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Viewing cable 08REYKJAVIK246, ICELANDIC ECONOMIC CRISIS: GOI - UK NEGOTIATIONS ON ICESAVE

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Reference ID Created Released Classification Origin
08REYKJAVIK246 2008-10-23 17:05 2011-01-13 05:05 CONFIDENTIAL Embassy Reykjavik
VZCZCXRO2664
OO RUEHFL RUEHKW RUEHLA RUEHROV RUEHSR
DE RUEHRK #0246 2971753
ZNY CCCCC ZZH
O 231753Z OCT 08
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC IMMEDIATE 3859
INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC IMMEDIATE
RUEHLO/AMEMBASSY LONDON 0148
RUEHZL/EUROPEAN POLITICAL COLLECTIVE
C O N F I D E N T I A L REYKJAVIK 000246 
 
SIPDIS 
 
STATE FOR EUR/FO A/S Dan Fried 
 
E.O. 12958: DECL: 10/22/2018 
TAGS: EFIN ECON PGOV IC
SUBJECT: ICELANDIC ECONOMIC CRISIS: GOI - UK NEGOTIATIONS ON ICESAVE 
ACCOUNTS GO BADLY 
 
Classified By: Economic Section Chief Fiona Evans for reasons 1.4 (b) 
and (d). 
 
1.(C) Ministry for Foreign Affairs External Trade Director Martin 
Eyjolfsson bleakly described for Ambassador and EconOff the 
difficult, ongoing negotiations with the British delegation over the 
obligation and repayment connected with the Icelandic IceSave 
accounts in the U.K.  Eyjolfsson said the British government sent a 
"technical delegation" to negotiate; the team consists of Finance 
Ministry and the Bank of England officials, but no diplomatic 
representatives.  He said the lack of diplomatic presence has made it 
difficult for the British team to appreciate the full effects of the 
British authorities' actions in seizing Icelandic assets under 
terrorism legislation.  Eyjolfsson said, "If the U.K. had seized 
France's sovereign gold reserves like they had Iceland's, a war 
between France and the U.K. would have broken out by now."  (Note: 
Featured in the Icelandic media today is the online petition 
"Icelanders Are Not Terrorists," (www.indefense.is) which is 
collecting photographs and signatures to send to PM Gordon Brown 
protesting the seizure of Icelandic assets under the terrorism law. 
End Note.) 
 
2. (C) According to Eyjolfsson, the Icelanders are arguing over both 
the principle and the terms of an agreement.  Eyjolfsson asserted 
that the EU Directive concerning bank funded insurance was not 
designed for a systemic meltdown and that the obligations of the 
state in such circumstances were not crystal clear.  He said the 
Icelanders want to take this issue before the European Court of 
Justice, but the British team refused.  Eyjolfsson said he told the 
Brits it would be impossible politically for the government to sell 
their proposals to Parliament or the electorate.  He said that since 
there is no diplomatic element to the delegation that this argument 
had no traction.  Eyjolfsson said the only concern of the UK is "to 
nail down the terms of a loan so they can get their money."  He 
mentioned that the Brits had tossed out the figure of 13.5 percent 
interest, but the Icelanders offered 6 percent.  The Icelanders had 
asked for a twenty year term but the Brits countered with a ten year 
term.  Eyjolfsson said even if they come to a deal, they will still 
need approval by the Icelandic Parliament.  He noted that the Dutch 
agreement signed last week had only been initialed as an MOU and that 
also faced parliamentary approval. 
 
3. (C) Eyjolfsson said that the Icelandic public needs time to absorb 
the enormity of the crisis.  No one really fathoms yet that the 
government is going to go from ten percent of GDP as debt to 140 
percent.  He illustrated that each Icelandic household would have to 
pay at least 500 USD every month - a fifth of their household income 
- for the next ten years just to service the interest of a loan to 
pay off the IceSave accounts.  The IMF loan would come on top of this 
debt burden.  Eyjolfsson was emotional as he described some of the 
dire economic forecasts and said he just could not see how this was 
going to end or how the future of his young children could be 
ensured.  He, as have others recently, predicted a mass emigration of 
talent from the country as the best and brightest will refuse to 
spend their lives under the burden of paying off the national debt. 
 
4. (C) Comment: Eyjolfsson's unusually frank and open discussion of 
ongoing negotiations with the UK team are just one indication of how 
unusual and desperate is the situation here.  The enormity of the 
debt and the responsibility of the Icelanders are not well understood 
by many here.  Many of those who do understand are near despair. 
 
 
VAN VOORST