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C O N F I D E N T I A L SECTION 01 OF 02 REYKJAVIK 000161 
 
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STATE FOR EUR/NB 
NSC FOR HOVENIER 
IO/UNP FOR SUN 
EUR/PGI FOR ELDRIGE 
EUR/RPM FOR WILTON 
USUN FOR DUGAN 
TREASURY FOR MEYER 
 
E.O. 12958: DECL: 09/18/2019 
TAGS: PGOV PREL ECON UNGA NATO IC AF UK NL
SUBJECT: ICELANDIC FOREIGN MINISTER'S MEETING WITH CHARGE 
FOCUSES ON UNGA, ICESAVE, NATO 
 
REF: 09 REYKJAVIK 146 
 
Classified By: CDA Sam Watson for reasons 1.4 (b) and (d). 
 
¶1. (C) Summary.  Charge d'Affaires (CDA) discussed a range of 
issues with Icelandic Foreign Minister Ossur Skarphedinsson 
on September 16 during his first courtesy call.  The Minister 
described his plans for the UN General Assembly.  On Icesave, 
he said that the British and Dutch had responded positively 
to some conditions that the Icelandic Parliament had added, 
but had not accepted all of them.  He confided that he had 
concerns about what would happen if the agreement had to go 
back to the Icelandic Parliament.  He also underscored 
Iceland's commitment to NATO, pledged to continue to provide 
personnel to Afghanistan and described Iceland's EU accession 
process timetable.  End summary. 
 
UNGA 
----- 
¶2. (C) On the eve of his trip to the United Nations General 
Assembly, Foreign Minister Ossur Skarphedinsson candidly 
assessed Iceland's foreign relations as well as its domestic 
political situation in an initial meeting with CDA on 
September 16. While looking forward to the Trans-Atlantic 
dinner, Skarphedinsson's main UNGA priority is discussions 
with European Union member states, in part to lobby for 
Iceland's EU candidacy.  In his address to the General 
Assembly, Skarphedinsson said he would touch upon a number of 
issues including the Middle East and the High North, but 
noted that he has a propensity to speak off the cuff and may 
change the focus of his speech.  Skarphedinsson also plans to 
discuss with the IMF its review of Iceland, which has been 
postponed pending resolution of the Icesave issue. 
 
Icesave 
------- 
¶3. (C) The Foreign Minister provided a frank update on the 
status of the Icesave agreement (reftel).  He said that 
Iceland recently received an informal response from the 
British and Dutch governments regarding the amendments that 
the Icelandic Parliament attached to the original Icesave 
agreement.  Under normal circumstances, he would consider the 
British and Dutch response to be a positive one in that it 
clearly demonstrated intent on their part to work with 
Iceland.  He admitted, however, that the British and Dutch 
had not accepted all of Iceland's amendments and he was 
unsure what that meant for the future of the agreement. 
 
¶4. (C) Skarphedinsson said that he was meeting with Prime 
Minister Johanna Sigurdardottir later that afternoon to 
discuss the British and Dutch response in greater detail.  He 
expressed concern, however, about what would happen if the 
Icesave agreement had to go back in front of the Icelandic 
Parliament.   Calling Iceland's current political situation 
"troubled," he said it is difficult to know how other 
political parties will react should the Icesave issue come up 
again in Parliament.  Skarphedinsson noted that, while his 
Social Democratic party is unified in supporting the Icesave 
agreement, their coalition partners in the Left Green 
alliance are deeply split over the issue.  He called the head 
of the Left Green alliance, Finance Minister Steingrimur 
Sigfusson, a capable leader, but said that "he doesn't have 
full control of his party." 
 
¶5. (C) Iceland's future, according to Skarphedinsson, largely 
hinges on the Icesave agreement.  He mentioned that the fate 
of potential Nordic and IMF loans, as well as Iceland's EU 
accession, all hinge on a successful completion of the 
Icesave agreement.  Skarphedinsson intends to continue with 
his dual-pronged strategy of engaging the British and Dutch 
governments and also talking to key Icelandic political 
players.  Although discussions continue on both fronts, 
Skarphedinsson did not appear particularly optimistic about a 
positive outcome.  He noted that he and the Finance Minister 
continue to discuss the agreement with their counterparts in 
The Hague and London, keeping the Prime Minister informed. 
Commenting that he normally talks to the PM several times 
daily on this issue, he said that he and Sigurdardottir have 
a close relationship forged during their decade of working 
together.  As a result he and his ministry play the dominant 
role in foreign relations, while she leads on domestic 
 
REYKJAVIK 00000161  002 OF 002 
 
 
matters. 
 
Defense Matters 
---------------- 
¶6. (C) Skarphedinsson also spoke about defense issues 
including the closure of the Icelandic Defense Agency (IDA). 
Acknowledging the government's focus on Icesave, he 
nevertheless expressed optimism that a decision on IDA's 
future would come by year end.  Some of the IDA's duties 
would likely transfer to the Coast Guard, which falls under 
the Ministry of Justice.  He hoped, however, that most 
defense matters would remain with the MFA.  He stressed that, 
no matter how the reorganization turns out, Iceland will 
continue to uphold its NATO obligations.  When speaking of 
NATO commitments, the minister specifically stated that 
Iceland intends to take part in the Northern Viking exercise 
in 2010.  (Comment.  This information contradicts rumors we 
heard earlier that Iceland was considering postponing next 
year's Northern Viking exercise as a cost-saving measure. End 
comment.) 
 
¶7. (C) The Minister said that Iceland also remains committed 
to the effort in Afghanistan.  He said that, while he 
personally has concerns about the prospects for the war in 
Afghanistan, the Icelandic government understands its 
responsibility to contribute as a NATO member.  Iceland has 
no intention, he said, of completely withdrawing its 
personnel from Afghanistan and has never even discussed it as 
an option. 
 
¶8. (C) Noting the occasional activity of Russian planes in 
Iceland's air space, Skarphedinsson said he could not 
overstate the importance of the High North.  The Russians, he 
claimed, have specifically stated that the High North is a 
top strategic priority.  Skarphedinsson then, bluntly, used 
the High North discussion as an opportunity to chastise the 
U.S. for closing down the Keflavik Airbase in Iceland.  The 
decision, he said, was "a bloody mistake."  He noted that he 
understood the reasoning behind the decision and the need to 
reduce costs, but believes that the U.S. should have 
maintained some sort of presence in Iceland to protect its 
interests in the High North. 
 
EU Accession Process 
--------------------- 
¶9. (C) Regarding Iceland's bid to join the EU, 
Skarphedinnsson said that everything is progressing smoothly. 
 Iceland should have answers for the EU accession 
questionnaire by the EU's November 16 deadline. 
Skarphedinsson believes that this deadline was intentionally 
set to ensure that Iceland's candidacy cannot be evaluated at 
December's European Council summit.  Delaying consideration 
until spring would avoid the perception that Iceland's 
membership is fast-tracked at the expense of other 
candidates.  The most likely scenario, he opined, is that 
Iceland's membership application would be discussed at the 
March summit of the European Council and that accession 
negotiations will begin soon afterwards. 
 
WATSON