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DE RUEHRK #0286/01 3401628
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P 051628Z DEC 08
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC PRIORITY 3912
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS SECTION 01 OF 03 REYKJAVIK 000286 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PGOV PREL ECON EUN IC
SUBJECT: Iceland: Political parties considering EU membership as 
economic salve 
 
Ref:  Reykjavik 267 
 
¶1.  (U) Summary:  Iceland's economic crisis has radically changed 
opinions here on the possibility of joining the European Union, and 
the country's political parties are struggling to adapt.  Polls show 
support for joining the EU and adopting the euro reaching 70 
percent, while support for the government has fallen below 50 
percent.  Apart from the Foreign Minister's (pro-EU) Social 
Democratic Alliance, all other parties are debating whether and how 
to add EU membership to their platforms.  For the Prime Minister's 
Independence Party, fears of a formal split are running high, while 
in the opposition Progressives, the iconic chairman of the party has 
already resigned over the issue.  Even the staunchly nationalist 
Left-Greens are rethinking their views to retain their base of youth 
support.  Decisive party congresses for the IP and PP are slated for 
January 2009, meaning that even if new (anti-EU) parties do not 
emerge, Iceland will have a dramatically reshaped political 
landscape by next spring.  End summary. 
 
¶2.  (U) The debate on the merits of joining the European Union (EU) 
has become increasingly pronounced after the global credit crunch 
hit Iceland, the currency devalued sharply and the government 
nationalized the country's three major banks in October. Opinion 
polls in the last month show 60-70 percent of respondents in favor 
of EU accession, and similar support for adopting the euro. Compared 
with polls last year, support for membership has increased about 
15-25 percentage points.  In the business community, support for EU 
membership is even stronger, with almost all holding to the view 
that Iceland's road to salvation will only run through Brussels and 
adoption of the euro (reftel). 
 
¶3.  (U) Olli Rehn, the European Commissioner for Enlargement, has 
frequently been asked over the past couple of years how long it 
would take Iceland to become an EU member after filing the 
application. His answers have always been positive, and in the past 
several weeks, the media has placed more emphasis on his comments in 
light of the financial crisis and speculations regarding Iceland's 
possible EU membership. Rehn has stated that the European Economic 
Area (EEA) agreement would serve as a shortcut in accession 
negotiations for Iceland. He has also said that Iceland could well 
compete with Croatia for becoming the twenty-eighth member of the 
union, which suggests that Iceland could become a member no later 
than 2011, if Iceland decided to apply for membership soon.  In 
addition, various EU officials have made it clear that if Iceland 
wants to adopt the euro, it has to become a member of the EU first. 
 
¶4.  (U) Against this backdrop, Iceland's political parties -- both 
government and opposition -- are scrambling to adapt their policies 
on EU membership for Iceland.  For some (Independence and 
Left-Greens), this is a fundamental change in orthodoxy, while for 
others (Social Democrats and Progressives) a move to Brussels will 
simply confirm or codify existing trends. 
 
The Government -- divided over EU membership 
-------------------------------------------- 
 
¶5.  (U) Prime Minister Haarde's Independence Party (IP) has been the 
largest party in Iceland and a participant in most governments since 
the establishment of the republic in 1944. As such, it has virtually 
dictated Icelandic foreign policy, been a fervent advocate of NATO 
membership and strong transatlantic ties, yet been skeptical about 
European integration. The IP still maintains this position, but 
after the financial crisis hit Iceland, many party members 
(including the IP Vice Chair and at least one other minister) have 
come forth and said that the party should reconsider its position 
towards joining the EU and adopting the euro. Notably, even Minister 
of Fisheries and Agriculture Einar K. Gudfinnsson said in an October 
interview that all possibilities should be considered at this time, 
although he also reiterated his opposition to EU membership. (Note: 
Gudfinnsson is one of the strongest historical opponents of joining 
the EU, in part due to concerns over the EU's Common Fisheries and 
Agriculture Policies.  End note.)  These calls reflect the IP's 
strong support among the business community, which has already made 
clear its desire to abandon the Icelandic krona for another currency 
(with the euro the most likely candidate). 
 
¶6.  (SBU) On November 14, the IP leadership made a historic and 
significant decision when they announced that they had appointed a 
committee to discuss EU membership, and that the results would be 
presented to the party general meeting, which will be held in 
January next year (vice October 2009 as previously scheduled). 
Several days before this announcement, the IP's General Secretary 
told PolOff that the party recognized the need to respond to growing 
public support for EU membership, but that the result would have to 
be something "credible" in order for the IP to regain public 
support.  With leadership elections also on the agenda in January, 
the party meeting could develop into a true showdown over the IP's 
future course.  Many fear the result will be a split or large-scale 
defections by the anti-EU group; Central Bank Chair (and former 
Prime Minister and IP Chairman) David Oddsson gave credence to these 
 
REYKJAVIK 00000286  002 OF 003 
 
 
fears with a November 30 interview in a Danish newspaper where he 
said he would re-enter politics should he be fired from the Central 
Bank. 
 
¶7.  (U) The other member of the governing coalition, Foreign 
Minister Gisladottir's Social Democratic Alliance (SDA), is the only 
political party whose platform openly calls for EU membership. 
However, prior to the economic crisis, polls showed most Icelandic 
voters as skeptical towards EU membership, leading the SDA to 
minimize this plank.  In the changed conditions here, however, the 
SDA is now well prepared for the EU membership debate ahead given 
its long-standing pro-EU policy. The SDA firmly believes that EU 
membership is vital for Iceland to reach and maintain economic 
stability in the long run.  FM Gisladottir and other SDA ministers 
have used the crisis as an opportunity to make these points 
forcefully, at times even doing so while sharing a press conference 
podium with PM Haarde. 
 
The Opposition: Coalescing around an EU bid? 
-------------------------------------------- 
¶8.  (SBU) Like the IP, the Left-Green Movement (LGM) has always been 
an anti-EU party. The LGM emphasizes an independent Icelandic 
foreign policy that maintains the sovereignty of Iceland and 
supports all means of establishing global peace. The party rejects 
participation in the EU and emphasizes simple, bilateral treaties 
concerning trade and co-operation. However, due to the economic 
situation and polls showing that a number of LGM voters also favor 
EU membership and adoption of the euro, the LGM may need to adapt 
itself to the current situation.  This is not entirely new -- the 
party's Deputy Chair told PolOff in spring 2008 that as the krona 
grew weaker, many in the party were concluding that EU membership 
might be the only realistic choice.  Despite LGM Chair Steingrimur 
Sigfusson's visceral opposition to EU membership, signs suggest he 
may be increasingly isolated.  At the outset of the crisis in 
October, the youth wing of the party announced it was formulating a 
new policy on the EU instead of simply copying the policy of the 
mother party. Even one of Sigfusson's longtime ideological allies, 
Chairman of the LGM parliamentary group Ogmundur Jonasson, said that 
the party will soon discuss the possibility of putting EU accession 
talks on the agenda and holding a referendum on EU membership 
(despite also reiterating his personal opposition to EU 
membership). 
 
¶9.  (SBU) For the Progressive Party (PP), the EU membership debate 
has sparked the third leadership crisis in just over two years. 
Former Prime Minister and Chair of the Progressive Party (PP) 
Halldor Asgrimsson tried to modernize the traditionally agrarian 
party by appealing to urban voters, and flirting with a more pro-EU 
policy. Asgrimsson's strategy failed, as confirmed by stinging 
losses in 2006's municipal elections and 2007's parliamentary 
elections.  After the 2007 defeat, former Minister of Agriculture 
Gudni Agustsson took over as party chair, and unsuccessfully 
attempted to gain support by reverting to a more traditional PP 
policy appealing to rural interests.  As calls here to consider 
joining the EU increased, internal tensions came to a head at a 
biannual meeting of the party's central committee on November 15, 
where the party's youth wing led harsh criticism of the leadership 
and called for EU accession to be clearly placed on the party's 
agenda. The party moved up its general meeting to January to vote on 
new leadership and the EU question. Two days later, PP Chair 
Agustsson stunned political circles by announcing his resignation as 
chairman and MP, saying he was stepping aside to allow the party to 
reconcile and move ahead. Agustsson's resignation clears the biggest 
hurdle to a solid pro-EU position for the PP.  Most believe that the 
party is desperately in need of new, younger leadership, though no 
strong candidates have emerged thus far.  However, a reinvented, 
solidly pro-EU Progressive Party might be a more attractive 
coalition possibility for the SDA, should the current government 
crumble. 
 
¶10.  (U) The current stance of the Liberal Party (LP) is a bit 
murkier compared to the other parties, but given that it is an 
idiosyncratic party founded on one issue --opposition to the current 
system of fisheries management --the party is wary of EU membership 
as long as its Common Fisheries Policy remains unchanged. The party 
is currently gauging the views of party members towards the EU and 
is expected to update its policy platform accordingly. 
 
¶11.  (SBU) Comment:  By putting possible EU membership on their 
agendas, the parties are now trying to adapt their policies to 
reflect public will and grab more of what looks like a very volatile 
electorate. While a larger share of voters wants to drop the 
Icelandic krona and adopt the euro as soon as possible, control over 
fishing grounds is still seen as an integral part of the Icelandic 
independence struggle and economic sovereignty. The IP and the PP 
seem to have realized that sacrificing this sacred cow, as well as 
agriculture, may be a necessary evil in order to stabilize the 
Icelandic economy for the long run. If the old guard holds sway 
among the Left-Greens, they may turn out to be the only remaining 
anti-EU party, and might attract a new base of anti-EU voters. 
 
REYKJAVIK 00000286  003 OF 003 
 
 
However, a more likely scenario might be the emergence of new 
centrist or center-right parties based on opposition to EU 
membership, particularly if the IP meeting in January turns bitter. 
Regardless, by next spring we will likely see a wholescale 
realignment of the political spectrum here.  End Comment. 
 
VAN VOORST