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### Viewing cable 09REYKJAVIK45, ICELAND: FM WARNS OF POSSIBLE DEFENSE BUDGET CUTS

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09REYKJAVIK45 | 2009-02-27 17:05 | 2011-01-13 05:05 | CONFIDENTIAL | Embassy Reykjavik

`

    VZCZCXYZ0007
    RR RUEHWEB

    DE RUEHRK #0045/01 0581722
    ZNY CCCCC ZZH
    R 271722Z FEB 09
    FM AMEMBASSY REYKJAVIK
    TO RUEHC/SECSTATE WASHDC 4000
    INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
    RUEKJCS/SECDEF WASHDC
    RHMFISS/HQ USEUCOM VAIHINGEN GE 0083
    RUEAIIA/CIA WASHDC
    RUEKDIA/DIA WASHDC

` `

    C O N F I D E N T I A L REYKJAVIK 000045

    SIPDIS

    DEPT FOR EUR/NB, EUR/RPM, DRL/MLGA
    OSLO FOR DATT
    OSD FOR OSD-P (FENTON)
    EUCOM FOR J-5

    E.O. 12958: DECL: 02/26/2019
    TAGS: PREL PGOV MARR PHUM NATO ECON AF IC
    SUBJECT: ICELAND: FM WARNS OF POSSIBLE DEFENSE BUDGET CUTS

    REFS: A) 08 OSLO 594
      B) STATE 14097
      C) REYKJAVIK 36
      D) STATE 14201

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

    ¶1.  (C) Summary:  Icelandic Foreign Minister Skarphedinsson told
    Ambassador on 18 February that "nothing can be ruled out" on the
    question of further cuts to Iceland's defense budget, and floated a
    trial balloon on further reductions to Iceland's contingent in
    Afghanistan.  In public comments the next day, he went even further,
    suggesting that the Icelandic Defense Agency might be abolished
    entirely.  With the Ambassador, Skarphedinsson was positive on the
    possibility of greater Nordic defense cooperation as proposed in the
    Stoltenberg report, but was careful to note that this would only be a
    complement to NATO, not a replacement.  On Iceland's economic
    recovery, the FM vented that the Swedish Government continues to be
    "nit-picky" about the prerequisites for its promised bilateral loan.
    He welcomed news of USG reengagement in the Durban review process.
    End summary.

    ¶2.  (U) Ambassador paid a congratulatory call on new Icelandic
    Foreign Minister Ossur Skarphedinsson on February 18.  (Note:
    Skarphedinsson has also retained his previous portfolio as Minister
    of Industry, Energy, and Tourism.)  The visibly tired but impish
    Skarphedinsson opened with a readout on the Nordic Foreign Ministers'
    meeting in Oslo on 13 February, at which former Norwegian Foreign and
    Defense Minister Thorvald Stoltenberg presented his report on
    opportunities for Nordic cooperation in defense and security.
    Skarphedinsson, who had chaired the meeting, joked that his biggest
    concern had been addressing the council in "Scandinavian" rather than
    English or Icelandic.

    ¶3.  (C) Ambassador asked the FM for his view on local press
    discussion on the event, noting her concern that the coverage seemed
    to present Nordic defense cooperation as a possible replacement for
    NATO in the High North.  Skarphedinsson said he had been very careful
    to note in his comments at the meeting and with the press that Nordic
    cooperaton would only be a complement to NATO, not a replacement.  He
    opined that the Finns "want into NATO very badly" and as such are
    eager to participate in the NATO air policing mission here, while
    Swedish FM Bildt was much cooler to the idea.  Skarphedinsson added
    that talk of the Nordics taking over defense for Iceland was in his
    view a rehashing of Cold War-era arguments.  The left -- including
    some in Skarphedinsson's own party -- has seized on the Stoltenberg
    report as a chance to put forth the same old idea, but the FM said he
    did not believe anything will come of it.

    BUDGET CUTS A POSSIBILITY
    -------------------------

    ¶4.  (SBU) Turning to Icelandic government funding for defense,
    Ambassador pressed the FM on rumors that further defense cuts --
    beyond the 20 percent slashed from the Icelandic Defense Agency (IDA)
    budget for 2009 -- are in the works.  Skarphedinsson said he was
    taking a careful look at all options, including possibly combining
    some elements of the IDA mission with the Icelandic Coast Guard.
    "It's all on the table," said the FM, noting that these are very hard
    budget times for the Icelandic Government.  Asked for her view,
    Ambassador described the security structure constricted after the
    2006 U.S. withdrawal from Keflavik as a flexible, relatively cheap
    instrument that has served Iceland and its allies well.  She urged
    the FM to support defense funding and pressed the FM hard to counter
    the oft-heard notion that funding for defense is not money spent in
    Iceland.  Every krona the IDA gets for air policing purchases goods
    or services from Icelandic vendors, and deployed forces purchase fuel
    and spend money at tourism venues during their off-duty hours.  The
    FM asked whether it made any difference whether the IDA or another
    agency performed these functions, to which Ambassador replied that
    Iceland and the IDA have developed an excellent reputation with NATO
    militaries that have deployed here.  It is important to maintain
    those relationships and the rhythm of exercises and deployments in
    order to keep standards of proficiency and facilities maintenance
    high, she added.  Skarphedinsson thanked Ambassador for her views but
    remained noncommittal, reiterating that the ministry is under
    tremendous budgetary pressure.  He added that Iceland is not the only
    NATO Ally with such problems; the Spanish Air Force has cancelled its
    air policing rotation here later this year due to funding shortages.

    ¶5.  (U) Note:  The following day, the FM went even further during
    open debate in the Althingi, suggesting that the IDA might be
    abolished entirely and its mission parceled out to various other
    agencies such as the Icelandic Coast Guard, Civil Aviation Authority,
    and National Police.  The Althingi's Foreign Affairs Committee Chair,
    who is from the minority government's other, openly pacifist party,
    immediately voiced his agreement, leading to press speculation that
    the IDA's days are indeed numbered.  End note.

    DOING EVEN LESS IN AFGHANISTAN?
    -------------------------------

    ¶6.  (C) The penny-pinching theme continued in response to
    Ambassador's notification of the USG's Afghanistan-Pakistan policy
    review (Ref B).  Skarphedinsson said that he and his political
    advisor are carefully reviewing cost-saving possibilities, including
    a drawdown of Iceland's personnel deployed with ISAF.  (Note:
    Iceland currently has eight personnel at Kabul International Airport,
    ISAF HQ, and PRT Meymaneh.)  This has not been broached outside the
    FM's Office as Skarphedinsson knows the relevant offices will fight
    for every position, but as Minister he feels a responsibility to look
    at every way of saving money.  Ambassador pressed vigorously, noting
    that during his January visit to Iceland, SACEUR GEN Craddock
    personally vouched for the importance of every one of Iceland's
    billets in Afghanistan.  SACEUR traveled with then-FM Gisladottir to
    Kabul during her visit last spring, and in so doing became quite
    familiar with the Icelandic contingent's work, Ambassador added.  The
    work the Icelanders are doing is known and appreciated, and she urged
    the FM to maintain the current numbers.

    ECONOMIC RECOVERY, WHALING
    --------------------------

    ¶7.  (C) Touching briefly on Iceland's economic recovery, FM
    Skarphedinsson said that although tough times are ahead, Iceland will
    "come out better than many people expect."  Fishing, clean energy,
    and tourism will provide a strong basis for the economy's recovery.
    Less happily, the FM noted, some of the bilateral loans included in
    the IMF bailout package have been difficult to finalize.  Most
    notably, the Swedes have been very "nit-picky" on the details of
    Iceland's recovery plan.  Skarphedinsson dismissed these concerns as
    reflective of Sweden's traditional view of itself as the "big
    brother" who knows better in the bilateral relationship.  In
    contrast, Norway has historically been much more supportive of
    Iceland.  Picking up on the tourism theme, Ambassador noted her
    concerns about Iceland's intent to resume and expand its commercial
    whaling quota; the FM said he agreed but was not in a position to
    change the decision himself (ref C).  In closing, Skarphedinsson
    welcomed notification of U.S. reengagement in the Durban review
    process (ref D) and applauded the tone that President Obama and
    Secretary Clinton have brought to U.S. foreign policy.

    COMMENT
    -------
    ¶8.  (C) The new FM is clearly feeling pressure from his colleagues in
    the government to demonstrate fiscal discipline, particularly as the
    minority coalition tries to make good on its pledge to directly ease
    the burden on Icelandic households.  Skarphedinsson has no built-in
    loyalty to the IDA, and though sold on the importance of NATO, he has
    at times been a reluctant advocate of the idea that Iceland should
    fund its own defense.  The lure of being able to cut nearly 10
    percent from the MFA's budget may simply be too much for the
    mercurial Skarphedinsson to resist.  With no other political backers
    in the current government and just over two months until elections,
    the IDA may indeed be fighting for its life.  Post will continue to
    press for a sober accounting of the operational costs of such budget
    slashing before any moves are made, and is quietly soliciting the
    interventions of other NATO embassies here as reinforcements.

    van Voorst

`