Monday

22nd May 2017

Iceland not liable for Icesave compensation after landmark ruling

Icelandic taxpayers are not liable to finance compensation of an estimated 350,000 British and Dutch citizens who lost their savings in the wake of the collapse of the country's banking sector in 2008, following a landmark court ruling.

The Court of the European Free Trade Association (EFTA), of which Iceland is a member, ruled on Monday (28 January) that Iceland had not broken the terms of the EU's deposit guarantee scheme legislation.

Dear EUobserver reader

Subscribe now for unrestricted access to EUobserver.

Sign up for 30 days' free trial, no obligation. Full subscription only 15 € / month or 150 € / year.

  1. Unlimited access on desktop and mobile
  2. All premium articles, analysis, commentary and investigations
  3. EUobserver archives

EUobserver is the only independent news media covering EU affairs in Brussels and all 28 member states.

♡ We value your support.

If you already have an account click here to login.

  • 350,000 British and Dutch savers lost money when Icesave collapsed. (Photo: mydogminton)

By ruling that deposit guarantee legislation does not require governments to act as a guarantor of last resort, the court has also posed a difficult question for EU law-makers in advance of legislation to harmonise national deposit guarantee schemes as part of a proposed banking union.

In a statement, the EFTA court said that "the Directive did not envisage the alleged obligation of result to ensure payment to depositors in the Landsbanki branches in the Netherlands and the United Kingdom in a systemic crisis of the magnitude experienced in Iceland."

"How to proceed in a case where the guarantee scheme was unable to cope with its payment obligations remained largely unanswered by the Directive," it concluded.

For their part, the Icelandic government expressed "satisfaction" at the ruling, which it said "brings to a close an important stage in a long saga."

A ruling that Iceland had breached the terms of legislation on deposit guarantees could have paved the way for the UK and Dutch authorities to seek damages estimated by the International Monetary Fund to be around €2 billion.

The EFTA surveillance authority brought forward the case against Iceland in December 2011, with the support of the European Commission. It claimed that the Icelandic government was liable to pay out the €20,000 minimum compensation payments set out in the directive to the British and Dutch depositors, and that by reimbursing Icelandic nationals who lost money Reykjavik had breached the principle of non-discrimination.

Iceland's defence had maintained that although the directive requires countries to set up a scheme to protect the deposits of savers, it did not force national governments to guarantee payments.

However, although Iceland is not obliged to repay foreign depositors, the 'winding up committee' of Landsbanki is continuing to reimburse the British and Dutch depositors. A government spokesperson told EUobserver that the estate of Landsbanki had "already reimbursed 50% of the total claim to the UK and the Netherlands…over 90% of the maximum required by the deposit guarantee scheme directive."

"The winding up committee expects to pay all deposit claims with 2-3 years," she added.

Iceland's banking sector collapsed in 2008 at the height of the financial crisis, owing an estimated €4 billion. The liabilities of the three main Icelandic banks, Kaupthing, Landsbanki and Glitnir Bank was over ten times the size of the Icelandic economy prior to their collapse.

The case also provoked a diplomatic row after the UK government, which compensated its citizens who had lost money, imposed financial sanctions on Iceland.

Iceland's President Olafur Ragnar Grimsson, last week launched a bitter attack on the actions taken by the British government during the crisis. In an interview with Sky News he said his country would "never forget" its treatment by former Prime Minister Gordon Brown.

"The Brown government decided to put the Icelandic government on a list of terrorist states and terrorist phenomena. We were there together with al Qaeda and the Taliban on that list. We have not forgotten that in Iceland," he said.

Iceland voters reject Icesave deal for a second time

Iceland's bitter row with the Netherlands and the UK over the loss of billions of depositors' money in a collapsed online bank has reached a new stage after Icelandic voters on Saturday rejected for the second time a deal to resolve the issue.

Stakeholders' Highlights

  1. Dialogue Platform"The West Must Help Turkey Return to a Democratic Path" a Call by Fethullah Gulen
  2. ILGA-EuropeRainbow Europe 2017 Is Live - Which Countries Are Leading on LGBTI Equality?
  3. Centre Maurits CoppietersWhen You Invest in a Refugee Woman You Help the Whole Community
  4. Eurogroup for AnimalsECJ Ruling: Member States Given No Say on Wildlife Protection In Trade
  5. European Heart NetworkCall for Urgent Adoption of EU-Wide Nutrient Profiles for Nutrition & Health Claims
  6. Counter BalanceInvestment Plan for Europe More Climate Friendly but European Parliament Shows Little Ambition
  7. Mission of China to the EUPresident Xi: China's Belt and Road Initiative Benefits People Around the World
  8. Malta EU 2017EU Strengthens Control of the Acquisition and Possession of Firearms
  9. International Partnership for Human RightsThe Cost of Speaking Out: Human Rights Violations Committed in Belarus
  10. ACCABanishing Bias? Audit, Objectivity and the Value of Professional Scepticism
  11. Nordic Council of MinistersNew Oslo Climate Declaration Focuses on Rising Temperatures in the Arctic
  12. European Healthy Lifestyle AllianceAbdominal Obesity: A Causal Risk Factor for Cardiometabolic Diseases