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### Viewing cable 08REYKJAVIK279, Foreign Minister Assesses Icelandic Domestic and Foreign

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
08REYKJAVIK279 | 2008-12-01 16:04 | 2011-01-13 05:05 | CONFIDENTIAL | Embassy Reykjavik

`

    VZCZCXRO3203
    RR RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSR
    DE RUEHRK #0279/01 3361657
    ZNY CCCCC ZZH
    R 011657Z DEC 08
    FM AMEMBASSY REYKJAVIK
    TO RUEHC/SECSTATE WASHDC 3902
    INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
    RUEKJCS/SECDEF WASHDC
    RUEATRS/DEPT OF TREASURY WASHINGTON DC
    RUEAIIA/CIA WASHDC
    RUEKDIA/DIA WASHDC

` `

    C O N F I D E N T I A L SECTION 01 OF 02 REYKJAVIK 000279

    SIPDIS

    STATE FOR EUR/NB

    E.O. 12958:  DECL:  12/01/2017
    TAGS: PGOV PREL ECON EU IC

    SUBJECT:  Foreign Minister Assesses Icelandic Domestic and Foreign
    Policy Situations

    Classified by:  Ambassador Carol van Voorst for reasons 1.4 (b) and
    (d).

    ¶1. (U) At a November 28 lunch hosted by the Danish Ambassador, the
    dean of the diplomatic corps, Foreign Minister Gisladottir told the
    assembled heads of mission she viewed Iceland's financial collapse as
    part of a global meltdown that must be resolved globally.  In a
    pointed repudiation of the harsh comments of President Olafur Ragnar
    Grimsson at the same venue November 7, Gisladottir stressed that the
    government of Iceland was extremely grateful to the IMF contributing
    members and the bilateral donors who were assisting Iceland to
    weather the ongoing economic crisis.
    ¶2. (C) Gisladottir, who is the chair of the junior coalition party
    the Social Democratic Alliance (SDA), carefully noted that her party
    had not been in power during most of the time that the government and
    the banks were making the financial decisions which resulted in the
    crash this fall.  The SDA therefore did not accept blame for bad
    government decisions or actions.  However, she said that about half
    of the SDA ministers wanted to pull out of the coalition now because
    they felt the public was holding them responsible by association for
    mistakes made by the Independence Party.  Repeating the line that she
    has consistently taken in public, Gisladottir said that it would be
    irresponsible of the SDA to call for elections now, even though the
    party would undoubtedly come out very well in early elections.  She
    believed it was necessary to put the IMF program into place and
    settle the 2009 budget before elections could be called.  The
    government had serious business to complete over the next few weeks
    and should focus on the priorities to help citizens now crushed by
    financial debt and to prevent more businesses from going bankrupt.
    Gisladottir did not rule out the possibility of elections next year.
    She said the government must respond to calls from the electorate for
    more transparency and an end to cronyism and privileged relationships
    between government and financial leaders.  She noted that her party
    has called for the resignation of the Central Bank Board and other
    presumably responsible officials, but she refused to speculate as to
    why Prime Minister Haarde has not yet demanded their resignations.
    ¶3. (C) Although the MFA budget will be severely cut in 2009-10,
    Gisladottir emphasized that Iceland's foreign policy has not changed.
     The country appreciated its close and enduring ties to its Nordic
    brethren, to the U.S., and to newer friends such as India and China.
    There will be no changes in Iceland's approach to issues of
    particular concern, such as gender equality, the Middle East, human
    rights, Afghanistan, or peacekeeping and developmental aid, though
    budget strictures for the next few years will prevent Iceland from
    being as active as it has been or Gisladottir would like it to be in
    these fields.  Development aid, for instance, will of necessity be
    cut temporarily during what the experts predict will be two years of
    recession.  Gisladottir said that difficult political and financial
    choices needed to be made.  She has been told to expect a very bad
    budget year in 2009, some easing of the situation in 2010, but no
    return to anything approximating what had been considered the
    "normal" status pre-crash until 2011 at the earliest.
    ¶4. (C) Asked what implications the budget cuts would have on Defense
    Agency activities, Gisladottir said there would be no change in
    security policy although some practical changes in operations would
    be necessary.  The defense agreement with the U.S., and the security
    MOUs with Norway, Denmark, and Sweden would remain cornerstones of
    Iceland's foreign and security policy.  It was not politically
    possible, however, to force through massive cuts in social welfare
    and education and not take equally drastic cuts in defense.
    Gisladottir said that the government was asking NATO to reduce air
    policing deployments from four a year to three in 2009.  The Defense
    Agency would be required to run its operations more cost effectively.
     Several MFA projects would be put on ice:  a concept paper
    evaluating trends in the High North, originally scheduled for release
    in December, would be postponed; the long-promised Threat Assessment
    paper will not be presented to the Althingi until the end of January
    at the earliest; and Gisladottir would postpone as well her annual
    December wrap-up of foreign affairs developments for the Althingi.
    ¶5. (C) Turning to the EU, Gisladottir reiterated her party's firm
    support for applying for membership as soon as possible, and said
    that the Independence Party congress scheduled for the end of January
    would be crucial in setting Iceland's future course as a country.
    She thought the Independence Party might well decide to approve a bid
    for membership at that meeting, although it was quite possible that
    the matter would split the party.  The Progressive Party is also
    meeting in January on the same issue, and she thought a majority of
    that party would also approve a pro-EU platform.  Some of the
    Left-Greens as well might be willing to put Iceland on the path for
    EU membership, but she wasn't confident that the party as a whole
    would change course in the foreseeable future.  Gisladottir didn't
    rule out the possibility of a major change in Iceland's political
    landscape, suggesting that the anti-EU faction of the Independence
    Party (whom she characterized as mostly the "old" party loyalists)
    could regroup with the anti-EU factions of the Left-Greens and the

    REYKJAVIK 00000279  002 OF 002

    Progressive Party to form a new political entity.
    ¶6. (C) Gisladottir predicted that Iceland would move ahead swiftly
    towards EU membership once the Independence Party decided to take
    action.  An official application for EU membership would be followed
    by expeditious and presumably non-contentious negotiations in
    Brussels, then the Althingi would quickly enact the necessary
    legislation to change the constitutional language on sovereignty
    issues. A public referendum would settle the deal.  Gisladottir said
    she did not expect a referendum prior to a membership bid to
    determine whether or not Iceland should approach the EU for
    membership; she thought that the recent polls showing a clear
    majority in favor of membership were sufficient public approbation to
    get the process started.  However, she thought it likely that the
    Progressive Party and the Left Greens would call for a
    pre-application referendum.
    ¶7. (C) When asked about MFA intentions to redress the damage caused
    to Iceland's international image by the economic crash, Gisladottir
    said she was personally deeply distressed by the beating that the
    country had taken in the international arena.  Press accounts of
    failed banks and feuding with friends were not good for Iceland's
    people or businesses.  She hoped the country's traditional strengths
    would pull it out of the current image debacle:  Iceland's broad and
    egalitarian society, its well-educated and disciplined workforce, and
    its geothermal expertise were enduring advantages deserving of
    international respect.    She announced that the MFA's new Chief of
    Staff, Ambassador Kristin Arnadottir, had been tasked with the
    development of a campaign to project a more positive picture of
    Iceland overseas.  The Foreign Minister herself plans to work towards
    this goal at the upcoming Helsinki OSCE ministerial and the
    Convention on Cluster Munitions signing ceremony in Oslo.  (Note:
    The ForMin said she had not yet decided to attend the NATO
    ministerial in Brussels; although she gave no reason, we have been
    told by staff that her doctors want her to limit air travel for the
    time being.)
    ¶8. (C) Embassy Comment:  This was Gisladottir's first general meeting
    with the resident diplomatic corps since her brain surgery in
    September.  She quickly put aside our concerns of surgery-related
    problems:  although she said she did not yet have all her energy
    back, she appeared her normal self: decisive, analytical, humorous,
    gregarious, and clear-spoken.  She spoke at length with only a few
    notes, using English that is even more idiomatic and practiced since
    her long involuntary sojourn in New York City.  Gisladottir is firmly
    in control of her party and her ministry, so much so that the
    contrast between her situation and that of Prime Minister Haarde
    grows ever more striking.  Her absence from Iceland during the bleak
    days of economic chaos in October, while unfortunate for the country
    itself, may prove to have been a political advantage to Gisladottir
    herself by allowing the public to disassociated her and the SDA from
    the unpopular decisions taken during those contentious days.  Since
    returning to Iceland, she has consistently and forcefully articulated
    the message that Iceland must honor its international obligations,
    take care of its people during the coming very hard times, and, to
    avoid any possibility of a repeat of the financial disaster, must
    join the European Union and adopt the euro as quickly as possible.

    van Voorst

`