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### Viewing cable 07REYKJAVIK158, ICELAND: HAARDE REMAINS PM IN NEW COALITION, SOCIAL

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07REYKJAVIK158 | 2007-05-23 17:05 | 2011-01-13 05:05 | CONFIDENTIAL | Embassy Reykjavik

`

    VZCZCXRO4394
    OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
    DE RUEHRK #0158/01 1431731
    ZNY CCCCC ZZH
    O 231731Z MAY 07
    FM AMEMBASSY REYKJAVIK
    TO RUEHC/SECSTATE WASHDC IMMEDIATE 3316
    INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
    RUEKJCS/SECDEF WASHDC

` `

    C O N F I D E N T I A L SECTION 01 OF 03 REYKJAVIK 000158

    SIPDIS

    SIPDIS

    DEPT FOR P (BAME), EUR/NB, INR/B
    DEFENSE FOR OUSD/P (HURSCH)

    E.O. 12958: DECL: 05/22/2017
    TAGS: PGOV PREL ECON PINR IC
    SUBJECT: ICELAND: HAARDE REMAINS PM IN NEW COALITION, SOCIAL
    DEMOCRATS GET MFA AND KEY ECON MINISTRIES

    REF: REYKJAVIK 142 AND PREVIOUS

    Classified By: Amb. Carol van Voorst for reasons 1.4 (b) and (d).

    ¶1.  (C) Summary:  Iceland's new government coalition of the
    Independence Party (IP) and the Social Democratic Alliance (SDA)
    announced their ministers and policy statement on May 22-23.  Geir
    Haarde will stay on as Prime Minister, while SDA leader Ingibjorg
    Solrun Gisladottir will become Iceland's second female Foreign
    Minister.  The center-right IP retains control of the Ministry of
    Justice (under current minister Bjorn Bjarnason) and made few changes
    to its cabinet lineup.  In addition to Foreign Affairs, most of the
    key economic and welfare ministries went to the center-left SDA.  The
    coalition's policy statement focused almost exclusively on domestic
    social welfare issues, with a sole paragraph on foreign policy
    containing a deliberately ambiguous sentence "lamenting the war in
    Iraq."  Post believes that on key U.S. policy concerns PM Haarde will
    work to keep bilateral relations on a smooth course, while
    FM-designate Gisladottir will work to quietly nudge Iceland ever
    closer to EU membership.  SDA control of the economic ministries may
    have implications for continued investment in power-intensive
    industries.  Down the line, Gisladottir's clear ambitions for the PM
    slot may trigger a coalition implosion partway through its 4-year
    term, with Gisladottir hoping that her party comes out of the rubble
    to lead a new center-left government.  End comment.

    After 12 years, a new coalition
    -------------------------------
    ¶2.  (U) After five days of formal negotiations, Independence Party
    (IP) Chairman Geir Haarde and Social Democratic Alliance (SDA) Chair
    Ingibjorg Solrun Gisladottir each received approval from their party
    governing boards for a new coalition agreement. They presented their
    ministerial lineups on the evening of May 22.  Each party received
    six ministerships, with the IP retaining Haarde as Prime Minister.
    There was little change to the IP slate of ministers apart from the
    consolidation of the Ministries of Fisheries and Agriculture, and the
    addition of the Ministry of Health (which the Progressive Party ran
    under the previous coalition).  For the SDA, Gisladottir took the FM
    slot after some speculation that she would opt instead for a greater
    role in domestic policy, perhaps through the melding of one or more
    current ministries.  The resulting cabinet is as follows:

    Prime Minister: Geir Haarde (IP -- incumbent)
    Foreign Minister: Ingibjorg Solrun Gisladottir (SDA)

    Minister of Justice: Bjorn Bjarnason (IP -- incumbent)
    Minister of Fisheries and Agriculture: Einar Gudfinsson (IP --
    incumbent Minister of Fisheries, gains Ag portfolio)
    Minister of Education: Thorgerdur Katrin Gunnarsdottir (IP --
    incumbent)
    Minister of Finance: Arni Matthiessen (IP -- incumbent)
    Minister of Heath: Gudlaugur Thor Thordarson (IP)

    Minister of Industry: Ossur Skarphedinsson (SDA)
    Minister of Commerce: Bjorgvin Sigurdsson (SDA) (Note: Previously
    there was a single Ministry of Industry and Commerce)
    Minister of Social Welfare: Johanna Sigurdardottir (SDA)
    Minister of Environment: Thorunn Sveinbjarnadottir (SDA)
    Minister of Transport: Kristjan Moller (SDA)

    ¶3.  (SBU) The IP-SDA talks began on May 17 after the announcement
    that coalition talks between the IP and the Progressive Party (PP),
    partners of 12 years, had collapsed.  The fallout for the
    Progressives has been considerable, as PP Chair Sigurdsson has since
    maintained that he was led to believe that Haarde was sincerely
    interested in continuing the coalition despite the shrinking of the
    IP-PP majority to a single seat(reftel).  Sigurdsson voiced his
    disappointment and sense of betrayal when IP-SDA talks began within
    hours of the IP-PP announcement on the 17th, and his dismay only grew
    with reports that Haarde and Gisladottir had been in informal contact
    as early as May 16.  Haarde's response has been to note that
    "everyone knows how the process works" after elections in a
    parliamentary system.  Sigurdsson, who failed to be elected to
    parliament on May 12, announced his resignation as Progressive Party
    Chair immediately after the coalition agreement was presented to the
    public on May 23.

    ¶4.  (U) Procedurally, the new government formally takes office on May
    24 at a meeting of the State Council (composed of the President,
    Prime Minister, and Cabinet).  The old State Council will convene,
    officially retire, and the new Council will then convene.
    Afterwards, there will be a series of official ceremonies at the
    ministry buildings in Reykjavik as outgoing ministers present the
    symbolic keys to their offices to their successors.   Meanwhile, the
    Althingi will convene during the week of May 28 to formally elect the
    Speaker of the Althingi (outgoing Minister of Transport Sturla
    Bodvarsson -- IP) and designate committee chairs and members.

    REYKJAVIK 00000158  002 OF 003

    New Policy Statement Focused on Welfare Issues
    --------------------------------------------- -

    ¶5.  (U) The coalition agreement's statement of policy devotes
    extensive attention to social welfare and economic matters, with an
    obvious effort made to split the difference between each party's
    campaign promises.  The IP managed to preserve the current emphasis
    on a business- and investment-friendly regulatory environment,
    maintaining and even reducing Iceland's current low corporate taxes
    and including guarantees that the private sector will continue to
    take the lead in Iceland's economy.  (Comment:  A move apparently
    intended to quash fears of a return to Iceland's heavily socialist
    economy of the 1970s and -80s.  End comment.)  At the same time, the
    SDA pushed through its objectives of increased pension and state
    insurance expenditures for the elderly and disabled, as well as
    pledges of improved health care and services for children.  SDA Chair
    Gisladottir has also highlighted the agreement's pledge to reduce or
    eliminate gender-based wage disparities (a fitting effort for one of
    the founders of Iceland's "Women's List" political party in the
    1980s).  The statement does not, however, clarify what moves will
    result from the SDA's control of the Ministries of Industry,
    Commerce, and Environment, which could have major implications for
    continued investment in the aluminum sector and other
    energy-intensive industries.  Rather, the agreement's language
    focuses on "finding a balance" between economic development and the
    use and protection of natural resources, without laying out concrete
    actions.

    ...but placates both parties on Iraq
    ------------------------------------
    ¶6.  (SBU) On foreign policy, the agreement reflects an obvious
    attempt to give the SDA some cover regarding its election promise to
    remove Iceland from the list of the Iraq "Coalition of the Willing",
    while avoiding alienating the IP (and particularly those close to
    David Oddsson, who was PM at the time of the invasion).  The
    Icelandic wording chosen can be translated as the GOI "lamenting"
    either "the war in Iraq" or "the conduct of the war in Iraq," leaving
    ambiguous as to whether the statement refers to the current situation
    or the means by which the current situation came about.  In comments
    to the press, the PM and FM have each presented their own view on
    what the statement means.  For his part, PM Haarde said, "we know the
    history and the position of the parties [in 2003] but of course we
    lament the situation there now," adding that the GOI will not let the
    events of four years ago affect its continued cooperation and efforts
    in Iraq.  (Note: Iceland deploys a Public Information Officer to NATO
    Training Mission-Iraq.  End Note.)  On the other hand, FM-designate
    Gisladottir claims that it "is clear that the government laments the
    war and its conduct" and that subsequent GOI translations of the
    statement will make the intent of the government clear.  More
    constructively, the document does indicate that Iceland intends to
    continue or strengthen its humanitarian and reconstruction activities
    in Iraq and the Middle East.

    ¶7.  (SBU) On other foreign policy issues, the new government pledges
    to take the lead on international environmental issues (particularly
    ocean pollution and climate change) and follow a "decisive security
    and defense policy."  A separate section on European Affairs notes
    that the GOI will establish a cross-party working group in the
    Althingi to study issues related to Iceland's membership in the
    European Economic Area and the "development of issues in Europe"
    (read: the strengthening of EU institutions) and make recommendations
    accordingly.  (Comment:  The SDA is the only Icelandic party to be
    openly pro-EU membership; this appears to be a compromise to allow
    the IP to kick this particular can further down the road while
    letting the SDA claim they are making progress on the issue.)

    Comment
    -------

    ¶8.  (C) Post concurs with FM-designate Gisladottir's assessment to
    the press that the new coalition represents a significant
    reconciliation of different viewpoints and political philosophies on
    the right and left.  We add the caveat, however, that this will only
    be true if the whole grand enterprise stays intact for a full
    four-year term.  PM Haarde continues to enjoy phenomenal popularity
    ratings hovering around 60 percent in most polls, while Gisladottir
    has consistently ranked as the "least trusted" Icelandic politician
    over the last year.  Gisladottir's ambitions to be Iceland's first
    female prime minister are clear, and press and political observers
    are already speculating that she will attempt to force a
    confrontation with the IP in a few years.  In such a scenario,
    Gisladottir would hope to recruit the Progressives and the Left-Green
    Movement into a center-left coalition in which she would be prime
    minister.

    ¶9.  (C) In the short term, we expect that Gisladottir will attempt to
    use the FM post to shore up her credibility and public standing,
    earning voters' trust that she can be relied upon as the nation's

    REYKJAVIK 00000158  003 OF 003

    leader.  She will work to nudge Iceland closer to European
    institutions-always an objective--but for the time being we do not
    expect her to provoke the IP on this issue. Although she will
    probably follow the Icelandic pattern by making her first foreign
    trip to the Nordics, Gisladottir will likely want a Washington trip
    sooner rather than later in order to begin burnishing her credentials
    in the International arena.

    ¶10.  (C) As he has during his first year as PM, Haarde will keep
    Icelandic-U.S. relations on the front burner, particularly in defense
    and security affairs.  His clear preference is for Iceland to work
    through NATO for its security, and the retention of Minister of
    Justice Bjarnason is an important signal that the PM intends to
    continue recent efforts to strengthen Iceland's domestic security
    institutions and its Coast Guard.

    van Voorst

`