Iceland established its own flag, declared its neutrality and asked Denmark to represent on its behalf foreign affairs and defense interests, while maintaining full control of them.
[2] It was understood that the Danish king would not use the veto powers afforded to him by the Act of Union, and the Icelanders considered it unnecessary to sever all ties with Denmark, having gained their independence and full control of all state affairs.
Historian Gunnar Karlsson argues that Denmark was willing to grant Iceland sovereignty in 1918 for two reasons.
First, the self-determination of peoples had grown in importance with the end of World War I.
[3] On 17 June 1944, during the occupation of Denmark by Nazi Germany, while the armed forces of the United States, the United Kingdom and Canada were still in Iceland, a referendum was held on severing ties with the monarchy and the country voted overwhelmingly to become a republic.