I've lived in Germany for a couple years, and have noticed that when native English speakers come here, the Germans all speak to them in English, and when the English speakers go away, the Germans immediately revert back to their native tongue. They can usually do the same for French speakers and sometimes Spanish or Italian too. What this means is that Europeans speak several languages, and English speakers speak one, and therefore English speakers only encounter English.
I suspect the same is true in Iceland, but I have never been there so I can't say for sure.