(U) Secretary Rice's May 30, 2008 lunch meeting

C O N F I D E N T I A L SECTION 01 OF 04 PARTO 060602

(Note: the unique message record number (MRN) has been modified. The original MRN was 08 PARTO 000002, which duplicates a previous PARTO telegram number.)

E.O. 12958: DECL: 06/06/2018
TAGS: OVIP RICE CONDOLEEZZA PREL MARR NATO ECON
SENV, KPKO, AF, RU, SU, ZI, CN, XA, XQ, IC
SUBJECT: (U) Secretary Rice's May 30, 2008 lunch meeting
with Icelandic Prime Minister Geir Haarde


1. (U) Classified by: Kenneth Merten, Deputy Executive
Secretary, S/ES, Department of State. Reason 1.4.(d)


2. (U) May 30, 12:15 p.m., Reykjavik, Iceland.


3. (U) Participants:

United States
The Secretary
Ambassador Carol van Voorst
Under Secretary Reuben Jeffery III, E
Assistant Secretary Daniel Fried, EUR
Assistant Secretary Sean McCormack, PA
Chief of Staff Brian Gunderson
Embassy Reykjavik DCM Neil Klopfenstein
Political Officer Brad Evans, Notetaker

Iceland
Prime Minister Geir H. Haarde
Foreign Minister Ingibjorg Solrun Gisladottir
Gretar Mar Sigurdsson, Permanent Secretary of State
Bolli Thor Bollason, Permanent Secretary at the PM's
Office
Sturla Sigurjonsson, Foreign Policy Advisor to the PM
Greta Gunnarsdottir, Director General for International
and Security Affairs
Kristrun Heimisdottir, Political Advisor to the FM
Greta Ingthorsdottir, Political Advisor to the PM
Thorir Ibsen, Director, MFA Defense Department
Elin Flygenring, Chief of Protocol
Jon Egill Egilsson, Director for Natural Resources and
Environmental Affairs
Nikulas Hannigan, Director for International Affairs



4. (C) SUMMARY: Secretary Rice, Prime Minister Haarde,
and Foreign Minister Gisladottir reviewed Icelandic
initiatives in defense and security as well as
developments in the High North. Russia poses a challenge,
particularly in areas of the former Soviet Union. PM
Haarde announced Icelandic plans to contribute to the
U.K.-sponsored NATO helicopter trust fund in Afghanistan.
The Secretary outlined some of the challenges in Africa
today; Iceland is looking for ways to play a helpful role
on the continent. Attendees agreed that both the United
States and Icelandic economies have suffered from tighter
global credit markets, but the worst seems to be over.
END SUMMARY.

--------------
DEFENSE RELATIONS WITH U.S. AND NATO
--------------


5. (C) Prime Minister Haarde began by reviewing Iceland's
efforts to manage its peacetime defense in the 18 months
since the U.S. military withdrawal from Iceland. The
U.S.-Iceland defense relationship is still the cornerstone
of Iceland's defense policy. At the same time, Haarde's
government has focused on five key areas. Iceland's new
national Defense Agency will have responsibility for
managing day-to-day issues and operational relations with
NATO, and will start work on June 1. The new NATO air
policing mission, with a French deployment currently in
Iceland and a U.S. rotation scheduled for fall 2008, has
filled a key security need, and Haarde expressed his
appreciation for U.S. support and the helpful role played
by NATO Secretary General de Hoop Scheffer. Peacetime
security cooperation with neighboring states is moving
ahead steadily as with Iceland signed security MOUs with
Norway, Denmark, the UK, and, later this summer, Canada.
Iceland is maintaining or increasing its NATO
contributions in Afghanistan and to the NATO Security
Investment Program, and is exploring a contribution to the
Estonian-hosted Cyber Defense Center. A government-
appointed committee will provide Iceland's first
comprehensive threat assessment this fall, and Haarde
expects that this will shed some light on Iceland's way
forward. The Secretary said she was glad to hear how well
things had gone for Iceland in defense and security and
suggested that as Iceland's new defense institutions gain
experience it would be useful to review bilateral defense
relationship to gauge the need for further revision.

--------------
ARCTIC SECURITY AND THE HIGH NORTH
--------------


6. (SBU) PM Haarde drew the Secretary's attention to
Iceland's sponsorship of a NATO conference on security in
the High North in January 2009, and passed on a concept
paper. NATO SYG de Hoop Scheffer is scheduled to be the
keynote speaker, and Iceland is anticipating high-level
participation from Allies, including Norwegian PM Store.
Secretary Rice pledged that the United States would be
well represented at the event, although timing was a
problem.


7. (C) Secretary Rice noted the U.S. awareness of
developments in the Arctic and that we were still shaping
our approach to the region. Under Secretary Jeffery
detailed the broad range of issues that Arctic policy must
encompass, including energy, transportation,
environmental, and traditional security affairs. PM
Haarde agreed, pointing to the expected increase in
petroleum and gas shipments to the United States as Arctic
waterways become more open. FM Gisladottir urged that the
Arctic Council be the venue for all discussions on these
matters, and lamented that the recently concluded Danish-
sponsored Arctic Ocean Conference in Greenland did not
include all Arctic states. The Secretary noted our
support for the Arctic Council, but asked if Iceland was
addressing High North issues in any other fora. PM Haarde
pointed to the January 2009 conference as evidence of
Iceland's efforts to focus NATO on the region.

--------------
RELATIONS WITH RUSSIA
--------------


8. (C) PM Haarde observed that Russian activities in the
Arctic are of political-military concern as well as an
energy security issue. Haarde described the significant
increase in Russian military flights near Iceland, adding
that the flight profiles now tend to circumnavigate the
island rather than simply touch on Icelandic airspace as
during the Cold War. He noted appreciatively President
Bush's comments on Russian overflights at the NATO
Bucharest Summit, and said that Icelandic inquiries to the
Russians had produced little other than the Russian
Ambassador in Reykjavik's televised comments that Iceland
should "get used to it." These flights can also pose a
risk to civil aviation, particularly given the age of the
Russian aircraft. The Secretary, referring to similar
flights near Alaska and U.S. assets in the Pacific, said
that the U.S. tries not to overreact to these actions but
we do let the Russians know they are unhelpful.


9. (C) Asked for her assessment of Russian politics, the
Secretary said the United States is still getting used to
"Prime Minister Putin," and it is not yet clear how he and
Medvedev will interact. Medvedev is of a new generation,
and due to his good connections with governors around the
country may have a power base distinct from Putin.
Russian foreign policy will not change, however. They
have been helpful on Iran and North Korea, somewhat
helpful in the Middle East, and good on counterterrorism.
Anything that seems to touch the former Soviet empire such
as Georgia, however, is sensitive. This puts us in a
difficult position with the NATO Membership Action Plan
(MAP) for Georgia -- Allies cannot let the frozen conflict
in Abkhazia be the sole reason to keep Georgia out, as
this gives Russia an incentive to be unhelpful. PM Haarde
predicted that MAP will be approved at the December NATO
meeting. He observed that Icelandic-Russian relations
were generally good, apart from the overflights issue,
though the Russians can be difficult to understand.

--------------
NATO IN AFGHANISTAN
--------------


10. (SBU) The Secretary thanked PM Haarde for Iceland's
support of NATO operations in Afghanistan. Haarde said
Iceland was planning to shift funding from support for
NATO/Afghan National Army airlift to the UK-sponsored
Helicopter Trust Fund. He described the meeting in
Bucharest on Afghanistan as exceptional for the broad
consensus among all Allies and the international community
on the way forward.

--------------
AFRICA
--------------


11. (C) Haarde asked the Secretary for her views on
developments across Africa, commenting that although
Iceland has not historically had a strong presence there,
FM Gisladottir is putting more emphasis on relations with
African states. Secretary Rice described a wide variance
among nations on the continent, with some high performers
such as Botswana, Tanzania, and Mozambique doing well in
combating HIV/AIDS, cooperating with the United States on
Millennium Challenge goals, and managing conflicts in
Liberia and the Democratic Republic of Congo. Zimbabwe is
a galling problem, and South Africa has greatly
disappointed as a regional power in helping the situation
there. Haarde and Gisladottir agreed with the Secretary
that the June 27 runoff election in Zimbabwe seems
unlikely to resolve the political conflict and may well
lead to more violence.


12. (C) Gisladottir observed the tendency among European
states to think of Africa as a "development problem"
rather than focusing on political dialogue. The Secretary
agreed, pointing out that we need the high performers in
Africa to take on responsibility regionally and worldwide,
as well as within their own countries. In that vein, the
United States is hoping to see the African Union develop
its crisis response abilities. PM Haarde expressed
concern over growing Chinese influence in the region,
which appears to be entirely resource-targeted and shows
no concern for political development. The Secretary
agreed, but said that Africans themselves are suspicious
of the very mercantilist approach by the Chinese. On
Darfur, Secretary Rice described the tenuous state of
peacekeeping efforts and probed Icelandic interest in
supporting the equipment needs of contributing African
nations. Gisladottir said her ministry was looking into
this possibility.

--------------
ECONOMIC OUTLOOK
--------------


13. (U) U/S Jeffery outlined the current economic
situation in the United States and the USG's response.
The consensus is that we are near the end of the downturn,
but exactly how near is still a question. The long- and
mid-term outlooks are good. In the short term, regional
dips in real estate will still drive the situation
downward, but rising exports will help to counter that
trend. In response, the Federal Reserve has been far more
active than the past in adding liquidity. Similarly, the
United States has enjoyed good cooperation with other
central banks to ensure liquidity in the international
markets.


14. (SBU) PM Haarde replied that Iceland has also
suffered from this liquidity squeeze. Combined with a
larger macroeconomic adjustment the government was already
expecting, this unexpected crunch put a lot of pressure on
the Icelandic economy. Haarde said that for a while he
felt as though Iceland's small currency was the weakest
animal in the herd, being targeted by predatory hedge
funds and speculators. However, he believes Iceland is
through the worst and that things will continue to
stabilize. U/S Jeffery agreed that the fundamental
elements of the Icelandic economy appeared sound.
RICE