From Iceland — The Secret History Of The Collapse

The Secret History Of The Collapse

The Secret History Of The Collapse

Published October 1, 2013

The world has changed significantly since 2008, and it owes a great deal to Iceland for this shift, but not for reasons claimed by Facebook Revolutionaries who praise the country for “setting an example.” The Kitchenware Revolution’s real gift to a world bustling with discontent is its contribution to/part in WikiLeaks’ Cablegate disclosures. With Julian Assange and his colleagues lauded in Iceland for publishing Kaupþing bank’s dodgy loan book in 2009, Chelsea Manning took heed of the country’s plight. Explaining that she took interest in Iceland due to discussions about Icesave in a Wikileaks chatroom, Manning told a U.S. military court that she found a cable describing “bullying” and decided to act.

“Iceland was out of viable options and was coming to the US for assistance. Despite the quiet request for assistance, it did not appear that we were going to do anything,” she said. “I felt that I would be able to right a wrong by having [WikiLeaks] publish this document.” It was published as a test in February 2010. A deluge of cables followed in November. The revelations in those documents acted as a lightning rod for the 2011 ousting of autocratic President Zine El Abedine Ben Ali in Tunisia, which in turn gave hope to activists from Tahrir Square in Cairo to Zucotti Park in New York City.

And the drama is still ongoing. After its security was compromised in August 2011, WikiLeaks decided to dump the entire cache, unredacted, with many of the 251,287 cables still lacking the attention they deserve. Five years after the event that fundamentally shaped their publication, it’s worth taking a look at what Cablegate itself has to say about Iceland’s meltdown. The sometimes typo-laden dispatches from Reykjavík not only give a behind the scenes look at intelligence gleaned from meetings, parties, luncheons, phone calls, and lobbyist visits, they also reveal glaring ineptitude and callous cynicism before, during, and after the collapse.

Too proud to beg

As doom drew near, high-ranking American and Icelandic officials ignored the impending danger the global financial system faced. In a bilateral meeting with Secretary of State Condoleezza Rice and some of her staff in June 2008, Geir Haarde said that “Iceland is through the worst and that things will continue to stabilize.” U.S. Under Secretary of State Reuben Jeffrey III said the United States was “near the end of the downturn” and agreed “that the fundamental elements of the Icelandic economy appeared sound.” In September, Lehman Brothers’ bankruptcy was felt far beyond U.S. shores. The Emperor’s Clothes were repossessed.

The flailing was far from over in Iceland after the Lehman bankruptcy. A cable sent by U.S. Ambassador Carol van Voorst on October 3 described Geir as “maintain[ing] that the economic situation will get better.” She implied that the government should have been “securing outside guarantees or added cash reserves to back up the krona” (foreign exchange is determined by demand for a currency and supply of foreign currency in domestic banks) and that doing so “would do much to calm anxieties here.” A few days later, Landsbanki went under, and in the cable describing the demise, van Voorst noted that an IMF official said the organization “had been watching Iceland for some time and had visited earlier this summer.” One can assume that the world’s debt collection agency wasn’t there for the pylsur. Yet the government still had no comprehensive plan.

The inaction was noticed in Washington, as revealed in an October 8 cable. Central Bank of Iceland (CBI) Director for International Affairs and Markets Sturla Pálsson told the Embassy that the CBI had spoken with Tim Geithner, then head of the New York Federal Reserve, and other unnamed Federal Reserve officials in Washington. But, Deputy Chief of Mission Neil Klopfenstein suggested the appeals lacked urgency:

Palsson confirmed that the Central Bank had not spoken with anyone at the U.S. Treasury Department. The Ministry of Finance’s Director General of the Economic Department, Thorsteinn Thorgeirsson, said that aside from an October 6 conversation between Treasury Dept Under Secretary Dave McCormack and the Finance Minister, the only other official contact the ministry had with the US Government was with Treasury’s Iceland Desk Officer Lawrence Norton.

Klopfenstein also noted that “the Central Bank’s Governors were talking to their Nordic colleagues, but the Bank has not taken advantage of the swap lines in place.” Projecting nonchalance amid a slow motion car wreck, Pálsson said he wanted the U.S. to get in touch with him, and insisted that a loan from the Central Bank of Russia, which never actually materialized, was “95 percent certain.” In another cable sent on the same day, Klopfenstein was baffled by claims that the U.S. refused aid. “[T]he Embassy does not believe the Icelanders have adequately checked out all possibilities of cooperation with U.S. entities,” he said, telling Washington that envoys “urged Iceland reps to reach out to U.S. authorities immediately” so that the American response—even if no—would come after “the right questions” Klopfenstein also noted that the aforementioned contact with Geithner had occurred the previous week—before Landsbanki’s demise. Kaupþing, 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 Kaupþing fell. And even though Finance Minister Árni Mathiesen 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 possible 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 International Monetary Fund revealed a preliminary agreement 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 billion 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 elections, 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 holidays while Iceland drank itself into a stupor, Alþingi reconvened and thousands of protestors surrounded the parliament building, demanding resignations at the highest levels—and the sentiment wasn’t confined 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 creating 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 infrastructure 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 meetings 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 misunderstanding 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 support.

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,” according to a January 26, 2009 cable, “but that the IP would rather walk than surrender the Prime Minister’s seat to its junior partner,” the Social Democrats. About a week after that, a Social Democrat-Left Green interim minority coalition was formed with SDA veteran Jóhanna Sigurðardóttir at the helm. Steingrímur 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.

Davið, 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 Davíð Oddsson. Seemingly concerned more with politics than working toward a viable solution, Davíð 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 advisor, 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 building 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-considered 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 stubborn determination and his disregard for the damage his continued tenure is causing the IP.”
The Davíðian 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 Kaupþing 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 additional $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 newspaper Globe and Mail . As noted in an October 29 cable, Davíð didn’t even bother carbon copying relevant authorities 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 Affairs 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 controversial loan talks with Russia, according to a November 3 cable that mused about the possible origins for the deal:
…the MFA [Ministry of Foreign Affairs] had no knowledge of any bilateral loan discussions before the Central 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 Davíð Oddson has been the most obviously enthusiastic.” She was unimpressed:
If the Central Bank announcement was an attempt by this former Prime Minister and champion wheeler-dealer to pressure lagging friends – particularly the U.S. – into quickly offering 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 Pálsson 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 advanced 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 literally:
[Icelandic] officials took the opportunity to reaffirm Iceland’s commitment to Afghanistan, but made no new pledges of support…. Ambassador made the case that Iceland’s international reputation has taken a beating due to the country’s economic difficulties. In these times, being seen as an active contributor 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.

Aluminium roil
Left-wingers might have been horrified by the suggestion that Iceland could shake off its crash blues by committing more resources to the War in Afghanistan—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 unsuccessfully. When a draft budget bullet point combining 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:
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 companies’ 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 government and that it had “in fact, walked back the proposed energy tax and is engaging industry leaders in the process”:
GOI officials across the board, including the Minister of Environment Svandis Svavarsdottir, have told CDA that they do not want the aluminum companies to leave Iceland….Minister of Finance, Steingrímur Sigfusson, 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 example.” 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 efforts, 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 consultative 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 increase. 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 anticipatory 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 demands 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 Kaupþing 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 England 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 budget.”

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 (Sigfusson 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 ambassador 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 previously 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, borrowing $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 wreckage of Landsbanki, with the government of Iceland acting as a guarantor.

But that was the end of the beginning, not the beginning of the end. DCM Klopfenstein said that British Ambassador Ian Whiting was “visibly relieved…though he did note some concern over the public hammering the GOI is now taking over the agreement.” 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] Skarphedinsson told the UK Ambassador that Prime Minister Jóhanna Sigurðardóttir is losing patience…and has told members of the Left Green Movement…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…

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 issue,” 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 eventually 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 Netherlands’ Icesave demands—guaranteeing reimbursements equal to the minimum required by the EU directive 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 dispute was resolved. Minister for Foreign Affairs Ingibjörg 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 reject 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 requirement.” Old Landsbanki’s assets—tied to bonds sold to New Landsbanki, financed by the elder’s deposits—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. diplomats 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 funded.”

Meanwhile, cables from London and The Hague further contradicted claims that Icesave had no bearing 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 Iceland’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 resolution regarding the Icesave issue.” But in a plea for help the very next day, two Ministry of Foreign Affairs officials, Permanent Secretary Einar Gunnarsson 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 the cables don’t go much past that meeting, in terms of chronology, because the above dispatch was the one Chelsea Manning leaked to prove herself to WikiLeaks. We do know how the story plays out (or has played out thus far), with a European Free Trade Association court having ruled in January that Iceland needn’t guarantee the Icesave payments, and with the IMF aid program ending in August 2011. But that narrative is incomplete due to a dearth of unfiltered official opinion.

Mr. Benediktsson Tries to Go to Washington
One more cable does tell us something about the Icesave deal and the IMF that’s still very relevant, however, because it sheds light on the current Finance Minister’s approach to politics—a cable sent November 16, 2009 called “INDEPENDENCE PARTY LEADER SEEKS MEETING WITH WHITE HOUSE TO DISCUSS IMF”

The start of the document suggests there were aspects of the meeting motivated by what Bjarni Benediktsson believed to be the best interests of Iceland—even if the Independence Party leader’s proposals were ambitious. He suggested a U.S. Supreme Court Justice could mediate the Icesave Dispute. He also pushed for an audience at the White House to lobby the U.S. to support Icesave mediation.
But he himself didn’t seem to think it was in Iceland’s best economic interests to reject the legislative solution:
He also admitted that, were he to have his way and the bill fail in parliament, it could further stall Iceland’s recovery efforts. It would certainly mean no further loans from the IMF and, without that cash inflow, the government would be unable to lift its capital control restrictions and would likely have to issue Euro bonds to raise the necessary capital. He also said he was not anxious to assume leadership of the government, but preferred to remain in opposition until after the May 2010 municipal elections to benefit candidates from his party.

He then suggested that, because the Icelandic government was on a shoestring austerity budget, the U.S. could finance an Icelandic delegation’s trip to Washington to promote “bilateral cooperation”—even if that bilateral summit contained an Icelandic delegation of one:
Benediktsson was somewhat vague with suggestions on how to accomplish this but suggested that the Parlimentary Foreign Affairs Committee visit the United States. He then asked whether, considering Iceland’s current financial problems, there might be some U.S. financing available to facilitate such a trip. (Note: Benediktsson later sent CDA a follow up email expressing continued interest in meeting with an official from the White House even if he came alone. End note.)

CDA Watson commented that Bjarni’s “request may be a political ploy designed to embarrass his opponents in the government and make waves in the media…Given his proposed solution on Icesave…his angle appears more likely political than economic.”

But we only know this about the current second banana thanks to Chelsea Manning and WikiLeaks. One can only hope there will be massive leaks to tell us about the behind-the-scenes history of future catastrophes—Icelandic or otherwise—sometime after the news about them crashes.

Embassy Calbes 101
The United States’s aboveboard intelligence gathering

On its website, Wikileaks describes the cache of cables as “orders sent out from the Department of State, embassy reporting about the local governments and details of US government activities in each country.” In many ways, diplomats are like aboveboard intelligence officers—collecting and dispensing information; sometimes state secrets, in a bid to both formulate and carry out foreign policy.

Sometimes, this can be done at stuffy meetings—long tables, each country’s miniature flag in the middle, with coffee, folders, and stern expressions.

Sometimes, this can be done in less formal settings. As one U.S. diplomat described in 2005, this sometimes includes a drink or two. Bemoaning his trouble peddling the State Department’s “cultural programs,” which he described as “too simplistic and propagandistic for Icelanders,” then Deputy Chief of Mission and Charge D’affaires Philip Kosnett described one way of getting Icelanders to switch off:
————————————————What we tend to end up doing most often is, in effect, to stretch our budget by providing duty-free alcohol for receptions at exhibit openings and art festivals. Because alcohol is highly taxed in Iceland, our gifts of wine for receptions strike Icelanders as far more generous than they actually are. In return for these gifts, we get thanked on invitations and publicity materials prepared by the event sponsors, and we get invitations for our staff to attend events along with high society. Then we use the events to hobnob, make connections, and talk up U.S. policy.————————————————
You can read the Icelandic embassy cables online here

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 establishment 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 officer—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 assignment. Responsible for managing the reporting program.”
You can read more about these acronyms here

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