Iceland's 'Icesave' Deposit Victory Slams Door On European Deposit Insurance Hopes

Tyler Durden's picture

In yet another victory for not bowing to the great-and-good of modern orthodoxy, Iceland has won a court ruling that enables it to repay billions of Euros (in failed bank deposits to the UK and Holland) on its own terms. Icesave collapsed in 2008 and left thousands of depositors, who had chased higher yielding deposits, with losses. The Dutch and British governments demanded prompt payment; Iceland denied, preferring (rationally) to repay what they could from the then-bankrupt entity. As RTE notes, Icelanders in referenda twice voted against repayment schemes drawn up by their government to satisfy the British and Dutch claims, leaving the estate of Landsbanki to pay back the funds, which it has steadily done, instead of the taxpayers of Iceland being force per se to fund this shortfall. The implication being: Bank deposit insurance schemes in the European Economic Area are NOT backed by government liability, neither explicitly nor implicitly - which could well reignite concerns of the much-hoped-for Europe-wide deposit-guarantees.


Via RTE,

Iceland has won a court ruling allowing it to repay billions of euros on its own terms to Britain and the Netherlands for bailing out depositors in a failed Icelandic bank.


Iceland has said it will fully repay both countries, but through a gradual process as it runs down the assets of failed bank Landsbanki.


It collapsed in 2008 leaving depositors of its Icesave online accounts stranded.


Britain and the Netherlands stepped in to repay savers, but it sparked a political row and the two countries sought court backing to say Iceland had failed to repay the money within time limits set by a European directive for deposit guarantee schemes.


A European court has now dismissed the case.


Officials on the small north Atlantic island expressed relief over the ruling.


“Icesave is now no longer a stumbling block to Iceland's economic recovery," Iceland's Foreign Ministry said.


All of Iceland's banks collapsed four years ago, early in the financial crisis, and the UK and Dutch governments wanted Iceland to pay them back directly and quickly.


Iceland did not comply, triggering a row between the governments and potentially complicating the island's bid to join the European Union.


The court of the European Free Trade Association said Iceland did not break depositor protection laws by refusing to return the money, because the scale of its financial crisis was so big.


"The verdict is, of course, a fantastic and total victory for us," said Icelandic Industries Minister Steingrimur Sigfusson, who was finance minister during the dispute.


"It's good to have this whole unpleasant business out of the way," he said in comments on public broadcaster RUV.


Iceland's economy sank and the government had to take a bailout from the International Monetary Fund and Nordic countries after the 2008 crisis.


The row with the British and Dutch over the Icesave accounts added to bitterness in the aftermath of the crisis, when Iceland was especially angered at Britain's use of anti-terrorism legislation to freeze Landbanki assets.


Britain had no immediate reaction to the verdict. The Dutch Finance Ministry said in a statement that it "regrets the judgment and will study the consequences of the judgment".


The European Commission had also pressed the case against Iceland and said it was also studying the consequences.


Icelanders in referendums twice voted against repayment schemes drawn up by their government to satisfy the British and Dutch claims, leaving the estate of Landsbanki to pay back the funds, which it has steadily done.


The court of EFTA, a cooperation group of which Iceland is a member and which has links to the European Union, rejected all three claims brought by the EFTA Surveillance Authority - the body which oversees the bloc's rules.


In its ruling, the court said the deposit guarantee directive in place in 2008 did not envisage the obligation to repay savers in Britain and the Netherlands "in a systemic crisis of the magnitude experienced in Iceland".


The Icelandic Foreign Ministry said 585 billion Icelandic crowns of the 1,166 crowns of claims from Icesave had been repaid from the failed Landsbanki estate, representing more than 90% of the minimum deposit guarantee covering the savers.


"It is expected that the Icesave claims will be paid out in full by the actual debtor, the estate of the failed Landsbanki," the Foreign Ministry said.


(h/t BOFS blog)

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FunkyOldGeezer's picture

Isn't there a distinction to be made between people who risk their money in a business venture and those who merely 'lend' their cash to a bank in return for a relatively low reward? In fact, do those people who deposit money with a bank give their explicit permission for the bank to then go and use said money as the bank sees fit, or is it assumed to be given by the bank only?

Iceland may have been brave to face up to their predicament, but ultimately they simply put two fingers up to everyone and said f**k you! Should that really be tolerated and does that show that basically the Icelanders have no real sense of morality? It's not as if they wouldn't have all benefitted to some degree in the high standard of living they enjoy(ed), to which the Icelandic banks must have been a fairly major contributor.

I bet 100/1 on, that if it was your money that eveaporated from an Icelandic bank's coffers, you'd be the first to call them all the names under the sun and somehow seek to wreak revenge.

Yeah, the Icelanders were right to do what they did, only if it wasn't your money they did it with. Asswipes.

wisefool's picture

sure there is moral hazard abound, but isn't what they did a far peice more than just peircing the corporate veil holding the perps personally liable?

Put another way. the people in jail wont need the stuff they bought with the ill gotten gains. can they be marked to market and repo'ed? most of that stuff was probably produced by the european nations left holding the bag.

css1971's picture

Your average person has no fucking clue what a bank is. What is happening when they put their money in a bank. What the difference between cash and credit are. Most think the bank puts the money in a vault and leaves it there. Yes, they believe the children's cartoons with banks stuffed to the gills with notes and coins.

The legality is generally that a bank deposit is a loan to the bank with which they can do as they please. In return the bank provides you an accounting entry in it's books. It is the bank's money once you have handed it over.

mendigo's picture

When one does business with a private entity it is a business venture.
Were these banks underwritten by the icelandic government?
It is not a question of being pleased that people lost money. By what rational do the public assume the debts of a private, failed business?

SmittyinLA's picture

So in the end the bankrupt EU gets another "permanent" member and Iceland gets the pleasure of joining a bankrupt entity in which they'll have no sovereign rights, ya that's a victory for Iceland kinda like the NAZI invasion of Poland was a victory for Poles. 

toomanyfakeconservatives's picture

After the traitors face the firing squads here in the U.S. and the debt is repudiated, the moneychangers can pound sand.

Aurora Ex Machina's picture

Say what you want: Icelanders are amongst the last truely free & authentic people I've met, in terms of Being Human.


If only the USA had gone a different way, and produced 300 million similar beings. We'd have to make time to get the Tardis to solve that one though.

newengland's picture

Northern people  whispered to each other before battle:

'Lo there do I see my father, Lo there do I see my mother, my Sisters and my brothers , Lo there do I see the line of my people, back to the beginning. Lo, they do call me, they bid me take my place among them, in the halls of Valhalla, where the brave may live forever.'

Genuine community means one for all, all for one. The inbred money grubbers are the enemy of every land, although some lands bow down before the hateful tribe.

Just say NO, and prepare to defend yourself, your family, your community.


Lord Of Finance's picture

Ahhhhh! That little, but beautiful land. The coastel regions are breath taking. Looks like the Icelandic people finally woke up to smell the beautiful clean air and scanned the magnificent landscape and said to themselves, "We have it better here, and so now we deserve better."


   Note to self:

       Apply for Iceland visa application

squexx's picture

Drive the Satanic Tribe out!

Lord Of Finance's picture

 And David Hasselhoff is the anti-christ!