COMMISSION STAFF WORKING DOCUMENT ICELAND 2012 PROGRESS REPORT accompanying the document COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL Enlargement Strategy and Main Challenges 2012-2013
Date: 2012-10-10
Institutions: European Commission
Subjects: Community acquis, Iceland, accession criteria, economic reform, political reform

EUROPEAN 
COMMISSION 

Brussels, 10.10.2012  
SWD(2012) 337 final 

COMMISSION STAFF WORKING DOCUMENT 

ICELAND 
2012 PROGRESS REPORT 

accompanying the document 

COMMUNICATION FROM THE COMMISSION 
TO THE EUROPEAN PARLIAMENT AND THE COUNCIL 

Enlargement Strategy and Main Challenges 2012-2013 

{COM(2012) 600 final}

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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 .................................................................................................................. 4 

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

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

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

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

Democracy and the rule of law .................................................................................... 6 

Human rights and the protection of minorities ............................................................ 8 

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

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

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

Ability to take on the obligations of membership...................................................... 16 

Chapter 1: Free movement of goods .......................................................................... 16 

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............................................................................................ 19 

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

Chapter 8: Competition policy ................................................................................... 20 

Chapter 9: Financial services ..................................................................................... 21 

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

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

4.12.  Chapter 12: Food safety, veterinary and phytosanitary policy .................................. 23 

4.13.  Chapter 13: Fisheries.................................................................................................. 24 

4.14.  Chapter 14: Transport policy ..................................................................................... 25 

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

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

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

4.18.  Chapter 18: Statistics.................................................................................................. 28 

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

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

4.21.  Chapter 21: Trans-European networks....................................................................... 31 

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

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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............................................................................. 36 

4.27.  Chapter 27: Environment and climate change ........................................................... 37 

4.28.  Chapter 28: Consumer and health protection............................................................. 39 

4.29.  Chapter 29: Customs union........................................................................................ 39 

4.30.  Chapter 30: External relations.................................................................................... 40 

4.31.  Chapter 31: Foreign, security and defence policy...................................................... 41 

4.32.  Chapter 32: Financial control..................................................................................... 42 

4.33.  Chapter 33: Financial and budgetary provisions........................................................ 42 

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1. 

INTRODUCTION 

1.1. 

Preface 

This  is  the  Commission’s  third  report  to  the  Council  and  Parliament  on  progress  made  by 
Iceland since the opening of 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  take  on  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  2011  to  September  2012.  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. The first negotiation chapters were opened in June 2011. 
At present, 18 chapters have been opened, of which 10 have been provisionally closed. 

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 relating to the Schengen Agreements since 
1996 and has applied their provisions since 2001. 

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.  The  EFTA  Surveillance  Authority  (ESA)  continues  to  monitor  Iceland’s 
performance under the EEA. The ESA has initiated proceedings against Iceland at the EFTA 
Court  in  a  number  of  cases,  investigating  possible  infringements  of  EEA  provisions  and 
seeking  a  change  in  the  relevant  rules  or  practices.  Overall,  Iceland’s  track  record  in 
implementing its EEA obligations remains satisfactory. Some shortfalls are still to be noted in 
areas  such  as  financial  services,  food  safety  and  free  movement  of  capital.  Temporary 
restrictions on some capital flows adopted in the aftermath of the 2008 financial crisis remain 
in place.  

1 
2 

The European Parliament’s rapporteur for Iceland is Mr. Dan Preda. 
Enlargement Strategy and Main Challenges 2012–2013, COM(2012) 600.  

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In the framework of pre-accession fiscal surveillance, Iceland participated in the multilateral 
economic  dialogue  between  the  Commission,  EU  Member  States  and  Candidate  Countries. 
The  dialogue  included  an  ECOFIN  ministerial  meeting  in  Brussels  in  May.  Furthermore,  a 
bilateral  economic  dialogue  between  the  Commission  and  Iceland  was  established  to 
exchange  views  on  economic  issues  and  policies,  with  a  first  annual  meeting  held  at  senior 
official  level  in  November  2011.  The  discussions  are  guided  by  the  Copenhagen  economic 
criteria and thus touch on both macroeconomic and structural issues. 

Bilateral  meetings  between  Icelandic  parliamentarians  and  Members  of  the  European 
Parliament  continue  to  take  place  on  a  regular  basis.  The  fourth  EU-Iceland  Joint 
Parliamentary Committee met in Reykjavik in April 2012.  

The first meeting of the EU-Iceland Joint Consultative Committee with representatives of the 
European Economic and Social Committee (EESC) and Icelandic social partners took place in 
July 2012. Preparations are under way for the establishment of a Joint Committee between the 
Committee of the Regions and the Association of Icelandic municipalities. 

Iceland’s ability to take on 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 accession negotiations have progressed further. During the reporting period, 14 chapters 
were opened, of which eight were provisionally closed. Negotiations continued in a number of 
areas such as competition, energy, social policy and employment and financial control. In the 
chapters  on  company  law,  intellectual  property  law,  freedom  of  movement  of  workers, 
consumer  and  health  protection,  judiciary  and  fundamental  rights  and  foreign  security  and 
defence  policy  negotiations  were  provisionally  closed.  Overall,  more  than  half  of  all 
negotiating  chapters  (i.e.  18)  have  now  been  opened,  of  which  10  have  been  provisionally 
closed. 

The  EU  accession  process  continued  to  attract  attention  in  the  political  sphere  and  more 
generally in the public debate. Interparty and intraparty divisions on EU accession remained 
over the reporting period. A motion for a resolution for a national referendum on whether or 
not  to  continue  the  EU  accession  process  was  voted  down  by  the  parliament  in  May  2012. 
Opinion  polls  indicated  that  a  majority  of  Icelanders  continued  to  support  the  accession 
negotiations although a majority also remained opposed to membership. In January 2012, the 
EU  Information  Centre  opened  officially  in  Reykjavik,  its  primary  role  being  to  provide 
information on EU policies and institutions. A Consultative Group for Iceland’s EU accession 
negotiations  was  set  up  by  the  Minister  of  Foreign  Affairs  at  the  end  of  2011,  with  the 
purpose of sharing information on progress in the negotiations with the public and facilitating 
discussions  on  the  process  in  the  Icelandic  mainstream  discourse.  Its  24  members  are  from 
different backgrounds and represent different views on European affairs.  

Financial  assistance  is  provided  to  Iceland  under  the  Instrument  for  Pre-Accession 
Assistance  (IPA).  The  strategic  priorities  for  Iceland  under  IPA  were  set  in  a  Multiannual 
Indicative  Planning  Document  (MIPD)  for  the  period  2011  to  2013  with  a  budget  of  € 30 
million.  They  address  institutional  capacity  building  for  transposing  and  implementing  the 
acquis  and  for  preparing  for  and  utilising  the  EU’s  Structural  and  other  funds.  The  second 
National IPA Programme for Iceland was adopted in July 2012 with a budget of € 12 million. 
The IPA Framework Agreement was approved by the Icelandic parliament in June 2012. 

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 divergences with the acquis.  

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As an EEA member, Iceland continued to benefit from participation in EU programmes, e.g. 
the  7th  Framework  Programme  for  research  and  technological  development,  the  Lifelong 
Learning programme, the EU Culture programme and the EU Progress programme. 

2. 

POLITICAL CRITERIA 

This section assesses the situation in Iceland in terms of the political criteria for membership, 
concentrating on the progress made by the country in addressing the shortcomings identified 
last year. 

As  a  well-established  and  functioning  democracy,  Iceland  continues  to  meet  the  political 
criteria  as  stated  in  the  Commission’s  Opinion  of  February  2010,  and  the  two  previous 
Progress Reports on Iceland (November 2010 and October 2011).  

2.1. 

Democracy and the rule of law 

Stable institutions guarantee Iceland’s well-functioning democracy and sound governance, at 
both national and local levels. The public administration is overall effective, transparent and 
independent. Respect for the rule of law is ensured in particular by an efficient judicial system 
and  the  high  quality  of  the  judiciary  and  the  law  enforcement  forces.  Human  rights  and  the 
rights of persons belonging to minorities enjoy a high level of legal protection and respect in 
practice.  

The  advisory  constitutional  council  completed  a  comprehensive  review  of  the  Constitution 
and,  in  August  2011,  presented  its  proposals  to  the  parliament,  which  has  since  been 
reviewing  them.  The  amendments  proposed  are  aimed  at  increasing  democratic  safeguards, 
strengthening  checks  and  balances,  improving  the  functioning  of  the  state  institutions  and 
better  defining  their  respective  roles  and  powers.  The  parliament  would  see  its  powers 
broadened  while  direct  democracy  through  referenda  would  also  be  strengthened.  Several 
proposals  also  address  conflicts  of  interest  issues  and  aim  to  further  strengthen  the 
independence of the judiciary and respect for human rights. The parliament has agreed to put 
the constitutional amendments to an advisory referendum, to be held on 20 October 2012. The 
referendum will contain six questions on a range of proposals. 

At the presidential election of June 2012, the incumbent President of Iceland was re-elected 
for a fifth term in office.  

The law amending the parliament’s rules of procedure is being implemented after its entry 
into  force  in  September  2011.  It  has  strengthened  the  parliament’s  power  of  political 
supervision, creating a standing committee on constitutional matters and government control, 
providing  for  the  Prime  Minister  to  present  an  annual  report  on  follow-up  given  to 
parliamentary resolutions, setting out the obligation of ministers to provide information to the 
parliament  on  important  matters  and  enhancing  the  possibilities  for  the  minority  to  request 
information.  

The government was reshuffled in December 2011: the Minister of Economic Affairs and the 
Minister of Fisheries and Agriculture left the Cabinet. The two ministries were taken over by 
the  Minister  of  Finance,  who  was  in  turn  replaced  by  the  leader  of  the  major  coalition 
partner’s  parliamentary  group.  The  revised  law  on  central  government  entered  into  force  in 
September  2011.  It  clarifies  further  inter  alia  the  relationship  between  ministries  and 
government  agencies,  defines  the  role  of  civil  servants  in  providing  objective  advice  to 
ministers, in particular on the lawfulness of their decision, and provides a clearer framework 
for the cabinet and ministerial committees.  

Overall,  the  state  of  local  democracy  is  in  line  with  the  European  Charter  on  Local  Self-
Government.  A  law  was  adopted  in  January  2012,  further  clarifying  the  legal  status, 

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responsibilities  and  activities  of  municipalities.  A  law  was  adopted  in  June  2012  with 
guidelines  on  monitoring  the  local  government  finances.  Ratification  of  the  Additional 
Protocol to the Charter of Local Self-Government on the right to participate in the affairs of a 
local authority is pending. 

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 restructuring of ministries was decided by the government and a relevant 
resolution was adopted by the parliament in May 2012. The number of ministries was reduced 
from  10  to  8  in  September  2012.  The  new  ministries  are  the  Ministry  of  Finance  and 
Economic  Affairs,  the  Ministry  of  Industries  and  Innovation  and  the  Ministry  for  the 
Environment  and  Natural  Resources.  The  government’s  working  methods  have  been 
streamlined. The cabinet has overhauled its working methods to increase efficiency. Rules on 
transparent  recruitment  procedures  for  the  central  government  were  adopted  in  April  2012, 
whereas rules for mobility within the civil service are under preparation. 

The working group set up by the Prime Minister on non-discrimination and transparency in 
the process of partial or full privatisation of state enterprises delivered its recommendations in 
February 2012. Work on following up these recommendations has commenced in the form of 
legislative  proposals.  The  Administrative  School  continued  to  run  training  courses  focusing 
on topics such as human resources and project management. 

The Icelandic judicial system continues to meet high standards. In September 2012, 186 civil 
and criminal cases were pending before the Supreme Court. The new cases registered by the 
district courts during the first half of 2012 amount to 8,393, an important part of them being 
bankruptcy and debt cases. The numbers of district court judges and Supreme Court judges, 
which  temporarily  increased  in  order  to  deal  with  the  additional  case-load  following  the 
financial  crisis,  will  decline  gradually  (see  also  Chapter  23  —  Judiciary  and  fundamental 
rights).  The  budget  for  the  judiciary  (excluding  the  salaries  of  replacement  judges  by  the 
Supreme Court) was approximately € 8.5 million  in 2011, representing 0.08% of the country’s 
GDP. It has increased in 2012 by around 14%.  

In April 2012, the Court of Impeachment found the former Prime Minister at the time of the 
financial  crisis  guilty  of  one  of  four  charges  against  him,  namely  that  he  had  failed  to  hold 
dedicated Cabinet meetings ahead of the 2008 financial crisis. No sentence was passed.  

The  Financial  Supervisory  Authority, 
financial 
undertakings,  has  been  strengthened.  According  to  its  November  2011  annual  report,  the 
Authority has forwarded 77 cases to the Special Prosecutor’s office for further investigation, 
whereas it has dealt with 44 cases without taking any further action. A new Director has been 
appointed  to  the  Authority.  The  previous  one  was  dismissed  by  the  Board  of  the  Authority 
and criminal charges were laid against him. 

investigating  possible  offences 

in 

The  Office  of  the  Special  Prosecutor  continued  working  efficiently.  Currently,  76  cases 
relating  to  the  2008  banking  crisis  are  being  dealt  with  by  the  Office  of  the  Special 
Prosecutor, in which 130 individuals have the legal status of accused persons. A total of seven 
cases have been referred to the Courts, where 12 individuals have been prosecuted.  

As regards conflicts of interest, in the context of anti-corruption policy, in accordance with 
the  relevant  law  of  2010  a  code  of  conduct  for  central  government  staff  was  established  in 
spring 2012. Codes of conduct for civil servants in general and political advisors remain to be 
established. 

A bill amending Iceland’s General Penal Code has been adopted by the government, aimed at 
achieving  full  implementation  of  all  the  recommendations  in  the  December  2010  Interim 

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Compliance Report of the Council of Europe’s Group of States against Corruption (GRECO) 
on  incrimination  of  corruption  offences.  The  bill’s  objective  is  also  to  implement 
recommendations  of  the  OECD  Working  Group  on  Bribery  and  to  allow  ratification  of  the 
additional  protocol  to  the  Council  of  Europe  Criminal  Law  Convention  on  Corruption.  The 
bill has yet to be adopted by the parliament. 

2.2. 

Human rights and the protection of minorities (see also Chapter 23 — Judiciary 
and fundamental rights) 

As regards human rights and the protection of minorities, Iceland has continued to guarantee 
fundamental  rights,  including  economic  and  social  rights,  and  the  protection  of  minorities 
through  legal  and  normative  instruments  and  their  actual  implementation.  During  the 
reporting period, the European Court of Human Rights (ECtHR) delivered judgments on two 
applications finding that Iceland had violated rights guaranteed by the European Convention 
on  Human  Rights  (ECHR).  A  total  of  eight  new  applications  have  been  submitted  to  the 
ECtHR since September 2011, bringing the total of pending applications to 12.  

During  the  reporting  period,  Iceland  ratified  the  Aarhus  Convention  and  the  Council  of 
Europe Convention on Action against Trafficking in Human Beings. The Council of Europe 
Convention on the Protection of Children against Sexual Exploitation and Sexual Abuse was 
ratified  in  spring  2012.  In  March  2012,  the  outcome  of  the  Universal  Periodic  Review  on 
Iceland was adopted by the UN Human Rights Council. It confirmed that overall the status of 
human  rights  was  good  in  the  country  and  made  a  number  of  recommendations,  also 
regarding  the  better  treatment  of  immigrants.  The  new  media  law  stipulates  a  ban  on  hate 
speech  and  incitement  to  criminal  behaviour  by  the  media  on  the  basis,  inter  alia,  of  race, 
religious belief or nationality.  

The  UN  Convention  on  the  Rights  of  Persons  with  Disabilities,  the  Council  of  Europe 
Convention on preventing and combating violence against women and domestic violence and 
the Council of Europe Framework Convention for the Protection of National Minorities have 
been signed and remain to be ratified.  

Work to prepare a National Action Plan for the Respect of Human Rights to be presented to 
the parliament commenced during the reporting period and two groups were appointed — a 
group  of  representatives  of  ministries  and  a  consultative  group  of  representatives  of  civil 
society and academia.  

A media regulatory authority has been established under the new media law. Two new bills 
adopted  by  the  government  and  yet  to  be  adopted  by  the  parliament,  address  ownership 
concentration  in  the  Icelandic  media  market  and  the  role  of  the  State  Broadcaster  (RUV), 
narrowing its scope in the advertising market.  

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 

Broad political consensus on the key essentials of a market economy and the preservation of a 
welfare  state  continues  to  be  strongly  embedded  in  Iceland’s  society.  The  authorities 
proceeded  with  domestic  debt  restructuring,  financial  sector  stabilisation  and  fiscal 
consolidation. Following the first post-crisis international bond issue in mid-2011, the country 

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was able to sell a USD 1 billion bond to foreign investors in May 2012 at a yield of 6%. Early 
repayments  of  IMF  and  Nordic  loans  started  in  March  2012  and  continued  in  June. 
Furthermore,  Iceland  was  restored  to  investment  grade  status  by  major  rating  agencies.  The 
country submitted its second Pre-Accession Economic Programme (PEP) in January 2012. It 
presents a broadly plausible medium-term macroeconomic scenario and a relatively ambitious 
fiscal  framework.  Both  are  subject  to  considerable  downside  risks  and  are  not  fully 
underpinned  by  supporting  structural  reform  measures.  Overall,  economic  policy  has  been 
geared towards further stabilisation.  

Macroeconomic stability 

Following a deep and long recession, the Icelandic economy eventually turned to growth in 
2011. Real GDP increased by 2.6%, after economic activity had declined by 4% a year before. 
The  recovery  was  driven  by  a  2.7%  growth  in  private  consumption,  which  benefited  from 
temporary  income-boosting  measures  provided  to  households,  such  as  early  third-pillar 
pension withdrawals, temporary increases in subsidies and transfers and debt relief schemes. 
Investment activity recorded growth of 12.8%, driven by a close to 26% increase in business 
investment. At the same time, the contribution of net exports to growth remained negative, as 
strong  domestic  demand  led  to  an  acceleration  of  imports.  In  the  first  half  of  2012,  the 
economy continued to grow, at 2.4%, somewhat  weaker than  earlier expected and based on 
robust  private  consumption  and  investment  demand.  Net  exports  continued  to  be  a  drag  on 
growth as import growth outpaced export growth. High frequency and leading indicators point 
towards a continued growth in the third quarter, including a pick-up in the construction sector. 
While  the  recent  growth  pattern  has  become  more  broad-based,  remaining  balance  sheet 
vulnerabilities in both the corporate and household sectors as well as the challenging global 
outlook and the euro area debt crisis could threaten the recovery process. Average per capita 
income  (in  Purchasing  Power  Standards)  remained  at  110%  of  the  EU  average  in  2011. 
Overall,  the  economy  continued  to  recover  at  a  reasonably  robust  pace,  but  uncertainties 
persist regarding the sustainability of growth. 

External  trade  developments  point  to  a  narrowing  surplus  in  trade  in  goods  and  services, 
primarily due to stronger merchandise imports. The surplus fell from around 10.1% of GDP in 
2010  to  8.5%  in  2011  and  further  to  6.6%  in  the  four  quarters  to  June  2012.  Thanks  to  a 
significantly  lower  deficit  in  the  net  factor  income  balance,  the  current  account  deficit 
declined from 8% of GDP in 2010 to 7% in 2011, however, it increased again to 8% in the 
four  quarters  to  June  2012.  Reported  current  account  balances  remain  highly  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  ‘underlying’  current  account 
recorded a much lower deficit of 1.1% of GDP in 2011, down from 2.1% in 2010, according 
to the Central Bank estimates. Overall, while external imbalances improved compared to pre-
crisis levels, the surplus in trade with goods and services narrowed.  

Total  net  capital  inflows  in  2011  were  larger  than  needed  to  finance  the  current  account 
deficit. As a result, gross official foreign exchange reserves held at the Central Bank increased 
to  close  to  65%  of  GDP  at  year-end.  In  March  and  June  2012,  Iceland  repaid  early  around 
55%  of  the  € 3.5  billion  loans  received  from  th e  IMF  and  Nordic  countries  with  a  view  to 
reducing  short-term  debt  and  costs  of  holding  borrowed  reserves.  These  transactions 
contributed to a moderate fall in the stock of gross reserves which stood at 45% of projected 
GDP in August 2012. At the same time, the high stock of external debt continues to represent 
a  key  challenge  to  the  Icelandic  economy.  Official  debt  statistics  report  the  stock  of  gross 
foreign debt at around 840% of GDP at end-March 2012. However, corrected for foreign debt 
of banks and holding companies  in  winding-up proceedings, the Central Bank estimates the 
external  debt  stock  at  around  220%  of  GDP  and  Iceland’s  net  international  investment 

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position at a negative 52% of GDP. This compares favourably with a pre-crisis external debt 
of  around  570%  of  GDP.  However,  Iceland’s  balance  of  payments  situation  remained 
sheltered  by  capital  controls  and  external  financing  could  become  tighter  once  capital 
restrictions  start  to  be  lifted.  Overall,  recent  estimates  of  Iceland’s  net  international 
investment position suggest a much lower external indebtedness when compared to the pre-
crisis  period,  but  risks  and  vulnerabilities  remain  high  with  respect  to  Iceland’s  external 
financial position.  

Unemployment  remained  close  to  historically  high  levels  for  the  country,  at  7.1%  in  2011, 
though somewhat lower  than  the 7.5% recorded  a  year  before.  The  drop  was  mainly  due  to 
labour  market  exits  rather  than  job  creation.  Employment  levels  remained  unchanged  from 
2010, but the share of full-time employment increased. During the first half of 2012, labour 
market  conditions  gradually  improved.  The  unemployment  rate  was  recorded  at  7.2%,  a 
significant improvement compared to the rate of 8.2% in the same period of 2011. The level 
of  total  employment  rose  by  about  1%  year-on-year.  Data  on  registered  unemployment 
confirm positive trends in early 2012. The registered rate fell to 4.4% in July, the lowest rate 
since  December  2008,  and  the  average  unemployment  rate  in  the  first  seven  months  was 
6.2%, compared to 7.8% a year before. At the same time, the high and increasing rate of long-
term unemployment (27% of total unemployed in 2011) remains a particular concern. Also, 
the youth unemployment rate remained high at 16% in 2011 and 17.1% in the first quarter of 
2012.  Despite  high  unemployment,  the  annual  average  gross  wage  growth  increased  by  2 
percentage points to 6.8% in 2011, and further accelerated to close to 10% in the first seven 
months of 2012. Average real wage growth increased from 2.8% in 2011 to 4.0% in the first 
seven  months  of  2012.  Overall,  amid  some  recent  stabilisation,  the  labour  market  remains 
affected  by  the  post-crisis  recession  with  high  unemployment  rates  for  the  country, 
particularly among youth and long-term unemployed. 

The  Central  Bank  of  Iceland  continued  to  officially  operate  under  an  inflation  targeting 
regime  to  keep  consumer  price  inflation  under  2.5%  with  a  tolerance  band  of  1.5%  in  both 
directions. After annual inflation had fallen below the Central Bank’s inflation target in early 
2011,  a  weaker  exchange  rate,  rising  oil,  house  and  food  prices  and  higher  wages  pushed 
inflation  to  5.3%  by  end-2011,  exceeding  the  upper  band  of  the  inflation  target.  Inflation 
accelerated further in the first four months of 2012, but since then the rate has gradually fallen 
to 4.1% in August. In reaction to rising inflation in 2011 and early 2012, monetary policy has 
been gradually tightened since August 2011. The key policy rate (7 day collateralised lending 
rate) has been increased in five successive steps to 5.75% in June. Since the crisis, exchange 
rate  stabilisation  remained  an  intermediate  objective  of  monetary  policy,  supported  by  a 
regime of capital controls. Seasonal effects have remained relatively strong on the Icelandic 
króna  due  to  the  capital  controls  and  the  importance  of  the  fishing  and  tourism  sectors  for 
currency flows. The Icelandic króna depreciated in the first months of 2012 in line with the 
usual seasonal patterns and driven by the decision of some large domestic firms to pay down 
foreign-denominated  debt.  In  reaction  to  unusually  strong  foreign  exchange  outflows,  the 
Central Bank intervened in the foreign exchange market for the first time since 2009, selling 
€ 12 million in March. Since May, the króna gradually recovered and appreciated relatively 
strongly by some 11% by mid-August, mainly due to inflows from tourism, a strengthening of 
capital  controls,  and  a  lower  accumulation  of  reserves  for  debt  service  payments  by  market 
participants. The strong appreciation let the Central Bank to announce at end-July to double 
its weekly purchases of foreign exchange to € 1 million from each market maker. 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. 
Overall,  a  recently  tighter  monetary  policy  stance  has  supported  a  gradual  lowering  of 

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inflation and exchange rate stability has been broadly preserved under the cushion of capital 
controls. 

The  authorities  continued  to  implement  the  first  steps  of  the  capital  liberalisation  strategy 
which  essentially  aims  to  transform  the  large  stock  of  non-resident  króna  holdings,  mostly 
short-term  deposits  and  government-guaranteed  bonds  into  long-term  domestic  investments. 
These holdings are estimated at 25% of GDP, but may increase substantially as the old failed 
banks  are  being  wound  up.  In  a  first  phase,  under  way  since  May  2011,  the  Central  Bank 
organised auctions to purchase króna from non-residents and auction them to investors willing 
to buy long-term government bonds or other domestic assets and hold them for a minimum of 
five  years.  It  conducted  a  number  of  auctions  resulting  in  a  minor  decrease  of  off-shore 
holdings, which fell by less than 10% of the initial estimated stock. A second phase started in 
November  2011,  enabling  investors  to  purchase  half  of  the  króna  required  to  perform  their 
investment through auctions, and to finance the remainder on the Icelandic financial market 
(50/50 option). Once the off-shore holdings are significantly reduced, liberalisation of capital 
controls on residents is envisaged. Following an extension of the capital controls until the end 
of  2013,  rules  were  tightened  in  early  2012  to  eliminate  loopholes,  remove  exemptions  on 
some  bond  payments  and  regulate  payments  made  by  the  estates  of  the  old  banks.  The 
Ad Hoc  Group  on  the  Removal  of  Iceland’s  Capital  Controls  set  up  by  the  Icelandic 
government and the European Commission met in September 2012 to assess the state of play, 
prospects and challenges associated with lifting the existing controls. Overall, implementation 
of  Iceland’s  strategy  for  lifting  of  capital  controls  has  progressed  slowly  and  with  limited 
success. 

Fiscal consolidation continued in 2011, with significant cuts in current and capital spending 
and increase revenues through higher capital income, net wealth and inheritance taxes and a 
new  bank  levy.  These  measures  helped  reduce  the  general  government  deficit  from  10%  of 
GDP in 2010 to 5.4% in 2011. The deficit target of 3.4% of GDP was missed, largely due to 
the activation of government guarantees. Moreover, some fiscal slippage occurred as a result 
of the government’s decision to contribute to the collective wage agreement by raising current 
spending. The 2012 budget targets a reduction of the general government deficit to 1.4% of 
GDP.  It  includes  new  consolidation  measures  of  around  1.7%  of  GDP  with  most  of  the 
adjustment on the revenue side (1.2% of GDP). Expenditure restraint measures are projected 
at 0.5% of GDP,  encompassing cuts in current  expenditure  and transfers and in  investment. 
Fiscal performance during the first half of 2012 saw a solid 11% year-on-year rise in general 
government  revenues,  the  strongest  increase  since  2007.  This  resulted  mainly  from  higher 
receipts from income taxes and —to a lesser extent— taxes on goods and services. Compared 
to initial plans, some fiscal loosening continued on the expenditure side, estimated at 0.5-1% 
of GDP. Total spending rose by around 6.6%, encompassing all main components of current 
spending and a particularly strong increase in wages and debt service costs. Public investment 
spending continued to decline, by around 9% year-on-year. The deficit in the first half fell to 
2.5% of GDP (or 1.2% of projected annual GDP), compared to 4.1% in the first half of the 
previous  year.  Overall,  amid  a  successful  process  of  fiscal  consolidation,  the  adjustment  of 
government finances has recently slowed. 

Fiscal  risks  remain  significant.  Implementing  expenditure  restraint  has  become  more 
challenging following years of fiscal adjustment and new expenditure pressures appear to be 
mounting.  Weaknesses  in  Iceland’s  budgetary  framework  still  hinder  effective  control  of 
spending by government agencies. The authorities have prepared and launched consultations 
on  a  draft  organic  budget  law  which  aims  to  improve  budget  preparation  and  execution, 
broaden the coverage of fiscal reporting, and increase the government’s accountability to the 
Parliament. Risks remain linked to contingent liabilities in the form of government guarantees 

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for  public  companies.  The  government’s  expressed  commitment  to  further  strengthen  the 
capital  base  of  the  State  Housing  Financing  Fund  implies  a  considerable  fiscal  effort, 
estimated at around 1% of GDP. In view of the high level of public debt, fiscal space remains 
very  limited.  Moreover,  capital  controls  have  provided  public  finances  with  the  benefit  of 
artificially  lower  interest  rates  than  could  otherwise  be  expected  in  view  of  the  level  of 
indebtedness.  Overall,  fiscal  risks  remain  high  and  expenditure-based  fiscal  consolidation  a 
particular challenge.  

Gross general government debt increased from 88.1% of GDP in 2009 to 98.7% at end-2011 
and debt levels remain high compared to pre-crisis levels of around 30%. Further progress has 
been made in professionalising medium-term public debt management. The average maturity 
profile of the public debt portfolio was extended to over 4 years, reducing rollover risks. The 
new  Medium-Term  Debt  Management  Strategy  (2012-2015)  published  in  March  2012 
confirms  the  authorities’  commitment  to  reduce  central  government  debt  to  below  75%  of 
GDP  by  2015  and  to  below  60%  in  the  long  term.  Comprehensive  legislation  to  strengthen 
local  government  finances  was  adopted,  stipulating  strict  limits  on  municipal  borrowing. 
Overall, in view of the high level of public debt, the authorities have taken further welcome 
measures to reduce refinancing risks and to strengthen local government finances.  

The  policy  mix  with  a  strong  focus  on  exchange  rate  stabilisation,  fiscal  consolidation,  and 
domestic  debt  restructuring  has  been  supportive  in  re-establishing  a  higher  degree  of 
macroeconomic  stability,  but  risks  and  vulnerabilities  remain.  Annual  Inflation  remains  still 
above  target  and  inflation  expectations  have  apparently  not  come  down.  Fiscal  risks  are 
elevated  and  preserving  exchange  rate  stability  remains  challenging,  all  in  all  requiring  a 
rather tight policy mix. Implementation of the 2012 budget and medium-term fiscal plans will 
remain  a  key  test  for  the  government’s  commitment  to  continued  fiscal  adjustment. 
Macroeconomic  stabilisation  occurred  in  a  situation  of  protection  through  capital  account 
restrictions. Their gradual removal remains a key policy challenge. 

Interplay of market forces 

Prices  of  goods  and  services  continued  to  be  mostly  determined  by  supply  and  demand 
conditions  except  in  agriculture  where  the  level  of  import  protection  remained  high.  The 
private  sector  accounts  for  nearly  80%  of  GDP.  Some  sectors  remain  in  government 
ownership,  such  as  energy,  postal  services  and  broadcasting.  The  state  owns  the  Housing 
Financing Fund and retained majority ownership (81%) of one of the three commercial banks 
(Landsbankinn) and minority stakes in the other two banks. It has also kept its position as a 
large  investor  in  the  savings  banks  system,  although  the  importance  of  the  system  has 
declined significantly with the exit from the market of the two largest savings banks. There 
are  currently  no  plans  to  transfer  public  ownership  in  those  sectors  to  private  investors. 
Overall,  market  mechanisms  are  to  a  large  extent  driven  by  free  prices.  Public  ownership 
remains significant in some sectors and there are no plans for privatisation.  

Market entry and exit 

The business environment remained characterised by low bureaucratic hurdles and a generally 
efficient  administration.  Starting  a  business  is  facilitated  by  a  supportive  regulatory 
framework. High barriers to entry continue to exist in fishing, agriculture and energy, which 
are not covered by the EEA Agreement. The economic recovery has recently led to the revival 
of company start-ups. The number of newly registered private limited companies increased by 
8.8% in the 12 months to July 2012, following a 23% drop in the preceding 12 months when 
potential  businesses  were  still  harshly  affected  by  the  strong  recession.  However,  total 
registrations  remained  at  around  two  thirds  of  pre-crisis  levels.  Bankruptcy  proceedings  are 
generally  straightforward.  The  crisis  put  a  large  part  of  the  corporate  sector  under  severe 

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financial distress and insolvency levels in 2011 were still twice as high as pre-crisis levels. In 
the twelve months to July 2012, the number of insolvent companies dropped for the first time 
after  the  crisis,  by  close  to  5%,  but  was  still  one  third  higher  compared  to  pre-crisis  levels, 
suggesting on-going adjustments and deleveraging. Overall, high barriers to market entry for 
non-residents  remain  in  key  strategic  sectors.  Market  exit  has  been  functioning  well, 
supporting economic adjustment.  

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 and recapitalisation of the core banking sector has been largely completed 
even though further operational and financial restructuring is required to allow bank lending 
to  resume.  The  number  of  banks  decreased  from  22  prior  to  the  crisis  to  14,  and  banks  are 
solely operating domestically. The three largest commercial banks together with the Housing 
Financing  Fund  represent  a  market  share  of  94%.  Private  sector  deleveraging  and  bank 
balance sheet repair continued through 2011 and the first half of 2012, and the private sector 
credit  to  GDP  ratio  dropped  further  to  an  estimated  88%  of  GDP,  from  90%  at  the  end  of 
2010,  reflecting  continuing  adjustment  to  deal  with  past  excessive  imbalances.  The 
government retains majority ownership of one of the banks, and minority stakes in the other 
two  banks,  with  the  majority  stakes  (indirectly)  owned  by  non-residents.  The  total  capital 
adequacy ratio of the three banks increased to 23% in the first half of 2012 from 22.1% a year 
before,  well  above  the  minimum  requirement  of  16%.  All  banks  remained  profitable  with 
returns on equity at 11.5% in the first half of 2012, down from 16% a year before, but banks 
carry  relatively  high  cost-to-income  and  cost-to-asset  ratios.  Also,  the  Supreme  Court’s 
February  2012  judgement  on  the  settlement  of  illegal  exchange  rate-linked  loans  could 
significantly  impact  on  the  quality  of  banks’  balance  sheets  and  reduce  future  profits. 
However,  the  Financial  Supervisory  Agency  expects  a  limited  impact,  not  least  due  to 
relatively  high  capital  buffers.  Finally,  interest  rates  on  deposits  remain  distorted  by  capital 
controls,  providing  a  competitive  advantage  to  domestic  banks  that  will  disappear  once 
restrictions start to be lifted. 

Banks  are  faced  with  significant  vulnerabilities  as  asset  quality  is  subject  to  considerable 
uncertainty  and  financial  imbalances  are  likely  to  persist  for  some  time.  Debt  restructuring 
continued and led to more manageable domestic debt positions. Household debt fell further to 
110% of GDP by March 2012, down from a peak of 130% in 2009. Corporate debt declined 
to 194% of GDP, after peaking at 380% at end-2008. However, private debt levels still remain 
among  the  highest  for  industrial  countries  and  private  households  and  businesses  are  still 
operating under significant financial constraints. The share of non-performing loans continued 
to  decrease  significantly  from  40%  at  end-2010,  but  remains  high  at  23%  (end-2011)  and 
above  20%  (mid-2012)3,  and  defaults  continue  to  be  widespread.  Open  foreign  exchange 
positions of banks decreased following the earlier Supreme Court judgment on the illegality 
of  foreign  currency  indexation  of  some  loans  and  the  subsequent  transformation  of  the 
relevant  loans  into  domestic  currency  loans.  But  legal  uncertainty  for  some  loan  classes 
persists, adversely affecting their value. On the funding side, banks continued to rely mainly 
on  domestic  deposits,  since  foreign  direct  investment  and  access  to  foreign  credit  remained 
limited,  except  for  the  sovereign.  Prescribed  liquidity  requirements  remained  over-fulfilled 

3 

Measured  when  using  the  cross-default  rate.  When  measured  without  the  cross-default  rate,  the  NPL 
ratio stood at 11.8% at end-2011. 

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through  2011  by  a  large  margin.  Savings  remained  locked  by  capital  controls,  facilitating 
banks’ domestic funding. Overall, banking sector and debt restructuring continue to progress, 
but significant uncertainties remain with respect to banks’ asset quality.  

Further  progress  has  been  made  in  strengthening  bank  regulatory  and  supervisory practices, 
including  the  creation  of  a  framework  for  effective  coordination  between  the  Central  Bank 
and the supervisory authority (FME). A Basel Core Principles Assessment of Effective Bank 
Supervision was concluded in mid-April 2012. On this basis, the FME has developed a two-
year action plan to address remaining supervisory gaps. New risk management tools are being 
introduced. Supervision needs to be further strengthened to bring it in line with international 
best practice and to close supervisory gaps. 

The  non-banking  financial  system  comprises  the  government-owned  Housing  Financing 
Fund,  pension  funds,  insurance  companies  and  mutual,  investment  and  institutional  funds. 
The government injected € 206 million into the  Housing Financing Fund in 2011 to raise its 
capital  to  just  above  2%  of  risk-weighted  assets,  still  far  below  the  5%  long-term  target. 
However, the capital adequacy ratio dropped again in the first half of 2012, to 1.4% as a result 
of continued losses from operations. The government expressed its commitment to strenghten 
the Fund’s capital base to the regulatory target as soon as clearer evidence exists on the losses 
resulting from the private sector debt restructuring process. The authorities also started work 
on a comprehensive review of the Fund’s operations and its position in the restored Icelandic 
financial system, expected to be finalised by end-2012. Overall, a number of steps have been 
taken  to  restore  the  non-banking  financial  sector;  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.  Turnover  in  the  equity  market  in  the  first  four  months  of  2012  remained 
broadly unchanged from the same period a year before while the stock market index increased 
by 19%. The total market value of all listed shares remains at only around 20% of GDP (mid-
2012)  compared  with  a  pre-crisis  level  of  around  120%  of  GDP.  The  bond  market,  on  the 
other hand, recovered its trading volume and reached pre-crisis levels. The market continues 
to  be  dominated  by  government  and  government-guaranteed  bonds.  Overall,  domestic 
financial markets have somewhat recovered on the back of a more lively bond market while 
equity markets remain shallow. 

3.2. 

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

Existence of a functioning market economy 

The country’s economy continued to recover from the long and severe post-crisis recession. 
Private  sector  debt  restructuring  made  further  progress,  generally  improving  the  financial 
positions of household and firm, conducive to macro-financial stability. The authorities expect 
the  debt  restructuring  process  to  be  completed  by  end-2012,  although  a  large  number  of 
private  sector  balance  sheets  remain  vulnerable.  Efficient  allocation  of  resources  is  still 
impeded  in  parts  of  the  economy,  due  to  financial  sector  vulnerabilities,  extensive  capital 
restrictions,  and  high  barriers  to  market  entry  in  some  sectors.  Overall,  improving  the 
functioning of financial markets and reducing barriers to market entry in some sectors remains 
a particular challenge. 

Human and physical capital  

The  economic  crisis  severely  affected  the  labour  market.  The  labour  participation  rate  fell 
further  in  2011,  to  a  historical  low  of  80.4%  (compared  to  a  pre-crisis  level  of  83.3%),  but 

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remains nonetheless high in international comparison. The share of employment in part-time 
work  dropped  to  24%  (from  27%  a  year  before)  and  total  average  working  hours  per  week 
rose to 40 (from 39 in 2010). Outward migration may have prevented the unemployment rate 
from rising even faster, but net migration could entail a loss of skills. Net migration however 
has  declined  substantially  since  2009.  The  structure  of  unemployment  remains  problematic 
with youth and low-skilled workers representing large shares of the unemployed.  

The share of youth neither in education nor in the labour force has risen significantly. Under 
these circumstances, efforts to offer retraining and education, active labour market initiatives 
and  lifelong  learning  approaches  continued,  aimed  at  retraining  and  upgrading  skills  of  the 
labour force. The government also introduced measures to grant all persons under the age of 
25 access to free secondary education. Total education spending remained at around 7.8% of 
GDP  in  2011,  with  private  households  bearing  around  10%  of  total  costs.  Overall,  with 
unemployment  still  very  high  for  the  country,  human  capital  remains  significantly 
underutilised. Newly introduced measures on education and vocational training are addressing 
some of these problems. 

Abundant sources of hydro- and geothermal power attracted substantial foreign investment in 
the  aluminium  sector  in  the  past.  Although  the  financial  crisis  slowed  down  investment, 
several new projects are under preparation, but continued risk aversion in international capital 
markets seems to have delayed planned projects. The share of investment in GDP reached a 
historic low at 12.9% in 2010 and increased somewhat to 14.1% in 2011, but still remained 
markedly below the long-term pre-crisis average of 22%. At the same time, the fall in real-
estate  activities  and  construction  reflects  some  normalisation  following  earlier  ‘boom’  year 
excesses.  Public  investment  also  fell,  from  a  3.7%  of  GDP  long-term  average  to  2.2%  in 
2011.  Net  FDI  inflows  declined  in  2011  but  still  remained  rather  strong  at  7.4%  of  GDP, 
raising  the  total  stock  of  inward  FDI  to  around  95%  of  GDP,  up  from  85%  a  year  before. 
Regarding  future  investment  potential,  Iceland  is  implementing  a  large-scale  mapping 
exercise of energy resources, categorising them in areas for conservation and for exploitation. 
The  results  of  this  exercise  were  presented  to  the  parliament  in  early  2012.  Overall,  the 
country  continues  to  benefit  from  good  basic  infrastructure  and  abundant  natural  resources, 
suggesting significant potential for investment.  

Sector and enterprise structure 

Although new segments in manufacturing and services have expanded over the past years, in 
particular in some high-tech areas such as software, 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  2007  to 
approximately  4%  of  GDP  in  2010  and  2011,  reflecting  adjustments  in  an  over-leveraged 
sector and completion of large energy-related projects. The share of the service sector in total 
output  declined  somewhat  in  the  context  of  the  crisis,  mainly  due  to  reduced  economic 
activity in the real estate, retail trade and financial sectors. However, services still account for 
two  thirds  of  the  economy  and  almost  three  quarters  of  employment.  The  importance  of 
tourism  and  transport  as  a  source  of  foreign  exchange  income  has  been  steadily  increasing, 
accounting  for  a  quarter  of  total  export  earnings  in  2011,  a  result  of  the  20%  increase  in 
foreign  tourism  income  in  2011.  The  share  of  marine  products  and  primary  aluminium 
products increased to 80% of merchandise exports. The share of services, mainly travel and 
transport,  remained  fairly  stable  in  2011  at  around  35%  of  total  exports.  The  importance  of 
small  firms  in  the  economy  remains  high,  accounting  for  70%  of  employment  and  output. 

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Overall,  post-crisis  adjustment  continued  to  impact  the  sector  structure  of  the  economy;  in 
particular tourism and transport have gained in importance.  

State influence on competitiveness  

The level of state subsidies amounted to 1.7% of GDP in 2011, decreasing by 0.1 percentage 
points  compared  to  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  and  fishing  remain  protected  from  foreign  ownership.  The  fishing 
industry does not receive any State support. The telecommunication 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 108% 
of GDP. The country’s export structure continues to show a low level of diversification. The 
import structure is more diversified, reflecting the country’s dependence on a wide range of 
manufactured  goods  and  some  commodities.  The  EU  continues  to  be  the  largest  trading 
partner, although its share in Icelandic merchandise exports dropped somewhat to 75% in the 
first four months of 2012, compared to 81% a year before. Just over 40% of imports originate 
in  the  EU.  FDI  inflows  originate  almost  exclusively  originate  from  EU  partner  countries. 
Overall, integration with the EU in the areas of trade and investment remained high.  

Rough  estimates  point  to  average  labour  productivity  remaining  unchanged  in  2011  as 
compared to 2010. Thus, unit labour costs rose in line with total labour costs, increasing on 
average by around 6% in the manufacturing sector. In 2011, the exchange rate of the króna 
depreciated by 3.5% vis-à-vis the euro. It remained rather constant in nominal effective terms 
and recorded a slight appreciation in real effective terms, continuing the trend of the previous 
year. According to estimates, the real exchange rate remains around 20% below its long-term 
average.  Overall,  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.  

4. 

ABILITY TO TAKE ON THE OBLIGATIONS OF MEMBERSHIP 

This section examines Iceland’s ability to take on 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,  Iceland  continued  to  apply  the  acquis  on  standardisation.  No 
progress has been made in the field of conformity assessment, where Iceland is not yet fully 
aligned with the acquis covering the establishment of a common framework for the marketing 
of  products.  No  progress  has  been  made  on  accreditation,  as  the  Icelandic  Board  for 
Technical  Accreditation  has  not  yet  been  peer-evaluated.  Progress  has  been  made  on 
metrology, with Iceland aligning with the Directive on units of measurement. Some progress 

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has  been  made  in  the  area  of  market  surveillance,  with  Iceland  publishing  its  first  National 
Market Surveillance Programme in January 2012. Administrative capacity as well as internal 
and external coordination of market surveillance need further improvement.  

As  regards  the  ‘Old  Approach’  product  legislation,  Iceland’s  alignment  with  the  acquis 
continues to be well advanced. No further progress can be reported in the automotive sector, 
where  Iceland  does  not  apply  the  acquis  for  importing  vehicles.  Alignment  with  the  latest 
acquis in the areas of REACH and pharmaceuticals needs to be completed. (See also Chapter 
27 — Environment) 

Progress has been made in the area of ‘New and Global Approach’ product legislation and 
procedural  measures.  Regarding  legal  metrology,  Iceland  aligned  with  the  Directive  on 
measuring  instruments  in  respect  of  the  exploitation  of  maximum  permissible  errors.  In  the 
field  of  medical  devices,  alignment  has  been  achieved  with  the  Directive  on  in  vitro 
diagnostic  medical  devices.  The  Iceland  Construction  Authority  was  established  and  took 
over responsibility for market surveillance of electrical equipment intended to be permanently 
fixed  to  buildings.  Legislative  alignment  needs  to  continue  in  particular  on  pressure 
equipment, low voltage equipment, toys and construction products.  

Conclusion 

Overall, Iceland continues to be highly aligned with the acquis in the area of free movement 
of  goods.  Progress  was  made  in  the  area  of  metrology  and  market  surveillance.  Legislative 
alignment  of  horizontal  measures,  ‘Old  Approach’  product  legislation  (automotive  sector, 
REACH and pharmaceuticals) and ‘New and Global Approach’ product legislation needs to 
be completed. Administrative capacity, including in the area of market surveillance, needs to 
be improved. 

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.  

As regards access to the labour market, Iceland continues to apply the acquis. As of January 
2012 the restrictions on the free movement of workers from Romania and Bulgaria have been 
lifted.  

No  further  developments  can  be  reported  on  the  EURES  (European  Employment  Services) 
network, in which Iceland is already fully participating.  

Good progress can be reported on coordination of social security systems. Iceland adopted 
in June 2012 the modernised coordination rules in this area. Iceland will need to extend these 
rules also to legally resident third-country nationals and apply the respective EU Regulation 
by  accession.  Further  staff  training  is  necessary  on  the  new  EU  coordination  rules. 
Preparations for electronic data exchange within the Electronic Exchange of Social Security 
Information  (EESSI)  system  are  advancing  via  participation  in  the  dedicated  EU-level 
steering group. Work on installation of an access point is advancing.  

The European Health Insurance Card is in use in Iceland. 

Conclusion 

Overall, Iceland continues to be highly in line with the acquis on freedom of movement for 
workers. Good progress can be reported on coordination of social security systems, where the 
modernised  rules  on  social  security  coordination  have  been  adopted.  Iceland  will  need  to 
extend  these  rules  also  to  legally  resident  third-country  nationals  and  continue  preparations 
for setting up an electronic data exchange system. 

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4.3. 

Chapter 3: Right of establishment and freedom to provide services 

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

Progress  can  be  reported  on  the  right  of  establishment  and  freedom  to  provide  cross-
temporary 
border  services.  Administrative 
employment agencies have been aligned with the acquis. Although the Services Directive is 
being implemented, some restrictions on the right of establishment and the freedom to provide 
services in the fisheries sector continue to be in place. (See also Chapter 13 — Fisheries) 

imposed  on  cross-border 

requirements 

No  progress  can  be  reported  in  the  area  of  postal  services.  The  EEA  EFTA  countries, 
including  Iceland,  have  so  far  opposed  a  decision  on  the  incorporation  of  the  Third  Postal 
Directive into the EEA Agreement. A working group has been established in January 2012 by 
the Ministry of the Interior to work on the revision of the Icelandic postal legislation. 

Good  progress  can  be  reported  on  mutual  recognition  of  professional  qualifications. 
Iceland has aligned with the outstanding elements of the Directive on the mutual recognition 
of  professional  qualifications.  However,  the  Icelandic  legislation  on  the  recognition  of 
professional  qualifications  of  health  care  professionals  from  other  EEA  Member  States 
contains requirements in which are not in line with the Directive. 

Conclusion 

Overall, there is a high level of alignment with the acquis on the right of establishment and 
freedom to provide services. Iceland is now almost fully aligned with the acquis in the field of 
mutual recognition of professional qualifications. Alignment with the Third Postal Directive 
is  yet  to  be  achieved  and  existing  restrictions  in  the  fisheries  sector  need  to  be  lifted.  The 
administrative  capacity  for  effective  implementation  and  enforcement  of  EU  rules  and 
policies needs to be ensured.  

4.4. 

Chapter 4: Free movement of capital 

Iceland  applies  parts  of  the  acquis  in  this  field  due  to  its  EEA  membership.  Significant 
exceptions  remain,  notably  in  connection  with  Iceland’s  extensive  capital  controls  and 
restrictions on the free movement of capital between Iceland and third countries.  

No progress can be reported on capital movements and payments. Legislation allowing the 
extension of the temporary capital controls from 2011 until 2013 was enacted. The first phase 
of the capital controls liberalisation strategy continued, with incentives for the medium- and 
long-term investment of offshore krónur in Iceland, in the form of currency auctions and the 
sale  of  foreign  exchange-denominated  Treasury  bonds.  The  Foreign  Exchange  Act  was 
amended  in  March  2012  to  prevent  the  circumvention  of  capital  controls  through  the  bond 
market and to tighten control on capital flows related to the winding-up of the failed Icelandic 
banks.  In  line  with  the  special  rules  in  the  EEA  Agreement,  the  EFTA  Court  ruled  in 
December 2011 that the critical situation in Iceland after the financial crash justified a number 
of  temporary  protective  measures  that  were  necessary  to  safeguard  macroeconomic  and 
financial  stability.Iceland’s  overall  policy  of  capital  controls  is  still  not  in  line  with  the 
requirements of the acquis.  

In May 2012, the Icelandic government and the European Commission agreed to establish an 
Ad Hoc Group on the Removal of Iceland’s Capital Controls, with the purpose of assessing 
the  state  of  play,  prospects  and  challenges  associated  with  lifting  the  existing  controls.  The 
group held its first meeting in September 2012 (See also Economic Criteria).  

No  progress  can  be  reported  as  regards  the  lifting  of  existing  restrictions  on  foreign 
investment  in  fisheries,  which  are  not  in  line  with  the  acquis.  (See  also  Chapter  13  — 

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Fisheries)  There  has  been  no  progress  in  lifting  the  investment  restrictions  applied  to  third-
country (non-EEA) nationals in the sectors of energy, real estate and air transport.  

No  progress  can  be  reported  in  the  area  of  payment  systems.  Work  continues  on  aligning 
with the new EU Directive on e-money.  

Some  progress  can  be  reported  in  the  fight  against  money  laundering.  In  June  2012  the 
parliament  amended  the  existing  legislation  on  measures  against  money  laundering  and 
financing  of  terrorism  with  the  aim  to  implement  recommendations  made  by  the  Financial 
Action  Task  Force.  However,  several  shortcomings  are  still  to  be  addressed,  including  the 
under-resourcing  of  the  Financial  Intelligence  Unit.  Full  implementation  of  the  third  Anti-
Money Laundering (AML) Directive is yet to be completed.  

Conclusion 

Overall, Iceland applies parts of the acquis on free movement on capital. Exceptions remain, 
notably  in  connection  with  investment  restrictions  including  in  the  fisheries  sector  and 
extensive capital controls. The administrative capacity of the Financial Intelligence Unit still 
requires further strengthening.  

4.5. 

Chapter 5: Public procurement 

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. 

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

There  has  been  some  progress  on  award  of  public  contracts.  Iceland  has  decided  not  to 
establish  a  formal  Public  Procurement  Advisory  Council  as  regular  consultation  meetings 
with  stakeholders  have  proven  to  be  sufficient.  A  website  publishing  Icelandic  authorities’ 
tender notices is under preparation and is expected to facilitate the collection of statistics on 
public  procurement.  The  Directive  on  defence  procurement  remains  to  be  transposed  into 
Icelandic legislation.  

The administrative capacity of the Ministry of Finance has been strengthened by allocating a 
full-time staff member to deal with public procurement issues. The State Trading Centre has 
also recruited three additional staff and currently employs 25 persons. 

Some progress has been made on remedies. The two technical directives are implemented as 
of June 2012. Iceland has yet to align with the Remedies Directive. 

Conclusion 

Overall, Iceland is well advanced in the area of public procurement. The level of alignment 
and implementation in this field 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.  

Progress  has  been  made  in  the  area  of  company  law.  Legislation  on  reporting  and 
documentation  requirements  in  the  case  of  mergers  and  divisions  was  adopted  in  February 
2012, in order to align 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 is yet to be completed. 

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There has been no further progress in the area of corporate accounting. Alignment with the 
Directive on certain disclosure requirements for medium-sized companies and the obligation 
to draw up consolidated accounts still has to be achieved.  

There  has  been  no  further  progress  in  the  area  of  auditing.  Iceland  continued  to  apply  the 
existing  acquis  in  this  area.  Alignment  with  the  international  aspects  of  the  Directive  on 
statutory audits of annual and consolidated accounts still has to be completed.  

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.  Full  alignment  with  company  law  acquis  and  with 
accounting and auditing standards is yet to be completed.  

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. 

No  further  progress  can  be  reported  in  the  area  of  copyright  and  neighbouring  rights. 
Iceland  attended  as  an  observer  the  plenary  meeting  of  the  Observatory  on  Counterfeiting 
Intellectual Property Rights (IPR) Infringements in September 2012.  

Some development can be reported in the area of industrial property rights. In June 2012 
the  parliament  adopted  legislation  on  patents  to  incorporate  the  Singapore  Agreement,  a 
World  Intellectual  Property  Organization  (WIPO)  Trademark  Law  treaty.  It  also  amended 
legislation  on  brands,  adding  services  to  the  definition  of  brand,  and  on  fees  and  trademark 
application  procedures  and  adopted  legislation  on  patent  fees,  trademarks,  designs,  and  on 
trademark registration.  

There  has  been  little  progress  in  the  field  of  enforcement.  The  Icelandic  website  with 
information on IPR infringements has been established and is operational. Iceland is not yet 
fully aligned with the Enforcement Directive. 

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.  Full  alignment 
with the Enforcement Directive has yet to be achieved. 

4.8. 

Chapter 8: Competition policy 

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

No progress can be reported in the field of anti-trust and mergers. In the area of State aid 
control, progress was made regarding the review by the EFTA Surveillance Authority (ESA) 
of the main State aid measures granted by Iceland to its financial sector. In July 2012 the ESA 
approved the State aid granted for the restructuring of two Icelandic banks. These final ESA 
decisions  close  the  main  cases  that  it  has  dealt  with  following  the  collapse  of  the  financial 
system  in  Iceland  in  2008.  In  assessing  the  impact  of  the  aid  on  competition,  the  ESA  has 
cooperated  closely  with  the  Icelandic  Competition  Authority.  It  is  also  analysing  the 
restructuring  plan  for  the  Sjóvá  Insurance  Company,  after  it  was  submitted  by  Iceland  in 
September 2011. In March 2012, ESA decided to open a formal investigation regarding the 
transfer  of  mortgage  loans  secured  against  collateral  in  residential  property  from  financial 
undertakings, to the Icelandic Housing Financing Fund (HFF). Following this ESA decision, 
Iceland adopted legislation in June 2012 on appropriate measures to be adopted by the State, 
including revision mechanisms. 

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Regarding State aid measures to the state radio broadcaster, proposals have been submitted to 
the  parliament  to  change  its  financing  regime  in  order  to  bring  it  into  line  with  State  aid 
guidelines as required by the ESA.  

Conclusion 

Overall, Iceland has already reached a high level of alignment and applies a substantial part of 
the acquis in the field of competition. Iceland’s State aid measures taken in response to the 
financial crisis have been in line with the relevant acquis.  

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.  

There  has  been  some  progress  in  the  areas  of  banks  and  financial  conglomerates. 
Amendments  were  made  to  the  winding-up  procedures,  ensuring  equality  of  creditors  of 
financial  undertakings  undergoing  liquidation  proceedings  by  extending  the  time  limit  for 
cancellation,  as  well  as  ensuring  the  equal  treatment  of  Icelandic  and  foreign  parties.  A 
National  Credit  Registry  became  operational  in  the  autumn  of  2011,  allowing  the  Financial 
Supervisory  Authority  (FME)  to  collect  information  regarding  exposures  above  ca  € 1.85 
million. The credit registry is only accessible to the FME, but the information is being shared 
with the Central Bank of Iceland (CBI) without specific data regarding particular obligors and 
financial undertakings. 

The FME has devised a detailed plan to address the shortcomings outlined in an assessment 
report carried out in August 2011, regarding non-compliance with the Basel Core Principles 
for  Effective  Banking  Supervision,  particularly  the  lack  of  a  Risk  Model  to  supervise  and 
assess banks. 

Legislation on a new deposit guarantee scheme, based on the new acquis, including minimum 
coverage  of  € 100,000,  remains  to  be  adopted.  Work  on  implementing  the  new  Financial 
Conglomerates Directive and the Omnibus I Directive has not yet started.  

Alignment with the Capital Requirements Directive (CRD II) has not yet been fully achieved, 
despite  some  limited  progress.  Legislative  work  is  advancing  on  drafting  new  rules 
concerning:  good  business  practices  and  customs;  loans  secured  by  mortgages  on  shares  or 
guarantee  capital  certificates  issued  by  the  undertaking;  calculation  of  the  amount  of 
exposure, hybrid capital investment, and what constitutes secure collateral; the evaluation of 
connections  between  parties  within  the  meaning  of  rules  on  large  exposures;  the  exemption 
from  rules  on  internal  auditing  units  for  financial  undertakings,  and  qualifying  holdings 
outside the financial sector. 

In December 2011 the EFTA Surveillance Authority (ESA) filed a case against Iceland with 
the EFTA Court, seeking a declaration that Iceland had failed to comply with the Directive on 
deposit  guarantee  schemes  and  with  Article  4  of  the  EEA  Agreement  regarding  non-
discrimination. Iceland rejected these claims and contended that they should be dismissed. A 
number  of  EU  and  EFTA  Member  States  sent  written  observations  to  the  Court.  The 
European  Commission  has  intervened  before  the  EFTA  Court  in  support  of  the  EFTA 
Surveillance Authority. Meanwhile, the first two partial payments to priority creditors in the 
commercial  winding-up  of  Landsbanki  Íslands  hf  were  made  in  December  2011  and  May 
2012. At this stage, the Icesave dispute remains unresolved.  

Progress has been made on insurances and occupational pensions with the implementation 
of  the  two  Directives  on  motor  insurance.  Preparations  for  alignment  with  Solvency  II  are 

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under  way.  New  rules  have  been  adopted  to  address  issues  of  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.  The 
amending  Directives  on  settlement  finality  and  financial  collateral  arrangements  need  to  be 
transposed. 

Progress has been made on securities markets and investment services by aligning with the 
Directive  on  undertakings  for  collective  investment  in  transferable  securities  (UCITS) 
regarding the clarification of certain definitions. The FME also published rules implementing 
the Directives on risk management. Alignment needs to continue in areas such as markets in 
financial instruments, prospectuses, market abuse and UCITS.  

Some  progress  can  be  reported  on  administrative  capacity.  In  January  2012  the  FME 
completed an institutional reorganisation from a  sector-oriented approach to on-site, off-site 
and  oversight  departments.  The  fees  paid  to  the  FME  by  regulated  entities  have  also  been 
amended. The reinforcement of the FME’s staff numbers needs to be matched by an increase 
in the quality of technical expertise, supervisory systems and practices and IT systems so as to 
ensure effective and reliable prudential supervision.  

Conclusion 

Overall,  alignment  in  the  area  of  financial  services  is  good.  Despite  progress  being  made, 
work  on  alignment  with  and  implementation  of  the  new  acquis  needs  to  continue  in  all  the 
areas covered by this chapter. The supervisory capacity requires further improvement in view 
of the FME’s increasing responsibilities and future obligations deriving from the application 
of  the  evolving  acquis.  The  Icesave  dispute  remains  unresolved.  The  ESA  case  against 
Iceland is pending before the EFTA Court. 

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 information society and media due to its EEA membership. 

Some progress can be reported in the areas of electronic communications and information 
and  communications  technologies  (ICT).  The  independence  of  the  national  regulatory 
authority has to be strengthened further with the amendment of the Media Law. Furthermore, 
the  authority’s  financial  viability  needs  to  be  safeguarded,  in  order  to  perform  its  role 
independently. The 2009 EU electronic communications reform package (revised regulatory 
framework) has not been transposed into national law. The EU Directive on data retention and 
the Regulation on the .eu top-level domain also remain to be transposed. 

Good  progress  can  be  reported  in  information  society  services.  Legal  protection  for 
conditional  access  devices  was  extended  in  June  2012  to  decoders  for  purposes  other  than 
broadcasting services. 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. 

No progress was achieved in the area of audiovisual policy. Digital switchover is planned for 
the end of 2014, but the method remains to be decided. 

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  information  society  and  media.  Good  progress  was  achieved  in 

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information  society  services,  where  legal  protection  of  conditional  access  devices  was 
established.  The  independence  of  the  national  regulatory  authority  has  to  be  further 
strengthened. The revised communications regulatory framework has yet to be transposed and 
several  gaps  in  transposition  in  the  field  of  audiovisual  policy  and  information  society 
services, in particular the e-Commerce Directive, need to be addressed. 

4.11.  Chapter 11: Agriculture and rural development 

Iceland’s agricultural policy is not in line with the acquis. 

Little progress can be reported as regards horizontal issues. In July 2012, Iceland presented 
to  the  Commission  a  strategy  paper  for  meeting  the  EU  agriculture  and  rural  development 
policy  requirements.  The  paper  describes  the  necessary  preparations  in  all  areas  included  in 
this  chapter  and  provides  a  timetable  for  their  implementation.  As  part  of  this  strategy,  a 
feasibility  study  will  be  carried  out  on  domestic  implementation  of  the  Land  Parcel 
Implementation System.  

Current adminstrative capacity in the field of agriculture and rural development is limited and 
will need to be further addressed in order to administer the CAP, including the management 
of  agricultural  and  rural  development  funds.  As  part  of  the  general  restructuring  and 
streamlining of the public sector, the Agricultural Economics Institute was closed down on 1 
January 2012. Its tasks were transferred to the Agricultural University and Statistics Iceland. 
Statistics Iceland will now be responsible for gathering and processing statistical information 
on agriculture. Overall, preparations in the area of horizontal issues are at an early stage. 

Little  progress  can  be  reported  in  the  areas  of  common  market  organisation  and  rural 
development.  The  strategy  paper  on  meeting  the  agriculture  and  rural  development  policy 
requirements  includes  a  decsription  of  steps  to  be  undertaken  in  order  to  comply  with  the 
acquis in both areas. The preparations in these areas still need to be launched.  

No progress can be reported in quality policy and organic farming. The latter is covered by 
the  EEA  Agreement  and  Iceland  is  largely  in  line  with  the  relevant acquis.  Alignment  with 
the acquis  on  organic  products  and  on  imports  of  organic products from third countries  has 
yet to be achieved. Preparations in the area of quality policy still need to be launched. 

Conclusion 

Overall,  Iceland’s  agricultural  policy  is  not  aligned  with  the  acquis.  Preparations  in  this 
chapter are at an early stage and progress has been limited. A strategy and planning schedule 
of measures to be taken to ensure compliance with the EU agriculture and rural development 
requirements  has  been  adopted.  The  appropriate  administrative  structures  to  implement  all 
aspects of the common agricultural policy including the management of agricultural and rural 
development  funds  needs  to  be  set  up.  Preparations  in  the  areas  of  the  common  market 
organisation  and  quality  policy  need  to  be  launched  and  alignment  in  the  field  of  organic 
farming needs to be completed. 

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. 

Progress  can  be  reported  on  general  food  safety.  In  November  2011  Iceland  started 
implementing the EU hygiene package. However, Iceland continues to prohibit the import of 
fresh meat, meat products and other products of animal origin from the EU, which is not in 
line with the acquis. The EFTA Surveillance Authority (ESA) has started legal proceedings 
against  Iceland  concerning  these  bans  on  imports.  Preparations  in  the  area  of  general  food 
safety are advanced. 

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There has been no progress as regards veterinary policy, where Iceland is partially aligned 
with the acquis. Iceland still needs to align with the EU legislation on animal health as well as 
remove present restrictions on imports of live animals, which are not in line with the acquis. 
On both these issues, Iceland currently has an exemption under the EEA Agreement.  

There  has  been  some  progress  in  the  field  of  placing  on  the  market  of  food,  feed  and 
animal  by-products.  A  national  upgrading  plan  is  under  preparation  for  evaluating  all 
slaughterhouses,  dairies  and  other  food  establishments  and  bringing  them  into  conformity 
with  EU  standards.  No  progress  was  made  on  closing  existing  gaps  in  Iceland’s legislation, 
which  concern  in  particular  the  alignment  with  acquis  on  novel  foods,  transmissible 
spongiform encephalopathies (TSEs) and animal by-products that are not intended for human 
consumption. In this area, Iceland’s preparations are moderately advanced. 

Progress  can  be  reported  with  regard  to  food  safety  rules.  The  relevant  legislation  was 
amended  in  spring  2012  to  allow  the  small-scale  direct  sale  of  products  under  certain 
conditions.  No  progress  was  made  as  regards  specific  rules  for  feed.  Alignment  with  the 
acquis in these areas is advanced. 

In the area of phytosanitary policy, no progress can be reported. Iceland still needs to align 
with  the  acquis  on  both  plant  health  and  plant  protection.  Regarding  pesticide  residues 
Iceland’s legislation is partly aligned with the acquis, except for import restrictions on certain 
plants and plant material. The capacity of accredited laboratories to conduct residue analyses 
still has to be enhanced. Preparations in the area of phytosanitary policy are at an early stage. 

There  has  been  no  progress  in  further  aligning  with  legislation  regarding  genetically 
modified organisms.  

Conclusion 

Overall,  Iceland  is  partially  aligned  with  the  acquis  on  food  safety,  veterinary  and 
phytosanitary policy due to its participation in the EEA Agreement. Some progress was made 
in the areas of general food safety and food safety rules. The import restrictions on fresh meat 
and live animals are not in line with the acquis. Gaps in legislation in the areas of animal and 
plant  health,  genetically  modified  organisms,  novel  foods  and  animal  products  that  are  not 
intended  for  human  consumption  are  yet  to  be  addressed.  Administrative  and  laboratory 
capacity also need further strengthening.  

4.13.  Chapter 13: Fisheries 

Iceland’s fisheries policy is generally not in line with the acquis. 

There  have  been  no  developments  as  regards  resource  and  fleet  management.  No  major 
changes have taken place in the fisheries management system in Iceland. Iceland adopted part 
of  the  reform  of  its  fisheries  management  system  by  significantly  raising  the  fees  paid  by 
quota holders. Restrictions on 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. 

Little progress has been made in the area of inspection and control. Iceland signed in 2011 
an  agreement  on  an  Electronic  Reporting  System  (ERS)  with  Norway  which  is  to  be 
implemented in 2012 and 2013. Preparations are still ongoing for the ratification of the 2009 
Food and Agriculture Organisation (FAO) Agreement on port state measures to prevent, deter 
and eliminate illegal, unreported and unregulated fisheries.  

No new developments can be reported in the areas of structural action, market policy and 
State aid. 

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Progress  has  been  limited  concerning  international  agreements.  Preparations  to  ratify  the 
1993  FAO  Agreement,  to  promote  compliance  with  international  conservation  and 
management measures by fishing vessels on the high seas, continued. 

It was not possible, over the reporting period, to reach an agreement on the management of 
the mackerel stocks for 2012 between the coastal states of the North-East Atlantic. Iceland’s 
mackerel  fisheries  continue  to  cause  widespread  concern  within  the  EU  with  regard  to  the 
principles of sustainable resource management of this stock.  

Conclusion 

Iceland  continues  to  apply  a  fisheries  management  system  which  has  similar  objectives  to 
those pursued in the EU, but some rules differ substantially. Overall, Iceland’s fisheries policy 
is  not  in  line  with  the  acquis.  Existing  restrictions  in  the  fisheries  sector  on  freedom  of 
establishment, services and capital movements are not in line with the acquis. 

4.14.  Chapter 14: Transport policy 

Iceland  applies  a  substantial  part  of  the  acquis  on  transport  policy  due  to  its  EEA 
membership. 

A new Transport Strategy 2011-2022 and a Transport Action Plan 2011-2014 were adopted in 
June  2012.  They  formulate  the  policy  and  objectives  for  air,  maritime  and  road  transport  in 
Iceland. The transport strategy is set for 12 years, to be revised every four years. Within the 
new strategy, the Action Plan is adopted for four years with the aim of revising it every two 
years.  The  objectives  of  the  new  strategy  are  to  improve  accessibility  and  mobility  in  the 
transport of passengers and goods within and between regions, ensure cost-efficient, safe and 
environmentally sustainable transport and take into account the needs and specific conditions 
of regions and thus promote regional development. 

Progress can be reported in the area of road transport. The acquis regarding driving licences, 
road  infrastructure  safety  management  and  roadside  check  lists  for  inspections  was 
transposed.  The  acquis  regarding  the  adaptations  to  technical  progress  of  requirements  on 
vehicle  roadworthiness  and  dangerous  goods  transport,  including  a  uniform  roadside  check 
list for dangerous goods transport, has yet to be fully implemented.  

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

No progress can be reported in the area of combined transport due to the absence of railway 
systems or short sea shipping modes of transport. 

Good  progress  can  be  reported  in  the  field  of  air  transport.  A  regulation  transposing  the 
aviation security acquis was adopted in January 2012. The EU Regulation on common rules 
for civil aviation security for domestic air services has yet to be implemented. New legislation 
was adopted with the aim of transposing the acquis on the continuing airworthiness of aircraft 
and  aeronautical  products,  parts  and  appliances,  and  on  the  approval  of  organisations  and 
personnel  involved  in  the  relevant  tasks.  The  acquis  concerning  common  rules  for  the 
operation of air services in the EU was transposed during the reporting period. The maximum 
length of the time limitation for public services obligations is yet to be established. The acquis 
regarding the list of air carriers which are subject to an operating ban within the EU based on 
the flag state criteria and on company performance (following inspection of airfleets) has been 
transposed into Icelandic law, as well as the acquis on insurance requirements for air carriers. 
The  acquis  concerning  the  computerised  reservation system  and  the  single  European  Sky  II 
package remains  to be transposed. During the reporting period eight new agreements on  air 
services  were  signed  between  Iceland  and  Ghana,  Jordan,  Laos,  Paraguay,  Ruanda,  Saudi 

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Arabia,  Zambia  and  South  Africa.  A  Memorandum  of  Understanding  on  air  traffic  and  a 
future agreement was signed with Australia. 

Some progress can be reported in the area of maritime transport. The acquis regarding port 
state control was transposed in April 2012. A new regulation concerning the rescue and safety 
equipment of Icelandic vessels was issued in June 2012, which covers the acquis on passenger 
ships and safety of fishing vessels. The acquis concerning the rights of passengers travelling 
by sea and port reception facilities for ship-generated waste has yet 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. Progress 
can be reported as regards road safety rules. Transposition of the relevant EU legislation on 
air and road transport needs to be completed. 

4.15.  Chapter 15: Energy 

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

There  has  been  little  progress  in  the  area  of  security  of  supply.  In  February  2012,  the 
Minister for Industry presented a report to the parliament containing recommendations on a 
comprehensive  energy  policy  for  Iceland.  The  report  is  based  on  the  work  of  the  steering 
committee set up by the Ministry in 2009. No progress can be reported on aligning with the 
acquis on oil stocks.  

No progress can be  reported  in  the  area of the internal energy market.  With  regard  to  the 
procedure  for  improving  the  transparency  of  gas  and  electricity  prices,  legislation  has  not 
been  adopted.  The  Third  Energy  Package  has  not  been  fully  incorporated  into  the  EEA 
Agreement  and,  as  such,  is  not  yet  implemented  in  Iceland.  Separation  of  the  regulatory 
authority  from  the  Ministry  of  Industry,  Energy  and  Tourism  and  further  measures  to 
guarantee the independence of the regulator’s budget and board still have to be implemented. 
Ownership unbundling of the Transmission System Operator from the energy companies also 
remains  to  be  achieved.  The  independence  of  the  National  Energy  Authority  needs  to  be 
achieved and its working arrangements with the Competition Authority established. 

There  has  been  little  progress  in  the  field  of  renewable  energy.  The  National  Renewable 
Energy Action Plan to meet the 2020 targets is still in the process of being drafted under the 
leadership of the Ministry of Industry. A new bill was adopted in June 2012 partially aligning 
with  the  2009  Renewable  Energy  Directive.  Full  alignment  is  yet  to  be  achieved. 
Approximately  67%  of  Iceland’s  consumed  energy  already  comes  from  renewable  sources. 
Initial steps were taken to increase the use of renewable energy in the transport sector, such as 
the VAT exemption on importing electric cars.  

In the area of energy efficiency no progress can be reported. Full alignment with the energy 
efficiency  acquis  is  yet  to  be  achieved,  including  rules  on  the  energy  performance  of 
buildings,  the  Directive  on  energy  end-use  efficiency  and  energy  services  and  the  new 
legislation on eco-design and labelling of energy consumption. Iceland does not have national 
energy-saving targets yet and the implementation of the acquis on energy end-use efficiency 
is  still  at  an  early  stage.  The  administrative  capacity  to  implement  the  energy  efficiency 
acquis is limited.  

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

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Conclusion  

Overall, Iceland is partly aligned with the acquis in the field of energy. Alignment in the areas 
of oil stocks, the internal market, renewable energy, energy efficiency and nuclear safety and 
radiation protection needs to continue. The independence of the regulatory authority and the 
administrative capacity to implement the new acquis need to be addressed.  

4.16.  Chapter 16: Taxation  

Iceland partly applies the acquis in the area of taxation. 

Tax legislation in the area of indirect taxation is partly in line with the acquis. Little progress 
can  be  reported  on  aligning  the  legislative  framework  with  the  acquis.  Iceland  adopted 
various laws on VAT during the reporting period, including an amending law reducing VAT 
on  e-books,  CDs  with  books  and  electronically  supplied  music  from  25.5%  to  7%,  and 
introducing new obligations whereby foreign sellers of e-books and electronic music have to 
register  with  the  Icelandic  authorities  for  VAT  purposes.  These  new  provisions  partially 
diverge from the acquis, since the EU VAT Directive stipulates that reduced rates must not 
apply  to  electronically  supplied  services  (such  as  e-books)  or  music.  The  provisions 
concerning  temporary  reimbursement  of  two  thirds  of  the  VAT  paid  when  purchasing  or 
renting  coaches  were  extended  to  31  December  2013.  Provisions  on  the  reimbursement 
system  applicable  to  fire  equipment  and  vehicles  for  municipalities  were  adopted  in  June 
2012. Neither of the above is in line with the acquis.  

In June 2012, an amending law was adopted on VAT exemptions and repayments for electric 
and  hydrogen  powered  vehicles.  The  legislation  aims  at  making  ‘green’  vehicles  less 
expensive by deducting an amount from the customs value or the VAT transaction price. This 
provision is not in line with the EU customs and VAT legislation. 

Divergences with the acquis on indirect taxation concern mainly VAT - 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, traveller’s allowances, warehousing, duty suspension and duty-free goods.  

With regard to direct taxation, there has been little progress. A Financial Activity Tax (FAT) 
was introduced on the activities of companies providing financial and/or insurance services. 
The FAT was set at 5.45% or 6% of the taxable base established for income tax, depending on 
whether  the  income  tax  base  is  below,  or  above  € 6.1  million,  respectively.  New 
implementing provisions were introduced concerning income tax for persons with limited tax 
liability  and  earning  not  less  than  75%  of  their  income  in  Iceland.  In  the  area  of  direct 
taxation, the tax legislation remains partially aligned with the acquis.  

Some  progress  can  be  reported  in  the  area  of  administrative  cooperation  and  mutual 
assistance.  Iceland  ratified  the  Protocol  amending  the  OECD  Convention  on  Mutual 
Administrative Assistance in Tax Matters which became applicable in February 2012. Iceland 
does not have legislation reflecting the acquis on mutual assistance and administration.  

Little progress took place in the field of operational capacity and computerisation. Work 
has  continued  to  assess  the  operational  capacity  and  best  practices  of  Iceland’s  tax  system 
against the EU tax blueprints and best practices. Iceland is working on a strategy to achieve 
interconnectivity and interoperability of its VAT and other IT systems for taxation with those 
of the EU. The process of establishing a Central Liaison Office and an Excise Liaison Office 
has  yet  to  start.  In  the  area  of  operational  capacity  and  computerisation,  Iceland  remains 
partially aligned with the acquis. 

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Conclusion  

Overall, Iceland’s tax legislation remains partially aligned with the acquis and some progress 
can be reported. Iceland continues to have a good level of administrative capacity in the field 
of taxation. IT interconnectivity and interoperability with EU IT systems for taxation are yet 
to be achieved.  

4.17.  Chapter 17: Economic and monetary policy 

Iceland is largely aligned with the acquis in the area of economic and monetary policy. 

No  progress  can  be  reported  on  monetary  policy,  including  as  regards  the  functional, 
institutional, personal and financial independence of the Central Bank, and the prohibition of 
monetary financing, all areas where alignment with the acquis remains incomplete. In March 
2012  the  Ministry  of  Economic  Affairs  released  a  report  on  the  future  structure  of  the 
financial system, including the role of the Central Bank. Proposals for a comprehensive legal 
and regulatory framework are under preparation. 

Some developments can be reported on economic policy. In November 2011 the Minister for 
Economic Affairs introduced an Economic Programme for Iceland, drawn up after completion 
of  the  recovery  programme  under  Iceland’s  stand-by  arrangement  with  the  International 
Monetary  Fund  (IMF).  It  analyses  competitiveness,  fiscal  consolidation,  the  labour  market, 
restructuring  of  household  and  corporate  debt,  rebuilding  of  the  financial  system  and 
monetary policy. 

In  March  2012  the  Ministry  of  Finance  released  the  Treasury’s  Medium  Term  Debt 
Management  Strategy  for  2012-2015.  The  Strategy  sets  out  the  government’s  plans  for 
medium-term debt financing of government debt. The Local Government Act, which includes 
sections on controlling local government finances, was approved in September 2011. 

Iceland is included in the pre-accession fiscal surveillance procedure and submitted its second 
Pre-Accession Economic Programme (PEP) in February 2012. (See also Economic criteria)  

The capacity for economic policy formulation and coordination needs to be further improved 
at local and central level also because a significant part of government spending is linked to 
local  governments,  which  requires  stronger  coordination  and  planning  for  fiscal  policy 
consolidation. 

Conclusion 

Overall,  Iceland  has  a  good  level  of  alignment  with  the  acquis  on  economic  and  monetary 
policy. There has been some progress in the area of economic policy. Gaps in alignment with 
the acquis in the field of monetary policy remain to be addressed, including strengthening 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.  

With  regard  to  statistical  infrastructure,  some  progress  has  been  made.  In  addition  to  the 
cooperation  between  Statistics  Iceland  and  the  National  Land  Survey  of  Iceland,  work  on  a 
cooperation  agreement  with  the  Directorate  of  Immigration  has  started.  Work  continues  on 
cooperation  agreements  between  Statistics  Iceland  and  the  Customs  Department,  the 
Environment Institute and the National Energy Authority. In June 2012, Iceland adopted a law 
on imposing fines on private firms and public institutions, if they do not respond to requests 
for  information  for  statistical  purposes.  Also  in  June  2012,  the  new  business  statistics 
directorate was set up and a new director recruited. Since September 2011 there has been a net 

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increase of five staff members at Statistics Iceland while the operational budget has been cut 
by a further 3%.  

Some  progress  can  be  reported  in  the  area  of  classifications  and  registers.  A  paper  on  the 
classification  of  statistical  regions  and  a  paper  on  national  classification  of  completed 
education  is  under  preparation.  Work  to  set  up  the  statistical  business  register  has  not  yet 
started. 

Concerning  sectoral  statistics,  good  progress  has  been  made  despite  the  scarce  resources. 
With a response rate of 75%, the data from the Farm Structure Survey carried out during the 
reporting period are considered reliable. The majority of the administrative registers related to 
the  housing  and  population  census  has  already  been  collected.  The  development  of  the 
database for the census data is under way.  

Statistics Iceland has started to compile agricultural statistics. These include milk production 
statistics,  livestock  statistics,  statistics  on  slaughtering  and  meat  production,  statistics  on 
activity of hatcheries and trade of chicks, annual crop statistics and land use statistics. Work 
has also started on economic accounts for agriculture (EAA) and agricultural price statistics 
(APS).  

Statistics  Iceland  has  continued  preparatory  work  on  Intrastat,  including  carrying  out  a 
feasibility  study  and  exploring  data  collection  procedures.  With  financial  support  from  the 
Modernisation  of  European  Enterprise  and  Trade  Statistics  (MEETS)  programme,  work  has 
started  on  exploring  how  to  estimate  the  minimum  data  quality  needed  for  Intrastat. 
Preparations for delivery of comprehensive data on national accounts need to be stepped up in 
order  to  comply  with  the  requirements  of  the  data  transmission  programme.  The  adult 
education survey and the continuing vocational training survey are yet to be carried out. 

Conclusion 

Overall,  Iceland  is  partly  aligned  with  the  acquis  on  statistics.  Progress  can  be  reported.  A 
large part of the register-based population and housing census was carried out. Allocation of 
sufficient resources remains a concern and additional human and financial resources will have 
to be made available to the Statistical Office in order to fulfil the obligations of the acquis in 
this chapter.  

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.  

There  have  been  some  developments  in  the  area  of  labour  law,  where  Iceland  has  already 
implemented a substantial part of the acquis as a member of the EEA. Following the EFTA 
Court  Decision  of  June  2011  regarding  the  Posting  of  Workers  Directive,  Iceland  amended 
parts  of  its  legislation  in  March  2012.  Further  amendments  are  under  preparation.  Legal 
alignment has yet to be achieved as regards temporary agency work and the establishment of a 
European Works Council. The EFTA Surveillance Authority (ESA) has started proceedings in 
a number of cases due to incorrect implementation of labour law Directives. 

Few developments can be reported in the area of health and safety at work, where Iceland 
has  already  implemented  substantial  parts  of  the  acquis  as  a  member  of  the  EEA.  The  first 
yearly Campaign Against Bullying Day took place in November 2011. It was organised by the 
Ministry  of  Welfare  in  cooperation  with  social  partners  and  other  stakeholders.  Alignment 
with the acquis on asbestos has yet to be achieved. Full alignment with the health and safety 
acquis needs to be ensured in all three sub-sets of national legislation regarding land, air and 
sea. 

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Social dialogue has continued to function well. The wage agreements concluded in 2011 are 
still  valid  and  they  contribute  to  substantial  net  wage  increases  for  both  public  and  private 
sectors. Social partners continue to be proactive in labour market policies, and participate in 
their implementation. 

There has been progress with regard to employment policy. The consultative committee that 
was  appointed  in  2011  and  includes  representatives  from  the  Ministry  of  Welfare,  the 
Directorate  of  Labour  and  social  partners  is  working  on  developing  a  comprehensive 
employment strategy for Iceland. However, overall, the labour market situation continues to 
be  adversely  affected  by  the  2008-2010  economic  crisis,  with  young  workers  and  the  low-
skilled  being  hardest  hit.  The  government  has  continued  to  implement  active  labour  market 
policies  according  to  the  Iceland  2020  Policy  Statement  and  focusing  on  efforts  to  reduce 
unemployment among young people, in particular for the long-term unemployed. In February 
2012,  the  Directorate  of  Labour  and  the  Ministry  of  Welfare  introduced  a  new  initiative, 
‘Working Way’, targeting long-term unemployed with the aim of bringing 1,500 unemployed 
back  into  the  labour  market.  The  government  has  also  stepped  up  cooperation  with  civil 
society and  social partners  in order  to reduce unemployment.  A special  campaign to reduce 
undeclared work in the small-scale maintenance and reconstruction sector through means of 
VAT deductions for house owners has continued in 2012. 

Progress has been made regarding the European Social Fund (ESF), where preparations for 
participation  in  the  ESF  have  started.  The  Ministry  of  Welfare  has  been  identified  as  the 
institution responsible for drafting the ESF operational programme. The Minister for Welfare 
charged  a  working  group  in  March  2012  with  drafting  an  operational  programme  for  the 
preparations necessary to participate in the ESF. Iceland has also drawn up an action plan on 
how to meet the objectives of the EU cohesion policy. Adequate training is necessary in this 
field. 

In  the  area  of  social  inclusion  progress  has  continued.  The  impact  of  the  financial  crisis 
continued  to  be  visible,  with  most  households  reporting  that  they  make  ends  meet  ‘with 
difficulty’ or ‘with great difficulty’. Whilst disposable earnings of households fell across the 
board  due  to  the  financial  crisis,  government  policies  helped  to  cushion  the  effects  for  the 
lowest income groups. Targeted debt relief measures were effective. Overall, the percentage 
of  households  at  risk  of  poverty  remains  substantially  lower  than  the  EU  average.  Close 
monitoring  and  evaluation  of  the  social  situation  of  single-parent  families,  low-income 
elderly, children and social assistance recipients is needed. 

An ‘Action Plan for People with Disabilities’ was approved by the parliament in June 2012. 
The UN Convention on the Rights of Persons with Disabilities remains to be ratified.  

Social  protection  expenditures  increased  to  8%  of  GDP,  the  highest  level  ever  in  Iceland, 
although still lower than the EU average. Cuts in the health care system were significant, but 
high-quality services were maintained. Unemployment expenditures have increased more than 
sixfold  since  2007.  In  June  the  parliament  adopted  legislation  on  the  establishment  of  an 
Employment  Rehabilitation  Fund.  The  objective  of  the  Fund  is  to  make  sure  that  everyone 
who is forced to leave the labour market can receive assistance to return.  

Some  developments  can  be  reported  in  the  field  of  anti-discrimination.  In  June,  the 
parliament  adopted  legislation  improving  the  legal  status  of  transgender  persons.  Work  is 
ongoing to align with the two Anti-Discrimination Directives. An Equality body responsible 
for combating discrimination on grounds of racial or ethnic origin has yet to be established. 
Iceland  needs  to  ensure  that  the  future  Equality  body  is  independent  and  able  to  carry  out 
independent surveys, produce reports and provide assistance to victims of discrimination. 

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No further development can be reported in the field of equal opportunities, where Iceland’s 
standards  continue  to  be  high.  The  Plan  of  Action  on  Gender  Equality  for  the  period  2011-
2014 continues to be implemented with gender mainstreaming and gender budgeting playing 
a  central  role.  Full  alignment  with  the  acquis  has  yet  to  be  achieved,  namely  as  regards 
alignment with the acquis on equal treatment of men and women in matters of employment 
and occupation. 

Conclusion 

Overall,  Iceland  has  reached  a  high  level  of  alignment  and  continues  to  apply  a  substantial 
part of the acquis in this chapter due to its EEA membership. Preparations for participation in 
the  European  Social  Fund  have  commenced  and  a  comprehensive  employment  strategy  is 
being  drafted.  Legal  alignment  remains  to  be  completed  in  the  areas  of  anti-discrimination 
and  equal  opportunities.  The  impact  of  the  2008-2010  financial  crisis  remains  visible; 
challenges in social inclusion and employment thus persist.  

4.20.  Chapter 20: Enterprise and industrial policy 

Iceland has already reached a high level of alignment in the area of enterprise and industrial 
policy.  

In  the  area  of  enterprise  and  industrial  policy  principles,  Iceland  has  an  industrial  policy 
that is in line with EU principles and is associated with the EU Small Business Act.  

No  new  developments  can  be  reported  on  enterprise  and  industrial  policy  instruments. 
Iceland  has  a  wide  array  of  enterprise  and  industrial  policy  instruments.  It  continues  to 
participate  in  the  Enterprise  and  Innovation  Programme  and  is  a  member  of  the  Enterprise 
Europe  Network.  In  addition  to  EU  resources,  Iceland  also  uses  own  resources  to  provide 
direct support to SMEs through the appropriate instruments. But access to finance for SMEs 
can still be problematic due to the macroeconomic situation.  

Regarding sectoral policies, Iceland continues to implement policies according to its sectoral 
strategies, which are in line with EU principles. 

Conclusion 

Overall, alignment in the area of enterprise and industrial policy remains at a high level. Little 
progress  can  be  reported  in  the  field  of  enterprise  and  industrial  policy.  Access  to  SME 
finance is still affected by the financial crisis.  

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. 

There  has  been  good  progress  in  the  field  of  transport  networks.  Iceland  has  finalised  the 
TEN-T maps according to the new TEN-T Guidelines, one on airports and one on roads, ports 
and airports. 

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. A TEN-
E-related policy needs to be developed. 

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

Regarding  the  legislative  framework,  alignment  of  legislation  with  the  acquis  relevant  for 
EU  cohesion  policy  is  at  an  advanced  stage.  Iceland’s  current  budget  planning  system  does 
not include sufficient rules on multiannual programme budgeting. Planned preparations in this 
area  include  an  assessment  of  municipal  co-financing  capacities,  review  of  the  public 
budgeting process, drafting legislation -where necessary- for cohesion policy implementation, 
and preparations for mechanisms for complying with EU policies.  

In  January,  a  new  law  on  the  municipalities  entered  into  force  which  overhauled  the  pre-
existing  laws  on  the  municipalities.  The  main  changes  relate  to  the  municipalities’  finances 
and their monitoring. Municipalities are now expected to prepare multiannual programming. 
The law also stipulates increased consultation between the government and the municipalities.  

Some  progress  can  be  reported  as  regards  the  institutional  framework  for  managing  the 
Structural Funds. In March 2012, Iceland presented to the Commission a plan for meeting the 
EU cohesion policy requirements. The plan describes the preparations in all areas included in 
this  chapter  and  provides  a  timetable  for  their  implementation.  The  Ministry  of  Industry, 
Energy and Tourism is leading the preparatory work for setting up the Managing Authority in 
close cooperation with other relevant ministries. Other stakeholders such as the Association of 
Local Authorities were also associated in the preparations for the implementation framework. 
The Icelandic National Audit Office (INAO) has been identified as the future Audit Authority 
and the Ministry of Finance as the future Certifying Authority. 

Progress was made in the area of administrative capacity, where a comprehensive training 
action  plan  was  put  in  place  and  started  being  implemented.  It  addresses  most  of  the 
institutions  likely  to  be  involved  in  implementing  the  cohesion  policy  and  covers  areas 
relating to programme and project preparation and management.  

Some  limited  progress  was  made  in  relation  to  programming.  Iceland  has  identified  the 
Ministry  of  Industry,  Energy  and  Tourism  as  the  body  responsible  for  supervising 
preparations for programming for the European Regional Development Fund. The Ministry of 
Welfare  has  been  identified  as  the  institution  responsible  for  supervising  preparations  for 
programming  for  the  European  Social  Fund.  Programming  preparations  are  overseen  by  the 
Negotiation  Group  on  Regional  Policy.  The  Ministry  of  Education  and  the  Ministry  of  the 
Interior  will  also  be  fully  associated  with  the  programming  work  and  the  involvement  of 
further stakeholders, in particular local authorities, will be emphasised.  

Some  modest  progress  can  be  reported  on  monitoring  and  evaluation.  Iceland  has  started 
preparatory work for the establishment of a monitoring and information system for cohesion 
policy programmes. Experts are working on analysing needs and processes.  

As regards financial management, control and audit, Iceland is already advanced due to its 
participation  in  EU  programmes  in  the  framework  of  the  EEA  Agreement  and  no  further 
progress can be reported. Financial management and control systems in Iceland are largely in 
line with EU best practices and international standards, but progress is required in the field of 
internal  audit.  Independent  external  audit  of  the  public  sector  is  under  the  responsibility  of 
INAO.  INAO  does  not  audit  the  municipalities.  However,  it  is  authorised  to  examine  the 
accounting of municipalities in relation to joint operations of central and local governments. 
(See also Chapter 32 — Financial control) 

Conclusion 

Overall, Iceland has started preparations and adopted a timetable and action plan for meeting 
the  EU  cohesion  policy  requirements.  Certain  institutions  (future  Audit  Authority  and 
Certifying  Authority)  have  been  identified,  preparations  for  setting  up  the  Managing 

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Authority  have  started  and  a  comprehensive  training  action  plan  has  started  to  be 
implemented  The  Managing  Authority  and  other  bodies  still  need  to  be  identified.  The 
establishment of implementation  systems, including  the monitoring  and information system, 
is at an early stage.  

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

Iceland’s  judiciary  continues  to  be  of  a  high  standard.  As  regards  its  independence  and 
impartiality,  there  have  been  no  major  developments  with  regard  to  the  recommendations 
delivered  last  year  by  the  working  group  set  up  in  December  2010  to  look  into  the 
establishment  of  an  Appeal  Court  for  civil  and  criminal  cases,  although  the  issue  is  under 
examination by the Ministry of the Interior.  

As  regards  the  efficiency  of  the  judicial  system,  the  numbers  of  district  court  judges  and 
Supreme Court judges, which were temporarily increased in order to deal with the additional 
case-load  following  the  2008  financial  crisis,  are  planned  to  be  gradually  reduced  after 
January 2013. Of the 43 district court judges currently in office, two were appointed during 
the  reporting  period.  The  number  of  Supreme  Court  judges  remained  the  same.  A  law  was 
adopted in June 2012 to further improve the efficiency of the assistants to courts, giving them 
more  legal  power  in  civil  cases.  An  expert  group  on  the  future  organisation  of  the 
investigation and prosecution of economic crime cases was appointed in January 2012. 

In  the  first  major  case  relating  to  the  banking  collapse  brought  by  the  Office  of  the Special 
Prosecutor in December 2011, criminal charges were filed against the former CEO of the old 
Glitnir  Bank,  the  first  of  the  Icelandic  banks  that  collapsed  in  2008,  and  one  of  his  senior 
staff. The Supreme Court confirmed in February 2012 that the former Permanent Secretary of 
the  Ministry  of  Finance,  already  convicted  by  the  District  Court  of  Reykjavik  in  2011,  was 
guilty of insider trading and upheld his sentence to two years’ imprisonment.  

In March 2012, the CEO of the Financial Supervisory Authority was dismissed by the Board 
of the Authority and criminal charges were laid against him.  

A  law  amending  the  Code  of  Criminal  Procedure  was  adopted  in  December  2011,  delaying 
the  setting-up  of  regional  prosecutors’  offices  until  2014,  due  to  lack  of  funding.  The  time 
until  2014  will  be  used  to  evaluate  whether  this  new  administrative  level  of  prosecution 
should be established at all. A group of specialists will be set up to assess the structures.  

Progress  can  be  reported  on  anti-corruption  policy.  A  code  of  conduct  for  central 
government staff and civil servants in ministries was adopted in May 2012. Codes of conduct 
for civil servants in general and political advisors are yet to be established and work is under 
way.  The  Prime  Minister  presented  to  the  parliament  the  first  report  of  the  Coordination 
Committee on ethical standards within the administration in spring 2012. A bill amending the 
General Penal Code following the December 2010 Interim Compliance Report of the Council 
of  Europe’s  Group  of  States  against  Corruption  (GRECO)  on  incrimination  of  corruption 
offences was adopted by the government. It also aims to implement recommendations of the 
OECD  Working  Group  on  Bribery  and  to  introduce  the  necessary  changes  to  the  Code  in 
order to ratify the additional protocol to the Council of Europe Criminal Law Convention on 
Corruption. The bill has yet to be adopted by the parliament. 

The  State  Auditor  continued  to  monitor  implementation  of  the  law  on  the  financing  of 
political  parties,  which  requires  parties  to  provide  a  financial  report  as  a  precondition  for 
receiving  state  funding.  During  the  reporting  period,  six  out  of  seven  political  parties 
delivered their obligatory financial report for the year 2010. GRECO adopted its second Third 
Round  Compliance  Report  on  Iceland  in  May  2012.  It  concluded  that  its  previous 

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recommendation on party funding regarding the independence of auditors who check political 
parties’ and candidates’ accounts has been dealt with in a satisfactory manner.  

Some measures were taken during the reporting period to further strengthen the already high 
level of protection of fundamental rights.  

Work to prepare a National Action Plan for Human Rights to be presented to the parliament 
started  during  the  reporting  period  and  two  groups  were  appointed  —  a  group  of 
representatives  of  ministries  and  a  consultative  group  of  representatives  of  civil  society  and 
academia.  The  Plan  is  intended  to  further  enhance  the  protection  and  promotion  of  human 
rights  in  Iceland,  determine  the  role  and  coordinate  the  work  of  different  ministries  and 
organisations in human rights matters, decide on ratification of human rights agreements and 
evaluate whether a national institution for human rights should be set up. Monthly seminars 
on human rights issues in connection with the ongoing work have been held since December 
2011. 

As  regards  civil  and  political  rights,  several  meetings  and  seminars  were  organised  in 
cooperation  with  stakeholders,  the  academic  community  and  the  public  on  freedom  of 
expression and democracy, freedom of religion, and democracy and municipalities.  

A draft law on religion is being discussed in the parliament. It includes provisions that would 
make  all  religions  and  philosophical  organisations  equal  before  the  law,  and  give  greater 
freedom to those who choose not to register with any religion at all. It would also mean that 
philosophical organisations, secular humanist groups and the like would be able to receive the 
‘tithe tax’ which normally goes to whichever religious group a person is registered with. The 
draft  law  would  also  discontinue  automatic  registration  with  the  national  church  of  a  child 
born to a mother registered with that church. 

As  regards  economic  and  social  rights,  an  awareness-raising  campaign  on  sexual  violence 
against children started during the reporting period. The Icelandic Centre for Gender Equality 
published an overview on gender equality in Iceland aimed at offering insight into successes, 
best practices and lessons learned. 

A law on compensating victims of sexual offences was adopted in June 2012. A conference 
was  organised  on  the  same  subject  to  discuss  how  to  further  improve  the  judicial  system. 
Issues  discussed  included  various  aspects  of  procedures,  legislative  reform  and  the  role  of 
prosecution  in  the  area  of  sexual  offences,  and  the  protection  of  children  against  sexual 
exploitation. 

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 rules on the appointment of the members of the board of directors by the Minister of the 
Interior  still  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  citizens’  rights.  The  differential  treatment 
between  citizens  of  Nordic  countries  and  other  EU  countries,  as  regards  voting  rights  in 
municipal  elections,  is  not  in  line  with  the  EU acquis  and  Iceland  will  need  to  align  in  due 
course.  

Conclusion 

Iceland continues to have high standards in the area of the judiciary and fundamental rights. 
Progress was made in further reinforcing the anti-corruption policy framework. Iceland also 

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continues  to  strengthen  its  high  level  of  protection  of  fundamental  rights.  Data  protection 
legislation  in  Iceland  is  yet  to  be  aligned  with  the  acquis,  in  particular  as  regards  the 
independence of the national Data Protection Authority. 

4.24.  Chapter 24: Justice, freedom and security 

Iceland has already achieved a high level of alignment and applies a large part of the acquis in 
the  area  of  justice,  freedom  and  security  as  an  associated  member  of  the  Schengen 
Agreement, in particular as regards external borders and visas. Iceland has continued to be 
actively involved in the activities of Frontex. Iceland has also continued to participate in the 
Visa Information System (VIS). 

No  progress  can  be  reported  in  the  field  of  migration.  Legislation  on  long-term  residents, 
special  provisions  for  researchers  and  implementation  of  the  EU  Blue  Card  Directive  still 
need  to  be  aligned  with  the  acquis.  The  same  applies  to  family  reunification  and  minimum 
standards  on  sanctions  and  measures  against  employers  of  illegally  staying  third-country 
nationals. Overall, Iceland is advanced in this area. 

There has been no progress in the area of asylum. Iceland still needs to ensure full alignment 
with the relevant acquis, including amending the definition of refugees and persons eligible 
for  subsidiary  protection.  Iceland  has  not  yet  joined  the  European  Asylum  Support  Office 
(EASO). Iceland is well on track to meet the requirements in this area. 

No  progress  can  be  reported  in  the  area  of  judicial  cooperation  in  civil  and  criminal 
matters. The 1996 Child Protection Convention and the 2007 Child Support Convention and 
its  protocol  on  applicable  law  have  yet  to  be  signed  and  ratified.  The  good  cooperation 
between Iceland and Eurojust has continued. Preparations need to be made for the exchange 
of criminal records with Member States through the European Criminal Records Information 
System  (ECRIS).  Iceland  is  well  on  track  to  meet  the  requirements  of  the  acquis  in  these 
areas.  

Progress has been made in the area of police cooperation and the fight against organised 
crime. Iceland has ratified the Council of Europe Convention on trafficking in human beings 
and work on reviewing the five-year Action Plan against human trafficking has started. The 
Council  of  Europe  Convention  on  the  protection  of  children  against  sexual  exploitation  and 
sexual  abuse  is  signed  but  remains  to  be  ratified.  Iceland  amended  the  General  Penal  Code 
concerning  child  pornography  in  order  to  align  with  the  Council  of  Europe  Convention  on 
cybercrime.  The  Optional  Protocol  to  the  Cybercrime  Convention  still  needs  to  be  ratified. 
The  Economic  Crime  Department  of  the  National  Commissioner  of  Police  merged  with  the 
Office  of  the  Special  Prosecutor.  The  protocols  to  the  UN  Convention  against  transnational 
organised  crime  (Palermo  Convention)  on  the  smuggling  of  migrants  and  on  the  illicit 
manufacturing  of  and  trafficking  in  firearms  have  been  signed  but  remain  to  be  ratified. 
Iceland  has  continued  its  good  cooperation  with  Europol.  Practical  rules  and  procedures 
regarding  exchange  of  data  as  well  as  IT  infrastructure  need  to  be  adapted  to  meet  the 
requirements in the areas of police and customs cooperation. Iceland is well advanced in this 
area. 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.  Iceland  needs  to  continue  its 
alignment with the acquis in areas including migration, asylum and judicial cooperation. 

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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  an  associated  country.  Participation  is  successful  and 
spreads over all the thematic areas and specific programmes covered by FP7. 

Progress  was  made  regarding  the  European  Research  Area  (ERA),  where  Iceland  took  a 
number  of  steps  to  further  facilitate  its  integration  into  the  ERA  and  strengthen  its  research 
and  innovation  capacity.  The  Iceland  2020  Policy  Statement  takes  due  account  of  the 
objectives of the ERA.  

Regarding research funding, the aim remains to raise the level of expenditure on R&D from 
currently 2.7% of GDP to 4% of GDP by 2020 as stated in the Iceland 2020 Policy Statement. 
To attain this objective, the government continues to offer tax incentives to private companies 
for R&D spending. 

Conclusion 

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

4.26.  Chapter 26: Education and culture 

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

Some developments can be reported in the fields of education, training, youth and sport. A 
new  curriculum  for  all  school  levels  was  published  in  May  2011  and  implementation 
commenced  with  the  academic  year  2011-2012.  In  June  2012  amendments  to  the  Law  on 
Universities  were  adopted  regarding  the  autonomy  of  the  universities,  democracy  and 
participation  of  students  and  staff  in  the  management  of  the  universities,  and  the  rights  of 
disabled students.  

As  regards  cooperation  on  policies,  Iceland  continued  to  participate  in  the  open  method  of 
coordination on education. Iceland’s share of 30-34 year-olds with tertiary education remains 
above the EU average, as does, however, the rate of early school leavers. Over the reporting 
period  the  government  formally  signed  an  agreement  for  a  programme  to  encourage  early 
school  leavers  between  the  ages  of  18  and  25  to  enter  secondary  school.  In  the  field  of 
lifelong learning, Iceland remained above the EU average targets for 2020. 

Some progress can be reported in the area of access to education for EU citizens. Legislation 
was adopted in September 2011 clarifying access for EEA citizens to loans from the Icelandic 
Student Loan Fund and introducing a general residence requirement for beneficiaries.  

Iceland continued to take part in several EU programmes, including Lifelong Learning, Youth 
in Action and Erasmus Mundus. It also continued to participate in the European Centre for the 
Development of Vocational Training and appointed representatives to take part as observers 
in the Advisory Committee on Vocational Training. The Ministry of Education, Science and 

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Culture continued to work on streamlining procedures and achieving full compliance with the 
programme  management  requirements  for  the  Lifelong  Learning  and  Youth  in  Action 
Programmes.  Iceland  has  shown  interest  in  participating  in  the  Europe  for  Citizens 
Programme. 

A  comprehensive  national  qualifications  framework,  based  on  learning  outcomes,  has  been 
developed  at  university  level.  This  framework  is  based  on  the  European  Qualification 
Framework (EQF). 

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 
and continued to participate in several EU programmes on education and culture. 

4.27.  Chapter 27: Environment and climate change 

Iceland’s  policy  in  this  field  is  to  a  large  extent  in  line  with  the  acquis  due  to  its  EEA 
membership.  

In the area of environment, regarding horizontal legislation, a law designed to transpose the 
Environmental Liability Directive was adopted in June 2012. The Law includes provisions on 
damage to protected species and nature conservation areas as defined by Icelandic law.  

The  Aarhus  Convention  was  ratified  in  October  2011.  Amendments  were  made  to  existing 
legislation  on  the  duty  of  the  government  to  provide  information  on  the  environment.  The 
government is from now on always responsible for informing, on its own initiative, the public 
of  imminent  danger  caused  by  pollution  or  significant  changes  in  the  environment. 
Transposition of the Environmental Crime Directive is still pending.  

Amendments to  the environmental impact assessment legislation are under preparation.  The 
proposed 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  acquis.  Work  is  ongoing  to  align 
with the National Emissions Ceilings Directive. 

Waste  management  legislation  is  to  a  large  extent  in  line  with  the  acquis.  No  new 
developments can be reported in this area. 

No progress can be reported in the field of water quality. A regulation on bathing water exists 
but  it  is  not  completely  in  line  with  the  Directive.  Alignment  with  the  Marine  Strategy 
Framework Directive and the Floods Directive has yet to be achieved.  

As  regards  nature  protection,  Iceland  continued  the  work  on  mapping  habitat  types  in  the 
60% of the territory that remains to be mapped, and on other tasks needed for the selection of 
preliminary sites for the Natura 2000 network. No legislative or implementing measures can 
be reported to align with the acquis on protection of whales, wild birds and conservation of 
natural habitats and wild fauna and flora or with the trade ban on imports of seal products into 
the EU.  

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

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As  regards  chemicals,  the  Regulation  on  the  Registration,  Evaluation,  Authorisation  and 
Restriction  of  Chemicals  (REACH)  is  being  implemented  and  work  is  on  track.  No 
developments can be reported as regards ratification of the Rotterdam Convention.  

Iceland lost an EFTA court case brought by the  EFTA  Surveillance  Authority  for  failing  to 
address the problem of road noise, as required by the Environmental Noise Directive, and has 
handed in noise maps for major roads in June 2012 as required by the court. 

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. 

Regarding climate change, Iceland continued to make steady progress. The EU and Iceland 
strengthened cooperation in the international context. Iceland submitted in May its provisional 
quantified emission limitation and reduction objective (QELRO) for the second commitment 
period under the Kyoto Protocol, which is based on the understanding that it will be fulfilled 
jointly  with  the  EU  and  its  Member  States,  in  accordance  with  Article  4  of  the  Kyoto 
Protocol.  Furthermore,  Iceland  regularly  associated  itself  with  EU  positions  and  also 
continues to fulfil its reporting obligations under the United Nations Framework Convention 
on Climate Change and the Kyoto Protocol. 

Legislation  on  climate  was  adopted  in  June  2012  to  align  with  the  revised  EU  Emissions 
Trading  System  (EU  ETS),  as  well  as  provide  the  legal  basis  to  adopt  a  National  Climate 
Action  Plan  and  set  up  a  Climate  Fund.  Alignment  with  EU  ETS  related  acquis  regarding 
auctioning, registries, monitoring and reporting has yet to be achieved. 

In so far as the EU Monitoring Mechanism is concerned, Iceland made good progress towards 
compliance,  although  some  adjustments  are  still  needed,  especially  with  regard  to  the 
compilation and reporting of data for the greenhouse gas (GHG) inventory. 

As  regards  fuel  quality,  Iceland  still  needs  to  align  with  the  Directive  on  specifications  for 
fuels.  Regarding  emissions  from  road  transport,  preparations  for  the  implementation  of  the 
EU Regulation on emission standards for new cars and vans are under way.  

Steps  were  taken  to  align  with  EU  legislation  on  fluorinated  gases  and  ozone  depleting 
substances. Iceland still needs to align with the Directive on the geological storage of carbon 
dioxide. 

Regarding administrative capacity, the Ministry  of the  Environment has increased its staff 
by three during the reporting period. The Icelandic Institute of Natural History has hired an 
extra four staff for three years. However, in the field of climate change no developments to 
strengthen the administrative capacity took place during the reporting period.  

Conclusion 

Overall, Iceland’s policy is to a large extent in line with the acquis in this chapter, due to its 
EEA membership, and  there  has  been further progress. Institutional structures are mostly in 
place. Compliance with  the acquis on nature protection has  not been achieved, in particular 
with regard to the protection of whales, seals and wild birds and the conservation of natural 
habitats  and  of  wild  fauna  and  flora.  The  same  applies  to  the  water  sector,  with  special 
reference  to  alignment  with  the  Marine  Strategy  Framework  Directive  and  the  Floods 
Directive. Further steps are also needed as regards climate change, in particular in the areas of 
the  EU  ETS  (registries,  auctioning,  monitoring  and  reporting),  fuel  quality  as  well  as 
geological  storage  of  carbon  dioxide.  Iceland  also  needs  to  ratify  the  Espoo  and  Rotterdam 
Conventions. 

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4.28.  Chapter 28: Consumer and health protection 

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

There has been some progress in the area of consumer protection. A committee within the 
Ministry  of  the  Interior  is  reviewing  consumer  protection  issues  with  a  view  to  simplifying 
procedures for consumers and establishing a one-stop shop.  

Concerning  product  safety  related  issues,  alignment  with  the  Commission  Decision  on 
banning  products  containing  biocide  dimethylfumarate  has  been  completed.  Alignment  with 
the  acquis  on  general  product  safety,  on  dangerous  imitations  and  on  liability  for  defective 
products  has  yet  to  be  achieved.  The  RAPEX  early  notification  system  has  become  more 
efficient, with an improved notification procedure. Furthermore, the rules regarding the access 
of  national  surveillance  authorities  to  the  RAPEX  system  were  amended  in  February  2012 
giving  all  relevant  Icelandic  supervisory  authorities  access  to  RAPEX.  Proactive  market 
surveillance needs to be strengthened.  

As regards non-safety related issues, the parliament has yet to adopt legislation aligning with 
the Directive on credit agreements for consumers and the Directive on timeshares. Legislative 
initiatives are also needed in areas such as unfair contract terms, injunctions, distance selling, 
doorstep selling, misleading and comparative advertising and unfair commercial practices.  

Some progress can be reported in the field of public health. Preparations have started for the 
National Health Plan 2015, which will replace the Health Plan 2010.  

On  tobacco  control,  a  national  policy  on  tobacco  prevention  is  under  preparation.  The 
National Hospital and the Directorate of Health have signed a cooperation agreement which 
includes the roll-out of a tobacco control strategy at the hospital.  

In the area of communicable diseases a list of diseases covered by the EU surveillance system 
has been published.  

In  the  field  of  blood,  tissues,  cells  and  organs,  alignment  with  the  Directive  regarding  the 
maximum  pH  values  for  platelets  concentrates  at  the  end  of  shelf  life  has  been  achieved. 
Alignment with the acquis on organs, on guidelines concerning the conditions of inspections 
and control measures, and on the training and qualification of officials still has to be achieved.  

Alignment  with  the  acquis  on  patients’  rights  in  cross-border  healthcare  is  yet  to  be 
completed. 

Promotion  of  community-based  mental  health  services  is  similar  to  that  of  EU  Member 
States. 

Preparations have started to develop a National Cancer Plan. The colorectal cancer screening 
programme remains to be implemented. 

Conclusion 

Iceland  has  already  achieved  a  high  level  of  alignment  and  applies  a  substantial  part  of  the 
acquis  on  consumer  and  health  protection.  Further  progress  can  be  reported  in  the  field  of 
public health. Additional efforts to align with the acquis are necessary, especially in the area 
of consumer protection, where certain transposition gaps remain.  

4.29.  Chapter 29: Customs union 

Iceland applies to a large extent the acquis in the area of customs union.  

There  have  been  no  further  developments  in  the  area  of  customs  legislation.  The  gaps  in 
transposition  of  the  EU  Customs  Union  acquis,  which  include  the  customs  tariff,  general 

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customs  rules,  rules  of  origin,  procedures  with  economic  impact,  security  rules  and  the 
abolition of customs fees, have still to be addressed. Preparations in this area are ongoing. 

Progress  can  be  reported  regarding  administrative  and  operational  capacity.  Following 
recommendations  resulting  from  the  Blueprints  exercise,  a  Business  Strategy  is  currently 
being drafted. Work on an IT Strategy started in spring 2012 and initial steps have been taken 
with  regard  to  developing  the  IT  systems.  This  included  further  study  trips,  workshops  and 
training.  A  budget  has  been  set  aside  for  the  preparation  of  the  transit  and  tariff  customs 
systems project and a number of specialists have been recruited. Training in the areas of the 
structure,  decision-making  processes  and  functions  of  the  Customs  Union  and  customs 
legislation is ongoing. 

A  law  amending  the  rules  related  to  the  customs  school  was  issued  in  January  2012.  The 
required minimum education for being hired to certain positions in the customs area has been 
raised. Preparations in this area are moderately advanced. 

Conclusion  

Iceland applies to a large extent the acquis in the area of customs union. Some progress has 
been made in the area of customs union. Discrepancies, in particular in the fields of customs 
rules,  rules  of  origin,  procedures  with  economic  impact,  security  rules  and  the  abolition  of 
customs  fees,  have  still  to  be  addressed.  Preparations  for  effective  implementation  of  the 
acquis upon accession have been initiated, in particular regarding customs procedures and the 
development  of  interconnectivity  with  the  EU-related  IT  systems.  Nevertheless,  efforts  to 
address the existing gaps as regards customs legislation and administrative capacity, including 
IT, need to be stepped up.  

4.30.  Chapter 30: External relations 

Iceland is already highly aligned in the area of external relations. 

With regard to the common commercial policy, Iceland continued to assess the adjustments 
required  in  order  to  align  with  the  acquis.  With  regard  to  the  World  Trade  Organisation 
(WTO), Iceland and the EU have agreed to hold regular trade policy consultations.  

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 still being processed. No new developments can 
be reported with regard to joining the Kimberley process.  

As regards bilateral agreements with third countries, negotiations continued on a bilateral 
free-trade  agreement  (FTA)  on  goods  and  services  with  China.  In  the  context  of  EFTA, 
Iceland  ratified  FTAs  with  Montenegro,  Hong  Kong  and  the  Cooperation  Council  for  the 
Arab States.  FTA negotiations are ongoing with Bosnia and Herzegovina, central American 
countries  (Guatemala,  Honduras,  Costa  Rica  and  Panama),  India,  Indonesia,  Algeria  and 
Vietnam, along with negotiations for a joint agreement with Russia, Belarus and Kazakhstan. 
Negotiations on bilateral investment treaties are ongoing with Turkey.  

As  regards  development  policy,  development  aid  in  2011  amounted  to  0.21%  of  GNI. 
Iceland is pursuing the strategy for development cooperation for the years 2011-2014 that it 
adopted  last  year.  An  agreement  was  signed  between  the  United  Nations  University  (UNU) 
and the Icelandic National Energy Authority extending cooperation with regard to the UNU 
Geothermal Training Programme (UNU-GTP). Iceland started a cooperation partnership with 
the World Bank and six east African countries in the field of geothermal energy. Iceland also 
funded a new hospital in Malawi.  

EN 

40 

   EN 

With  regard  to  humanitarian  aid  Iceland  spent  in  2011  8.4%  of  its  official  development 
assistance on humanitarian and emergency assistance, compared to 9% in 2010.  

Conclusion 

Iceland is already highly aligned with the acquis in this area and some further progress can be 
reported as regards external relations. Some progress can be reported with regard to the WTO, 
as Iceland and the EU have agreed to hold regular trade policy consultations.  

4.31.  Chapter 31: Foreign, security and defence policy 

Iceland has already reached a high level of alignment in this policy area. 

The regular political dialogue between the EU and Iceland continued to cover foreign policy 
issues. Iceland has been showing particular interest in an active dialogue focusing on the Arab 
Spring,  with  the  situation  and  developments  unfolding  in  Syria  and  Iran.  Given  its 
geographical position, Iceland continued playing an active role in Arctic affairs. 

As  regards  the  common  foreign  and  security  policy  (CFSP),  during  the  reporting  period 
Iceland aligned itself, when invited, with 64 out of 70 relevant EU declarations and Council 
decisions (91% alignment). Non-alignment is largely due to technical reasons, as in several of 
the cases implementing regulations are already in place.  

In  September  2011,  the  parliament  adopted  a  resolution  calling  on  the  Minister  for  Foreign 
Affairs to set up a cross-party committee of parliamentarians tasked with drafting a national 
security policy for Iceland. The policy needs to be based on the fact that Iceland has no armed 
forces, while taking into account the Risk Assessment Report for Iceland of 2009, the United 
Nations Charter and other international commitments entered into by Iceland. The committee 
was appointed in January 2012 and convened its first meeting in February. The committee is 
expected to present its proposals to the Minister for Foreign Affairs by November 2012.  

There  has  been  no  progress  in  establishing  and  filling  the  post  of  European  Correspondent. 
The Director-General for International and Security Affairs in the Ministry of Foreign Affairs 
continues to act as the Political Director. 

With regard to restrictive measures, Iceland adopted the relevant decisions to implement most 
restrictive  measures  introduced  by  the  Council  Decisions.  There  has  been  no  progress 
concerning implementation of 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  and  non-
proliferation and the strategy on weapons of mass destruction/small arms and light weapons. 

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, the 
Barents Euro-Arctic Council,  the  Northern Dimension, the Nordic Council of Ministers and 
the  West  Nordic  Council.  Iceland  actively  supported  the  call  on  the  governments  of  the 
Nordic countries to draw up a strategy for cooperation on the Arctic under the auspices of the 
Nordic Council. It supports the EU’s application for permanent observer status in the Arctic 
Council.  Iceland  has  also  launched  an  initiative  to  define  the  common  interests  of  Iceland, 
Greenland and the Faroe Islands in the area of climate change and global warming. 

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 is currently not 

EN 

41 

   EN 

participating  in  any  EU  civilian  or  crisis  management  missions.  Responsibility  for  defence, 
security  and  NATO  matters  remains  with  the  Ministry  of  Foreign  Affairs,  whereas 
responsibility  for  managing  the  tasks  of  the  former  Defence  Agency  now  falls  under  the 
Ministry of the Interior.  

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. It further advanced the agenda 
on  Arctic  affairs  given  its  clear  objective  to  play  an  active  part  in  regional  organisations  in 
northern Europe and the Arctic region.  

4.32.  Chapter 32: Financial control 

Iceland  is  partly  in  line  with  international  standards  and  EU  best  practices  in  the  field  of 
financial control. 

There  has  been  some  progress  in  the  area  of  public  internal  financial  control  (PIFC).  A 
detailed PIFC gap assessment was finalised in January 2012. A comprehensive law revising 
budgetary  procedures,  including  PIFC  is  under  preparation.  A  PIFC  policy  paper,  including 
deliverables and timeframes for actions, still needs to be prepared. Internal audit in the public 
sector remains to be systematically introduced. Preparations in this area are ongoing.  

Good  progress  can  be  reported  in  the  area  of  external  audit.  External  audit  has  been 
separated  from  internal  audit,  as  the  Icelandic  National  Audit  Office  (INAO)  ceased  all 
internal audit-related activities at the end of 2011. A strategic development plan for external 
audit  is  currently  being  drafted.  Full  alignment  with  the  standards  of  the  International 
Organization  of  Supreme  Audit  Institutions  (INTOSAI)  is  yet  to  be  achieved,  including 
immunity from prosecution for the Auditor General and INAO staff. Preparations in this area 
are well on track.  

No  progress  can  be  reported  in  the  area  of  protection  of  the  EU’s  financial  interests. 
Iceland’s legislation needs to be further aligned 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 the protection of the EU’s financial interests. Preparations in this area are 
ongoing. 

There has been little progress in the area of protection of the euro against counterfeiting. 
The Geneva Convention for the suppression of counterfeiting currency is being translated into 
Icelandic with a view to being ratified Overall preparations in this field are on track. 

Conclusion 

Overall,  Iceland’s  financial  control  system  is  partly  in  line  with  international  standards  and 
EU  best  practices  and  preparations  in  this  chapter  are  ongoing.  Work  needs  to  continue  on 
preparing  the  PIFC  policy  paper,  establishing  internal  audit,  ensuring  compliance  with 
INTOSAI standards in the area of external audit and protecting the EU’s financial interests.  

4.33.  Chapter 33: Financial and budgetary provisions 

Iceland is partially aligned with the acquis in the field of financial and budgetary provisions. 

There  has  been  no  progress  as  regards  traditional  own  resources  (TOR).  Appropriate 
procedures and  systems for accounting for TOR and  making  them  available  still  have  to  be 
put  in  place,  in  particular  as  regards  the  ‘A’  and  ‘B’  accounts.  The  system  for  writing  off 
irrecoverable debts remains to be amended and post-clearance auditing on traders’ premises 
further developed.  

EN 

42 

   EN 

There is no development to be reported regarding the preparations for the application of the 
own resources system (OWNRES). The basic principles and institutions for the policy areas 
indirectly affecting the OWNRES continue to function well. The information requirements of 
the OWNRES need to be reviewed and procedures set up to communicate cases of fraud and 
irregularity to the Commission.  

A guarantee system for customs duties incurred on release of goods for free circulation with 
deferred payment facilities needs to be introduced to protect the EU’s financial interests. The 
customs clearance declaration processing system (CDPS) will have to be further developed to 
make it compatible with EU systems.  

There have been no developments in the area of the VAT resource, where Iceland will need 
to develop the capacity to accurately calculate the weighted average rate and the positive and 
negative corrections to the intermediate VAT base.  

There has been some progress as regards the Gross National Income (GNI) resource, where 
Iceland  is  already  well  aligned  with  the  acquis  and  widely  applies  the  ESA  95  standards. 
Remaining  shortcoming  in  the  application  of  ESA  95  are  being  addressed  by  means  of  an 
action plan with related timetable.  

Little progress can be reported in the area of administrative infrastructure. Iceland needs to 
set up the operational management of the own resources system (OWNRES) at national level 
and apply the EU own resources rules. Coordination and cross-institutional cooperation still 
has  to  be  initiated  to  prepare  for  the  application  of  the  EU  funding  rules.  An  action  plan  to 
develop an adequate level of administrative capacity needs to be established by the Icelandic 
Ministry of Finance.  

Conclusion 

Overall,  Iceland  has  a  good  level  of  alignment  in  the  policy  areas  underlying  and  affecting 
financial and budgetary provisions. There has been no further progress on this chapter during 
the reporting period. A coordination unit needs to be formally set up to steer and streamline 
pre-accession  preparations  and  working  procedures  need  to  be  established.  The  various 
institutions  to  be  involved  in  the  OWNRES  need  to  be  designated  and  their  tasks  and 
responsibilities defined.  

EN 

43 

   EN 

Statistical Annex 

STATISTICAL DATA  
Iceland 

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

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 (2005=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) 
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) 

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) 

Note

2001 
283 
103 000 

2007 
308 
103 000 

2008 
315 
103 000 

2009 
319 
103 000 

2010 
318 
103 000 

2011 
318 
103 000 

Note

2001 

2007 

2008 

2009 

2010 

2011 

771 894  1 308 530 1480 346  1497 639  1536 512 1 626 335
10 075 
31 637 
27 672 
110 
2.6 

14 938 
48 550 
30 533 
121 
6.0 

11 614 
36 817 
31 245 
123 
1.2 

8 823 
31 136 
26 293 
132 
3.9 

8 673 
27 158 
27 664 
118 
-6.6 

9 491 
29 881 
27 210 
111 
-4.0 

: 

2.2 

: 

: 

: 

: 

: 

: 

1.4f 

0.5f 

-0.8f 

-3.7f 

3.0f 

: 

: 

: 

: 

104.0 

96.5f 

100.9f 

100.1f 

93.6f 

1) 2) 
1) 
1) 
1) 

Note

Note

Note

8.8 
19.0 
8.4 
63.9 
79.8 
21.5 
-0.3 
38.8 
39.9 

2001 
95.5 

2001 
6.7 

2001 
-381 
-68 
-18 
-285 
-11 

-13 
-192 
386 
-224 

5.3 
14.5 
11.6 
68.6 
81.7 
28.5 
0.5 
34.6 
45.3 

2007 
107.9 

2007 
5.0 

2007 
-2 351 
-1 004 
-502 
-800 
-44 

-41 
-2 458 
7 448 
-4 018 

194 

4 990 

Note

Note
7) 

2001 
-0.7 
42.0 

2001 
112.7 
-0.7 

2007 
5.4 
27.2 

2007 
245.8 
5.4 

6.0 
17.7 
9.0 
67.3 
78.2 
24.4 
0.2 
44.4 
47.2 

2008 
124.5 

2008 
12.4 

2008 
-2 853 
-52 
-219 
-2 554 
-27 

-31 
3 537 
-2 904 
1 885 

633 

423 

2008 
-13.5 
52.8 

2008 
168.1 
-13.5 

7.1 
18.1 
4.9 
69.9 
77.5 
13.8 
0 
52.8 
44.2 

2009 
121.3 

2009 
12.0 

2009 
-1 013 
523 
209 
-1 693 
-51 

-32 
-1 580 
1 641 
-1 740 

61 

607 

2009 
-10.0 
84.4 

2009 
220.4 
-10.0 

7.8 
19.0 
4.5 
68.7 
77.4 
12.8 
-0.2 
56.3 
46.2 

2010 
119.0 

2010 
5.4 

2010 
-758 
743 
210 
-1 658 
-53 

-34 
1 966 
-1 780 
1 446 

186 

176 

2010 
-10.1 
97.8 

2010 
218.5 
-10.1 

: 

: 

: 
: 
: 
: 
77.2 
14.0 
0.3 
59.3 
50.8 

2011 
126.5 

2011 
4.0 

2011 
-719 
600 
223 
-1 490 
-53 

-31 
819 
-91 
- 

728 

- 

2011 
-4.4 
102.7e 

2011 
232.5 
-4.4 

811 

4 688 

4 257 

2 976 

3 074p 

3 099p 

1 672 

7 399 

8 494 

5 859 

5 717p 

6 192p 

3 922 

14 053 

12 758 

9 316 

8 950p 

9 622p 

of which FDI of EU-27 countries in the reporting economy 

41 

6 003 

(million euro) 

EN 

44 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 (2005=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) 

3) 

4) 
4) 
4) 
5) 

Note

Note

Labour market 
Economic activity rate (20-64): share of population aged 20-64 that 
is economically active (%) 
* Employment rate (20-64): share of population aged 20-64 in 
employment (%) 

Note

Employment rate male (20-64) (%) 
Employment rate female (20-64) (%) 

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 (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 (%) 

: 

36 359 

15 410 

9 724 

10 527 

10 999p 

13.1 
12.0 
6.7 
87.490 

14.0 
15.3 
13.3 
87.600 

18.3 
22.0 
15.0 
127.460 

9.0 
11.5 
8.5 
172.670 

4.6 
5.5 
3.5 
161.890 

4.3 
5.8 
3.8 
161.424 

135.0 
400 

120.2 
1 771 

216.4 
2 533 

232.8 
2 696 

208.0 
4 322 

217.3 
6 606 

2001 
2 536.0 
2 247.0 
-289.0 
102.5 
70.0 
58.9 

2007 
4 881.0 
3 479.0 
-1 403.0 
101.0 
74.6 
60.1 

2008 
4 167.0 
3 650.0 
-517.0 
94.8 
75.9 
54.0 

2009 
2 583.0 
2 908.0 
324.0 
84.3 
77.6 
51.9 

2010 
2959.0 
3478.0 
519.0 
92.4 
77.4 
52.0 

2011 
3477.0 
3839.0 
362.0 
90.7 
78.3 
46.0 

2001 
8.3 

2.7 

78.3 
83.2 

2001 
89.9 

88.6 

93.1 
83.8 
86.1 

7.3 
16.0 
7.2 
69.6 
1.9 
1.6 
2.2 
5.1 

: 

2007 
8.4 

2.0 

79.6 
83.4 

2007 
88.1 

86.7 

91.5 
81.4 
84.7 

5.8 
11.9 
9.1 
73.3 
2.3 
2.2 
2.3 
7.0 

0.2 

2008 
9.0 

2.5 

80.0 
83.3 

2008 
87.3 

85.3 

89.9 
80.4 
82.9 

4.6 
12.4 
9.9 
73.1 
2.9 
3.2 
2.6 
8.2 

0.1 

2009 
9.5 

1.8 

79.8 
83.8 

2009 
86.2 

80.6 

83.2 
77.8 
80.2 

4.8 
12.0 
7.1 
76.1 
7.2 
8.6 
5.7 
15.9 

0.4 

2010 
9.1 

2.2 

79.8 
84.1 

2010 
86.2 

80.3 

83.1 
77.6 
79.8 

5.5 
11.7 
6.3 
76.5 
7.6 
8.3 
6.7 
16.2 

1.3 

2011 
7.9 

0.9 

79.9 
83.6 

2011 
86.1 

80.6 

83.3 
77.9 
79.2 

5.3 
12.3 
6.0 
76.3 
7.0 
7.8 
6.2 
14.4 

1.7 

Note

2001 

2007 

2008 

2009 

2010 

2011 

249 000.0 414 000.0 446 000.0  433 000.0  446 000.0 474 000.0

103.7 

133.9 

128.3 

111.2 

108.7 

111.1 

30.9 

26.3 

27.6 

23.4 

25.9 

23.1 

Note

Note

Note

2001 
: 
875.2 

2007 
: 
1 059.6 

2008 
: 
1 068.3 

2009 
: 
1 095.9 

2010 
: 
1 180.6 

2011 
: 
1 212.1 

2001 
- 
: 

2001 
7.0 

3.0 
: 

2007 
- 
: 

2007 
7.4 

2.7 
84.0 

2008 
- 
: 

2008 
7.6 

2.3 
88.0 

2009 
- 
: 

2009 
7.8 

3.1 
90.0 

2010 
- 
: 

2010 
7.6 

: 
92.0 

2011 
- 
: 

2011 
7.2 

: 
93.0 

EN 

45 

   EN 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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)  

Note

2001 
108.8 
342.6 

2007 
130.6 
: 

2008 
141.6 
: 

2009 
134.2 
: 

2010 
129.7 
: 

2011 
: 
: 

100.0 

100.0 

100.0 

100.0 

100.0 

100.0 

: 

: 

: 

: 

: 

: 

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

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

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

Note

Note

6) 

2001 
2 451 
0 
- 
- 
947 
3 397 
8.0 

2001 
: 

1326e 
70 
5 
474 
c 

4 

- 

: 

2007 
3 946 
0 
- 
- 
: 
4 912 
12.0 

2007 
: 

1332e 
71 
4 
455 
c 

11 

- 

5 

2008 
4 397 
0 
- 
- 
: 
5 235 
16.5 

2008 
: 

1334e 
72 
4 
458 
c 

15 

- 

5 

2009 
4 819 
0 
- 
- 
: 
5 645 
16.8 

2009 
: 

1335e 
73 
4 
470 
c 

17 

- 

5 

2010 
: 
0 
- 
- 
: 
5 588 
17.1 

2010 
: 

1336p 
74 
4 
480 
c 

2011 
: 
0 
- 
- 
: 
5 624 
17.2 

2011 
: 

1336p 
74 
4 
476 
c 

13 

10p 

- 

5 

- 

6 

: = not available 
- = not applicable 
p = provisional 
f = forecast 
e = estimated value 
b = break in series 
c = confidential value 
* = 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) 
3) 
4) 
5) 

2000 - 2009, data according to Nace Rev. 1.1. 
2000 - 2009, fishing (predominantly marine fishing) represents 77% (in 2008) of this share.  
2007 - 2011, lending of DMBs to residents and loans of Central bank to Non-bank institutions.  
Year average. 
2001  -  2010,  average  annual  exchange  rate  and  end  of  period  exchange  rate  as  published  by  the  Central  Bank  of  Iceland 
(midrate). 
Based on preliminary results from the Farm structure survey (FSS). 
Figures from 2011 data collection corrected as they were given in thousand EUR instead of million EUR. 

6) 
7) 

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   EN