World War II brought prosperity to Iceland in a time of economic stagnancy. The arrival of British and U.S. forces in the early 1940s brought employment to the country’s 120,000 residents. In 1949, Iceland became a charter member of NATO; two years later the government allowed the United States to take responsibility for defense of the country. If you take a tour of Iceland today you can still find U.S. military forces stationed on a base in Keflavik in southwestern Iceland, though they are currently reducing their presence there.
Fishing has remained a significant portion of Iceland’s economy, but this dependence has also caused the country some trouble. In 1950, Iceland expanded its fishing zone from three nautical miles to 200, sparking protests and military action from the United Kingdom and West Germany. The so-called “Cod Wars” lasted until 1976, when Britain finally recognized the 200-mile limit. In the past 30 years, however, fish stocks in Icelandic waters have drastically depleted, forcing Iceland to impose restrictions on local fishing limits and venture even farther across the ocean to seek adequate fishing areas. Such venturing has not been appreciated by Norway and Russia, and disputes have arisen over Icelanders fishing in the Barents Sea.
More recently, Iceland has sought to grow its economy by investing in such industry as aluminum smelting, and it is also deregulating and privatizing the financial sector. Iceland entered the European Free Trade Association (EFTA) in 1970, and can therefore participate in the European market without having to be a member of the European Union. Recent domestic disagreements have arisen over whether or not Iceland should become part of the EU. If you take an Iceland tour today, the country remains outside the EU, but the Social Democratic Party is pushing for EU membership.