While Iceland is the second largest inhabited island in Europe, with only 313,000 inhabitants in 2007, the Icelanders form one of the smallest independent nations in the world. Around two-thirds of the population lives in the capital, Reykjavik, and its suburbs, while the rest is spread around the inhabitable area of the country. Until fairly recently the Icelandic nation was unusually homogeneous, both in cultural and religious terms; in 1981, around 98 percent of the nation was born in Iceland and 96 percent belonged to the Lutheran state church or other Lutheran religious sects. In 2007,...

Iceland demonstrates most of the characteristics of a modern liberal democracy. It has maintained political stability through a democratic process which enjoys universal legitimacy. Rapid economic modernization has also secured its inhabitants one of the highest living standards in the world, and a comprehensive and highly developed health system has ensured them longevity and one of the lowest rates of infant mortality in the world. Icelanders face, however, formidable challenges in maintaining their status as an independent nation. First, the Icelandic economy is fairly fragile, as...