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FM AMEMBASSY REYKJAVIK
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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