THE BLOG
03/14/2009 05:12 am ET Updated Dec 06, 2017

"I'm Sorry You're So Stupid:" Head of Iceland's Central Bank Refuses to Step Down

Iceland's interim Prime Minister, Johanna Sigurdardottir, has asked the members of the Central Bank to submit their resignations so that that institution can be overhauled in a way that will inspire trust in foreign investors.

Although one of the three governors complied with this request, David Oddsson and Eirikur Gudnason have refused, with David sending a letter excoriating Johanna for her impertinence.

A more humble man would perhaps have recalled De Gaulle's remark, that the cemeteries are filled with essential men, and left the matter to others. Unfortunately, however, in David's eyes this crisis is all about him and his legacy. Like a certain recent American president, he appears to see the admission of fault as an unforgivable weakness. The only apology he seems capable of giving is of the "I'm sorry you're so stupid" sort.

2009-02-11-lordofthebankresized.jpg
The political firestorm surrounding the economic collapse has provided
creative fodder for Icelandic artists.

David does make one valid point. The Central Bank was created to serve as an independent body that would safeguard the nation's finances from political influence. To bow to Johanna's request would signal that the Central Bank is nothing but another governmental agency subject to the whims of the electorate.

It is obvious, though, that the political independence of the Central Bank was nothing more than an illusion. David had no training in finance; he was the country's consummate politician, and he has retained his position of dominance within the Independence Party since he joined the Central Bank in 2005. By contrast, the first criteria for governorship of the proposed new Central Bank would be a master's degree in finance.

David also fails to recognize that the Central Bank under his leadership has utterly failed in its primary missions of maintaining the krona's integrity and keeping inflation under control. He failed to build up adequate reserves of foreign currency to back the commercial banks' overseas expansion. The krona has lost half of its value in the past year, and is not in free-fall only because the IMF has used billions of dollars to support it. Inflation reached a record high of 18.6% in January.

According to the Financial Times, this dispute is further damaging Iceland's standing in the eyes of foreign investors, and may endanger the IMF's plans for saving Iceland's economy.

Surrendering gracefully is, no doubt, an art form. History is full of examples of leaders who made proper, timely retreats, and thereby paved the road for their eventual return. Disrespecting the office of the Prime Minister will not gain David the respect of the Icelandic people. Rather, it will only make it harder for the government selected in the forthcoming elections to rule. If the leader of the Independence Party refuses to obey a government formed of the country's other political parties, why would the leaders of those parties submit to a government led by the Independence Party?

To acknowledge that the office is greater than the individual, that the nation is more important than the political party, is essential to the proper functioning of a liberal democracy.

The protesters who brought down Geir Haarde's coalition no longer believe that Iceland's leaders believe in the rule of law. They see a very small group reaping vast rewards, while placing the country's economic security in grave danger. They wonder why no one has faced criminal prosecution for widely-rumored financial crimes, why bank officials who took out loans to buy bank stock have had their obligations forgiven, why the government officials who failed to control the banks remain in office.

Today, those protesters have brought their pots and pans to the Central Bank to try to remedy this situation. Although David's letter to Johanna exhibited more Mugabe than Churchill, let's hope he reconsiders and decides to act in his country's best interest.

Elections are scheduled for April. If he wants redemption, let him take his case to the people. His siege mentality only debases him and places our economy at risk.