The European Free Trade Association (EFTA) yesterday sent a letter outlining its decision that Iceland is legally bound to insure the minimum deposit guarantee to British and Dutch Icesave account holders. The guarantee is part of Iceland’s EEA (European Economic Area) membership agreement.
The minimum depositors’ guarantee is EUR 20,000 per saver in the failed Icesave internet savings accounts which were run as a branch of Landsbanki before it collapsed in autumn 2008. The EFTA report states that the UK and the Netherlands have reimbursed their own savers and that Iceland’s severe recession does not diminish the country’s obligation to pay the two governments back.
The Icelandic government had insisted in a letter to the EFTA that the existence of a depositors’ guarantee fund in the country was enough to fulfil the requirements of the EU directive on cross border banking and also that the rules do not fully apply in the case of the collapse of an entire national banking system (as happened in Iceland). The EFTA disagrees with this reading of European law.
The EFTA president, Per Sanderund explained that the EU directive guarantees that each depositor is insured up to EUR 20,000 and that all nations must make sure they guarantee that insurance without question. This simple rule is extremely important to make customers feel that their savings are safe, he said.
Shortly after the fall of Landsbanki the British and Dutch governments unilaterally decided to refund savers in their countries. In the UK, 300,000 savers were paid GBP 4.5 billion, and under the directive Iceland is responsible for GBP 2.1 billion of that. The Dutch refunded EUR 1.53 billion to 118,000 savers and Iceland is responsible for EUR 1.34 billion, according to the EFTA.
The letter also criticises the Icelandic government for guaranteeing domestic depositors but not those in overseas branches of Icelandic banks – a breach of European rules, Visir.is reports.
The Icelandic government has two months to respond formally to the letter. If Iceland does not respond appropriately, the letter could be the first step in removing Iceland from the EEA.
“The EFTA is fully aware that Iceland, the UK and the Netherlands have tried to agree a solution to the issue. If such a solution is found there will be no need for further EFTA action,” said Per Sanderud.
Talks broke down in the late winter between the three countries and all agreed that a new deal was highly unlikely before elections in the UK and the Netherlands. With Dutch elections scheduled for 9th June, the three countries will come back to the negotiating table again very soon.