ICELAND: TALKING POINTS FOR THE DCI

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T01058R000202310001-8
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 5
• Document Creation Date: December 22, 2016
• Document Release Date: April 26, 2010
• Sequence Number: 1
• Publication Date: January 30, 1985
• Content Type: REPORT

Sanitized Copy Approved for Release 2010/08/09: CIA-RDP85T01058R000202310001-8 _
Memorandum for: For the Record ~,~
v
2~ ) 25X1 T~ a talking points were prepared
or inclusion in materials being prepared
or the DCI's meeting with visiting Icelandic
VIPs.
25X1
EUR M 85-10021
E V R A
Office of European Analysis
Directorate of Intelligence
State Dept. review completed
Sanitized Copy Approved for Release 2010/08/09: CIA-RDP85T01058R000202310001-8
 Sanitized Copy Approved for Release 2010/08/09: CIA-RDP85T01058R000202310001-8 ~ 25X1
I
30 January 1985
Iceland: Talking Points for the DCI
Political Situation
1. Prime Minister Steingrimur Hermannsson leads a center-right coalition
government of his agrarian-based Progressive Party and the conservative
Independence Party. The coalition, which has been in office since May 1983,
holds 37 out of 60 seats in Parliament. The parliamentary opposition consists
of the Social Democratic Party, the Social Democratic Alliance, the Peoples
Alliance, and several independent female parliamentarians.. Even though there
are presumed communists among the Peoples Alliance leadership, we regard the
party as left-socialist since the bulk of the membership and most of its
leaders are non-communist. There are, nevertheless, several small orthodox
communist parties, none of which has parliamentary representation
2. Elections need not be held again until 1987, and Hermannsson, sensing
a low level of public confidence in his government, is reluctant to call an 25X1
early vote. We attribute the coalition's current poor standing with the
voters to the following factors:
-- the government's failure to act quickly and decisively to end a
public workers' strike last fall; _
-- recent economic difficulties, some of which result from the strike
settlement, including the threat of accelerated inflation; and
-- a power struggle within the Independence Party. The conflict centers
on the desire of Chairman Thorsteinn Palsson, who represents the
younger, more conservative elements of the party, to secure a cabinet
portfolio by displacing one of the Party's three ministers. The
dispute has left the government open to charges that it is too weak
and distracted to solve the country's problems
Political-Security Issues
2. Hermannsson and Foreign Minister Geir Hallgrimsson, who also has
responsibility for defense matters, support NATO policies and the presence of
US forces at the Keflavik NATO air base even more strongly than previous
governments. Polls show that a large majority of Icelanders agree with the
government on these issues.
-- The government is seeking a more active role for Iceland in NATO
forums. To this end, the Foreign Ministry was reorganized last
summer to include a full-time NATO desk officer. Iceland is also
seeking some form of representation on the NATO Military Committee --
possibly a slot on the NATO International Staff -- and a way of
participating in the NATO Infrastructure Committee.
Sanitized Copy Approved for Release 2010/08/09: CIA-RDP85T01058R000202310001-8
 Sanitized Copy Approved for Release 2010/08/09: CIA-RDP85T01058R000202310001-8
25X1
-- Foreign Minister Hallgrimsson has pushed hard for public appreciation
and acceptance of the necessity for NATO's presence on the island and
Iceland's more active interest in NATO affairs. In line with his
perception of Iceland's security requirements, Hallgrimsson i-ac bPPn
instrumental in helping to forge closer US-Icelandic ties
Economic Issues
3. When the government took office in May 1983, it launched an economic
austerity program that focused on reducing inflation, government deficits, and
trade imbalances while taking modest steps to combat rising unemployment. The
program succeeded in bringing inflation down from a record high of over 120
percent to an annual rate of 18 to 20 percent by October 1984,
-- On 4 October, public sector employees launched a large scale strike,
demanding compensation for wages lost since indexation was abolished
in 1983. The strike lasted six weeks, and the government eventually
agreed to wage increases of more than 20 percent. By the end of
1984, inflation had accelerated to the 25 to 30 percent range. We
believe the wage settlements are cause for considerable concern about
the government's ability to ,hold the line on inflation and maintain a
stable exchange rate policy.
4. The government hopes to diversify the Icelandic economy, which
depends on the fishing industry for about half of its total employment and
over 70 percent of its export revenue.. Hermannsson is interested in joint US-
Icelandic efforts to identify and nurture potential high-growth industries.
-- The government has encouraged domestic and foreign investment in the
hydroelelectric, geothermal n i is areas, of which Iceland has
substantial resource bases
Bilateral Issues
5. The incumbency of a center-right government has significantly
improved the climate for resolving issues affecting the US-manned Icelandic
Defense Force (IDF). Iceland, with no armed forces of its own, relies on the
IDF and the Icelandic Coast Guard for its protection.
-- Foreign Minister Hallgrimsson has paved the way for government
approval of many defense modernization ;projects that had been delayed
under the previous center-left administration -- including new fuel
storage facilities, air defense expansion and modernization, and a
new joint military-civilian-use air terminal at Keflavik. As of this
month, negotiations also are underway for an upgrading of NATO's
radar capabilities in Iceland.
6. Iceland's current economic strains have made it difficult for the
government to fund fully its share of these projects. At the same time, the
financial problems have made the government and the public more aware of the
economic benefits of a US presence, a factor that should benefit any future US
proposals for improving IDF facilities.
25X1
Sanitized Copy Approved for Release 2010/08/09: CIA-RDP85T01058R000202310001-8
 Sanitized Copy Approved for Release 2010/08/09: CIA-RDP85T01058R000202310001-8
' - I I 25X1
-- Economic conditions may account in part fora lessening of overt
hostility to the US presence from leftist elements. Base opponents
last year cancelled an annual protest march against the stationing of
US forces, in part, according to Embassy officials in Reykjavik,
because they expected a poor turnout
7. Only one significant problem mars relations with the US. In 1984 an
American transatlantic shipping company -- Rainbow Navigation, Inc. -- began
ferrying some US military cargos to and from Keflavik, reducing the market
share of Icelandic shipping firms which previously enjoyed a monopoly over the
route. Negotiations between the two governments have thus far failed to find
a long-term solution to a situation Iceland sees as potentially damaging to
its economic interest.
25X1
Sanitized Copy Approved for Release 2010/08/09: CIA-RDP85T01058R000202310001-8
 Sanitized Copy Approved for Release 2010/08/09: CIA-RDP85T01058R000202310001-8
Orig
1-DDI
1 - ADDI
1 - OD/EURA
2 - EURA Production
4 - IMC/CB
1 - Branch file
1 - Division file
1 - Author
EURA/WE/GN/R
(30Jan85)
Sanitized Copy Approved for Release 2010/08/09: CIA-RDP85T01058R000202310001-8