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Cablegate: Foreign Minister Assesses Icelandic Domestic and Foreign

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DE RUEHRK #0279/01 3361657
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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

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