Reykjavík Grapevine - 28.09.2013, Blaðsíða 19

immediately” so that the American response—even
if no—would come after “the right questions” Klop-
fenstein also noted that the aforementioned contact
with Geithner had occurred the previous week—be-
fore Landsbanki's demise. Kaup#ing, meanwhile,
was on life support.
“We are at a loss to explain why the Icelanders
have not picked up the phone to discuss what they
need and what we might be able to help them with,”
Klopfenstein wrote. The very next day Kaup#ing
fell. And even though Finance Minister Árni Ma-
thiesen said he would be heading to Washington
for meetings with World Bank officials in response,
he still had to be prodded to avail himself of all pos-
sible support. “Post persuaded the Minister to agree
to meet with senior Treasury officials while in the
U.S.,” Klopfenstein said on October 9. On October
20, Ambassador van Voorst said that Árni wouldn't
have bothered arranging the meeting with Treasury
officials “without pressure from this embassy.”
The government falls
Finally, Geir Haarde's government chose a path out
of the crisis on October 24 when it and the Interna-
tional Monetary Fund revealed a preliminary agree-
ment on a $2 billion emergency loan, as van Voorst
wrote in an October 27 cable, to “help open other
lines of credit to meet the immediate goal of 6 bil-
lion USD.”
The deal would open a new can of worms in the
context of Icesave—the failed offshore Landsbanki
savings scheme became a major bone of contention
between Iceland, and Britain and Holland (more on
that later). But the government had more immediate
problems at home, described by Ambassador van
Voorst after an Embassy party in November:
-----------------------------------
A poll at the end of October showed
60 percent support for early elec-
tions, and the Chairman of the Left-
Greens [Steingrímur J. Sigfússon]
showed up at the Embassy's Election
Night event gleefully working the
room with that encouraging datum.
Demonstrations calling for -- among
other things -- a new government
continue to grow, with the latest
protest on November 8 drawing over
3000 participants.
-----------------------------------

After a lull in political activity over the winter holi-
days while Iceland drank itself into a stupor, Al#ingi
reconvened and thousands of protestors surrounded
the parliament building, demanding resignations at
the highest levels—and the sentiment wasn't con-
fined to the streets, according to a January 21 cable
authored by Ambassador van Voorst:
-----------------------------------
IP dissatisfaction with PM Haarde is
also growing, a week ahead of that
party's national congress. Emboffs
have heard from two IP insiders in
the last day that many fear the PM
is "not doing anything" and that the
situation will only get worse absent
some dramatic action.
-----------------------------------
But it was difficult for the libertarian Independence
Party to break this inertia, as “not doing anything”
worked for them during the boom years. A cable sent
on January 23 explained:
-----------------------------------
[Mats] Josefsson [, charged with cre-
ating a framework for restructuring
the banking sector,] remarked that
the government had let the banks
handle everything over the last ten
years and there was not the infra-
structure in place to deal with the
crisis. This led to inaction, and in
hindsight, more could have been done
more quickly in October.
-----------------------------------
Systemic deference to the private sector also hindered
outside help, even after the government reached out
to foreigners. According to the same cable:
-----------------------------------
When the U.S. Department of Treasury
Deputy Assistant Secretary visited
Reykjavik December 8 - 9, 2008, there
was a visible lack of an "Economic
Czar." It took two full days of meet-
ings to obtain a coherent picture of
the economic situation. In December,
the Advisor at the Prime Minister's
Office Bjorn Runar Gudmundsson...
conceded there was a lot of misun-
derstanding and difficulty in getting
"everyone to talk the same language."
-----------------------------------
The same day, Geir finally called it quits. Citing an
oesophageal cancer diagnosis he had received two
days earlier, the Prime Minister said he wouldn't
seek re-election and that the Independence Party
would request Parliamentary elections in May. His
colleagues wishfully thought aloud, in the presence
of American diplomats, that their problems could be
over:
-----------------------------------
Independence Party stalwarts tell
us that they are relieved to have
some explanation for what one called
Haarde's "strange" behavior in recent
weeks, and are hopeful that the IP
will now have a chance to set a clear
course and regain the nation's sup-
port.
-----------------------------------
But the coalition fell apart. After Geir's resignation,
the Social Democrat Alliance (SDA) tendered a list
of demands. A political advisor to Árni Mathiesen
told the U.S. embassy that “his boss went into today's
meeting willing to yield on the other requests,” ac-
cording to a January 26, 2009 cable, “but that the IP
would rather walk than surrender the Prime Min-
ister's seat to its junior partner,” the Social Demo-
crats. About a week after that, a Social Democrat-Left
Green interim minority coalition was formed with
SDA veteran Jóhanna Sigur!ardóttir at the helm. Ste-
ingrímur J. Sigfússon, head of the Left-Green party,
would become minister of finance. Then SDA head
Ingibjörg Sólrún Gísladóttir, in less than good health
herself, would step down, and Jóhanna would go on
to lead the Social Democrats to victory in the spring.
Davi!, the Goliath, Felled
Personifying the Independence Party's fall from
grace was former long-time Prime Minister, Foreign
Minister, and then current Central Bank Governor
Daví! Oddsson. Seemingly concerned more with
politics than working toward a viable solution, Daví!
schemed while Iceland twisted in the wind. After
Glitnir's collapse, he publicly floated the idea of a
unity government—dismissed by Geir's political ad-
visor, in a conversation with an embassy official, as
the machinations of an Independence Party faction
that, as van Voorst put it, “wants to sow discord and
possily [sic] rid themselves of their Social Democratic
Allance coalition partners...[to] re-form an alliance
with the Progressive Party.”
As the world waited to see what Iceland would
do to shore up its failing currency, Van Voorst told
the State Department on Oct 10. that insiders said
Oddsson was “fighting any move to come to terms
with the IMF,” even though a consensus was build-
ing around “the reluctant conclusion that Iceland
will have to bite this bullet.” These assertions were
repeated in a cable sent a month later, when Voorst
wrote that the “Grand Old Man of the Independence
Party” was responsible “for Iceland's stunning loss
of credibility in the financial world”:
-----------------------------------
[David] made a number of ill-consid-
ered statements to the media early
in the crisis, and many suspect it
was at least partially due to his
wounded pride that Iceland did not
immediately seek IMF assistance....
Even among IP stalwarts, Oddsson's
standing has never been lower, with
the party's younger, more business-
oriented members asserting to Emboffs
and journalists that it was time for
Oddsson...to finally exit the stage.
-----------------------------------
Even some in the inner circle of the famously loyal
Geir Haarde couldn't refrain from complaining to
van Voorst. In a February 25, 2009 cable, she noted
that “Those close to former PM and departing IP
Chair Geir Haarde have marveled at Oddsson's stub-
born determination and his disregard for the dam-
age his continued tenure is causing the IP.”
The Daví!ian unwillingness to reach out to allies
didn't seem to amount to an awareness of the IMF's
history of harmful structural adjustment, either. As
Kaup#ing was clinging to life, on Oct. 8, van Voorst
speculated that the “Grand Old Man” was the main
reason Iceland wouldn't launch extensive talks with
the U.S., too:
-----------------------------------
We are at a loss to explain why the
Icelanders have not picked up the
phone to discuss what they need and
what we might be able to help them
with, though the stature of Central
Bank director Davíð Oddsson may have
something to do with a reluctance to
open other lines of communication.
---------------------------------
His disdain for cleaning up the mess he helped make
was reflected by the enthusiasm of one appeal to
then New York Fed chair Tim Geithner for an addi-
tional $1 billion in financing needed to complete the
IMF deal. His attitude, perhaps, is best encapsulated
by his address of Geithner— “Dear Tim” —in a letter
described as “unusual” by the Toronto based newspa-
per Globe and Mail . As noted in an October 29 cable,
Daví! didn't even bother carbon copying relevant au-
thorities in Iceland, fuelling van Voorst's impression
that the CBI Governor had gone rogue:
-----------------------------------
Although aware of existence of the
letter, the Ministry for Foreign Af-
fairs had not received a copy as of
this morning and was uncertain as to
its contents...The Central Bank...is
guarding its perceived prerogatives
closely--and, judging from the events
of the last few weeks, unwisely.
-----------------------------------
Fuelling the perception of Oddsson's recklessness—
he was said to be the one driving the ill-fated contro-
versial loan talks with Russia, according to a Novem-
ber 3 cable that mused about the possible origins for
the deal:
-----------------------------------
...the MFA [Ministry of Foreign Af-
fairs] had no knowledge of any bilat-
eral loan discussions before the Cen-
tral Bank announcement. A senior MFA
source blamed the whole business on
Central Bank shenanigans, asserting
that the Prime Minister did not know
of the contacts between the central
banks until very recently.
-----------------------------------
In the same cable, Ambassador van Voorst remarked
that “[o]f all the government representatives who
have discussed the [Russian] loan in public, Central
Bank Governor Daví! Oddson has been the most ob-
viously enthusiastic.” She was unimpressed:
-------------------------------------
If the Central Bank announcement was
an attempt by this former Prime Min-
ister and champion wheeler-dealer to
pressure lagging friends - particu-
larly the U.S. - into quickly offer-
ing their own loans the game has not
been successful.
-------------------------------------
Whatever sparked it, by the time Oddsson left, the
loan deal (rated “95 percent” certain by Sturla Páls-
son in October) fell apart. In an April meeting with
Ambassador van Voorst, new Minister of Finance
Steingrímur J. Sigfússon said it “would probably not
happen because the Russians have not shown much
real interest and are seeking additional information
from Iceland.”
Reluctant to help
Having leaders more eager to seek help might not
have made much of a difference, if the almighty
U.S. government's confounding reaction is any
indication. Despite American envoys consistently
wondering why Geir Haarde's government didn't
ask for assistance, a cable from April 7, 2009 showed
that the U.S. government seemed reluctant to lend
it. Newly appointed Finance Minister Steingrímur J.
Sigfússon said he was considering trying to obtain
bilateral loans from the U.S.(and Canada), adding he
was “never a proponent of an IMF loan.” Van Voorst
brushed off the appeal and “explained why he should
not look to the U.S.”:
-----------------------------------
The Ambassador clarified the lack of
a mechanism or legislative authority
in the U.S. for such loans to ad-
vanced nations.
-----------------------------------
The Federal Reserve is able to lend independent of
“legislative authority.” An audit found the Fed lent up
to $16 trillion to banks in the U.S. and around the
world after the financial crisis.
So indifferent were the American diplomats that
on April 8,van Voorst suggested to Jóhanna that she
could fight her way out the financial mess—quite lit-
erally:
19 The Reykjavík GrapevineIssue 15 — 2013
WTF Is An EMBOFF?
A key of commonly used abbreviations
compiled with help from our friends at
the United States Department of State
GOI – Government of Iceland
POST – Any diplomatic or consular establish-
ment maintained by the United States abroad.
ECONOFF – Economic Section Overseas
POLOFF – Political Section Overseas
MFA – Ministry of Foreign Affairs
EMBOFF – Embassy Official
CDA – Charge D'Affaires – “French, literally
'in charge of affairs.' The designation of the of-
ficer—normally the Deputy Chief of Mission—
who is temporarily in charge of an Embassy when
the
Ambassador is out of the country.”
DCM – “Deputy Chief of Mission. The second
ranking officer at post, often functioning as the
chief operating officer or chief of staff to the
ambassador. Acts for the ambassador when he
is away from post and as chargé d’affaires when
the ambassador is out of the country of assign-
ment. Responsible for managing the reporting
program.”
Source:http://www.state.gov/docu-
“If the Central Bank
announcement was an
attempt by this former
Prime Minister and
champion wheeler-deal-
er to pressure lagging
friends - particularly
the U.S. - into quickly
offering their own
loans the game has not
been successful.”