Reykjavík Grapevine - 28.09.2013, Blaðsíða 20

The Collapse | Anniversary Special
20The Reykjavík Grapevine Issue 15 — 2013
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[Icelandic] officials took the op-
portunity to reaffirm Iceland's com-
mitment to Afghanistan, but made no
new pledges of support.... Ambas-
sador made the case that Iceland's
international reputation has taken a
beating due to the country's eco-
nomic difficulties. In these times,
being seen as an active contribu-
tor to international reconstruction
and stabilization efforts may be one
of the most effective means to help
displace "economic collapse" as the
first association foreign observers
have when thinking about Iceland.
The Prime Minister sidestepped a
direct commitment but made it clear
that Ambassador's points were taken
on board.
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Aluminium roil
Left-wingers might have been horrified by the sug-
gestion that Iceland could shake off its crash blues
by committing more resources to the War in Af-
ghanistan—had they known about it. But Iceland's
first left wing government didn't exactly put forth a
progressive vision of recovery of their own. All that
the IMF-supporting, Icesave acquiescing, budget-
slashing leftist coalition seemed capable of was
stopping Iceland from being dragged kicking and
screaming further to the right—and sometimes un-
successfully. When a draft budget bullet point com-
bining progressive taxation and energy conservation
was opposed by the U.S. Ambassador and corporate
interests in November 2009, the Left-Greens quickly
made major concessions.
As Charge D'Affairs (CDA) Sam Watson noted:
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Executives from the two American-
owned aluminum smelters, Alcoa and
Century Aluminum, expressed concern
to CDA that such action could violate
their existing investment agreements
and significantly reduce the compa-
nies' profitability. They estimate
the tax at one ISK per kWh would
create an additional expense of 13.2
billion ISK ($106 million) per year.
-----------------------------------
[…]
-----------------------------------
Equally troubling, said aluminum
representatives, is that they first
learned about the proposed tax in
the newspaper. Communication with
the government, they complained, has
been virtually non-existent since the
new government...took control earlier
this year.
-----------------------------------
Watson noted, however, that “over the past few
weeks,” he had reached out to reps of the new gov-
ernment and that it had “in fact, walked back the pro-
posed energy tax and is engaging industry leaders in
the process”:
-----------------------------------
GOI officials across the board, in-
cluding the Minister of Environment
Svandis Svavarsdottir, have told CDA
that they do not want the aluminum
companies to leave Iceland....Minis-
ter of Finance, Steingrímur Sigfus-
son, also acknowledged that it would
be healthy for some aluminum projects
to go forward as they would create
additional jobs and revenue for the
state.
-----------------------------------
Minister of Industry Katrín Júlíusdóttir assured
Watson that the proposal “had merely been an ex-
ample.” On November 9, the government revised its
proposal down by a factor of almost nine: to 12 aurar
per kWh (0.09-0.12 ISK). As Watson pointed out, this
was, more or less, due entirely to aluminum lobby ef-
forts, massaged by the U.S. State Department:
-----------------------------------
...aluminum representatives, who
earlier approached the Embassy in
frustration after being kept out of
the discussions, recently thanked the
Embassy for getting them a seat at
the table and nudging the government
away from the initial tax proposal.
The reduction...resulted from consul-
tative talks between the GOI and the
Association of Icelandic Employers,
of which the aluminum companies are
the largest members.
-----------------------------------
Finally, two days before Christmas, Watson noted
that the bill passed with the 12 aurar/kWh rate in-
crease. Meanwhile, Watson also noted, everyone else
could expect to collectively pay $343.2 million more
in taxes in 2010. And this was on top of sin tax hikes
the government implemented unilaterally in May
2009, practically in the dead of night to mitigate an-
ticipatory panic buying. As van Voorst noted in June,
Steingrímur lamented the excise, calling it “the first
of many cold showers.” But while the government
was willing to foist “cold showers” on every man,
woman, and child in 2010, a year already expected to
be beset by economic woes, it folded like a cheap suit
in the face of Big Aluminium’s histrionics.
A thinly veiled death threat
There were a million fires to put out at the time. And
the battle most Icelanders were clamouring for the
government to fight was IceSave.
Most Icelanders saw Britain and Holland’s de-
mands that Icelandic taxpayers cover Landsbanki’s
mistakes during a painful recession as a real slap in
the face. That Britain invoked anti-terrorist laws to
seize Icelandic assets when Kaup#ing was hanging
on by a thread rubbed salt in the wounds. And with
Britain and Holland rumoured to be using clout in
Brussels and at the IMF to refuse to litigate Icesave
despite legal ambiguity on the issue, Icelanders were
downright furious.
And leaked diplomatic cables showed that many
people's rage was justified. In October 2008, Foreign
Affairs Trade Chief Martin Eyjólfsson complained to
U.S. officials about Britain's initial negotiating team
containing only Finance Ministry and Bank of Eng-
land functionaries – the dearth of diplomats gave
the Icesave “deal” a Versailles Treaty feeling. He told
American envoys that the British wanted Iceland to
pay an interest rate of 13.5 percent on a bond with
a ten-year term (he described interest payments as
a fifth of Icelandic household income). In a January
23, 2009 cable, he said that the British only wanted
6.7 percent interest, but still noted the “for every one
percent in interest on the loan, there will need to be a
corresponding 1.5 percent decrease in the state bud-
get.”
Even when the change of government—and
change in outlook—came, the British remained
stiff. In a June 5, 2009 meeting with U.S. diplomats,
Steingrímur J. Sigfússon said that the taxpayers
needn't cover the debt—that “the assets of the banks
would be liquidated over the next several years (Sig-
fusson said it could take up to seven years) and the
returns from the assets would be turned over to the
UK and Dutch governments to pay back Iceland's
debt.... these assets could cover up to 75% of the
Iceland government's debt.” But the British ambas-
sador told U.S. envoys that “the Icelanders have not
been serious...offering up naive 'hair-brained' [SIC]
schemes of little substance to pay back the British
loans.”
A few days later, with Steingrímur having previ-
ously noted the Dutch were open to his idea, a deal
was reached that seemed to reward his “'hair-brained'
scheme.” Iceland, granted a seven-year grace period,
would repay the minimum deposit guarantee, bor-
rowing $5.44 billion from the Brits and the Dutch at
5.5 percent interest. Financing Iceland's repayment
would be money recovered from the valuable wreck-
age of Landsbanki, with the government of Iceland
acting as a guarantor.
But that was the end of the beginning, not the be-
ginning of the end. DCM Klopfenstein said that Brit-
ish Ambassador Ian Whiting was “visibly relieved...
though he did note some concern over the public
hammering the GOI is now taking over the agree-
ment.” The deal was contingent on Parliamentary
approval. Many Icelanders fumed over the public
guarantees, with past humiliations still fresh.
American diplomats noted on July 29 that the
government was able to enforce partisan discipline
because the Prime Minister negotiated with suicide
bomber tactics:
-----------------------------------
[Foreign Minister Ossur] Skarphe-
dinsson told the UK Ambassador that
Prime Minister Jóhanna Sigurðardót-
tir is losing patience...and has told
members of the Left Green Movement...
to support the agreement by next
Thursday or she will resign, caus-
ing the government to disband. This
is a sizeable threat that could hit
home with several sitting members of
the LGM who would be unlikely to be
reelected...
-----------------------------------

The party discipline and Iceland's amendments still
couldn't guarantee Parliamentary approval. Össur
told American diplomats on September 21 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.” As the amended
agreement wound its way through Parliament in
December, CDA Watson told Washington that the
debate was more acidic and frightening than what
aired out in public:
-----------------------------------
One member of parliament confided to
Emboff that she regularly receives
hate mail regarding the Icesave is-
sue,” he wrote, “including one email
that she considered to be a thinly
veiled death threat if she voted in
favor of the bill.
-----------------------------------
After an agreement containing guarantees was even-
tually passed, the entire process was rendered moot.
President Ólafur Ragnar Grímsson vetoed the bill,
citing a petition signed by about a quarter of the
electorate (it's noteworthy that he ignored a similar
petition about fishing fees, signed by almost as many
people, this past July).
The cable describing “bullying”
The move sent diplomats scrambling, and revealed
how the British and Dutch did try to use Icesave to
get the IMF to withhold aid.
In October 2008, when the initial deal with the
IMF was announced, Icelandic officials claimed that
“Iceland views the dispute with the UK government
and the IMF package as two separate issues,” in the
words of one cable. The IMF itself said that an Icesave
agreement was not a prerequisite to Iceland receiving
IMF aid.
But a few weeks later, according to a November
18 cable, leaders of both parties claimed they would
be cowed into acquiescing to Britain and the Neth-
erlands' Icesave demands—guaranteeing reimburse-
ments equal to the minimum required by the EU di-
rective on deposit guarantees:
Prime Minister Geir Haarde said that Iceland had
been told in no uncertain terms “that nobody will
take part in lending” to Iceland until the Icesave dis-
pute was resolved. Minister for Foreign Affairs Ingib-
jörg Sólrún Gísladóttir echoed that the government
had received clear messages not only from the UK
and Holland, but also from the EU member states
and the Nordics.
And one diplomatic cable before the veto, from
December 2009, shows that the IMF itself misled the
public:
-----------------------------------
When asked about the future of the
IMF program if parliament were to re-
ject the Icesave bill, [leader of the
IMF team in Iceland Mark] Flanagan
stated that, in theory, the IMF could
adjust the program, but that it would
require significant reworking.
-----------------------------------
In the same cable, however, Flanagan said that “a deal
to recapitalize Landsbanki” was “an IMF require-
ment.” Old Landsbanki's assets—tied to bonds sold
to New Landsbanki, financed by the elder's depos-
its—were crucial to covering the debt.
So after Ólafur Ragnar Grímsson vetoed the deal.
Flanagan continued his logical gymnastics, about the
Icesave bill's effect on the IMF deal, telling U.S. dip-
lomats that “although an agreement on the Icesave
issue was not a precondition for the IMF program, it
was important that the IMF program be fully fund-
ed.”
Meanwhile, cables from London and The Hague
further contradicted claims that Icesave had no bear-
ing on the IMF. On January 6, 2010 Her Majesty's
Treasury officials were recorded saying “it would be
difficult for the UK to support the next IMF review
for Iceland if the decision on repayment were still
unresolved.” And, in the Hague on January 10, “Age
Bakker, the Dutch Executive Director at the IMF, said
that there would be 'firm discussions' with Iceland.”
On January 12, Steingrímur J. Sigfússon lobbied
American officials to ask the IMF to advance Ice-
land's IMF review. DCM Watson “expressed support
for Iceland's IMF program and reiterated the USG's
position of neutrality and desire for a speedy resolu-
tion regarding the Icesave issue.” But in a plea for
help the very next day, two Ministry of Foreign Af-
fairs officials, Permanent Secretary Einar Gunnars-
son and Political Advisor Kristján Guy Burgess, said
that the U.S. position of neutrality on Icesave “was
tantamount to watching the bullying take place,”
and “could set Iceland back 30 years” by cutting off
“access to financial markets,” and cause “Iceland to
default in 2011 when a number of loans become due.”
“But while the govern-
ment was willing to
foist “cold showers”
on every man, woman,
and child in 2010, a
year already expected
to be beset by eco-
nomic woes, it folded
like a cheap suit in the
face of Big Aluminum's
histrionics.”
Hör!ur Sveinsson