

13 112 
44 300 
29 300 
130b 

13 316 
43 800 
29 200 
123 

14 932 
48 000 
30 200 
121 

10 304 
32 299 
30 500 
122 

8 674 
27 200 
27 700 
118 

9 495 
29 900 
26 900 
110 

1) 
1) 
1) 
1) 

Note

Note

Note

3.9 
: 

2.2 
: 

: 

9.2 
19.2 
7.8 
63.8 
79.8 
21.5 
-0.3 
38.8 
39.9 

2001 
: 

2001 
: 

2001 
-372 
-83 
15 
-292 

0.1 
: 

1.6 
: 

: 

9.3 
16.8 
7.5 
66.4 
80.2 
18.2 
0.0 
37.4 
35.9 

2002 
: 

2002 
: 

2002 
149 
162 
-7 
-21 

4.3 
: 

2.3 
: 

: 

9.0 
17.3 
8.6 
65.1 
84.0 
22.9 
0.4 
33.6 
40.9 

2000 
: 

2000 
: 

2000 
-926 
-518 
-131 
-266 

45 

2.4 
: 

2.3 
: 

: 

7.9 
15.7 
7.5 
68.9 
83.3 
20.0 
-0.2 
34.3 
37.4 

2003 
: 

2003 
: 

2003 
-460 
-179 
-109 
-158 

7.8 
: 

8.3 
: 

: 

6.8 
15.2 
8.8 
69.1 
82.2 
23.5 
-0.1 
34.1 
39.7 

2004 
: 

2004 
: 

2004 
-1050 
-420 
-170 
-448 

7.2 
: 

3.8 
: 

: 

6.3 
13.7 
10.4 
69.8 
84.0 
28.4 
-0.1 
31.7 
44.0 

2005 
: 

2005 
: 

2005 
-2151 
-1202 
-418 
-507 

4.7 
: 

-0.4 
: 

: 

6.3 
15.3 
11.0 
67.4 
82.6 
34.0 
1.2 
32.2 
50.0 

2006 
: 

2006 
: 

2006 
-3172 
-1781 
-551 
-813 

6 
: 

1.4 
: 

: 

5.7 
14.1 
11.5 
68.8 
81.7 
28.5 
0.5 
34.6 
45.3 

2007 
: 

2007 
: 

2007 
-2347 
-1012 
-501 
-791 

1.3 
: 

0.5 
: 

: 

6.2 
17.8 
9.2 
67.0 
78.0 
24.5 
0.2 
44.3 
47.1 

2008 
: 

2008 
: 

2008 
-2848 
-257 
-213 
-2351 

-6.7 
: 

-0.7 
: 

: 

7.1 
20.3 
5.0 
67.8 
77.2 
14.1 
0.0 
52.9 
44.3 

2009 
: 

2009 
: 

2009 
-923 
525 
219 
-1617 

-4.0 
: 

-3.7 
: 

: 

: 
: 
: 
: 
76.7 
12.9 
-0.2 
56.5 
45.9 

2010 
: 

2010 
: 

2010 
-778 
743 
282 
-1749 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 (%) 

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 in employment (%)* 

Employment rate male (15-64) (%) 

-11 
-11 
-237 
-422 
-240 
185 
136 

2000 
: 
: 

2000 
107.0 
318.8 
920 
1 670 
3 787 
7 779 
11.0 
16.7 
1.4 
72.58 
: 
438 

-10 
-14 
-190 
-383 
-229 
193 
10 

2001 
: 
: 

2001 
123.3 
318.0 
776 
1 601 
3 755 
7 650 
12.3 
18.0 
1.7 
87.42 
: 
403 

15 
-10 
-251 
-344 
-356 
93 
113 

2002 
: 
: 

2002 
110.6 
295.6 
1 036 
1 886 
4 666 
8 296 
9.3 
15.4 
0.7 
86.18 
: 
441 

-13 
-7 
-39 
-333 
-301 
294 
215 

2003 
: 
: 

2003 
139.6 
407.6 
1 199 
2 107 
5 173 
9 019 
5.1 
12.0 
0.2 
86.65 
: 
647 

-14 
-16 
-1 481 
-2 066 
-1 930 
585 
385 

2004 
: 
: 

2004 
179.1 
525.9 
1 676 
2 899 
6 392 
13 561 
6.1 
12.2 
0.3 
87.14 
: 
785 

2001 

2003 

2000 
2004 
2002 
2525.8  2225.3  2409.8  2498.0  2988.5 
2013.4  2025.9  2369.04 2110.9  2322.1 
-666.4 
-40.8 
-512.3 
95.1 
103.7 
100.0 
75.3 
72.3 
68.2 
61.1 
58.3 
60.0 

-199.4 
102.5 
69.6 
58.8 

-387.2 
97.2 
73.8 
64.0 

2000 
8.8 
3.0 
: 
: 

2001 
8.3 
2.7 
78.1 
82.2 

2002 
7.7 
2.2 
78.4 
82.6 

2003 
8.0 
2.4 
79.0 
82.4 

2004 
8.3 
2.8 
79.2 
82.7 

-23 
-20 
-3 225 
-5 700 
-4 480 
2 475 
2 274 

2005 
4.9 
26.0 

2005 
285.7 
908.1 
2 313 
4 070 
8 802 
22 941 
8.9 
14.8 
1.3 
78.23 
: 
901 

2005 
4024.5 
2487.2 
-1537.3 
94.7 
74.7 
62.1 

2005 
8.2 
2.3 
79.2 
83.1 

-28 
-24 
-1 304 
-4 379 
-3 670 
3 075 
2 930 

2006 
6.3 
27.9 

2006 
444.4 
1 386.0 
2 236 
3 827 
8 299 
25 745 
12.0 
17.8 
3.4 
87.76 
: 
1 774 

2006 
4788.2 
2758.0 
-2030.2 
101.2 
71.0 
58.3 

2006 
8.3 
1.4 
79.4 
83.0 

-44 
-40 
-2 402 
-7 392 
-4 729 
4 990 
6 042 

2007 
5.4 
28.5 

2007 
567.9 
1 647.4 
4 504 
7 109 
13 490 
35 486 
13.8 
19.3 
4.6 
87.63 
: 
1 785 

2007 
4881.3 
3478.6 
-1402.8 
101.0 
74.6 
60.1 

2007 
8.4 
2.0 
79.4 
82.9 

-25 
-29 
-2 298 
-2 932 
-2 050 
634 
305 

2008 
-13.5 
70.3 

2008 
997.5 
2 266.2 
3 192 
6 370 
9 558 
11 652 
15.6 
20.5 
6.0 
143.83 
: 
2 526 

2008 
4167.1 
3650.2 
-516.9 
94.8 
76.1 
53.6 

2008 
9.0 
2.5 
79.6 
83.0 

-52 
-33 
-1 619 
1 675 
-1 698 
56 
607 

2009 
-10.0 
87.9 

2009 
1 014.0 
1 916.1 
2 857 
5 625 
8 931 
9 351 
11.4 
16.4 
3.5 
172.67 
: 
2 696 

2009 
2583.1 
2907.5 
324.4 
84.3 
77.6 
51.9 

2009 
9.5 
1.8 
79.7 
83.3 

-52 
-33 
-773 
-1 041 
: 
268 
: 

2010 
-10.1 
92.9 

2010 
891.5 
1 579.0 
3 242 
6 024 
9 415 
11 151 
6.9 
10.4 
0.5 
161.89 
: 
4 323 

2010 
2944.9 
3474.8 
529.9 
92.4 
77.4 
52.3 

2010 
9.1 
2.2 
79.5 
83.5 

Note

Note

Note

Note

Note

2000 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

2009 

2010 

88.6 
86.6 
90.2 

88.5 
86.5 
89.9 

87.5 
84.7 
87.7 

86.9 
83.3 
86.3 

85.4 
82.3 
85.8 

86.7 
83.8 
86.9 

87.8 
84.6 
88.1 

87.8 
85.1 
89.1 

86.9 
83.6 
87.3 

85.3 
78.3 
80.0 

84.7 
78.2 
80.1 

EN 

46 

EN 

 
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employment rate female (15-64) (%) 

82.8 

82.9 

81.6 

80.1 

78.8 

80.5 

80.8 

80.8 

79.6 

76.5 

76.2 

Employment rate of older workers (55-64): share of population aged 55-64 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/HICP) (2000=100) 
Early school leavers - Share of population aged 18-24 with at most lower secondary 
education and not in further education or training (%)* 

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) 

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) 

84.2 

85.6 

87.2 

83.0 

81.8 

84.3 

84.3 

84.7 

82.9 

80.2 

79.8 

2) 
2) 
2) 
2) 

: 
: 
: 
: 
1.9 
1.3 
2.6 

4.4 

: 

: 
: 
: 
: 
1.9 
1.6 
2.2 

5.1 

: 

7.2 
15.1 
7.4 
70.3 
3.0 
3.3 
2.6 

6.7 
14.7 
7.0 
71.6 
4.0 
4.0 
4.0 

6.0 
15.6 
8.3 
70.0 
4.0 
5.1 
2.8 

6.3 
14.0 
7.8 
71.9 
2.5 
2.6 
2.5 

6.4 

12.5 

12.1 

7.4 

: 

: 

: 

: 

6.3 
12.7 
8.8 
72.2 
2.8 
2.6 
3.1 

8.3 

: 

5.8 
11.9 
9.0 
73.2 
2.3 
2.2 
2.3 

7.0 

: 

4.3b 
11.9b 
10.0b 
73.7b 
2.9b 
3.2b 
2.6b 

4.7 
12.5 
7.0 
75.8 
7.2 
8.6 
5.7 

5.4 
12.1 
6.2 
76.3 
7.6 
8.3 
6.7 

8.2 

15.9 

16.2 

: 

: 

0.7 

Note

2000 
: 

2001 
: 

2002 
: 

2003 
: 

2004 
: 

2005 
: 

2006 
: 

2007 
: 

2008 
: 

2009 
: 

2010 
: 

: 

: 

: 

: 

: 

: 

: 

: 

: 

: 

: 

29.8 

30.9 

28.8 

20.3b 

24.9 

24.9 

25.6 

23.2 

24.4 

21.3 

22.6 

Note

Note

Note

Note

Note

2000 
569.8 
770.5 

2001 
564.7 
875.2 

2002 
565.3 
907.3 

2003 
578.9 
967.2 

2004 
602.3e 
998.0 

2005 
637.0e 
899.3 

2000 
: 
- 

2000 
5.8 
2.7e 
: 

2000 
110.3 
343.4 
: 
100.0 

2000 
2 306 
0 

2001 
: 
- 

2001 
6.2 
3.0 
: 

2001 
109.4 
342.6 
: 
100.0 

2001 
2 451 
0 

2002 
: 
- 

2002 
6.8 
3.0e 
: 

2002 
110.1 
345.6 
: 
100.0 

2002 
2 462 
0 

2003 
: 
- 

2003 
7.7 
2.8 
: 

2003 
109.2 
336.5 
: 
100.0 

2003 
2 457 
0 

2004 
: 
- 

2004 
7.5 
: 
81.0 

2004 
110.6 
322.6 
: 
100.0 

2004 
2 519 
0 

2005 
: 
0.011 

2005 
7.6 
2.8 
84.0 

2005 
109.1 
311.1 
: 
100.0 

2005 
2 636 
0 

2006 
: 
947.0 

2006 
: 
0.011 

2006 
7.6 
3.0 
83.0 

2006 
124.9 
357.7 
: 
100.0 

2006 
3 259 
0 

2007 
: 
1059.6 

2008 
: 
1068.3 

2009 
: 
1064.6 

2007 
: 
0.011 

2007 
7.4 
2.7 
84.0 

2007 
132.0 
: 
: 
100.0 

2007 
3 946 
0 

2008 
: 
0.011 

2008 
7.6 
2.7p 
88.0 

2008 
142.9 
: 
: 
100.0 

2008 
4 397 
0 

2009 
: 
: 

2009 
: 
3.1 
90.0 

2009 
135.2 
: 
: 
100.0 

2009 
4 819 
0 

2010 
: 
: 

2010 
: 
: 

2010 
: 
: 
92.0 

2010 
: 
: 
: 
100.0 

2010 
: 
: 

EN 

47 

EN 

 
  
 
 
 
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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) 

0 
: 
1 036 
3 235 
7 684 

0 
: 
947 
3 354 
8 033 

0 
: 
969 
3 388 
8 416 

0 
: 
937 
3 379 
8 500 

0 
: 
1 072 
3 489 
8 623 

0 
: 
1 063 
3 616 
8 686 

0 
: 
1 099 
4 349 
9 930 

0 
: 
1 070 
5 016 
11 976 

0 
: 
976 
5 374 
16 468 

0 
: 
877 
5 696 
16 835 

: 
: 
: 
: 
: 

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 

2001 

2002 

2003 

2004 

2005 

2006 

2007 

2008 

2009 

2010 

: 
120e 
72 
4 
466 
: 
3 
: 
14 

: 
120e 
70 
4 
474 
: 
4 
: 
16 

: 
120e 
67 
4 
470 
: 
5 
: 
14 

: 
120e 
66 
5 
463 
: 
7 
: 
12 

: 
120e 
65 
4 
456 
: 
10 
: 
12 

: 
120e 
66 
4 
455 
: 
10 
: 
12 

: 
120e 
69 
4 
456 
: 
11 
: 
20 

: 
120e 
71 
4 
455 
: 
11 
: 
19 

: 
120e 
72 
4 
458 
: 
15 
: 
19 

: 
120e 
73 
4 
470 
: 
16 
: 
20 

: 
120 
: 
: 
: 
: 
18 
: 
21 

: = not available 
p = provisional 
e = estimated value 
b = break in series 
* = Europe 2020 indicator 
The  balance  of  payments  sign  conventions  are  used  for  FDI.  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. 

Footnotes: 
1) 
2) 

According to NACE, Rev. 1.1 
Data for 2000-2007 based on NACE Rev.1.1, data for 2008-2010 based on NACE Rev.2. 

EN 

48 

EN