Independent church estate and country (7)
I believe the answer is:
'country' is the definition.
(I know that Iceland is a European country)
'independent church estate' is the wordplay.
'independent' becomes 'i'.
'church' becomes 'CE' (Church of England).
'estate' becomes 'land' (synonyms).
'and' acts as a link.
(Other definitions for iceland that I've seen before include "N. Atlantic nation" , "North Atlantic country" , "North Atlantic island republic" , "The capital city is Reykjavik" , "Reykjavik's country" .)