The court of the European Free trade Area (EFTA) has ruled today (28 January) in favour of the Icelandic bank Icesave in a row over compensations to hundreds of thousands of savers from the UK and the Netherlands who lost their money when the bank collapsed in late 2008.
The EFTA court, which is located in Luxembourg, dismissed an application by the EFTA surveillance authority (ESA), which claimed that Iceland had failed to comply with an obligation to ensure compensation of €20,000 minimum to Icesave depositors in the UK and Netherlands.
The Icelandic banking sector collapsed during the global financial crisis in 2008 and the customers of Icesave-on-line savings accounts lost access to their deposits in the autumn. The Icelandic Depositors’ and Investors’ Guarantee Fund should have been put to contribution to compensate savers up to a minimum amount, according to the EU Directive 94/19/EC on deposit-guarantee schemes. However, no such payments were made, leading Britain and the Netherlands to seek legal action in 2011.
In the ruling, the Court held that the Directive did not envisage the obligation to ensure payment to depositors in the bank's Dutch and British branches 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, the court said.
According to the website MarketWatch, following the court ruling Iceland won’t have to cover a total of €6.7 billion to 300,000 UK savers and 125,000 Dutch customers.
The UK and Dutch governments fully compensated citizens who had parked money in the failed bank, then sought to get Iceland to pay them back. The British government even invoked anti-terror legislation to freeze UK-held assets of Landsbanki and Iceland’s central bank, creating a diplomatic firestorm, MarketWatch reminds.
Iceland’s government initially agreed to pony up, but Iceland’s president Olafur Grimsson unexpectedly refused to sign an amended law on repayment, citing a wave of popular anger over the bill. Under Iceland's constitution, his move has forced a national referendum on the issue. Some 94% of Icelander rejected the compromise attempt.
In a statement, Iceland’s finance minister Katrín Júlíusdóttir said the court ruling was likely to boost the country’s credit rating.
In the midst of the economic crisis, Iceland has been pushing for EU membership as a viable solution to its problems. The Nordic country, which is already a member of the European Economic Area (EEA), formally applied for EU membership on 16 July 2009.
Iceland was hit badly by the economic and financial crises. Its troubles came to a head in September 2008 when all the three major Icelandic banks - Glitnir, Landsbanki and Kaupthing - were put under the control of the Icelandic Financial Supervisory Authorities.
EU membership is seen as a way of restoring the country's credibility among creditors and stabilising its currency by adopting the euro.