Friday, 22 January 2010

Icelandic repayment delays cast doubts on EU liability

Iceland’s President, Ólafur Ragnar Grímsson, declared on 5 January that he will not sign parliament backed Act No. 96/2009, a Bill which arranges the terms under which Iceland should pay back nearly £2.3 billion to the UK Government and €1.2 billion to the Netherlands, after the countries compensated hundreds of thousands of savers in 2008, when Icelandic bank Icesave went bankrupt. 

Icesave was part of the Reykjavik-based Landsbanki and fully operated online. Grímsson said he has ‘decided to refer this new Act to the people’, which means a referendum will take place ‘as soon as possible’. “The referendum is not about whether to pay the Icesave obligations, but rather the terms of the government guarantee”, said Guðmundur Oddsson, Partner at LOGOS.Although Iceland’s Prime Minister Johanna Sigurdardottir insists the money should be repaid under the agreed terms and conditions, the delay has cast doubts on how seriously Iceland is taking its liability for the bankruptcy of Icesave. “The reluctance of Icelanders to compensate the British and Dutch Governments has a primary cause”, said Magnus Arni Skulason, Head of the Reykjavik Economics Institute. “The unclear legal basis of the claims under the EU Directive [Deposit Guarantee Schemes Directive 94/19/EC] and reluctance of the British and Dutch Governments to have them clarified by the European Court of Justice.” 

Gudmundur Oddsson agrees that “there remains a highly debated legal question as regards whether EU/EEA legislation on the EU Deposit Guarantee Scheme includes a government guarantee for the funds in each EU/EEA member country.” Oddsson believes the payment obligation is more a political and moral matter than a legal question. “It is clear that this legislation was not drafted to foresee a total systematic collapse as has happened in Iceland. I for one am of the opinion that there is no such provision in the EU legislation nor Icelandic law for that matter.” 

The Dutch Minister of Finance, Wouter Bos, said: “It is up to the Icelandic people now. I hope they recognise their international responsibility and they do not let the Dutch tax payer carry the burden of the problems in the Icelandic financial sector”. In August 2009, Iceland agreed to reimburse the UK and Dutch Governments £3.5 billion. The ‘terms and conditions’ Bill was approved in December. Repaying the money is estimated to cost €12.000 per Icelandic citizen.

Michiel Willems (2010) - Cartoon: