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Socio-economic profile

Iceland has signed up to the Agreement on the European Economic Area (EEA), which means that it has embraced the idea of free movement of goods, services, people and capital throughout the EU. This has lead to a business environment that encourages companies to start up, something that has been revived by the recent economic recovery.

From mid 2010-11 the recession saw a 23% drop in businesses starting up but from mid 2011 this had turned around and by mid 2012, 8.8% of businesses were new. The number of companies going bankrupt at this time dropped for the first time since the crisis hit, to around 5%.

Tackling unemployment

Unemployment stood at 7% in 2011. The job market is still coping with the impact of the 2008-2010 economic crises, with young people and the low-skilled feeling the brunt. The government is focusing efforts on reducing unemployment among the long-term jobless and has launched an initiative to bring 1 500 back into work.

Although the country is dealing with the effects of the economic crisis on its job market, only 10.2% of the population was at risk of poverty in 2009, one of the lowest rates in the EU.  In 2007, social protection accounts for less of the country’s GDP (21.3%) than average in comparison with other EU countries (25.2%).

Targeting support in Iceland

To help countries on their way to joining the EU, a fund called the Instrument for Pre-accession Assistance, or IPA, has been set up by the European Union. This fund helps countries align themselves with the standards and policies of the EU. Benefitting from IPA funds since 2011, Iceland is in line with much EU legislation and its level of social and economic development make it exceptional among other countries waiting to join the EU. However, the country is facing long term challenges such as an ageing population or migration and may have to address these issues in a concerted way with other EU countries.

Social measures

Actions taken by the government, such as targeted debt relief, have cushioned the very poorest from the downturn of the economic crisis. While the percentage of households at risk from poverty is substantially lover than the EU average, the social situation of single-parent families, old people on low incomes and people on welfare needs to be monitored.

Private debt levels are high and both households and businesses are dealing with severe financial restraint. Most households report that they make ends meet with ‘difficulty’ or ‘great difficulty’. Although social protection costs are lower than the EU average they are the highest level ever seen in Iceland. Unemployment benefit has increased more than sixfold since 2007.

The number of young people neither in education nor work has risen sharply so efforts are being made to offer retraining and education to upgrade skills. The government is also offering free secondary education for everyone under 25.

IPA – support where it is needed

The Instrument for Pre-Accession Assistance (IPA) supports the candidate and potential candidate countries to develop in a way that tackles social challenges and benefits the entire society.  It is based on the strong sense of solidarity that exists between the EU and the countries at its borders - countries with which the EU shares enduring commercial, historical and cultural ties. IPA is directed towards countries that are on the pathway towards joining the EU.

Between 2011 and 2013 a budget of €30 million is set aside for Iceland under IPA.  This will be assigned to:

  • Building up the capacity of the country’s institutions in preparation for putting EU laws and regulations into place; and
  • Getting the country ready to manage and use the EU’s Structural and other funds.

Financial Plan

For the period 2011 to 2013, IPA funding to Iceland came to €30 million. The amounts were distributed over that time as follows:




In EUR million





I-Transition Assistance and Institution Building