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Iceland didn't have to repay Dutch, UK savers: court

28 January 2013, 20:38 CET
Iceland didn't have to repay Dutch, UK savers: court

Photo © Roman Levin - Fotolia

(LUXEMBOURG) - Iceland was entitled to refuse to pay immediate deposit guarantees to savers at failed online bank Icesave in Britain and the Netherlands, a European court said Monday.

The ruling is the latest twist in a bitter dispute which has clouded negotiations on Iceland's ambitions to become a member of the European Union.

The Court of the European Free Trade Association (EFTA), which covers commerce between non-EU countries that are a part of the European Economic Area (EEA) single market and their European Union partners, was ruling on Reykjavik's response to the collapse of the Icelandic banking sector in 2008-9.

The British and Dutch governments spent 3.9 billion euros ($5.5 billion) compensating 340,000 of their citizens who lost their savings in the collapse of Icesave.

Iceland refused to cover the losses from the state's coffers, and the EFTA Court upheld its approach saying it had "dismissed the application" supported by London, The Hague and the European Commission.

The decision was based on three reasons -- including the fact that Icelandic banking law at the time did not specify how to handle a major banking crisis of such global scale.

Icesave was the online bank of Landsbanki, the biggest of Iceland's three main banks that crashed in the financial collapse.

Deals to use tax-payer money to refund the Icesave debt were twice rejected in referendums so the assets of failed parent Landsbanki were the only way Iceland could settle the row.

The group tasked with winding up Landsbanki has so far reimbursed about half of the money and expects to pay back in full within three years.

Iceland's government hailed the court's decision.

"Icesave is now no longer a stumbling block to Icelands economic recovery," it said in a statement.

"This case has been particularly difficult to handle both nationally and internationally, and has occasioned, among other things, considerable delays in the implementation of the government´s economic programme," it added.

Prime Minister Johanna Sigurdardottir called the verdict a "total victory for Iceland."

Asked if Britain might demand interest on the money paid out to British depositors, she replied: "They are in no position to do so."

Foreign Minister Oessur Skarphedinsson suggested meanwhile that the verdict could have an impact on European banks.

"It may have an effect on European banks when you have a verdict that clearly says that states do not have to pay to ensure that deposit insurances can own up to their responsibilities," he said.

EFTA Court


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