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Cablegate: Iceland: 2007 Parliamentary Elections, One Month Out

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PP RUEHC
DE RUEHRK #0114/01 1081352
ZNR UUUUU ZZH
P 181352Z APR 07 ZDK EATC SVC #0827
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC PRIORITY 3254
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

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SIPDIS

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: PGOV PREL SENV EIND IC
SUBJECT: Iceland: 2007 Parliamentary Elections, One Month Out

Refs: A) 06 Reykjavik 416
B) 06 Reykjavik 359
C) 06 Reykjavik 312
D) 04 Reykjavik 354

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1. (U) Summary: A month before Icelanders head to the polls for the
May 12 parliamentary elections, the Left Greens are riding a wave of
interest in environmental concerns. However, the emergence of a new
green party could splinter the environmentalist bloc and ensure the
current center-right coalition's survival. Apart from rhetoric
about retroactively withdrawing Iceland's support for the invasion
of Iraq in 2003 (but no other changes to Iceland's Middle East
policy), foreign policy has not been a campaign issue.
Environmentalist issues and energy-intensive industrial construction
feature prominently in all parties' campaigns, but many here are
comfortable with their quality of life and credit the Independence
Party-led government. In the end it might all come down to
Carville's phrase: "It's the economy, stupid." End Summary.

Election Procedures
-------------------
2. (SBU) Election procedures in Iceland are similar to those in most
Western European countries. The Althingi (parliament) has a total
of 63 seats which are allocated proportionally across six voting
districts. Voters cast their ballots for parties, not for
individual candidates, though the parties publish their candidate
lists in rank order ahead of the election. To receive an Althingi
seat, a party needs to receive at least five percent of the vote
nationwide, in addition to competing successfully within a given
district. The traditionally apolitical president, who is elected
separately in national elections in the year following Althingi
elections, is empowered to formally appoint the cabinet. In
practice, the leaders of the political parties forming the
successful coalition decide the makeup and allocation of cabinet
seats among themselves. Minority governments are not
constitutionally permitted. Traditionally, only when the party
leaders are unable to reach a conclusion by themselves in reasonable
time does the president exercise his power to appoint the cabinet
himself. Rumors continue to circulate, however, that the current
president will break with tradition to the benefit of his political
friends on the left (see below). Since 1991, two-party coalitions
have held power with the Independence Party as the senior partner,
but three-party coalitions were not uncommon in the past. Of the
seven parties running, we expect five or six will be represented in
the next parliament.

The Parties: Independence Leads The Way
---------------------------------------
3. (U) The Independence Party (IP), the senior party in the current
majority coalition, is a center-right party led by Prime Minister
Geir H. Haarde. In the past year party support has been measuring
at 36 to 43 percent in Gallup polls, a slight rise over the 33.7
percent (22 seats) they received in the 2003 Althingi elections.
The IP has a tendency to measure higher in polls than in elections,
but it can still safely expect to get between 30 and 40 percent of
the vote. The IP's campaign touts the government's economic record,
low unemployment, tax reductions, and diminishing government debt.
At the same time, the IP has responded to the local environmental
debate (Ref A) -- and some argue, stolen a plank from their primary
opposition, the Social Democratic Alliance -- by announcing plans to
slow down the build-up of heavy industry in Iceland, such as
aluminum smelters, and establish a framework plan for possible
future projects involving heavy industry.

4. (U) On foreign policy, the IP is a staunch supporter of the
bilateral defense relationship with the United States and Iceland's
NATO membership. Although IP stalwarts were frustrated with the
manner in which the USG announced the withdrawal of U.S. military
forces from Iceland in March 2006, PM Haarde's pragmatism and
trustworthiness has made him the frontrunner in forging a new
bilateral defense relationship with the United States. In addition,
the IP has emphasized the need for Iceland to take on more
responsibilities in security and defense affairs, fully realizing
the need to fill the void left by the departure of U.S. forces. The
party's success in this regard can be seen in the corresponding
failure of opposition challengers to put foreign policy on the
campaign agenda this spring.

Progressives: Running On Their Record (Sort Of)
--------------------------------------------- --
5. (U) The junior member in the coalition, the Progressive Party
(PP), is a traditionally agrarian and centrist party led by Minister
of Industry and Commerce Jon Sigurdsson. Despite getting 17.7
percent (12 seats) in the last election, polls show the party with
only eight to 10 percent support during the past year (which would
translate into a drop to five Althingi seats). The party has in
recent years attempted to extend its political base to urban areas,
with unsatisfactory results -- Iceland's new urbanites have instead
blamed the PP for industrializing Iceland's previously unspoiled
highlands, while their coalition partners the IP get all the credit
for recent economic growth. The Progressives' political base

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remains in rural Iceland, mainly farming areas such as Southern and
Northeastern Iceland. The party supports continuing economic growth
through further build-up of heavy industry and is opposed to the
other parties' policies of putting a halt to or pausing further
development. Their slogan, "Continued Results -- Don't Stop!"
reflects the party's attempt to gain credit for Icelanders'
comfortable lifestyle and support for further industrial investment.


6. (U) On international affairs, the PP was more cautious in its
reactions to the closure of NASKEF and, apart from then-PM Halldor
Asgrimsson's initial fit of pique, stayed largely aloof from the
bilateral negotiations on the future arrangement of the bilateral
defense relationship. Foreign Minister Sverrisdottir of the
Progressives has, however, let slip a few public comments of
frustration regarding the withdrawal of U.S. forces. The PP has
flirted with the idea of looking to Europe and not just the U.S.,
with the FM making several comments over the past year about the
"inevitability" of studying questions related to EU membership. The
party is generally pro-American and pro-NATO, however, and has
welcomed energy-intensive industrial investment by large American
corporations, such as Alcoa, in Iceland.

The Alliance: Still Trying To Find Its Way
------------------------------------------
7. (U) The Social Democratic Alliance (SDA), a center-left party,
was officially established in 2000 from the merger of four leftist
and center-left parties. After a good showing in the 2003 elections
(20 seats) followed by a change of party leadership in 2005 (current
leader Ingibjorg Solrun Gisladottir is Iceland's only female party
chair), the SDA has been losing momentum and its support has dropped
steadily -- polls in March put the SDA at around 20 percent, behind
the Left-Greens (see below) for the first time in its history. The
SDA has touted the need to renovate the Icelandic welfare system
along the lines of the Nordic social democratic welfare model in
order to counter growing income disparity over the last decade. The
SDA maintains that the current government has mismanaged the
economy, to the detriment of the the elderly and the disabled in
particular. On "green" matters, the party has often wobbled in its
attitudes towards further buildup of heavy industry. The SDA's
present campaign platform, however, calls for an interim freeze on
all plans for further industrial buildup, pending drafting of a
framework to exclude certain locations from industrial development.
When it comes to foreign relations, the SDA has pronounced itself
"skeptical" of the value of current defense ties with the U.S. and
alleges that the GOI could have achieved more in negotiations in
2006 had it been better prepared for the withdrawal of U.S. forces
(Ref B). The SDA is the only party to openly call for E.U.
membership for Iceland and has similarly said that Iceland should
look to Europe more on security matters. Party chair Gisladottir
has also pledged that the first act of any SDA-led government will
be to retroactively remove Iceland from the list of countries that
supported the 2003 invasion of Iraq, though without stating any
alternative policy goals regarding the Middle East.

The Left-Greens: Flavor Of The Month?
-------------------------------------
8. (SBU) The Left-Green Movement (LG) is composed of the leftists
who did not want to join the SDA when it formed, due to concerns
over both ideology and leadership. The party did not do well in the
2003 elections with only 8.8 percent of the vote (five seats), but
since then has capitalized on the environmental issues wave that has
swept Iceland in the last couple of years. In the past year the LG
has been polling around 20 percent, with support surging as high as
27 percent in the past few months. The LG is no longer a fringe
party and will likely be a major player in the post-election
coalition negotiations, though party leaders privately voice concern
that the new "Iceland Movement" (see below) will draw from the same
pool of disaffected voters. The Left Greens have been commended for
having a clear position on issues, and have thus pulled left-leaning
voters from the comparatively wishy-washy SDA. Despite an avowedly
socialist view on economic and fiscal policy, the LG claims it will
not raise taxes, but will instead redistribute the tax burden in
order to decrease income disparity. On its pet issue, the
environment, the LG wants all plans for further buildup of heavy
industry to be halted in favor of the creation of diverse sources of
employment in rural areas. From its founding, the LG platform has
called for Iceland's withdrawal from NATO and the development of a
pacifist, cooperation-oriented foreign policy. That said, the LG
Chair admitted to the Ambassador that he sees the need for the party
to be "realistic" and that withdrawal from NATO will not be in the
cards any time soon. There is no question, however, that if in
government the Greens will demand that Iceland's name be immediately
removed from the Coalition of the Willing regarding Iraq.

Liberals: Xenophobia Isn't Selling, Yet
---------------------------------------
9. (U) The Liberal Party (LP) was originally a one-issue party
fighting the current quota system of fisheries management in
Iceland. The party drew 7.4 percent (four seats) in the last
elections, but its support had dropped to about three to four

REYKJAVIK 00000114 003.5 OF 004


percent by last November. At that point, the LP caught the public's
attention when it raised the issue of the growing numbers of
immigrant workers coming to Iceland after labor movement within the
European Economic Area was fully liberalized in May 2006. The party
warned of possible consequences for the Icelandic wage market, the
future of the welfare system, and Icelandic society as a whole if
foreigners did not properly "adjust" to their new home. After an
initial spike in LP following in the polls, the public at large and
other political parties have since lambasted the LP for being
xenophobic and even racist in its attitudes towards foreigners.
(Comment: Likely due to the fact that unemployment is so low --
around two percent -- that the arrival of immigrants is helping,
rather than burdening, the Icelandic economy. End comment.) They
deny these allegations but their campaign advertisements suggest
that there may be some truth to these accusations. While the party
still emphasizes fisheries management, the immigrant issue appears
to be taking over as issue number one. The LP is fairly pro-American
and supports Iceland's NATO membership and maintaining the bilateral
defense relationship with the U.S.

The Iceland Movement: Splitting the Green Vote
--------------------------------------------- -
10. (SBU) The newest political party on the scene, The Iceland
Movement - Living Land (IM), fashions itself as a "right-green"
party headed by a well-known television personality, who is the
party's interim chairman. The first polls since the party's
formation in February, 2007 indicate that the party would get
approximately five percent in the elections. Like the Left Greens,
the IM wants to stop further buildup of energy-intensive industries
that would affect unspoiled natural areas. Observers point out that
this candidacy will divide environmentalist voters instead of
uniting them, and thus likely benefit the current coalition
partners. A Progressive Party stalwart gleefully told the
Ambassador that he welcomes The Iceland Movement's candidacy for
exactly this reason, and joked that maybe a few more environmental
groups ought to run for parliament. So far the IM's position
towards the U.S. -- and virtually every other issue -- is a tabula
rasa.

Coalition Options
-----------------
11. (U) Until very recently, the predominant assumption among both
political pundits and the general public was that the current
coalition government would be history after May 12 (owing largely to
the Progressives' collapse in 2006 -- Ref C). A mid-March Gallup
poll showed that 28 percent of voters wanted a center-left coalition
(SDA and LG), while 24 percent wanted to see the current coalition
live on. One coalition option that has often come up is a marriage
of the extremes on right and left (the IP and the LG), which polled
at 22 percent in March. Two options that are commonly believed to
be off the table are a right and center-left (IP and SDA) mix, and a
coalition of all three current opposition parties in parliament --
both of these choices are polling at less than 10 percent. However,
the emergence of The Iceland Movement has thrown previous forecasts
into disarray, and Gallup poll data released on April 16 have the
current IP-PP coalition defying earlier odds at 36 percent support,
the most popular option. An old saw of Icelandic politics is that
the Progressives always do better than the pre-election polls
indicate. In this case, thanks to the IM, the Progressives may do
better than even the election results themselves indicate, as the
"right-greens" may do just well enough to sink the left's chances
without getting any Althingi seats themselves. In this scenario,
the IP and PP would get a higher number of Althingi seats than their
raw share of votes cast.

12. (SBU) One final wild card, however, is the possible role of
President Olafur Ragnar Grimsson. Grimsson, a former MP and
minister for one of the SDA's predecessor parties, has had a number
of public spats with the current government during his tenure, most
notably surrounding his unprecedented use of presidential veto power
against a media ownership bill in 2004 (Ref D). Advisors in the
current government have passed to the Ambassador rumblings that
Grimsson, convinced that the IP-PP government is doing irreparable
damage to the country, may take another unprecedented step in May
and give the mandate to form a government to one of the parties on
the left. Though constitutionally allowed, such a move might seem
to many as a gross overstepping of the bounds of the President's
generally ceremonial role. It is not clear how the potential
constitutional crisis in this case might be resolved.

13. (SBU) Comment: As the issues have been framed so far, in a
month's time Iceland's voters will face a referendum on whether
heavy industrial investment is the price to be paid for Iceland's
high standard of living or if some of the economy's vibrancy should
be traded for preserving untouched areas of the country. Absent any
involvement by President Grimsson, PM Haarde's Independence Party
will likely be the driving force when coalition negotiations begin
after the elections. Unless The Iceland Movement splinters the
enviro-vote enough to let the current coalition continue, the next
GOI will need to take account of environmental concerns and may be
forced to slow down the pace of investment in aluminum and other

REYKJAVIK 00000114 004.3 OF 004


heavy industries -- a move that would likely have a direct impact on
the two U.S. aluminum firms active here. On other issues of
importance to the USG, however, any IP-led government can be
expected to continue most current GOI policies.

CAMPBELL

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