Ólafur was born in Ísafjörður, Iceland. From 1962 to 1970, he studied economics and political science at the University of Manchester; in 1970 he was the first person from Iceland to earn a PhD in political science. He became a lecturer in political science at the University of Iceland in 1970, then a Professor of Political Science at the same university in 1973. He was the University’s first Professor of Political Science.
In 1984, with three other left-wing intellectuals, he took part in a debate with economist Milton Friedman, who was in Iceland to give a lecture on the “tyranny of the status quo” at the University of Iceland.
As part of the left-wing People’s Alliance, Ólafur was a Member of Althing for Reykjavík from 1978 to 1983; during this time he was Chairman of the People’s Alliance parliamentary group from 1980 to 1983. Subsequently, he was Chairman of the People’s Alliance executive committee from 1983 to 1987; additionally, from 1983 to 1985 he was editor of a newspaper, Þjóðviljinn. From 1987 to 1995, he was Leader of the People’s Alliance; during this time, he served as Minister of Finance from 1988 to 1991 and as a Member of Althing for Reykjanes from 1991 to 1996.
Olafur married Guðrún Katrín Þorbergsdóttir in 1974, who gave birth to twin daughters the following year, Guðrún Tinna, a graduate in Business Studies, and Svanhildur Dalla, a graduate both in Political Science and Law. Guðrún Katrín was a popular figure in Iceland, and the country mourned when she passed away after a fight with leukaemia in 1998. Ólafur’s second marriage was to Israeli-born Dorrit Moussaieff, to whom he became engaged in May 2000. The wedding took place on his 60th birthday, 14 May 2003, in a private ceremony held at the presidential residence. They have a dog, Sámur, who is named after the dog of Gunnar of Hlíðarendi, one of the main characters in the Icelandic family saga Njála.
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