Icelandic state “not responsible for Icesave”

International law specialist at Norway’s Tromso University, Professor Peter Orebech, says that Iceland would actually be breaking EU rules by forcing its tax payers to reimburse the Netherlands and the UK for Icesave debt, which rightfully belongs with the country’s privately funded depositors’ insurance fund.

In a long and detailed article, Orebech investigates the current status of the still-unresolved Icesave dispute. The analysis is understandably complex and he acknowledges that Iceland has repeatedly promised to pay the money back; even though the terms of the repayment deal have still not been negotiated to all sides’ satisfaction.

In investigating the current situation and how it sits with Europe-wide banking rules, Orebech comes to the conclusion that because national EEA depositors’ insurance funds are financed directly by the banking industry, there is no public liability for their insufficiency in the event of a bank folding. While such funds may take private or public loans to cover the shortfall, that is not the same as a national government taking on the debt to overseas depositors directly and passing that burden directly on to its taxpayers. In fact, he says, such an arrangement directly interferes with free competition and is thus against the law.

As has been the case throughout the Icesave saga, it appears that EU law was not created to take into account the failure of a large overseas branch operating from within a small national banking industry backed up by few taxpayers. The regulation 0.15 percent payments into the Icelandic depositors’ insurance fund could never have hoped to cover the failure of Icesave (and all the other major banks) and ongoing payments into the fund to pay back the debt now (from the country’s much reduced banking sector) would take far too long.

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