Identifier
Created
Classification
Origin
09REYKJAVIK39
2009-02-25 17:07:00
UNCLASSIFIED//FOR OFFICIAL USE ONLY
Embassy Reykjavik
Cable title:  

ICELANDIC CENTRAL BANK HEAD PUBLICLY GOES ON DEFENSIVE

Tags:  PGOV ECON EFIN IC 
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FM AMEMBASSY REYKJAVIK
TO RUEHC/SECSTATE WASHDC PRIORITY 3991
INFO RUEATRS/DEPT OF TREASURY WASH DC
UNCLAS REYKJAVIK 000039 

STATE FOR EUR/NB
TREASURY FOR ERIC MEYER AND LARRY NORTON

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: PGOV ECON EFIN IC
SUBJECT: ICELANDIC CENTRAL BANK HEAD PUBLICLY GOES ON DEFENSIVE

UNCLAS REYKJAVIK 000039

STATE FOR EUR/NB
TREASURY FOR ERIC MEYER AND LARRY NORTON

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: PGOV ECON EFIN IC
SUBJECT: ICELANDIC CENTRAL BANK HEAD PUBLICLY GOES ON DEFENSIVE


1. (SBU) Iceland's Central Bank Chairman of Board of Governors David
Oddsson refused to accept blame for the October bank collapse and
subsequent economic recession during his appearance on Icelandic
State Television's current affairs program "Kastljos" on February

24. Well-prepared and often portraying himself as a victim, Oddsson
confronted the interviewer from the start of the program by refuting
the assertion that he did not have the trust of the public: Oddsson
called a recent poll stating that 90 percent of Icelanders want him
to resign as inaccurate. The embattled Central Bank Chairman
continually returned to three main themes throughout the interview:
1) he and the Central Bank had repeatedly warned the Haarde
administration about the state of the Icelandic banking system; 2)
the fault of the collapse lies with the Haarde government, and the
banks themselves; and 3) the Central Bank has kept the economy
afloat after the crash and he and the institution enjoy the trust of
the people and international community.


2. (SBU) Oddsson supported his points by quoting passages from
several Bank reports warning the government of the impending crisis
(but declined to release the documents.) He said that he was
confident a full investigation into the cause of the banks crash
would exonerate him and the Central Bank. When asked why he does
not step down and allow the rebuilding process to fully begin,
Oddsson declared that he is still trusted in his position. The
interviewer read a list of domestic politicians, economists, and
foreign experts who have called for Oddsson's resignation to restore
trust in the Icelandic Central Bank; Oddsson responded that those
individuals had either a hidden agenda or were not familiar with
international economic policy. He called the current Prime
Minister's Central Bank reform bill, which restructures the Bank's
leadership to eliminate Oddsson's position, "nonsense" and accused
the PM of settling an old political score. Oddsson said the Central
Bank has kept the economy afloat in the wake of the crash and that
it was the Central Bank that foreign creditors trusted to insure
transactions. Finally, when asked if he would entertain the idea of
re-entering the political area, Oddsson noted that he had no
intention of returning to politics. Speculation in Iceland,
however, is that Oddsson was using the interview as a platform to
reignite his political career.


3. (SBU) Comment: Oddsson's performance on Kastljos was political
theater at its most florid, confirming Oddsson sees himself as the
last great bulwark standing up to a destructive and incompetent
government economic and financial structure. 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. This was clearly evident in his
willingness to publically blame Haarde and his government for
Iceland's economic collapse - and this despite the fact that
Haarde's refusal to fire Oddsson, his old friend and mentor, was one
of the chief reasons for the fall of the previous government.
Oddsson is correct in his assessment that most of the provisions in
the proposed new Central Bank law are directed at him personally.
What he did not acknowledge is that his continued presence at the
Bank has become a severe distraction as the economic crisis deepens.
Oddsson is now such a polarizing figure that we doubt any
government can concentrate on Iceland's reconstruction while he
remains at the Central Bank. Oddsson left no one in doubt last
night that he will continue to run rings around the interim
government as he fights off attempts to separate him from the job.
Not for nothing was Oddsson the most charismatic, crafty, and
resourceful politician in Iceland's recent history. The question is
whether that old magic will work with a battered people looking for
answers as to how their economy fell so far so swiftly, and hungry
for new political leadership able to point the way out of the
catastrophe.


VAN VOORST