VZCZCXRO4394
OO RUEHDBU RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHRK #0158/01 1431731
ZNY CCCCC ZZH
O 231731Z MAY 07
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3316
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEKJCS/SECDEF WASHDC

C O N F I D E N T I A L SECTION 01 OF 03 REYKJAVIK 000158 
 
SIPDIS 
 
SIPDIS 
 
DEPT FOR P (BAME), EUR/NB, INR/B 
DEFENSE FOR OUSD/P (HURSCH) 
 
E.O. 12958: DECL: 05/22/2017 
TAGS: PGOV PREL ECON PINR IC
SUBJECT: ICELAND: HAARDE REMAINS PM IN NEW COALITION, SOCIAL 
DEMOCRATS GET MFA AND KEY ECON MINISTRIES 
 
REF: REYKJAVIK 142 AND PREVIOUS 
 
Classified By: Amb. Carol van Voorst for reasons 1.4 (b) and (d). 
 
¶1.  (C) Summary:  Iceland's new government coalition of the 
Independence Party (IP) and the Social Democratic Alliance (SDA) 
announced their ministers and policy statement on May 22-23.  Geir 
Haarde will stay on as Prime Minister, while SDA leader Ingibjorg 
Solrun Gisladottir will become Iceland's second female Foreign 
Minister.  The center-right IP retains control of the Ministry of 
Justice (under current minister Bjorn Bjarnason) and made few changes 
to its cabinet lineup.  In addition to Foreign Affairs, most of the 
key economic and welfare ministries went to the center-left SDA.  The 
coalition's policy statement focused almost exclusively on domestic 
social welfare issues, with a sole paragraph on foreign policy 
containing a deliberately ambiguous sentence "lamenting the war in 
Iraq."  Post believes that on key U.S. policy concerns PM Haarde will 
work to keep bilateral relations on a smooth course, while 
FM-designate Gisladottir will work to quietly nudge Iceland ever 
closer to EU membership.  SDA control of the economic ministries may 
have implications for continued investment in power-intensive 
industries.  Down the line, Gisladottir's clear ambitions for the PM 
slot may trigger a coalition implosion partway through its 4-year 
term, with Gisladottir hoping that her party comes out of the rubble 
to lead a new center-left government.  End comment. 
 
After 12 years, a new coalition 
------------------------------- 
¶2.  (U) After five days of formal negotiations, Independence Party 
(IP) Chairman Geir Haarde and Social Democratic Alliance (SDA) Chair 
Ingibjorg Solrun Gisladottir each received approval from their party 
governing boards for a new coalition agreement. They presented their 
ministerial lineups on the evening of May 22.  Each party received 
six ministerships, with the IP retaining Haarde as Prime Minister. 
There was little change to the IP slate of ministers apart from the 
consolidation of the Ministries of Fisheries and Agriculture, and the 
addition of the Ministry of Health (which the Progressive Party ran 
under the previous coalition).  For the SDA, Gisladottir took the FM 
slot after some speculation that she would opt instead for a greater 
role in domestic policy, perhaps through the melding of one or more 
current ministries.  The resulting cabinet is as follows: 
 
Prime Minister: Geir Haarde (IP -- incumbent) 
Foreign Minister: Ingibjorg Solrun Gisladottir (SDA) 
 
Minister of Justice: Bjorn Bjarnason (IP -- incumbent) 
Minister of Fisheries and Agriculture: Einar Gudfinsson (IP -- 
incumbent Minister of Fisheries, gains Ag portfolio) 
Minister of Education: Thorgerdur Katrin Gunnarsdottir (IP -- 
incumbent) 
Minister of Finance: Arni Matthiessen (IP -- incumbent) 
Minister of Heath: Gudlaugur Thor Thordarson (IP) 
 
Minister of Industry: Ossur Skarphedinsson (SDA) 
Minister of Commerce: Bjorgvin Sigurdsson (SDA) (Note: Previously 
there was a single Ministry of Industry and Commerce) 
Minister of Social Welfare: Johanna Sigurdardottir (SDA) 
Minister of Environment: Thorunn Sveinbjarnadottir (SDA) 
Minister of Transport: Kristjan Moller (SDA) 
 
¶3.  (SBU) The IP-SDA talks began on May 17 after the announcement 
that coalition talks between the IP and the Progressive Party (PP), 
partners of 12 years, had collapsed.  The fallout for the 
Progressives has been considerable, as PP Chair Sigurdsson has since 
maintained that he was led to believe that Haarde was sincerely 
interested in continuing the coalition despite the shrinking of the 
IP-PP majority to a single seat(reftel).  Sigurdsson voiced his 
disappointment and sense of betrayal when IP-SDA talks began within 
hours of the IP-PP announcement on the 17th, and his dismay only grew 
with reports that Haarde and Gisladottir had been in informal contact 
as early as May 16.  Haarde's response has been to note that 
"everyone knows how the process works" after elections in a 
parliamentary system.  Sigurdsson, who failed to be elected to 
parliament on May 12, announced his resignation as Progressive Party 
Chair immediately after the coalition agreement was presented to the 
public on May 23. 
 
¶4.  (U) Procedurally, the new government formally takes office on May 
24 at a meeting of the State Council (composed of the President, 
Prime Minister, and Cabinet).  The old State Council will convene, 
officially retire, and the new Council will then convene. 
Afterwards, there will be a series of official ceremonies at the 
ministry buildings in Reykjavik as outgoing ministers present the 
symbolic keys to their offices to their successors.   Meanwhile, the 
Althingi will convene during the week of May 28 to formally elect the 
Speaker of the Althingi (outgoing Minister of Transport Sturla 
Bodvarsson -- IP) and designate committee chairs and members. 
 
 
REYKJAVIK 00000158  002 OF 003 
 
 
New Policy Statement Focused on Welfare Issues 
--------------------------------------------- - 
 
¶5.  (U) The coalition agreement's statement of policy devotes 
extensive attention to social welfare and economic matters, with an 
obvious effort made to split the difference between each party's 
campaign promises.  The IP managed to preserve the current emphasis 
on a business- and investment-friendly regulatory environment, 
maintaining and even reducing Iceland's current low corporate taxes 
and including guarantees that the private sector will continue to 
take the lead in Iceland's economy.  (Comment:  A move apparently 
intended to quash fears of a return to Iceland's heavily socialist 
economy of the 1970s and -80s.  End comment.)  At the same time, the 
SDA pushed through its objectives of increased pension and state 
insurance expenditures for the elderly and disabled, as well as 
pledges of improved health care and services for children.  SDA Chair 
Gisladottir has also highlighted the agreement's pledge to reduce or 
eliminate gender-based wage disparities (a fitting effort for one of 
the founders of Iceland's "Women's List" political party in the 
1980s).  The statement does not, however, clarify what moves will 
result from the SDA's control of the Ministries of Industry, 
Commerce, and Environment, which could have major implications for 
continued investment in the aluminum sector and other 
energy-intensive industries.  Rather, the agreement's language 
focuses on "finding a balance" between economic development and the 
use and protection of natural resources, without laying out concrete 
actions. 
 
...but placates both parties on Iraq 
------------------------------------ 
¶6.  (SBU) On foreign policy, the agreement reflects an obvious 
attempt to give the SDA some cover regarding its election promise to 
remove Iceland from the list of the Iraq "Coalition of the Willing", 
while avoiding alienating the IP (and particularly those close to 
David Oddsson, who was PM at the time of the invasion).  The 
Icelandic wording chosen can be translated as the GOI "lamenting" 
either "the war in Iraq" or "the conduct of the war in Iraq," leaving 
ambiguous as to whether the statement refers to the current situation 
or the means by which the current situation came about.  In comments 
to the press, the PM and FM have each presented their own view on 
what the statement means.  For his part, PM Haarde said, "we know the 
history and the position of the parties [in 2003] but of course we 
lament the situation there now," adding that the GOI will not let the 
events of four years ago affect its continued cooperation and efforts 
in Iraq.  (Note: Iceland deploys a Public Information Officer to NATO 
Training Mission-Iraq.  End Note.)  On the other hand, FM-designate 
Gisladottir claims that it "is clear that the government laments the 
war and its conduct" and that subsequent GOI translations of the 
statement will make the intent of the government clear.  More 
constructively, the document does indicate that Iceland intends to 
continue or strengthen its humanitarian and reconstruction activities 
in Iraq and the Middle East. 
 
¶7.  (SBU) On other foreign policy issues, the new government pledges 
to take the lead on international environmental issues (particularly 
ocean pollution and climate change) and follow a "decisive security 
and defense policy."  A separate section on European Affairs notes 
that the GOI will establish a cross-party working group in the 
Althingi to study issues related to Iceland's membership in the 
European Economic Area and the "development of issues in Europe" 
(read: the strengthening of EU institutions) and make recommendations 
accordingly.  (Comment:  The SDA is the only Icelandic party to be 
openly pro-EU membership; this appears to be a compromise to allow 
the IP to kick this particular can further down the road while 
letting the SDA claim they are making progress on the issue.) 
 
Comment 
------- 
 
¶8.  (C) Post concurs with FM-designate Gisladottir's assessment to 
the press that the new coalition represents a significant 
reconciliation of different viewpoints and political philosophies on 
the right and left.  We add the caveat, however, that this will only 
be true if the whole grand enterprise stays intact for a full 
four-year term.  PM Haarde continues to enjoy phenomenal popularity 
ratings hovering around 60 percent in most polls, while Gisladottir 
has consistently ranked as the "least trusted" Icelandic politician 
over the last year.  Gisladottir's ambitions to be Iceland's first 
female prime minister are clear, and press and political observers 
are already speculating that she will attempt to force a 
confrontation with the IP in a few years.  In such a scenario, 
Gisladottir would hope to recruit the Progressives and the Left-Green 
Movement into a center-left coalition in which she would be prime 
minister. 
 
¶9.  (C) In the short term, we expect that Gisladottir will attempt to 
use the FM post to shore up her credibility and public standing, 
earning voters' trust that she can be relied upon as the nation's 
 
REYKJAVIK 00000158  003 OF 003 
 
 
leader.  She will work to nudge Iceland closer to European 
institutions-always an objective--but for the time being we do not 
expect her to provoke the IP on this issue. Although she will 
probably follow the Icelandic pattern by making her first foreign 
trip to the Nordics, Gisladottir will likely want a Washington trip 
sooner rather than later in order to begin burnishing her credentials 
in the International arena. 
 
¶10.  (C) As he has during his first year as PM, Haarde will keep 
Icelandic-U.S. relations on the front burner, particularly in defense 
and security affairs.  His clear preference is for Iceland to work 
through NATO for its security, and the retention of Minister of 
Justice Bjarnason is an important signal that the PM intends to 
continue recent efforts to strengthen Iceland's domestic security 
institutions and its Coast Guard. 
 
van Voorst