A few years back I got a lot of grief from commenters who contested my claim that it was not clear whether Iceland was obligated to cover the deposits losses of Icesave in Britain and the Netherlands. Now the EFTA has ruled in Iceland’s favor:
Iceland unexpectedly won its legal battle to avoid being forced to pay back the British and Dutch governments for not honouring deposit guarantees for savers in Icesave.
The EFTA (European Free Trade Association) court on Monday dismissed all claims against Iceland, ruling that it had not breached the deposit guarantee directive because Iceland’s financial crisis was so big. It also held that Iceland had not discriminated between depositors in its own country and those in the UK or Netherlands.Iceland reacted with relief after government officials had long been prepared for a defeat. “It is a considerable satisfaction that Iceland’s defence has won the day in the Icesave case; the EFTA Court ruling brings to a close an important stage in a long saga,” the government said.
The case arose after Landsbanki, the now collapsed Icelandic bank, attracted thousands of savers in the UK and Netherlands by offering high-interest accounts in Icesave.
Iceland had a bank deposit scheme in place at the time of its crisis, but the scheme did not have sufficient funds to pay out to depositors. After Landsbanki’s demise the British and Dutch governments paid the deposits of the savers themselves, and then demanded the money back from Iceland.
The Icelandic public twice rejected those demands in referendums, in part due to popular anger at how the UK in particular had behaved by using antiterrorist legislation in the dispute.
Iceland has nonetheless been repaying the British and Dutch governments. Officials in Reykjavik said Iceland has paid IKr585bn ($4.55bn) of the IKr1,166bn claims from Icesave, equivalent to more than 90 per cent of the minimum deposit guarantee the two governments were obliged to pay.
“It is expected that the Icesave claims will be paid out in full by the actual debtor, the estate of the failed Landsbanki,” the Icelandic government confirmed on Monday.