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Viewing cable 09REYKJAVIK131, ICELAND ON ICESAVE: "WE ARE WILLING TO PAY"

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Reference ID Created Released Classification Origin
09REYKJAVIK131 2009-07-29 16:04 2011-01-13 05:05 CONFIDENTIAL Embassy Reykjavik
VZCZCXRO9393
PP RUEHDBU RUEHFL RUEHKW RUEHLA RUEHNP RUEHROV RUEHSL RUEHSR
DE RUEHRK #0131/01 2101629
ZNY CCCCC ZZH
P 291629Z JUL 09
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC PRIORITY 4129
INFO RHEHNSC/NSC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEAIIA/CIA WASHDC PRIORITY
C O N F I D E N T I A L SECTION 01 OF 02 REYKJAVIK 000131 
 
SIPDIS 
 
STATE FOR EUR A/DAS GILCHRIST, EUR/NB, INR/B 
NSC FOR HOVENIER 
TREASURY FOR NORTON 
 
E.O. 12958: DECL: 07/28/2019 
TAGS: PGOV PREL PINR EUN IC
SUBJECT:  ICELAND ON ICESAVE: "WE ARE WILLING TO PAY" 
 
Classified by: CDA Neil Klopfenstein for reasons 1.4 (b) and (d) 
 
1. (C) SUMMARY:  Multiple GOI sources privately expressed the 
government's intention to guarantee the Icesave deposits held by 
foreign depositors in the UK and the Netherlands.  In addition, the 
Foreign Minister told the UK Ambassador that he expects the Althingi 
to approve the controversial guarantee agreement when it reconvenes 
next week.  The UK Ambassador also reiterated that neither the UK, 
nor the Netherlands, is linking the Icesave issue to Iceland's EU 
accession.  END SUMMARY. 
 
Iceland intends to pay for Icesave 
---------- 
2. (C) An aide to former Foreign Minister Ingibjorg Solrun 
Gisladottir who is currently working behind the scenes for the Social 
Democratic Alliance approached CDA and stressed Iceland's intention 
to reimburse the losses of individuals who held Icesave accounts in 
the United Kingdom and the Netherlands.  "We are willing to pay," she 
said.  The aide explained that the current debate in the Althingi is 
about the specific terms of the loan, not about whether or not the 
depositors should be paid.  If the terms of the loan can be agreed 
upon in the Foreign Affairs Committee, then the bill should pass. 
 
3. (C) The UK Ambassador informed EmbOffs that he received the same 
information from the current Foreign Minister, Ossur Skarphedinsson, 
in a meeting Friday afternoon.  Sharphedinsson explained that the 
current delay in the Althingi is not about whether to cover the 
deposits but rather over desired clarifications in the treaty.  The 
two main sticking points, said Skarphedinsson, are clarifications 
that in the event of a default: 1) the British and Dutch governments 
will not take possession of Icelandic government-owned assets abroad 
and 2) Iceland's natural resources will not be used as collateral. 
The UK Ambassador told EmbOffs that the UK and the Dutch will not 
oppose such addendums.  It is likely, according to the British 
Ambassador, that the two addendums will be added to the agreement 
next week when the Althingi reconvenes.  Skarphedinsson said that he 
believes these additions will be sufficient to sway opinion on the 
bill and allow all sides to claim victory.  It is Skarphedinsson's 
hope that the bill will pass as soon as next week. 
 
4. (C) Yet another sticking point, however, may also be a clause in 
the agreement regarding Iceland's ability to renegotiate the terms 
should its debt burden exceed the amount in its depository insurance 
fund when Iceland must begin repaying the loan.  (Note: Iceland will 
be given a seven year grace period before it must start repaying the 
loan.  End note.)  A member of the Civic Movement told EmbOff that 
the opposition parties believe this clause is too weak and must be 
strengthened. 
 
5. (C) Skarphedinsson told the UK Ambassador that Prime Minister 
Johanna Sigurdardottir is losing patience with the delays and has 
told members of the Left Green Movement (LGM) within the ruling 
coalition to support the agreement by next Thursday or she will 
resign, causing 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 to parliament in a new election. 
Skarphedinsson believes that the Prime Minister's ultimatum to the 
Left Green Party, in combination with the addendums, will provide the 
needed votes to pass the agreement by a narrow margin. 
 
UK won't renegotiate Icesave agreement 
---------- 
6. (C) The UK Ambassador firmly stated that the UK will not 
renegotiate the Icesave agreement, despite calls from a small number 
of GOI officials to do so.  From the UK's perspective, it holds all 
of the cards and is under no pressure to renegotiate the current 
settlement.  It considers the Icesave loan to be like a mortgage 
agreement in which the borrower (Iceland) has no collateral and a 
poor credit rating, making it a more risky investment for the UK.  In 
response to one critique that the interest rate on the loan is too 
high and that the UK and Netherlands are profiting from the 
arrangement, the UK Ambassador said that the GOUK is charging only 
what it is costing them to raise the money, plus administrative 
costs. 
 
The LGM: Supporting Icesave to stay in power 
---------- 
7. (C) The LGM, the minority member of the ruling coalition, has lost 
significant political capital in voting to apply for EU membership 
and could lose more support by approving the Icesave agreement.  The 
UK Ambassador posited that Steingrimur Sigfusson, Minister of Finance 
and head of the LGM, continues to support the ruling coalition's 
Social Democratic Alliance agenda because he realizes that this is 
the only way for his political party to remain in power.  This is the 
only means the LGM has to continue to play a key role in building a 
new Iceland, one that replaces cronyism with transparency.  In the 
 
REYKJAVIK 00000131  002 OF 002 
 
 
meantime, the LGM can claim influence and victory based on the fact 
that the state has resumed a larger ownership role in key economic 
sectors than it had prior to the financial collapse, which is one of 
the LGM's main platform items. 
 
Comment 
---------- 
8. (C) Despite conflicting reports in the media, the key players in 
the Icesave agreement, namely the GOI and the GOUK, are cautiously 
optimistic that the issue will be resolved in the next few weeks. 
Media coverage is beginning to reflect this shift through recent 
reporting that highlights the Icesave agreement as a decent deal 
compared to the other loans Iceland is receiving, including the IMF 
loan.  All parties appear to agree that Iceland must guarantee the 
Icesave deposits for the minimum amount.  While attempts have been 
made to link the recent EU accession talks to resolving the Icesave 
issue, the UK Ambassador and others have continued to reiterate the 
need to de-link the issues.  Both sides believe that the two 
addendums covering the concerns of Icelandic assets abroad and use of 
natural resources should stifle the loudest detractors of the Icesave 
bill into supporting the ruling coalition government.   If the 
Icesave bill is finally passed, it should be considered a resounding 
victory for the ruling coalition, as well as for the former Icesave 
account holders, paving a slightly smoother path towards restoring 
Iceland's international reputation. 
KLOPFENSTEIN