Viewing cable 09REYKJAVIK75, ICELAND'S GOVERNMENT FEELING SECURE WITH ONE WEEK BEFORE

VZCZCXRO3918
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHNP RUEHPOD RUEHROV RUEHSK RUEHSR RUEHVK RUEHYG
DE RUEHRK #0075/01 1100909
ZNR UUUUU ZZH
P 200909Z APR 09
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC PRIORITY 4050
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEAIIA/CIA WASHDC

UNCLAS SECTION 01 OF 02 REYKJAVIK 000075 
 
SIPDIS 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: PGOV PREL IC
SUBJECT: ICELAND'S GOVERNMENT FEELING SECURE WITH ONE WEEK BEFORE 
ELECTIONS 
 
¶1. (U) Summary: Polls continue to show Iceland's leftist minority 
government with a strong lead one week ahead of national elections 
on April 25. Though the official campaign may be less than a full 
week due to an opposition filibuster that has kept parliament in 
session, the Social Democratic Alliance and Left-Green Movement are 
increasingly acting like they will get a renewed mandate. Adding to 
Independence Party woes is the fallout from news of extremely large 
(by local standards) political donations in 2006 on the eve of new 
campaign finance limits. The damage is forcing the IP to 
consolidate support from its base, rather than make an attempt to 
pose a credible challenge to what would be Iceland's first leftist 
majority government. At the same time, unease over the donations 
scandal will mean the new government will have work to do in 
reestablishing public confidence in the political system. End 
Summary. 
 
¶2. (U) Although the Icelandic Althingi (parliament) continues to 
meet, the government coalition parties are gaining confidence with 
just over a week before national elections on April 25. A 
filibuster by the opposition Independence Party over constitutional 
amendments has kept the Althingi in session closer to the date of 
elections than at any other time in Icelandic history, but polling 
data seems to show that the Social Democratic Alliance and 
Left-Greens have not been damaged by the shortened campaign. 
 
¶3. (U) The country's leading newspapers published their latest poll 
results on April 16 and 17. Despite measuring significantly 
different levels of support for the conservative Independence Party, 
both polls show that the current SDA-LG minority government would 
hold a majority in the Althingi. Frettabladid's April 16 poll 
results showed the SDA and LG with 32.2 and 25.7 percent, 
respectively, while Morgunbladid's Gallup poll released on April 17 
had the two parties at 30.7 and 28.2 percent. Independence 
supporters found something to cheer in the Frettabladid results 
showing 27.3 percent support, which implied that a campaign finance 
scandal has done little harm to the party. However, the next day's 
Gallup poll showed the IP dropping to 23.3 percent nationwide, down 
from 36.6 in the 2007 elections. 
 
¶4. (U) Variances aside, the polls were in agreement on three 
points. The new Citizens' Movement is inching closer to the 5 
percent threshold needed to get an MP elected. Meanwhile, support 
for the Progressive Party continues to hold stagnant around seven 
percent, meaning that after an initial bounce the party's new 
leadership has made no inroads with the public. Finally, the 
idiosyncratic Liberal Party is in a quagmire at around one or two 
percent and is clearly not going to win any seats in parliament this 
year, meaning the party will probably be dissolved in the near 
future. 
 
¶5. (SBU) Reflecting the news from the polls, leftist politicos have 
been increasingly upbeat in meetings with embassy officials in 
recent days. Debate now centers on whether or not the Left-Greens 
will suffer what has been a traditional collapse of support in the 
last days before national elections (in 2007, they lost 10 percent 
in the last month of the campaign). If the current numbers hold, 
the IP could see itself fall to an historic low as Iceland's 
third-largest political party. 
 
¶6. (U) Independence Party malaise has only deepened over the last 
week as news emerges regarding political donations made under 
Iceland's previous campaign finance regime. Easter weekend 
headlines were dominated by reports that in 2006 the IP accepted 
millions of ISK in donations from FL Group (ISK 30 million, $238,000 
at current exchange rates, or $415,000 at the time) and Landsbanki 
(ISK 25 million/$198,000/$346,000) only a few days before Iceland's 
first campaign finance law took effect on January 1, 2007. Once the 
scandal broke on April 8, former IP chairman Geir Haarde immediately 
sent out a statement saying that he took full responsibility for 
accepting the donations, though many feel that Haarde was trying to 
shield the rest of the party from blame only two weeks before 
national elections. 
 
¶7. (U) The fallout continued on April 10, when the party's 
Secretary General Andri Ottarsson resigned, although he claimed to 
have had no knowledge of the donations (Ottarsson was hired by the 
IP in mid-2006). MP and former Minister of Health Gudlaugur Thor 
Thordarson took the most heat, and he was forced to retract his 
categorical denials of any involvement. Reports have surfaced that 
put Thordarson at the center of IP fundraising efforts in late 2006, 
and he is said to have been pressured to resign from the Althingi or 
yield his seat at the top of one of the Reykjavik Constituency lists 
to a candidate less tainted by scandal. Thordarson's political 
position has since improved after a slate of his allies was 
re-elected to the leadership of the IP's Reykjavik chapter, and it 
is unlikely he will be leaving the stage. 
 
¶8. (U) The other three major parties were quick to disclose 
information about where the sources of their donations in 2006. The 
 
REYKJAVIK 00000075 002 OF 002 
 
 
Progressive Party (PP), which was in government with the IP in 2006, 
initially claimed that privacy concerns prevented it from releasing 
information about its donors under the old law. It quickly relented 
and released a breakdown of ISK 23.5 million ($187,000 at current 
exchange rates, or $326,000 at the time) in donations that were over 
ISK 1 million each. Of those the largest donation was ISK 5 million 
from the contractor Eykt, and ISK 4 million from Kaupthing Bank. A 
third of the ISK 23.5 million came from companies associated with 
the so-called "S" group (a holding company made up of three leading 
insurance and retirement savings firms) and another third from large 
contractors and construction firms. 
 
¶9. (U) The SDA's disclosures confirmed for many the party's close 
ties with the Baugur Group, long a bugaboo of the Independence 
Party. The SDA received a total of ISK 45 million ($357,000 at 
current exchange rates, or $625,000 at the time) in 2006. Donations 
over ISK 500 thousand amounted to ISK 36 million. Of those the 
largest donation was ISK 5 million from Kaupthing bank and ISK 4 
million from Landsbanki. Of the ISK 36 million in large donations, 
25 percent came from companies associated with the Baugur Group, and 
slightly smaller amounts from the S-Group and father-son investors 
Bjorgolfur Gudmundsson and Bjorgolfur Thor Bjrgolfsson, 
respectively. 
 
¶10. (U) The LG issued a statement saying that the party's 
accounting had always been open to the public and that the largest 
donation in 2006 was ISK 1 million ($8,000 at current exchange 
rates, or $14,000 at the time), from the insurance company 
Samvinnutryggingar (one of the S-group companies). 
 
¶11. (SBU) Comment: The campaign contributions scandal has taken a 
toll on the IP in the short term at least, according to the latest 
Gallup poll, but it remains to be seen whether brouhaha will remain 
fresh in the minds of voters on Election Day. Many wonder what 
hardcore IP supporters will do given their lack of alternatives on 
the right end of the spectrum. Rumors are swirling that many will 
turn in a blank vote rather than support a party that has failed to 
adequately deal with the past and has missed repeated opportunities 
to put forth a new generation of candidates. If IP support drops 
below 20 percent, the base's dissatisfaction will be clear. In 
these conditions, anything above 25 percent will be a relative 
victory for new IP Chair Bjarni Benediktsson. 
 
¶12. (SBU) Comment, cont'd: Many point out that the SDA and PP also 
received donations from large corporations, but not nearly as high 
as the IP. This has shielded them from taking the same level of 
criticism, although commentators wonder why the political parties do 
not disclose financial information reaching further back than 2006, 
which naturally begs the question of what there is to hide. The 
Citizen's Movement's jump in the polls may be a reflection of 
growing dissatisfaction with the party system and a sense that all 
of Iceland's parties are tainted. Although voters may put the SDA 
and LG back in power on April 25, they will have some work ahead of 
them to turn a sense of resignation into enthusiastic support for 
the government. End Comment. 
 
VAN VOORST