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### Viewing cable 09REYKJAVIK75, ICELAND'S GOVERNMENT FEELING SECURE WITH ONE WEEK BEFORE

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09REYKJAVIK75 | 2009-04-20 09:09 | 2011-01-13 05:37 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Reykjavik

`

    VZCZCXRO3918
    PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
    RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
    DE RUEHRK #0075/01 1100909
    ZNR UUUUU ZZH
    P 200909Z APR 09
    FM AMEMBASSY REYKJAVIK
    TO RUEHC/SECSTATE WASHDC PRIORITY 4050
    INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
    RUEAIIA/CIA WASHDC

` `

    UNCLAS SECTION 01 OF 02 REYKJAVIK 000075

    SIPDIS

    SENSITIVE

    E.O. 12958: N/A
    TAGS: PGOV PREL IC
    SUBJECT:  ICELAND'S GOVERNMENT FEELING SECURE WITH ONE WEEK BEFORE
    ELECTIONS

    ¶1.  (U) Summary:  Polls continue to show Iceland's leftist minority
    government with a strong lead one week ahead of national elections
    on April 25.  Though the official campaign may be less than a full
    week due to an opposition filibuster that has kept parliament in
    session, the Social Democratic Alliance and Left-Green Movement are
    increasingly acting like they will get a renewed mandate.  Adding to
    Independence Party woes is the fallout from news of extremely large
    (by local standards) political donations in 2006 on the eve of new
    campaign finance limits.  The damage is forcing the IP to
    consolidate support from its base, rather than make an attempt to
    pose a credible challenge to what would be Iceland's first leftist
    majority government.  At the same time, unease over the donations
    scandal will mean the new government will have work to do in
    reestablishing public confidence in the political system.  End
    Summary.

    ¶2.  (U) Although the Icelandic Althingi (parliament) continues to
    meet, the government coalition parties are gaining confidence with
    just over a week before national elections on April 25.  A
    filibuster by the opposition Independence Party over constitutional
    amendments has kept the Althingi in session closer to the date of
    elections than at any other time in Icelandic history, but polling
    data seems to show that the Social Democratic Alliance and
    Left-Greens have not been damaged by the shortened campaign.

    ¶3.  (U) The country's leading newspapers published their latest poll
    results on April 16 and 17.  Despite measuring significantly
    different levels of support for the conservative Independence Party,
    both polls show that the current SDA-LG minority government would
    hold a majority in the Althingi.  Frettabladid's April 16 poll
    results showed the SDA and LG with 32.2 and 25.7 percent,
    respectively, while Morgunbladid's Gallup poll released on April 17
    had the two parties at 30.7 and 28.2 percent.  Independence
    supporters found something to cheer in the Frettabladid results
    showing 27.3 percent support, which implied that a campaign finance
    scandal has done little harm to the party.  However, the next day's
    Gallup poll showed the IP dropping to 23.3 percent nationwide, down
    from 36.6 in the 2007 elections.

    ¶4.  (U) Variances aside, the polls were in agreement on three
    points.  The new Citizens' Movement is inching closer to the 5
    percent threshold needed to get an MP elected.  Meanwhile, support
    for the Progressive Party continues to hold stagnant around seven
    percent, meaning that after an initial bounce the party's new
    leadership has made no inroads with the public.  Finally, the
    idiosyncratic Liberal Party is in a quagmire at around one or two
    percent and is clearly not going to win any seats in parliament this
    year, meaning the party will probably be dissolved in the near
    future.

    ¶5.  (SBU) Reflecting the news from the polls, leftist politicos have
    been increasingly upbeat in meetings with embassy officials in
    recent days.  Debate now centers on whether or not the Left-Greens
    will suffer what has been a traditional collapse of support in the
    last days before national elections (in 2007, they lost 10 percent
    in the last month of the campaign).  If the current numbers hold,
    the IP could see itself fall to an historic low as Iceland's
    third-largest political party.

    ¶6.  (U) Independence Party malaise has only deepened over the last
    week as news emerges regarding political donations made under
    Iceland's previous campaign finance regime.  Easter weekend
    headlines were dominated by reports that in 2006 the IP accepted
    millions of ISK in donations from FL Group (ISK 30 million, $238,000
    at current exchange rates, or $415,000 at the time) and Landsbanki
    (ISK 25 million/$198,000/$346,000) only a few days before Iceland's
    first campaign finance law took effect on January 1, 2007.  Once the
    scandal broke on April 8, former IP chairman Geir Haarde immediately
    sent out a statement saying that he took full responsibility for
    accepting the donations, though many feel that Haarde was trying to
    shield the rest of the party from blame only two weeks before
    national elections.

    ¶7.  (U) The fallout continued on April 10, when the party's
    Secretary General Andri Ottarsson resigned, although he claimed to
    have had no knowledge of the donations (Ottarsson was hired by the
    IP in mid-2006).  MP and former Minister of Health Gudlaugur Thor
    Thordarson took the most heat, and he was forced to retract his
    categorical denials of any involvement.  Reports have surfaced that
    put Thordarson at the center of IP fundraising efforts in late 2006,
    and he is said to have been pressured to resign from the Althingi or
    yield his seat at the top of one of the Reykjavik Constituency lists
    to a candidate less tainted by scandal.  Thordarson's political
    position has since improved after a slate of his allies was
    re-elected to the leadership of the IP's Reykjavik chapter, and it
    is unlikely he will be leaving the stage.

    ¶8.  (U) The other three major parties were quick to disclose
    information about where the sources of their donations in 2006.  The

    REYKJAVIK 00000075  002 OF 002

    Progressive Party (PP), which was in government with the IP in 2006,
    initially claimed that privacy concerns prevented it from releasing
    information about its donors under the old law.  It quickly relented
    and released a breakdown of ISK 23.5 million ($187,000 at current
    exchange rates, or $326,000 at the time) in donations that were over
    ISK 1 million each. Of those the largest donation was ISK 5 million
    from the contractor Eykt, and ISK 4 million from Kaupthing Bank. A
    third of the ISK 23.5 million came from companies associated with
    the so-called "S" group (a holding company made up of three leading
    insurance and retirement savings firms) and another third from large
    contractors and construction firms.

    ¶9.  (U) The SDA's disclosures confirmed for many the party's close
    ties with the Baugur Group, long a bugaboo of the Independence
    Party.  The SDA received a total of ISK 45 million ($357,000 at
    current exchange rates, or $625,000 at the time) in 2006.  Donations
    over ISK 500 thousand amounted to ISK 36 million. Of those the
    largest donation was ISK 5 million from Kaupthing bank and ISK 4
    million from Landsbanki.  Of the ISK 36 million in large donations,
    25 percent came from companies associated with the Baugur Group, and
    slightly smaller amounts from the S-Group and father-son investors
    Bjorgolfur Gudmundsson and Bjorgolfur Thor Bjrgolfsson,
    respectively.

    ¶10.  (U) The LG issued a statement saying that the party's
    accounting had always been open to the public and that the largest
    donation in 2006 was ISK 1 million ($8,000 at current exchange
    rates, or $14,000 at the time), from the insurance company
    Samvinnutryggingar (one of the S-group companies).

    ¶11. (SBU) Comment:  The campaign contributions scandal has taken a
    toll on the IP in the short term at least, according to the latest
    Gallup poll, but it remains to be seen whether brouhaha will remain
    fresh in the minds of voters on Election Day.  Many wonder what
    hardcore IP supporters will do given their lack of alternatives on
    the right end of the spectrum.  Rumors are swirling that many will
    turn in a blank vote rather than support a party that has failed to
    adequately deal with the past and has missed repeated opportunities
    to put forth a new generation of candidates.  If IP support drops
    below 20 percent, the base's dissatisfaction will be clear.  In
    these conditions, anything above 25 percent will be a relative
    victory for new IP Chair Bjarni Benediktsson.

    ¶12.  (SBU) Comment, cont'd:  Many point out that the SDA and PP also
    received donations from large corporations, but not nearly as high
    as the IP.  This has shielded them from taking the same level of
    criticism, although commentators wonder why the political parties do
    not disclose financial information reaching further back than 2006,
    which naturally begs the question of what there is to hide.  The
    Citizen's Movement's jump in the polls may be a reflection of
    growing dissatisfaction with the party system and a sense that all
    of Iceland's parties are tainted.  Although voters may put the SDA
    and LG back in power on April 25, they will have some work ahead of
    them to turn a sense of resignation into enthusiastic support for
    the government.  End Comment.

    VAN VOORST

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