Foreign Relations of the United States, 1950, Western Europe, Volume III

611.40B/5–1550

Policy Statement Prepared in the Department of State¹

secret

[Washington,] May 15, 1950.

Iceland

a. objectives

The objectives of US policy toward Iceland are the fulfillment of our strategic requirements in the island, the further development of close and friendly relations between Iceland and the United States, and the preservation of Iceland as a free and democratic nation.

b. policies

Our policies toward Iceland are conditioned not only by our general desire to sustain and maintain friendly relations with democratic governments everywhere but more particularly by the strategic location of the island. Its position along the sea lanes between the US and western Europe and the great-circle air routes between North America and eastern Europe makes it imperative that it be available as a base for operations by the US and the North Atlantic Treaty organization in case of war and, conversely, that it not fall into the hands of a hostile power.

Prior to 1939 Iceland was of little concern to the US because of the negligible commercial exchange between the two countries, the European orientation of Iceland’s economy and culture, and the fact that trans-Atlantic air transportation was not sufficiently developed to require the use of Iceland as an intermediate landing point. However, the recent war made it necessary for us to reappraise our attitude toward Iceland in the light of its importance to defense of the Western Hemisphere. Recognition of that importance was manifested in the Defense Agreement of July 1, 1941,² providing that US forces would take over the defense of Iceland from the British troops who had undertaken it the year before, and according to which we promised, and gave, scrupulous respect for Icelandic sovereignty and “compensation for all damage occasioned to the inhabitants” by our military activities.

Although this agreement was not automatically terminated by the end of hostilities in Europe, since it provided that it was to remain in effect for the duration of the “present war”, the Icelanders viewed it as a temporary, wartime arrangement. In October 1945, we therefore proposed a new agreement designed to satisfy our continuing strategic interests, but the Icelandic Government refused to negotiate for the grant of long-term base facilities. New proposals, modified in accordance with Icelandic views, culminated in the Agreement of October 7, 1946, which terminated the Defense Agreement of 1941 and provided for the interim use of Keflavik Airport.³ Under this agreement we withdrew our troops from Iceland within 180 days and agreed that the airport built by the US at Keflavik was to become the property of the Icelandic Government. The US received the right to operate the airport, either directly or by delegation, and to use it in connection with the support of our control agencies in Germany. This agreement remains in effect for the period of our maintenance of control agencies in Germany, subject to review at the request of either party at any time after 5 years; if no agreement is reached within six months, it may then be denounced to terminate one year later.

On the basis of this agreement we have been operating the airfield through a civilian contractor and have been carrying out a $20 million construction program designed to make Keflavik a modern international civil airport. In addition, the US expends approximately $5 million per year to operate the airport.

During the negotiations leading up to the signing of the Atlantic Pact the Government of Iceland indicated its interest in becoming a signatory but in so doing emphasized that it would have to occupy a special position.⁴ Specifically, the Icelanders pointed out that they had no armed forces of their own and no intention of establishing any. Moreover, they insisted that under no circumstances would they allow the stationing of foreign troops or the establishment of bases in Iceland in peacetime. Note was taken of the Icelandic statements and we tacitly acquiesced in their position. At the same time, however, the Icelanders manifested great concern over US capacity and intention to defend the island in case of attack. They evidently decided to sign the Pact, which ran contrary to their tradition of and preference for neutrality, because they recognized that the island’s position makes it of inevitable interest to contending forces in any future world war, and because they believed that membership in the NATO offered the best available assurance of security.

This inconsistency between Iceland’s unwillingness to undertake any measures in its own defense on the one hand, and its desire for protection on the other, is manifested in the attitude of Icelanders toward the Keflavik airport. Recognition of its strategic importance has led the government to acquiesce in its existence—and to use it as a bargaining point in obtaining such financial and other assistance as they have desired. Nevertheless, they have not only remained opposed to any military measures designed to protect Keflavik against sudden attack but have shown a continuing urge to assume full control over the airport even though they are neither technically nor financially able to operate it.

US policy is therefore designed to minimize or remove any possible cause for complaint about the manner of US operation and to respect the nationalistic susceptibilities of the Icelanders. To this end we negotiated with them an exchange of notes in May 1949 implementing the 1946 Agreement.⁵ This exchange re-states Icelandic sovereignty over the airport and assures them that they need bear no part of the cost of its operation. It promises that the permanent structures which we have erected since the 1946 Agreement shall become the property of the Icelandic Government upon the termination of that agreement. It provides for the imposition of certain Icelandic sales taxes in the airport area and establishes procedures designed to combat black market operations. Icelanders are promised employment whenever positions become vacant and qualified Icelanders are available. It also sets up a schedule of training of Icelandic nationals in technical phases of airport operation.

Although subject to review in the light of general developments, it remains our policy to attempt to retain operating control of the airport. Consequently, we are fulfilling our commitments with regard to training and employment of Icelanders, but we are not urging the government to increase the tempo of the training program or to make more Icelanders available for employment. Concomitantly, it is our policy should appropriate opportunity arise to seek to persuade the Icelanders to take some steps toward the establishment of a limited defense force of their own and also to accept such more positive measures for the defense of their own territory, particularly the Keflavik airport area, as the NATO may find necessary.

In the further development of friendly relations between Iceland and the US the situation at Keflavik has been and remains the principal obstacle. The mere fact that we are there makes us vulnerable to attack by Communist and chauvinistic elements. The steps mentioned above to remove in so far as possible Icelandic criticism or complaint about our operation of the airport have been designed to strengthen those elements in the people and government which have been and remain friendly to us. We are, moreover, pursuing various policies of assistance. Thus, we have not only extended economic aid through the ECA, but in the allocation of such aid we have taken special account of political repercussions threatening the government as a result of the economic situation. While it has not been possible, because of the interests of the US fisheries, to expand appreciably Icelandic exports to the US, we have rendered such assistance as we could appropriately give in finding markets elsewhere for Icelandic products. We are also, despite some degree of Icelandic apathy, attempting to foster cultural relations through the USIE program.

Democratic institutions in Iceland have a long history of which the people are intensely proud. Nevertheless, the Communist Party, although its growth has been checked, has suffered no appreciable loss of electoral support in post-war years. In the last election the Communist Party retained the relatively high proportion of 20% of the popular vote and of the Althing seats. The explanation of this paradox lies in part in the apparent tendency of other Icelanders, and probably of many of the Communist voters themselves, to consider the Communists as radical Icelanders first and Communists second. It also lies in part in the skill with which the party has appealed to Icelandic nationalism (while camouflaging its own foreign connections), particularly in its attacks on the US. However, the other parties, and especially the Social Democrats—whose lack of effective leadership has also been a contributing factor to Communist strength—are opposed in general to cooperation with the Communists. It is our policy discreetly to encourage this opposition and to point out whenever possible the true nature of the Communist Party.

Aside from the Keflavik Airport, principal grounds for Communist agitation are to be found in the economic difficulties which have faced Iceland in recent years. The country has suffered from inflation having its origin in the relatively tremendous increase in income from British and US troops during the war and from high priced export markets for fish. This resulted in an increase in the standard of living to a point of unprecedented height, evidently beyond the capacity of the resources of the island to maintain. The economy depends to a unique degree on imports and exports, and the exports are limited almost entirely to fish and fish products. In the face of increasing competition and declining prices in post-war markets Icelandic governments have been faced with the extremely difficult problem of readjustment which has contributed to a good deal of political instability and made them more susceptible to Communist criticism. It has been and remains our policy to encourage the Icelanders to be realistic in their appraisal of the situation and to take the politically distasteful but economically necessary steps to meet it. The establishment in March 1950 of a coalition Progressive-Conservative government which controls the majority of the Althing and which has agreed upon such essential economic measures as a 42% devaluation of the kronor (in addition to the 30% cut last fall), reduction or elimination of export subsidies, and readjustment of cost-of-living and wage indices, gives some promise of a favorable and stabilizing solution.

c. relations with other states

Because of its small population of approximately 150,000 persons Iceland’s relations with other states are limited both in the scope of Iceland’s interests and in the degree to which it is able to participate in international organizations. Thus, although Iceland is a member of the United Nations, the North Atlantic Treaty Organization, the OEEC, and the Council of Europe, it is not able to take a very active role in those groups. It is our policy to encourage maximum feasible participation.

Iceland’s economic relations with other states are both limited and handicapped not only by the size of the country but also by the one-crop nature of its economy. Not only is Iceland weak in bargaining power because it has only one major export but it is also critically dependent on imports for most items of consumption. It is, therefore, particularly important for Iceland that there be developed a multilateral system of international trade which would enable Iceland to export to its natural markets while securing imports from other sources at prevailing competitive prices.

Since the Icelandic population is mainly Scandinavian in origin and since Iceland for centuries was governed by the Norwegian and Danish monarchies, its closest cultural and political ties have been with Scandinavia. The dissolution of the union with Denmark and the formal establishment of the Icelandic Republic on June 17, 1944 were, however, the culmination of a deep and long-standing national independence movement in Iceland. Although the establishment of the republic was a cause of some momentary irritation in Denmark and also in some circles in Sweden, friendly relations have since been firmly established with all the Scandinavian states and Iceland has participated in many of the consultations among the Scandinavian governments. However, its political connections with Scandinavia are now of less significance than its relations with the UK, the US, and the NATO. Moreover, since the principal item of Icelandic export is also an export commodity for Denmark and Norway there is little basis for trade with the Scandinavian countries.

For centuries Iceland has tacitly fallen within the sphere of British naval protection and has benefited accordingly. During World War II primary responsibility for military security shifted from England to the US, and now this responsibility lies in the NATO. The UK continues, however, to be one of Iceland’s most important trade connections both as a market and as a source of supply. Opportunities for further expanding trade between the two countries are limited because England has its own extensive fishing industry, but it has been our policy to encourage the maximum possible amount of trade between these two countries, particularly in view of the very limited market for Icelandic fish in the US, and the difficulties of finding markets elsewhere.

Icelandic relations with the Soviet Union date almost entirely from the end of World War II. During 1946 and 1947 the USSR, apparently for political reasons, negotiated trade agreements highly favorable to Iceland, but efforts of the Icelandic Government to renew these agreements have been unavailing. This failure has been made the object of Communist attacks accusing the government of ignoring the more reliable markets of eastern Europe, although in fact there has been an appreciable amount of trade with both Poland and Czechoslovakia. In the summer of 1948 the USSR instead of agreeing to buy Icelandic fish sent a fishing fleet apparently under the command of Russian naval officers to the Icelandic fishing grounds. The ships did engage in a certain amount of fishing, but it was a common assumption among the Icelanders that their chief objective was “espionage”. When the vessels reappeared in the autumn of 1949 there was considerable unfavorable publicity when several of the ships were found guilty of fishing within territorial waters and were heavily fined by the Icelandic courts. While the Soviet Union as a result of these fishing expeditions has not advanced its own interests in Iceland, it has retained through the Communist Party an active instrument for attacking the US. The party and its newspaper carry on constant propaganda against the ECA, the Keflavik Airport Agreement, and the alleged imperialistic designs of the US.

Iceland has also sought to re-establish contact with traditional markets in southern Europe and during the past year trade with two of these, Italy and Portugal, improved somewhat. Because Spain has also been traditionally a very important market for salted fish the Icelandic Government in 1949 alone among the Scandinavian countries exchanged with Spain a chief of mission with the rank of Minister, on grounds that the step was justified by Iceland’s urgent commercial requirements.

Since the war Iceland has also been carrying on relatively important trade with Germany, but because of the revival of the German fishing fleet the markets there are contracting and their future appears very uncertain. We have recently attempted to assist Iceland in its efforts to obtain a suitable trade agreement, operating within the limits of our policy of leaving German economic affairs largely in German hands. An agreement has been reached, but it provides for German purchases which are appreciably smaller than they were in recent years and than the Icelanders desired.

d. policy evaluation

During the past year US policies toward Iceland have resulted in some success in the achievement of our objectives. The period of political instability which ensued upon the dissolution of the coalition government and the parliamentary elections of October 1949 appears to have been terminated, at least for the time being, by the establishment of a two-party government which has a majority holding 36 of the 52 Althing seats. Although serious economic difficulties with potentially explosive political implications continue to face Iceland, the program which the new government has adopted should contribute to a solution of some of the basic problems and offers some hope for reduction in Icelandic dependence upon extraordinary economic assistance. At the same time, the Communist Party, though not seriously weakened, has been checked in its growth.

Our concessions to Icelandic wishes regarding the operation of Keflavik airport and our efforts to assist them in various ways have not been without favorable effect. Moreover, intemperate Communist criticism of the US in connection with the ERP, the NAT and the Keflavik Airport has been in some measure self-defeating; it inhibits the development of a purely nationalistic anti-Americanism among the more “respectable” elements of the population, because it almost automatically tars with the Communist brush anyone echoing their attacks. Nevertheless, although Iceland has officially identified itself more closely with the democratic world by adhering to the NAT and becoming a member of the Council of Europe, Icelandic parochialism and nationalism continue to be a significant factor in Icelandic behavior and remain as an obstacle to closer relations between Iceland and the US.

This applies to our relations in general but it is particularly relevant to our position at Keflavik. There remains strong popular distaste for the presence of even civilian representatives of a foreign government at the airport. Consequently, all political parties have now gone on record as favoring Icelandic assumption of operational control at least as soon as the current agreement expires. This does not necessarily mean that we are faced with the negation of our strategic interests in the island, but it does mean that their fulfillment will probably have to be achieved through the NATO, rather than on the basis of an extension of the present Keflavik Agreement.

1. Policy statements on various countries were prepared periodically in the Department of State and updated every year or two. The previous study on Iceland was dated August 23, 1949, and is printed in Foreign Relations, 1949, vol. iv, pp. 693–702.
2. For the text of the Defense Agreement of July 1, 1941, see Department of State Executive Agreement Series No. 232; for documentation relating to the negotiations for the agreement, see Foreign Relations, 1941. vol. ii, pp. 776ff.
3. For the text of the agreement regarding the termination of the Defense Agreement of July 1, 1941, effected by an exchange of notes on October 7, 1946, see Department of State Treaties and Other International Acts Series (TIAS) No. 1566.
4. For documentation on Iceland’s participation in the negotiations leading up to the signing of the North Atlantic Pact, see Foreign Relations, 1948, vol. iii, pp. 720 ff
5. Regarding this exchange of notes, see Foreign Relations, 1949, vol. iv, pp. 693 ff.