On Monday, Iceland emerged triumphant in a court battle with governments of the UK and the Netherlands. At the time of the 2008 banking collapse, Iceland had refused to repay depositors’ lost money.
The case, heard earlier this week in the European Free Trade Association Court, principally involved the deposits of British and Dutch savers held with failed Icelandic bank Icesave, a subsidiary of Icelandic bank Landsbanki. The court ruled that the law as it applied to bank deposit guarantees did not cover “a systemic bank failure of the magnitude experienced in Iceland.”
Iceland, tiny in economic terms, with a population of around 320,000, went from being a Nordic tiger economy to near bankruptcy in the space of a few short years leading up to the 2008 banking collapse. In the early years of the millennium, Icesave, in particular had gained notoriety amongst UK savers as an online banking operation offering extremely attractive interest rates via its high yielding internet accounts way above those available from high street banks. Many UK and Dutch savers placed significant deposits with Icesave well in excess of their respective countries' bank deposit guarantee limits — limits whereby the state refunds depositors in the event of a properly regulated bank operating in their jurisdiction going belly-up.
The British and Dutch governments chose to repay their nationals who were savers with Icelandic banks in full, an exercise reckoned to have cost British and Dutch taxpayers around $5 billion. Since these state bailouts of their own savers, the British and Dutch governments have been trying to get Iceland to stump up. Icelanders were having none of it, however, and had twice voted against compromise deals negotiated between the Icelandic government and their Dutch and UK counterparts.
Iceland is not a member of the European Union but is a member of the European Free Trade Association (EFTA) which has trading ties with the EU. The case against Iceland was brought by the European Free Trade Association Surveillance Authority which is charged with making sure that Iceland, along with Liechtenstein and Norway, who are in a similar position vis-à-vis the EU, comply with EU regulations.
Iceland’s foreign ministry said it was with “considerable satisfaction that Iceland’s defense has won the day. Icesave is now no longer a stumbling block to Iceland’s economic recovery.”
The Financial Times reports that Michael Waibel, a law lecturer at the UK’s Cambridge University, commented on the court judgement, “The court sided fully with Iceland on the crucial legal and policy question that resonates far beyond Iceland: whether the state is and should be liable for liabilities of a national deposit insurance scheme.”
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In protest at the UK using anti-terrorist legislation in their dispute wih Iceland over Icesave deposits, over 80,000 people signed an online petition,on the theme "Icelanders are NOT terrorists". Many sent in satirical images as part of the protest. There was, however, no objection to the anti-organised crime section of the legislation which was applied against Iceland.
There was jubilation in Iceland at the court’s decision. When Landsbanki had gone bust, Icelanders were livid at the UK government having used anti-terrorist legislation to seize Landsbanki’s estimated $4 billion of UK based assets.
Notwithstanding the EFTA court judgement, Iceland is continuing to repay the United Kingdom and the Netherlands from money raised from selling off Landsbanki assets.
Landsbanki’s estate has already repaid 585 billion Icelandic kroner ($4.6billion) of the IKr1,166 billion claims from Icesave. This equates to more than 90 per cent of the minimum deposit guarantee that the UK and Dutch governments were obliged to pay.
Commenting on the EFTA’s Icesave judgement, Iceland’s finance minister Katrín Júlíusdóttir told the Financial Times, “Having this issue unresolved has hampered the economic recovery of Iceland, where steady progress has been made nonetheless. This ruling removes uncertainty and I firmly believe that our credit rating will reflect this outcome and our strong economic performance.”
The full text of the Judgement in the case EFTA Surveillance Authority v Iceland can be downloaded from the European Free Trade Association Court website.