The Big Question: Is Iceland the happiest place on the planet, and what can we learn from it?

Why are we asking this now?

Because Iceland has just been named the world's most peaceful place by the Economist Intelligence Unit, which has compiled an index based on 24 indicators of external and internal measures of peace – including the fact that it has no army and has the lowest ratio of citizens in jail of all the 140 countries surveyed.

Peaceful? What about the Cod Wars?

It's true that Iceland came into conflict with the rest of the world – well, with the UK at any rate – on a number of occasions in the second half of the 20th century when it unilaterally extended its exclusive fishing rights within its territorial waters from three to four nautical miles in the 1950s, and then to 12 miles in 1958, 50 miles in 1972 and 200 miles in 1976. But the "war" was pretty much limited to cutting the nets of British trawlers, which doesn't register big on an index that has manufacturing nuclear bombs and invading Iraq at the top end. Iceland is a member of Nato but it has no troops. And though it supports the US and UK in Iraq and Afghanistan in practical terms that involved only the deployment of the Icelandic Coast Guard's mine disposal unit.

Iceland's men may be descended from the Vikings, but genetic studies show that most of its original female settlers were Celts from the support families of Irish monks who were the first settlers in the 8th century. Ever since women have played a key role in Iceland, which in 1980 was the first country anywhere to elect a female head of state (she was also a single mum). The strong female influence is said to have minimised belligerency.

But peaceful isn't the same as happy, is it?

True, but Iceland does well in other international comparisons, too. According to the UN's Human Development Index it is the world's most developed country, and one of the most egalitarian. It has excellent education and health care. Life expectancy for men (80.55 years) is the highest in the world. They do well on countless indicators from mobile phone use (they have more than one each) to car use (of which everyone over 17 has, on average, one each too) though that is not very good for their carbon footprint, which is higher than that in France or Spain. But it has more than just one of the highest standards of living in the world. Iceland is the fourth happiest country in the world according to a University of Leicester psychological survey, which found that the key determinants of happiness were health, wealth and education, in that order.

What about the terrible weather?

Despite its name the place is not brutally cold. Iceland is warmed by the Gulf Stream which gives it a temperate climate for its latitude. Winters are mild, if windy, and summers are cool and damp. Temperatures in Reykjavík average between 13C in summer and minus 3C in winter. The coasts remain free of ice through the winter and the air is crystal-pure.

What about all that volcanic activity?

Iceland is one of the most geologically active areas on Earth. But there has been nothing major since 1783, when the Laki volcano erupted causing a famine that wiped out a quarter of the population. Today volcanic activity merely delivers hot water to all Icelandic households courtesy of pipes dug deep into the earth's icy crust where, one kilometre down, the water is 200C hot.

Is there anything to eat apart from fish?

Until the 20th century, the Icelandic people relied on fish and what little they could grow in what amounted to the biggest desert in Europe, dominated by volcanic rock and with more land covered by glaciers than in all of continental Europe. (It looks like the moon, which is why Neil Armstrong and his fellow astronauts went there to train.) Less than a quarter of the island is vegetated and less than 1 per cent is arable land. Produce consists mainly of potatoes, turnips, mutton and dairy products with some green vegetables now grown in greenhouses.

Fish still provides 70 per cent of export earnings. But the industry now employs only 6 per cent of the work force. The growth of software, biotechnology, financial services, tourism and various other industries has allowed the import of a wide variety of goods, including foodstuffs. But you still get traditional dishes including singed sheep heads and a delicacy of cured ram called scrota. (Don't ask.)

What is there to do there?

You can read 13th-century Viking sagas, or watch their modern equivalent LazyTown – the popular children's television series, which shows in 98 countries worldwide. It is made in Iceland in the little town of Garðabær.

Then there is Björk, The Sugarcubes and Sigur Rós. Or there is sport – Icelandic women are disproportionately good at football, with their team placed 18th in world rankings. But most people buy books. Icelanders buy more than anyone else in the world per head. The island even has 100 professional artists, which is not bad considering that the entire Icelandic population is just 316,000 – about the same as the city of Coventry.

Don't they pay high taxes?

No. They have an exceptionally generous, Nordic-style welfare system. But many of its much-travelled people have been educated or lived in the United States and have returned with an American-style entrepreneurial spirit. As a result personal and corporate tax rates are exceptionally low, but so is benefit uptake.

Outsiders have often wondered how the Icelandic economy really works. One called it "bumblebee economics" because it is hard to figure out how it flies. It may be in for an unpleasant correction with the global credit crunch. "It's a highly leveraged economy," said one analyst. "The fundamentals are questionable. It also has high inflation." Icelandic bankers, having learned their trade in the US, may well have over-extended themselves in the sub-prime fiasco. Iceland's credit rating has just been lowered to AA1 from AAA by Moody's and it has taken an emergency loan from the central banks of Denmark, Sweden and Norway to support the krona, which has fallen 20 per cent against the dollar in six months.

Aren't they beastly to the whales?

Nobody's perfect. It abandoned traditional whaling in 1989 in line with an international moratorium. But it later resumed scientific whaling, allegedly to investigate the impact of whales on fish stocks – everybody had something to hide except them and their minke. Two years ago, it announced a return to commercial hunts. Perhaps it's what keeps them so bloomin' happy.

Should we all move to Iceland?

Yes...

* Its people are peaceful, happy and have one of the highest standards of living in the world

* It's not so cold as you think. The average temperature in Reykjavík in January is only minus 3C

* They have an exceptionally generous, Nordic-style welfare system – but hardly any benefit scroungers

No...

* There's not enough room. The total population is only 300,000 – the size of the city of Coventry

* It is the biggest desert in Europe – but no one ever thinks that because it is so cold and its sand is black

* There must be more to cultural life than 13th-century Viking sagas and Björk

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