Iceland had the right to refuse payment of insurance to savers of the failed internet bank Icesave in the United Kingdom and the Netherlands, ruled the European court on Monday.
This decision represents the latest twist in a fierce dispute that has overshadowed Iceland’s ambitions to become a member of the European Union. The court of the European Free Trade Association (EFTA), which is responsible for trade disputes between European Union member states and non-member countries that are part of the European Economic Area (EEA), legally verified the response of the government in Reykjavik to the collapse of the local banking sector in 2008 and 2009.
The governments of the United Kingdom and the Netherlands spent €3.9 billion to pay insurance to 340,000 citizens who lost their savings in the collapse of Icesave. Iceland refused to cover the losses from the state budget, and the EFTA court approved its decision, dismissing the demands of London, The Hague, and the European Commission. The ruling is based, among other things, on the fact that Icelandic banking law during the disputed period did not precisely prescribe the procedure for resolving international financial crises.
Icesave was an internet bank of Landsbanki, the largest of the three major Icelandic banks that have since failed. The request to finance the repayment of Icesave’s debt with taxpayer money has already been rejected twice in referendums, so the only solution for Iceland was to resort to the assets of its parent bank, Landsbanki.
The group responsible for the liquidation of Landsbanki has so far paid out approximately half of the requested amount, which they estimate should be fully repaid within three years.
