Iceland: Political parties considering EU membership as

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

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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.

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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