Curious development this evening. A classified document was leaked from the American Embassy in Reykjavík describing a meeting between Icelandic officials from the Ministry for Foreign Affairs with Embassy officials. The Icelanders’ agenda was to secure support from the US government in the Icesave matter. The US was, by all appearances, rather blasé about the whole thing. The Icelanders were not:
The two government officials stressed that Iceland needs international support. CDA reiterated that the United States was neutral on this bilateral issue and hoped for a speedy resolution. Moreover, the U.S. had supported Iceland’s position at the last IMF Review and expected to do so again depending on the circumstances. Gunnarsson and Burgess responded that they understood the United States’ stated position of neutrality on the issue; however, they expressed the view that it was impossible to remain neutral regarding the Icesave matter. Iceland, they said, was being bullied by two much larger powers and a position of neutrality was tantamount to watching the bullying take place. They suggested that a public statement from the U.S. in support of Iceland would be very helpful. They also felt that U.S. intervention in the IMF could be of assistance, specifically if it was targeted at getting Iceland’s review placed on the IMF agenda.
The US official then spoke with the British Ambassador, who suggested that “Britain might consider options that might forestall a referendum on the Icesave issue.” He then proposed a solution that …
… would involve Norway loaning Iceland the money to cover the Icesave debt. This idea, he felt, had merit because it would create a situation in which the Icelandic Government was dealing with a country that it perceived to be sympathetic to its situation, a fact that could remove some of the animosity from the renegotiations. Negotiating a good loan repayment agreement with Norway, said Whiting, would allow both sides to claim victory. The British and Dutch would receive their money and Iceland would be able to repay its debts under more favorable terms. He was going to discuss the idea with the Norwegian Ambassador that same day.
Interviewed on the RÚV news this evening, Finance Minister Steingrímur J. Sigfússon said that he came from the mountains*. Foreign Minister Össur Skarphéðinsson, on the other hand, was pretty nonchalant about the whole thing; sure, he knew about the meeting and so what? Can’t people talk to each other? Can’t states ask each other for support? [Although methinks he looked a little strained beneath that carefully composed demeanor.]
Meanwhile, Egill Helgason writes on his blog that “The documents … show how Iceland’s position in the world has changed from when the US Army was in Keflavík. The United States have neither the inclination nor the time to support Iceland.” — Something that has been evident for quite some time, seeing as the US has not bothered to post a new ambassador here since the last one left [which may or may not have something to do with this.]
But I digress. The leaked document can be viewed here on WikiLeaks – where else?
* Icelandic idiom meaning – hadn’t a clue.
{ 19 comments… read them below or add one }
“they expressed the view that it was impossible to remain neutral regarding the Icesave matter”
So, Iceland demands that the US is either pro-Iceland or anti Iceland in The War on Icesave. The Johanna Doctrine.
I am not surprised by the lack of compassion shown by the U.S.. Their moral vacuity is a “standard operating procedure”. They are also oblivious to the difficulties of everyday Americans too, what with 20 % U-6 unemployment, millions of house foreclosures, increasing levels of poverty and homelessness, and plans to decrease social spending for Social Security and Medicare, the healthcare plan for our seniors. There are no plans being made to solve the above- mentioned problems for Americans. Other than signing up to be a soldier for Uncle Sam, there are no jobs programs in the U.S.. So I am happy for Icelanders that at least their leaders have blood in their veins and their citizens’ well-being in their hearts and good intentions. Iceland has so much more going for it these days and will recover much faster than the U.S. will.
It was a spoof? By Spaugstofan? Right?
Otherwise it sounds like talks of ever-drunk guys that live on Ingolfstorg (you know them – a kind of local «celebrities»?).
I believe there is a reason why the US Ambassador post has remained vacant for so long.
President Obama nominated Robert Connan to be Ambassador to Iceland on May 27, 2009. This nomination needs to be confirmed by the Senate, and normally this is simple matter. This nomination, among others, can be viewed here:
http://www.allamericanpatriots.com/48752773-president-obama-announces-more-key-administration-posts-ambassador-nominations
However, there is one Republican senator from Alabama who has held up over 70 presidential appointments for the past 9 months, as he holds out for political “pork” for his state; building a new Air Force refueling tanker and a FBI center in his state. He has just relented on these holds, as you can read about here:
http://www.washingtontimes.com/news/2010/feb/09/senator-releases-holds-obama-nominees/
This, in my opinion, is why Iceland has gone so long without an ambassador from the US. Everything has become so politicized here, that nothing is being accomplished. We face serious problems that need to be addressed, but the (R) vs (D) war ensures nothing changes.
That being said, there is a great deal of truth in what Egill Helgason said: “The documents … show how Iceland’s position in the world has changed from when the US Army was in Keflavík. The United States have neither the inclination nor the time to support Iceland.”
Iceland’s position in the world has changed, but this is due to changes within the political structure of the world; primarily the collapse of the former Soviet Union and the end of the cold war.
From the beginings of WWII thru the end of the cold war, Iceland’s physical location in the North Atlantic made it an extremely desireable strategic location for a base. That ended in the early ’90s, and by the late ’90s the Keflavik base was just a shadow of what it had once been.
The importance of the base had been substantially reduced with the changing political world geo-structure, and with it, the importance of Iceland to the US. This was obvious with the abrupt closure of what remained of the base in 2006.
But we are talking of two entirely different worlds. The past dealt with geographic location in a world of military power. Today, we deal in a world of financial activity and economic power. The wars of the past will not be the wars of the future. Guns and tanks have been replaced with leveraged currency transactions and credit default swaps.
And as we have seen in both Iceland and the US, your worst enemy can be your own country’s financial institutions. Unrestrained greed with present day financial instruments can be every bit as destructive as a bombing raid.
Trying to sort thru the rubble that remains in the aftermath, assigning blame, and establishing a method of reparations is a very, very difficult task.
It appears many parties are anxious to avoid this referendum, but isn’t it legally mandated to happen no matter what?
Transferring the debt through Norway seems suspect. It might get the British and Dutch governments off the hook, allowing them and members of the Icelandic government to save face, but the debt still remains. The simple question would seem to be exactly how much (in total, interest, everything) Iceland will pay in the end. And if that will allow Iceland to heal and move forward.
History and tradition make it very unlikely that the US would take a position opposed to Britain’s. Since 1812, the only time I can think of that ever happening was Suez.
What’s wrong with being neutral on the issue?
“Watson also documents his meetings with Icelandic authorities who asked for American support. He responded that America is neutral on the issue and has no official position – an argument the Icelandic side saw as simply standing back and allowing the bullying to continue.”
@idunn, The Alþingi can withdraw the bill before the referendum, at which point the referendum will not occur.
Thanks, everyone!
Iðunn – what Tom said. They’re hoping to negotiate before the referendum so they can pull the bill.
Can’t for the life of me understand why the islandic people should be held responsible for what a bank did, even if it’s government owned.
When you put money in a company – bank or otherwise you take a risk.
The bank is bancrupt, you lost your bet. Too bad.
If you don’t like the rules, then change them for the future.
Norway should lend money to Iceland, but not for this. Any money being lent to Iceland should be under the requirement that the ducth and british doesn’t see a “øre” of it, and that all is spent on Iceland to rebuild their businesses.
>Can’t for the life of me understand why the islandic people should be held responsible for what a bank did, even if it’s government owned
for what I know, please correct me if I’m wrong:
1) Iceland is part of EEA as such they have willingly accepted the provision for 20000+ euro deposit insurance;
2) Iceland government is the one who has to cover such insurance for Iceland banks;
3) Icesave was, for all legal purposes, an Icelandic banking vehicle;
4) while claiming to cover fully Icelandic savers in Icesave, Iceland government refused clearly to state, at the time, that foreign savers where covered, if not in full, at least for the 20000+ euro;
5) by being a member of EEA, Iceland is legally bound to cover at least for 20000+ euro all savers of an Icelandic banking vehicle like Icesave, irrespective of their nationality;
6) who is the Iceland government? The Icelandic taxpayers…
Irrespective of why Icesave floundered (crooks, God will, simple bad luck) , the 20000+ guarantee is due by the Icelandic authorities because they agreed by adhering to EEA.
This is what I understood at least.
By the way, this appeared two days ago on WSJ:
http://online.wsj.com/article/SB10001424052748704511304575075444234082512.html
…continued
if there is no safety net, savers would not save in such schemes or would invest somewhere else.
Of course safety nets, as any insurance, are not free and have liabilities.
Beside the costs, actual or potential, as many insurance schemes, safety nets imply “moral hazard” since innocent people have to pay for guilty people.
In this case, liabilities have materialized.
By the way, I’m very curious: why Norway SHOULD lend money to Iceland? Why should Norway’s taxpayers pay for Iceland’s
“By the way, I’m very curious: why Norway SHOULD lend money to Iceland? Why should Norway’s taxpayers pay for Iceland’s”
Umm, that’s not the way loans work. A loan is an *asset* for the lender. The idea is that Norway would MAKE money from the deal, not lose it. The question becomes one of Norway’s willingness to invest their money in that way, and their evaluation of Iceland’s credit worthiness. Then, of course, one has to consider the political ramifications of such a loan.
Regardless, unless Iceland defaults on the loan, Norway’s taxpayers aren’t paying a dime to Iceland’s.
Umm, that’s not the way loans work.
But it is precisely how loans at below market rate work.
If the Icelandic government was to borrow money on the open markets now, what would the rate be? The rate from their best friends (the Faroes) is 5.25%. The IMF is something like 6.25%. The Nordic part of the IMF loan package is variable and stands at, IIRC, ~4.25%, but can be expected to settle at over 6%.
On the open maket it’d be substantially above this. This interest rate isn’t “free” money. It represents a “normal” return on government bonds plus an amount to cover the risk. If Iceland pays below this, then that is a cost for Norway as it could lend the money elsewhere and get the same rate for lower risk.
In reality any loan from Norway, as well as transfering the entirety of the risk onto the Norwegians, may well also be at a rate that eats into the normal return. Either way, Norway’s taxpayers will be paying for Iceland’s.
Tom,
a) if Norway is to lend money, sovereign money, it’s norvergian taxpayer’s money, not Santa Klaus’ or Monopoly money, not even norvegian government’s money in the end;
:):):) Would Norway feel the same?
b) at the time of coughing up the principal of the loan, norvergian taxpayer “pay” the principal, then afterwards, if and when, eventually Norway gets his money back;
c) Norway to MAKE money? Ok, how about 5,5%? Money like anything else “depreciates”, why would norvegian money depreciate less than UK or NL’s? A roman emperor said that money has no smell: it has no nationality either
d) some “assets” could become quickly a liability, especially if the borrower defaults or becomes unrealiable… why should Norway assume such a risk?
Just to take UK and NL’s place? Not just Iceland, US but even UK and NL would LOVE that
By the way, has anyone told the norvergians of such an option? I’d really like to see leaked minutes of a meeting between Iceland/USA/UK/NL and Norway.
Moral hazard again…
@Bromley86
“If the Icelandic government was to borrow money on the open markets now, what would the rate be?”
that is a rethorical question: no private lender would finance Iceland, the risk is unmanageable.
Suppose for sake of argument, that Iceland could tap open markets and that they would “accept” the sheer risk: the rate would be astronomical… because of the risk “country” involved, even without entering the minefield of “in which currency”.
BTW, I got the current Nordic rate wrong. It’s 3m EURIBOR + 2.75%, which was 3.8% back when I first read about it, but is now a mere 3.4%.
http://eng.fjarmalaraduneyti.is/news/nr/12286
Pretty good.
Which makes the Icelandic reticence over the current UK/NL interest offer strange. Apparently, they’ve offered a 2.75% premium loan, which I’m assuming uses the same base as the Nordic loans.
http://icelandreview.com/icelandreview/daily_news/?cat_id=16539&ew_0_a_id=358177
(Alda may not have seen that yet becuase it was reported in, spit, MBL.)
Lino. There’s been a fair amount of public discussion and political meetings in Norway over the should they/shouldn’t they bail out Iceland. Not sure what the consensus is, but given that the Progressives in Iceland announced something that sounded a lot like a done deal at the end of last year, and given that nothing has come of it, I assume that they’re hesitant to commit that much money.
However the Norwegian government has been more willing than the other Nordics to publicly say that there’s no link between Icesave and the loans, but then they keep making statements like this doing just that.
http://tinyurl.com/yfpeud3
> I assume that they’re hesitant to commit that much money
understandably…
>There’s been a fair amount of public discussion and political meetings in Norway over the should they/shouldn’t they bail out Iceland
they could hold a referendum…
>Which makes the Icelandic reticence over the current UK/NL interest offer strange. Apparently, they’ve offered a 2.75% premium loan, which I’m assuming uses the same base as the Nordic loans.
and at 5.5% UK and NL still keep the country risk, so in a way from a purely financial point of view, it’s a bargain for Iceland: but of course, it’s not a matter of money any longer…
Re: Lino
Having looked into the EEA agreement and it’s provisions for securing deposits I see that you’re right that Banks in the EEA are required by their governments to be secured.
For Iceland that amount is infact €23.000 (self imposed). The limit was supposed to be set to €100.000 by end of 2009 in the 2006 proposal, but for obvious reasons that hasn’t happened.
But there is a provision in the rule which I think Iceland is using, that is if the account you as a customer have is especially beneficial in terms of interesst rates or other benefits, then the financial product can be excempt from the scheme.
I haven’t heard icelandic officals argument on the case, so I can’t say for sure why they are unwilling to pay, besides the fact that they most likely doens’t have the money.
So it’s not perhaps so black and white as I first assumed, I’m now willing to entertain the notion that Iceland must pay /something/…
Re: Noway lending the money to Iceland
There are reasons, and then there are the two reasons…
Reasons: We’re brotherly, and we’d love to help out a neighbour, heck they’re almost family and you’d help family? If you don’t know the story, read the Snorre Saga or look up Iceland on wikipedia.
Now, for the two far more liekly reasons and more cynical ones.
1) Fisheries
For years Norway has wressled Iceland over rights to sea territories and their related fishing rights.
It’s been a real concern in Norway what will happen if Iceland join the EU and gain EUs negoting power when these questions are addressed.
In a case where Norway is a major creditor to Iceland such a loan would bring the two neighbours “closer” and more understanding between the two paries when these questions come up.
2) Nordic political dominance
Norway has clearly stated publicly that it wants to become the nordic domenant power. Both military (Norway and Sweeden have discussed taking over American airforce bases on iceland), and economically. http://bit.ly/b8E6dD
The Norwegian people and government would surely agree on loans to Iceland. If not all for the first reasons, then surely for the two last ones.
Now the last few years it’s not been Iceland who’s been troubblesome when it comes to questions about fisheries, but rather Portugal and Russia. But having Iceland 100% aligned behind Norways position qould surely not damage Norway.
I think that what ever reason you pick, a loan to Iceland at beneficial rates should be negotiated.
Norway outside of the EU needs the friends they can get, even if they have to buy them