EFTA to take Iceland to court over Icesave

ESA, the EFTA (European Free Trade Association) surveillance authority, has decided to take the Icelandic state to the EFTA court over its handling of the Icesave case. By discriminating against foreign depositors and not reimbursing the British and Dutch governments within one year, it is claimed Iceland broke European law.

Despite an exchange of explanatory letters between Iceland and ESA and the fact that the bankruptcy estate of Landsbanki has now started paying the British and Dutch back, the organisation’s opinion has remained firm and the long-awaited prospect of court surprised few in Iceland. The original statement from ESA can be read here.

ESA is responsible for making sure EFTA members Iceland, Liechtenstein and Norway follow the rules of the European Economic Area (which is the EU plus the above three countries). Switzerland is also a member of the EFTA, but chose to remain outside the EEA. The EEA allows Iceland, Liechtenstein and Norway to participate in the European single market, provided they adopt and implement all EU regulations relating to the common market — including in the banking sector.

ESA president Oda Helen Sletnes says that her organisation believes that European law requires Iceland to insure all depositors with Icelandic bank branches for a maximum of EUR 20,000 each in the event of a bank going bankrupt and that the payments should be made within one year of the bankruptcy. Three years have now passed without those obligations being upheld, she says.

The bankruptcy estate of Landsbanki (the parent company of Icesave) hopes to finish paying priority claimants back by the end of 2013; but Sletnes says that one of the key tenants of the EEA legislation is to stop depositors needing to claim their money back as claimants on the bank’s estate.

The court case is expected to conclude by the end of next year and a verdict is expected in early 2013.

Regardless of if Iceland wins or loses the case, the lost funds will be repaid by the Landsbanki estate. If Iceland wins, that money will go directly to the British and Dutch governments, no breach of EEA rules will be recorded and the matter will be closed; whereas if Iceland loses it will become responsible for immediate refund of the money, plus interest. The EFTA court verdict would mean that Iceland would be in breach of the EEA contract until all three nations come to a suitable agreement. The court cannot force payment, but armed with the verdict, the British and Dutch could then go to an Icelandic court with their demands, if they chose to do so.