Friday

23rd Jun 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.

Focus

EU and China move to fill US void

At a summit in Brussels, EU and Chinese leaders will attempt to deepen ties on trade and climate as US president Trump plans to pull out of the Paris climate deal.

Italy reaches EU deal on failing bank

After months of negotiations, the European Commission and Italy agreed on the terms of rescue for Monte dei Paschi di Siena bank, including job cuts, salary caps and private sector involvement in the bailout.

News in Brief

  1. Merkel and Macron hold symbolic joint press conference
  2. Juncker has 'no' clear idea of kind of Brexit UK wants
  3. Belgian PM calls May's proposal on EU citizens 'vague'
  4. UK lacks support of EU countries in UN vote
  5. Spain to command anti-smuggler Mediterranean force
  6. Estonia confirms opposition to Nord Stream 2 pipeline
  7. Ireland and Denmark outside EU military plan
  8. EU leaders renew vows to uphold Paris climate deal

Stakeholders' Highlights

  1. EPSUOn Public Services Day, Stop Austerity! Workers Need a Pay Rise!
  2. EGBAOnline Gambling: The EU Court Rejects Closed Licensing Regimes In Member States
  3. World VisionFaces of Today, Leaders of Tomorrow: Join the Debate on Violence Against Girls - 29 June
  4. ECR GroupThe EU Must Better Protect Industry from Unfair Competition
  5. Malta EU 2017Better Protection for Workers From Cancer-Causing Substances
  6. EPSUAfter 9 Years of Austerity Europe's Public Sector Workers Deserve a Pay Rise!
  7. Dialogue PlatformGlobalised Religions and the Dialogue Imperative. Join the Debate!
  8. UNICEFEU Trust Fund Contribution to UNICEF's Syria Crisis Response Reaches Nearly €200 Million
  9. EUSEW17Bringing Buildings Into the Circular Economy. Discuss at EU Sustainable Energy Week
  10. European Healthy Lifestyle AllianceCan an Ideal Body Weight Lead to Premature Death?
  11. Malta EU 2017End of Roaming Charges: What Does It Entail?
  12. World VisionWorld Refugee Day, a Dark Reminder of the Reality of Children on the Move

Latest News

  1. Leaders unimpressed by May’s offer to EU citizens
  2. New Irish PM praises unscripted nature of EU summits
  3. EU extends sanctions on Russia
  4. UK's universities set 'Brexit wish list'
  5. Decision on post-Brexit home for EU agencies postponed
  6. May's offer on citizens’ rights dismissed as ‘pathetic’
  7. 'Historic' defence plan gets launch date at EU summit
  8. EU pressures firms to tackle online terrorism