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CURRENT SITUATION IN ICELAND
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CURRENT SITUATION IN ICELAND
SUMMARY
ho Icelandicwas dissolved, primarily because the weak, three-party coalition government in of-flce7 could not agree upon measures to combat inflationary economic conditions and restore fiscal stability. Iceland's foreign exchange reserves are critically low; and its fishing industry, which produces more thanercent of thc country's exportablels burdened with excessive costs due primarilyery high wage scale. Itscan meet normal competition in world markets only with the aid of heavysubsidies, which are unbalancing thebudget. The only practicable solution to the problem lies in governmental action to reduce production costs In the fishing Industry and to establish the standard of Irvingevel which the economy of the country can support.
Elections arc scheduledctober, but it Is very unlikely that they willovernment strong enough to take themeasures required. It is practicallythat no party will obtain an absolute majority of parliamentary seats; the most probable outcome Is anotherinority government precariously conducted by one parly. Either suchwill be forced to compromise rather than to adopl firm stands on controversial issues.
One result of the election appears certain: the Communists will lose voles and seats. Their chances of membership in the neware nil. Their influence in Iceland markedly declined after the party wasfrom the governmentnd the decline was accelerated when ln the following year they lost control of the Icelandicof Labor. Thc Communist Party is no
ery important factor in Icelandic politics; it can neither make norovernment. Despite their lack of directinfiuenco, the Communists can still arouse andairly strong segment of public opinion, and create doubts as to the wisdom of government policy on certain issues.
Owing to the lack of effective internalforces in Ireland. Communists have the capability of seizing poweroup d'etat. This capability ls not recently acquired,and there Is no reason to expect that thc Communist Party wouldoupprior assurance of Soviet support. There arc no Immediate prospects that Iceland willecurity force able to counteract the existing coup capabilities ol the Communist minority.
Iceland favors cooperation with and Isby the Western democracies. Its closest attachments are to the Scandinavian states, especially Norway. Though asignstory of the North Atlantic Treaty. Iceland places much emphasis on Its "special position"mall, unarmed nation which "cannot declarecelanders are opposed to theof foreign military bases on their island ln time uf peace, but would probably be willing to receive NAT forces if war or the threat of war made Iceland's Involvement seem imminent.
Tho US-Iceland Airport Agreement,thc US landing rights for military planes at Keflavlk Airport, is subject to renegotiationresent indications are that the US will not be able to renew lhe Agreement In its present form. Icelanders will probably hold out for an arrangement under which airport operations, though subsidized by otherPowers, will be conducted under Icelandic responsibllty and direction
intelligence oreanlxaUona of Ihe Departments of Slate. Army Navy andorce have concurred in this report It Is based on information available lo CIA oreptember IM9.
SECJTET
SEyPRET
CURRENT SITUATION IN ICELAND
Political Situation.
Iceland's Parliament was dissolved by the President onrincipallyol the Inability ol the government torogram of economic readjustment acceptable to thc government parties. The present Cabinet will remain in office until after the new elections, which are scheduled for the three-day period beginningctober.
Since7 the government of Iceland has been carried oneak coalition of the three non-Communist political parties: the Conservatives, representing thc owners ofand large wholesaling enterprises, withcats in the Althingherepresenting agrarian, cooperative, and small retailing interests, witheats; and the Social Democrats, who draw theirlargely from the laboring class, andeats. These throe parties thus commandedut ot theeats in thc Althing, but they originally agreed to cooperate, not because of common views on most political issues, but because cooperation assured fulfillment of their common desire to exclude thefrom participation in the government. The nation's economy wasital political Issue when the coalition was formed, and the government was able to avoid highlylegislation during the early part of its existence.apidly deteriorating economic situation accompanied by Inflation soon brought the need for an effective remedialhowever, whereupon each party In the coalition opposed those deflationary measures which would adversely affect the interests it represented. The intensely personal andnature o( Icelandic politics also hindered effective government Various specificwere dealt with by compromises which failed to remedy the underlying economicew months ago the three parties of the coalition began each Io anticipate gains for itself at an election, and to bid against one another for popular support, under such cir-
ew election soon became
The problems which the new government will face have been modified by Iceland'sto devalue its currency following the course of the pound sterling. Iceland'sdifficulties have not been eliminated by this action and in some aspects may have been aggravated. An inflated wage scale in thc fishing industryrimary factor inproduction costs which exceed the market value of the final product. Government sub-sidles have therefore been granted in order to keep the fishing fleet operating. The standard of living thus maintained appears to be above that which Iceland's economic potential,wholly comprised in the fishing and fish processing Industries, can support.this condition willainful process, and one for which none of the political parties cares to be responsible. If done as an act of considered policy, rather than as an unplanned response to unavoidable circumstances, It will require drastic measurestrongyet the prospecttrongwill emerge from the coming elections is slight.
There is no present Indication that theof the election will change the relative strength of the three non-Communist parties, though all may gain votes at the expense of the Communists. The possibilityingle-party majority governmentxtremely remote. Another three-party coalitiona working ina|ority is possible, but it would require major concessions by the parties for successful cooperation onwo-party coalition (most probably of Conservatives andingle-party minority government may be formed, but such governments would probably nut be capable of the decisive actions which are required.
The Communistegal organization in Iceland, havingembers, ac-
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ten seats In the Althing ln theepresentatives of the party were included ln the Cabinet, but they soon withdrew in protest against the signing of thc US-Iceland Airport Agreement. When thewas formed earlyommunists were excluded, and their position forthwith began to weaken. The Communist Party, as such, is no longer an Important factor inpolitics. It can no longer make ora government; it will lose votes in the coming election, possibly two out of its ten seats, and its chances of participating In thc new government arc nil.
Despite their lack of direct political influence Communists can still arouse andairly substantial segment of public opinion particularly by acting through frontand fellow-travelers. Until recently the Communists managed to appear morethan the Icelanders, and had some success in exploiting nationalism and thcparochial tendency toward isolation from foreign influences. Events abroad,and Communist activities against the Atlantic Pact caused other Icelanders tothe sincerity and loyalty of the localwhose influence has thus declined. It has not vanished, however, and may extend far enough to create doubt In thc public mind as to the wisdom of the governments foreign policy, which is strongly committed towith the West.
Energetic and combined efforts by Social Democrats and Conservatives atf the Icelandic Federation of Labor Unions ousted the Communists from control. This loss further weakened Communist ability to influence the making of public policy. Nevertheless, the parties constituting thchave been restrained from actions likely to arouse labor dissatisfaction by their fear ofevival of CommunistThe Inevitable downwardln living standards, which cannot be much longer postponed, will afford thean opportunity toortion of their former prestige among the laboring classes Nevertheless, in the absenceajor international crisis or an extremefrom present policies by the Icelandic
non-Communist parties, there is slightthat Communist success ln exploiting such an opportunity will be sufficient for them to regain participation in the government or significantly to affect the stabilityew government.
2. Economic Situation.
Before the war Iceland's relatively low standard of living was firmly based onfrom exports. During the war. however, large allied military expenditures andbidding for Iceland's limited labor supply destroyed the long-established Moreover, the Immobilization andof European fleets permitted Iceland to increase the selling price of flsh and fish products, and lo apply part of thc proceeds to periodic increases of wages in thc industry. The standard of living rose to whollyheights. After the war, theof activity by European fleets brought renewed price competition, and7 theGovernment, fearing the politicalof labor dissatisfaction, chose to subsidize the fishing Industry rather than to restore its competitive position by measures which would reduce wages. This initial method of dealing with the problem set afor69 fishing seasons, and monetary wages are above the wartime peak.eturn to economic stability isupon substantially decreased costs, which cannot be achieved without real wage reductions. The possibilities or employing modern equipment to reduce costs havebeen virtually exhausted since postwar expenditures for ships and equipment have almost completely modernized the fishing fleet.
An enforced decline in the war-achieved standard ol living through lack of foreign ex-change was averted Iny the arrival of ERP aid. Such temporary relief did not affect the basic difficulty, and Iceland's scanty dollar holdings are now Insufficient to meet the country's Inflated requirements or to cushioninor economic crisis. Continuation of subsidies to the fishing Industry andercent ot8 Treasuryhas increased thc national debtillion5lUion in
k vjrk t
e t
and placed the nation's finances under severe strain. There is growing difficulty in paying Tor imported consumer goods.demands by labor for further wagethreaten lo augment inflationary
The general economic problem, which is fairly clear-cut and is understood by mosthas nevertheless been confused during thc past years by one factor: the abnormally low seasonal catches of herring, which have not run in their accustomed numbers at the usual times and places. Because of theof the herring runs. Icelanders have comforted themselvesope that next season the herring would again beand drastic economic adjustments could be avoided. Thus some semblance of weight has been given to the arguments of those who opposed drastic wage adjustments.of the currency remains an Issue and Lhe labor parties oppose it on thc grounds that it would lower thc standard of living. These facts have contributed to the Indecision of thc Icelanders as they confront the necessity of remedial measures.
Devaluation continues to be the mostof the proposed remedial measures even though Iceland devalued its currency to conform to the course of the pound sterling. Devaluationultilateral basts does not afford Iceland the benefits it had hoped to achieve by unilateral devaluation, however, and the trade position in the European market remains relatively unchanged. In view of the relative unimportance of the dollar areaarket for Iceland's exports, only minorcan accrue from devaluation with respect to the dollar. Out of devaluation arise other problems also which may become extremely troublesome to the new government The Federation of Labor Unions has beento terminate the current labor agreement so as to be free to negotiate If the cost ofrises sharply. Dagsbrun. Iceland'sand most important labor union, will seek to protect its members against the effeet* of devaluation by demanding compensatory wage increases and its Communist-dominatedwill not hesitate Lotrike to achieve its aim. Dagsbrun members, lo the
lost man, would probably walk out, and if the strike became prolonged lt could completely cripple economic activity.
3. Foreign Artoirs.
Solely because of its strategic location,has been drawn into the current of world affairs, albeit unwillingly and hesitantly.desire only to be left alone, but lt is as clear to them as to others that their island will not be left alone in war, perhaps not even in peace. The experiences of World War II were not agreeable to Icelanders; they strongly disliked the presence of foreign troops,because they feared diluting effects upon their language and culture They have not. however, remained unaware of the "coldnd recently they were called upon toateful decision: whether or not to associate themselves with other westernIn the North Atlantic Pact.
celand signed thc Treaty; its ratification was depositedugust. The debates and discussion preceding the signature showed conclusively that when faced with the necessity of choice, thc basically pro-western Icelanders favored cooperation with thedemocracies. In the Althing, the vote favoring participation In the Pactithpposedbstaining. The issue was one of very few in which the coalitionachieved real solidarity. Nevertheless, it was probably Norway's decision to join which had most effect in shaping Icelandic opinion; without taking courage from the participation of their Scandinavian klnfolk. It wouldhave been impossible for Icelanders totep so contrary to Lheir ingrained
Despite its membership in the NorthPact, Iceland continues to place much emphasis upon its "special position"mall unarmed nation which "cannot declaret will accept no foreign military bases in time of peace, but If war or threat of war were ofature as to make Icelandicappear imminent. It is probable that majority opinion would favor theof such bases by Treaty members
Apart from the obligations of the NorthTreaty, the chief concern of Icelandic foreign affairs with respect to the United
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Ls the Airport Agreement ofnder which the US enjoys landing rights for military planes at Keflavlk Airport Inwith Its occupation duties In Europe. This agreement Ls subject to renegotiationt provides that the US shall operate the technical facilities of the field, and there are proponents in all Icelandic parties forthe agreement to give Icelanders more operating control. Both the Conservatives and the Progressives have promulgatedto that effect, and the Foreign Minister, in discussing the Atlantic Pact, emphasized Iceland's desires in this connection. One of thc arguments advanced by those favoring thc Pact was that It wouldasis forof the Airport Agreement. Presentare that2 the United States will not be able to renew the Agreement in its present form; all Icelandic parties willhave pluced themselves inosition that they cannot avoid categorical opposition to renewal on present terms. Nevertheless, Iceland feels justified in requesting otherto provide financial support for main-talnlng operations at the airport, despite Its own present inability to contributeubstantial portion of the operating costs or adequately trained operatingS-sponsored program to provide technical training for Icelanders may eventually solve thc latter problem.
Iceland's foreign relations are closest and most cordial with the Scandinavian countries. Sinceember of the Unitedinceland has normally adopted the line taken by the Scandinavians on most UN Issues, and has periodicallywith Norway. Denmark, and Sweden,before UN sessions. Among these three nations. Iceland's strongest attachment seems to be for Norway.
Iceland Is one of the very few countriesember of the British Commonwealth and Empire which remains in the sterling area-It recently became the recipient of the first postwar foreign loan raised from private sources In London.
4. Internal Security.
Iceland has no military forces. The Internal security force available to the government
would be Inadequate to cope with ainternal disturbance. In the past, the authorities have successfully used unarmed special deputies when thc control of large crowds was necessary, but such an expedient would not be sufficient in an unanticipated and serious emergency. Of the national total ofolicemen,ocated in Reykjavik constitute the only real lawbody. They are trained In the use of small arms and tear-gas bombs but arearmed only with rubber truncheons. Communist infiltration In the lower echelons of the Police Force,aximum ofercent, has caused the Minister of Justice to store the few available small arms in aknown only to himselfew top-ranking police officers. The Reykjavik police could therefore be totally unarmed in thc eventurprise disturbance. The Fisheries Patrol ofen could serve as an auxiliary force In an emergency, but their lack of appropriate training would render their efforts virtually ineffective.
A Communist decision to seize control of the island could be Implemented with as fewrganized, armed men Although the Communist Party has been capable over aperiod of seizing power by force of arms it is unlikely that the Communists wouldoup without prior assurance ofsupport, without which Ihey could not consolidate or maintain their position exceptelatively short period.
Icelandic officials are aware of theof their security forces, but Althing rejection of proposals to provide additional funds has prevented any significant expansion Icelandic officials are considering the training and arming of Icelanders employed at the Keflavlk Airport, but the plan has not yet progressed. Some officials also favorwhereby lhe US wouldroup of trained US personnel who could be provided with arms In an emergency, preferably inwith US activities at Keflavlk Airfield, but no satisfactory plan has yet been proposed. There are no immediate prospects thatwillecurity force able tothe existing coup capabilities of the Communist minority.
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Original document.
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