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Cablegate: Icelandic Financial Crisis: As Emergency Powers Go Into

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PP RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHRK #0221 2811730
ZNR UUUUU ZZH
P 071730Z OCT 08
FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC PRIORITY 3830
INFO RUCPDOC/USDOC WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHZL/EUROPEAN POLITICAL COLLECTIVE

UNCLAS REYKJAVIK 000221

USDOC FOR LEAH MARKOWITZ
TREASURY FOR LAWRENCE NORTON
STOCKHOLM FOR FCS

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN PGOV IC
SUBJECT: ICELANDIC FINANCIAL CRISIS: AS EMERGENCY POWERS GO INTO
EFFECT, RUSSIANS OFFER LOAN

REF: Reykjavik 219
1. (U) Summary: As the financial crisis and uncertainty in Iceland
continues, the Russian offer of a 4 billion Euro (5.4 billion USD)
loan is getting considerable attention. The Prime Minister and
Minister of Commerce held a joint press conference this morning to
update on the Government's takeover of Landsbanki and made polite
digs at foreign governments who did not offer assistance. The
Minister of Industry (current Acting Foreign Minister) was not so
diplomatic in a morning radio interview and accused the U.S. of
giving Iceland the middle finger. Leader of opposition Progressive
Party Gudni Agustsson asked the Althingi (Parliament) to send Putin
a thank you note and declared that President Bush did not turn out
to be a friend when needed. The Prime Minister's office has denied
British media speculations that the price of the Russian loan would
be landing rights at the former US Naval Air Station in Keflavik.
End Summary.
2. (U) Prime Minister Geir H. Haarde and Minister of Commerce
Bjorgvin G. Sigurdsson held a joint press conference late this
morning to provide updates on the current financial crisis.
Sigurdsson said the Financial Supervisory Authority of Iceland (FME)
and Landsbanki bank had been meeting all night and the FME has taken
control of Landsbanki under the emergency powers granted by Althingi
(Parliament). The bank will be split into two entities, one that
deals with domestic operations and another that deals with foreign
operations. Sigurdsson described it as a necessary step to ensure
the continued orderly operation of domestic banking. After speaking
in Icelandic with local press, Haarde took questions in English from
the mostly British reporters who were concerned with what these
developments mean for the depositors of Icebank, a subsidiary of
Landsbanki with large operations in the UK. Haarde said that he
could not really answer, but he thought the assets of the bank would
cover these deposits and depositors need not worry.
3. (U) At the end of the conference, a reporter asked about the
pending currency loan from Russia and Haarde responded that Iceland
had requested loans and other help from its friends; Nordic
countries had responded positively, but others had not. He added
that in a situation like that, Iceland must look for new friends.
Ossur Skarphedinsson, Minister of Industry and currently the Acting
Foreign Minister, was more blunt in a morning radio interview. He
said Iceland had looked to its friends for assistance on the
financial crisis and some turned out to be not so much of a friend,
like the U.S. He said it hurt, and added that after about 50 years
of a special relationship with the U.S., the only thing Iceland got
now was the middle finger. Adding to the US bashing was Gudni
Agustsson, Chairman of the Progressive party (in opposition), who
wanted the Althingi and the government to send Putin a thank you
note for his support to the Icelandic nation. Agustsson said that
Bush did not turn out to be a friend when needed.
4. (U) It is still unclear if Iceland will take Russia's offer of a
4 billion Euro (5.4 billion USD) loan. The Icelandic Central Bank
reported that a team will go to Moscow to work out the details. The
British publication Spectator immediately reported on its website
that the price for the loan was the ability of Russia's military to
use the former U.S. military base in Iceland. Asked at the press
conference whether the Russians would get access to any base
facilities in return for a loan, the Prime Minister said no. His
Foreign Policy Chief assured the Ambassador that the government
regarded the loan offer as "friendly economic gesture from Russia,"
but there was no connection to Keflavik and there has been no change
in Iceland's foreign or security policy.

VAN VOORST

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