Of course, this ruling could have easily gone the other way. Just because Iceland was clearly in the right in this matter was no guarantee that they would win. In fact, the little countries in these sorts of disputes almost always lose so if there is some drinking and dancing in the streets of Iceland, it is totally understandable.
Everything here is from British sources. So if there is more than just a whiff of "sore loser" about them, this is to be expected.
Icesave ruling in Iceland's favour costs UK taxpayers £100mUK taxpayers have been left more than £100m out of pocket after a European court ruled that the Icelandic government had no obligation to repay Britain and the Netherlands for rescuing depositors in failed bank Icesave.
By Philip Aldrick 29 Jan 2013
The European Free Trade Association (EFTA) court on Monday ruled that Iceland did not break European free trade laws on deposit guarantee schemes by refusing to compensate foreign depositors after Icesave’s owner, Lansbanki, collapsed in 2008.
The judgment obliterates any hopes the UK government had of pursuing Reykjavik for interest on the £2.35bn bail-out. It also raises grave questions about Europe’s cross-border banking arrangements, which allow overseas lenders to “passport” into a country without being subjected to local financial regulation.
In a key ruling that will set a precedent for future cross-border depositor guarantees, the EFTA court dismissed all three claims brought against Iceland and said the compensation rules did not mean the government had to fund the scheme.
“It is of considerable satisfaction that Iceland’s defence has won the day in the Icesave case. The EFTA Court ruling brings to a close an important stage in a long saga,” the Icelandic Foreign Ministry said.
The case stems from the collapse of Icesave in 2008. To prevent a run on any other banks, the then Chancellor Alistair Darling decided to bail out Icesave’s 230,000 savers to the full extent of their savings – about £3.5bn. Of that, £2.35bn was covered under the rules of the European financial compensation scheme.
Iceland refused to pay the sum, as its financial crisis had nearly bankrupt the entire country, prompting the UK to invoke terrorist legislation to seize Landsbanki’s UK assets.
The UK has since been pressing Iceland to repay not just the £2.35bn of principal but also the interest bill to British taxpayers. Initially, the UK requested interest of 5pc before adjusting its demand to between 3pc and 3.3pc a year from 2009 to 2016. Both requests were rejected by the Icelandic public in two referendums.
The EFTA court has now ruled out any prospect of the UK suing Iceland for the interest cost, and clarified that governments are not liable to cover the cross-border depositor guarantee obligations of their banks. It effectively saves the Icelandic government more than £100m that would have been paid under the second Icesave Agreement.
A Treasury spokesman said: “We are being reminded again of all that went wrong in our system of financial regulation, which we are still paying the price for.”
The UK taxpayer is on course to recover almost everything, as Landsbanki’s administrators have confirmed that the estate has more than enough money to cover the £2.35bn principal and £100m in official penalties that applied until 2009. Asked if Britain might demand further interest, though, Iceland’s Prime Minister Johanna Sigurdardottir on Monday said: “They are in no position to do so.”
The ruling also makes a mockery of the cross-border European banking rules. Governments are currently prohibited from stopping a bank operating in the country while remaining subject to the host nation’s regulator. The court ruling means that host nations have no responsibility for foreign depositors in the event of a collapse. Savers can only recover their money from the bank directly, through the administration process, which could take years.
Jóhannes Karl Sveinsson, Iceland’s Supreme Court Attorney, said: “This is cross-border banking. The EU has an enormous problem [with it]. They are trying to improve the situation. I would think this ruling would give them a reason to speed up what they are doing.” more
28 January 2013
Icesave: Icelandic government wins compensation rulingA European court has cleared the Icelandic government of failing to guarantee minimum levels of compensation for UK and Dutch savers in the collapsed Icesave bank.
Icesave, run by the Icelandic Landsbanki, collapsed in 2008 along with all of Iceland's banking system.
The UK and Dutch savers were bailed out completely by their governments.
The ruling may halt the UK's attempt to get all of its money back from the Icelandic government.
A spokesman for the UK Treasury said: "We note the judgment of the EFTA Court and will study it in detail."
The Icelandic government said it took "considerable satisfaction" from the ruling from the European Free Trade Agreement (EFTA) Court.
"Iceland has from the start maintained that there is legal uncertainty as to whether a state is responsible for ensuring payments of minimum guarantees to depositors using its own funds and has stressed the importance of having this issue clarified in court," it said.
When Icesave, an online savings bank, went bust in the autumn of 2008 at the height of the international banking crisis, the UK government stepped in.
To maintain public confidence and prevent a run on any other banks, the then UK Chancellor Alistair Darling decided to bail out 230,000 UK savers in Icesave to the full extent of their savings - about £3.5bn - not just to the minimum decreed by European rules for deposit compensation schemes.
At the time, the Icelandic scheme was responsible for the first 20,887 euros (£16,300) of compensation, with that being topped up to then ceiling of £50,000 per person by the UK Financial Services Compensation Scheme (FSCS).
The EFTA judgement stated: "The Court holds that the Directive does not envisage that the defendant itself must ensure payments to depositors in the Icesave branches in the Netherlands and the United Kingdom, in accordance with Articles 7 and 10 of the Directive, in a systemic crisis of the magnitude experienced in Iceland."
The Icelandic government said the failed Landsbanki had in fact already paid out 90% of the maximum compensation it should have paid under the European rules, and would continue with more repayments.Icelandic saga
Since 2008, the UK government has been thwarted in its attempts to force the Icelandic government to repay all of the compensation the UK had paid to its citizens who had money in Icesave.
At first, in 2009, the Icelandic government agreed to repay the compensation given by the UK and Dutch governments.
However most of the Icelandic people were bitterly opposed to the suggested deal, fearing that it would bankrupt their country and was, in any case, fundamentally unfair because the UK and Dutch governments had awarded compensation far in excess of the levels required by European legislation.
A full-scale constitutional and diplomatic crisis ensued when the country's president refused to ratify the deal and instead called a referendum, which overwhelmingly rejected the deal in March 2010.
A second deal struck between the three governments was followed by a second referendum in April 2011 but this also rejected proposed repayments, though by the much narrower margin of 59% to 41%.
The UK and Dutch governments then threatened to sue for the money - a move which now appears to have hit the buffers. more
Personal finance correspondent, BBC News
A ruling from the little known EFTA court has put a fundamental objective of European idealists in doubt; that banks should be able to offer savings accounts to customers across Europe and that customers, in turn, should be confident that their deposits will be protected.
The court says that Iceland did not have to compensate Icesave customers in the UK because the relevant European directive did not oblige the government to set a minimum amount for compensation, nor did it force the state to pick up the tab if banks themselves could not pay.
That is a big worry and a disappointment for the UK. But it may not be a reason to panic over future failures of foreign banks with British customers.
All this happened at the height of the financial crisis in 2008. Since then, the European directive on deposit guarantee schemes has been amended, so that it now lays down that the state shall ensure that the guarantee is set at a minimum level of 100,000 euros for each saver.
However, there is still an element of doubt over how robust this guarantee would be if a country as small as Iceland was engulfed by another major crisis.