859A.50/9–147
The Chargé in Iceland (Trimble) to the Secretary of State
323. Benediktsson indicated this morning that government will shortly issue statement showing extremely serious financial situation Iceland now finds itself as result of inflation. This will probably be followed by appeal for voluntary reduction in production costs including wages. Assuming Communists will encourage labor to reject proposal, we “will then have to decide whether to attempt reduction through legislation or take Communists into all-party government on condition that they will induce followers to accept lower standard of living.” Latter alternative is in line with Einar Olgeirsson’s trial balloon in Saturday’s Thjódviljinn in which he called on all producing elements—labor, farmers, fishermen, shipowners, et cetera—to join together in seeking solution to current economic problems. Principal objection to it according to Foreign Minister is fact that nearly all non-Communist party leaders distrust Communists. Legislative action on other hand would present material difficulties from standpoint of implementation.… Thus it is questionable whether it could enforce legislation in face of strong opposition on part Communist-controlled union. In addition Social Democrats are fearful that enactment legislation while Communists remain in opposition would create serious disaffection among their followers.
There is also third alternative at which Benediktsson merely hinted today (Legation’s despatch 979, August 291) but of which he as a Conservative leader continues to be keenly aware, namely formation progressive-Communist-left wing SD coalition. Such an aggregation could be expected to include in its economic program a measure providing for establishment state-controlled import monopoly, the very thought of which is anathema to the import-wholesale firms which are among the staunchest supporters of Conservative Party.
As soon as he had finished I said inclusion of Communists in reorganized government could not help but have adverse effect on our efforts to assist Icelandic economy, as for example purchase of fish for relief purposes and employment Icelanders by IAC and airport contractor. Furthermore, in my opinion such action would only postpone [Page 834] and thereby render more difficult eventual showdown between Communist minority and overwhelming majority Icelandic people. Cabinet, I said, appeared to have overestimated strength of Communists in labor movement as indicated by its groundless fear that Dagabrun walkout last June would be followed by wave of sympathy strikes.
Foreign Minister said he appreciated validity my observations which tended to coincide with his own views and inquired whether I thought we would stand idly aside in event Communists seize power by coup d’état. I replied it was my personal opinion that we would not. Benediktsson concluded conversation with remark that alternative or alternatives he had outlined were still possibilities and any change in government extremely unlikely before Althing at beginning October.
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