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UK loses out as Iceland escapes Icesave repayment

The Icelandic government does not have to compensate the UK government for bailing out savers who deposited money in Icesave.

UK loses out as Iceland escapes Icesave repayment

Iceland will not have to repay the UK for the money it spent compensating savers in failed Icelandic bank Icesave, a European court has ruled.

The European Free Trade Association (EFTA) court has ruled that Iceland did not break any rules by refusing to compensate foreign savers when Icesave’s parent bank Landsbanki collapsed in 2008.

Thousands of Brits had placed money with Icesave, which offered interest rates far above those offered by British banks. When Landsbanki collapsed the British government bailed out the 230,000 UK savers, compensating them fully at a cost of around £3.5 billion. The debt owed to the UK is around £2.3 billion.

The government did not have to bail out savers completely. At the time the Icelandic scheme was responsible for the first £16,300 of compensation and then that was topped up to £50,000 by the UK’s Financial Services Compensation Scheme.

The Dutch government also compensated all of its depositors in the scheme, as the UK and Dutch governments tried to prevent a run on the banks.

At first the Icelandic government agreed to repay the Dutch and UK governments but this led to an outcry from Icelandic citizens and a referendum on the deal in March 2010 overwhelmingly rejected repayment. A second referendum in April 2011 again vetoed repayment.

In court the Icelandic government argued that Landsbanki had already paid out 90% of the maximum compensation it had to pay under European law and would continue with payments.

The court ruling will stop the UK government’s attempts to retrieve all of the money it spent compensating savers from the Icelandic government.

It said that Iceland did not have to compensate the governments because it did not the force the UK and Dutch governments to bail out savers.

The court 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 seven and 10 of the directive, in a systemic crisis of the magnitude experienced in Iceland.

It had been widely expected that the court would rule in favour of the UK and Netherlands so the ruling came as a shock.

The Icelandic government said the ruling gave it ‘considerable satisfaction’ and the UK Treasury has said: ‘We note the judgement of the EFTA Court and will study it in detail.’

20 comments so far. Why not have your say?


Jan 29, 2013 at 16:14

I guess a short term gain by the Icelandic government could be wiped out by investors thinking twice about investing in Icelandic companies.

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Anonymous 1 needed this 'off the record'

Jan 29, 2013 at 17:13

The repayment was vetoed by the Icelandic people in a referendum.

Basically they can't be trusted.

The message is don't trust Iceland, don't invest, don't do business with them.

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mr.madonsims via mobile

Jan 29, 2013 at 18:12

Once again we are being done over by european law when will we learn

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Paul Eden

Jan 29, 2013 at 18:48

People may have heard the old adage, 'If you sup with the devil use a long spoon'. Whenever states have reneged on debts, for whatever reason, other coiuntries have given such a 'wide berth'.

Iceland has certainly profited from the debacle but whether it can ever again plan large-scale financial investments to sustain its economy, is another thing. Time will tell.

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David Warner

Jan 29, 2013 at 19:29

Alistair Darling and Gordon Brown deserve great thanks from savers for how they dealt with this. Legally the "passporting" of the compensation on these accounts left the first €20,000 was down to Iceland and the rest to the UK (up to the full UK compensation limit at the time) under EFTA rules.

As far as I can see the court ruling is simply reiterating this, and the Icelandic government will pay only a portion of the bill accordingly.

For the record the difference in interest rates was not that huge.

6% from Icesave & Kaupthing for ISAs and Instant Access compared with 5.5% for Sainsbury Bank, 5% for Halifax. ICICI, another chart-topping foreign bank which did not go bust was offering 6.16%.

On his website Martin Lewis in "Icesave: how safe are your savings?" said "Icesave has high interest rate accounts, and is a best buy in certain categories. That makes it an attractive account. The risk of it going bust doesn’t seem to be very substantively more than any other top savings account bank"

I am personally biased - I was an Icesave account holder. I am sincerely grateful that the politicians acted in this case. If it had been down to lawyers we would all still be waiting - and worried to death.

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Roger Savage

Jan 29, 2013 at 19:41

Ahahaha says the rest of the world to the UK (again).

The map of Britain should have a handle drawn onto it - we're all being taken for mugs at every angle.

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Ian Phillips

Jan 29, 2013 at 20:35

I was also an investor in Iceland Bank but was prudent enough to stay within the Iceland compensation limit what a pity my taxes were squandered by Gordon Brown ( @ David Warner! ) to bail out those greedy enough to not read the fine print.......!

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Anthony O' Grady

Jan 29, 2013 at 21:47

David Warner

Jan 29, 2013 at 23:04

@ Ian The small print was for the goverment/FSA, not the savers. Savers were told they were guaranteed up to the British limit. The question is who pays - and whether the Icelandic government had to back their bank deposit guarantee scheme if it failed.

What intrigues me is how many local councils got caught up in this - and presumably did not get bailed out. See below:

:: Barnet £27m

:: Bassettlaw District Council £8m

:: Bolton Council £6m

:: Braintree District Council £5m

:: Breckland District Council £12m

:: Brent £15m

:: Bridgnorth District Council £1m

:: Brighton and Hove City Council said it suspended transactions

:: Bristol City £8m

:: Bromley £5m

:: Buckinghamshire has £5m

:: Burnley Borough Council £1m

:: Caaerphilly County Borough Council £15m

:: Canterbury City Council £6m

:: Carmarthenshire County Council £4m

:: Ceredigion County Council £5.5m

:: Cheltenham Borough Council £11m

:: Cherwell District Council £6.5m

:: Cheshire County Council £8.5m

:: Chorley Borough Council £2m

:: Cornwall County Council £5m

:: Cotswold District Council £2m

:: Daventry District Council £8m

:: Derwentside District Council £7m

:: Dorset County Council £28.1m

:: East Ayrshire £3-5m

:: East Lindsey District Council £4m

:: East Renfrewshire £1m

:: East Staffordshire Borough Council £1m

:: Exeter City Council £5m

:: Gateshead £4.5m

:: Gloucester City Council £2m

:: Haringey

:: Havering £12.5m

:: Hertfordshire County Council £17m

:: Hillingdon Council £20m

:: Ipswich Borough Council £2m

:: The Isle of Man government has a number of short-term deposits and long-term investments with Kaupthing Singer & Friedlander but has no figure yet

:: Kent £50m

:: Kinross £1m

:: Kirklees Council £1m

:: Lancashire County Council £10m

:: Lancaster City Council £6m

:: Lewes District Council in East Sussex £1m

:: Monmouthshire County Council £1.2m

:: Moray Council £2m

:: North Ayrshire £15m

:: North Ayrshire Council

:: North East Lincolnshire £2.5m

:: North Lincolnshire £5.5m

:: North Somerset Council £3m

:: Northumberland Council £23m

:: Nottingham City Council £41.6m

:: Nuneaton and Bedworth Borough Council £3m

:: Oxfordshire councils £28.5m

:: Perth and Kinross Council £1m

:: Plymouth City Council £13m

:: Powys County Council £4m

:: Redcar and Cleveland £6m

:: Restormel Borough Council £4m

:: Rhondda Cynon Taf County Borough Council£3m

:: Rushmoor Borough Council £2m

:: Solihull Metropolitan Borough Council £3m

:: Somerset County Council £25m

:: South Hams District Council £1.25m

:: South Lanarkshire £7.5m

:: South Ribble Council

:: Stroud District Council £3m

:: Surrey County Council £20m

:: Sutton £5.5m

:: Tewkesbury Borough Council £1m

:: Transport for London £40m

:: Wakefield Council £9m

:: West Lindsey £7m

:: West Sussex County Council £12.9m

:: Westminster City Council £17m

:: Wiltshire County Council £8m

:: Winchester City Council £1m

:: Wirral Council £2m

:: Wychavon District Council £1.5m

:: Wycombe District Council £2.5m

Police authorities

:: Dorset £7m

:: Dyfed-Powys £2m

:: Gwent £1m

:: Hertfordshire £3m

:: Humberside £5.75m

:: Kent £11.1m

:: Lancashire £0.67m

:: Metropolitan £30m

:: Northumbria £3.5m

:: South Wales £7m

:: Surrey £1.5m

:: Sussex £6.8m

:: Thames Valley £5m

:: West Midlands £5.4m

:: West Yorkshire £6m

Fire Services

:: Strathclyde Fire and Rescue service £3m


:: Cats Protection League £11.2m

:: Naomi House children's hospice in Hampshire £5.7m

:: The National Council for Voluntary Organisations (NCVO) said British charities have £120m

:: The Charity Finance Directors' Group said at least 10 charities had £36m invested

:: The Physiological Society in London £523,000

Anyone know about all this?

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Ian Phillips

Jan 30, 2013 at 00:44

I guess those Councils believed Gordon as well.....still, it didn't matter really it wasn't their money!

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Jan 30, 2013 at 01:03


My Local Authority invested about £25M and was expecting to recover at least an 80%.

This now means my rates will have to go up to compensate the idiots who refused to withdraw the money when they were advised to do so some months before the Icelandic banks collapsed.

What they were doing gambling with our money in the first place I can’t understand.

I suppose they will all get a pay rise and a bonus now, which seems to be the order of the day!

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Jan 30, 2013 at 14:48

Can someone explain why we, the British taxpayers, should have had to bail out a lot of people who were clever enough to spot a higher interest rate but too stupid to have spotted that this went with a higher risk?

And why was the limit raised from £50,000 for people with more than that who were too stupid to divide their quite large lump of savings into two or more different banks?

And the professional money managers in our local authorities - did anybody think they should be fired for gambling with their ratepayers' money?

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Jan 30, 2013 at 15:30

Perhaps the easiest way to send a message is not to by fish that has Iceland as the source of origin and for our fish ports to refuse to land catches from Icelandic boats.

It would probably be only a short lived exercise but it can be effective.

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Rob Walker

Feb 03, 2013 at 08:55

Thanks for the list David Warner. It seems apparent to me that there are not that many stupid people in charge of investments in all these organisations. Possibly the one faulty cog in this and the whole financial crisis is the role of the ratings agencies. If investors manage risk through AA ratings then I'm sure Icesave looked like a safe haven for spare cash. Yet here we are 4 years on and how has the practices of the Rating agencies changed? - who is overseeing them? - and how were they held to account when it all went wrong?

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Ian Craig

Feb 03, 2013 at 11:50

Doesn't the problem lie with the FSA? I thought it allowed foreign banks to substitute their own compensation arrangements for the more expensive british option. Does this still continue? Brown was wrong to leap the compensation limit up at the last moment - that was one of the main Icelandic complaints.

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In the Dark

Feb 03, 2013 at 19:01

Your title should read UK Taxpayer loses out. The UK Government should not have compensated the depositors of a foreign bank. What more needs to be said!

May be one day we may spend a little time and learn about money, risk, wealth creation and how Government squanders our asperations.

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Uncle Bulgaria

Feb 03, 2013 at 20:12

Looking at the list, I can't get too excited about the councils or the private investors - the irksome part is the list of charities, especially Naomi House. If you haven't heard of them, then go take a look at what they do and think about how hard their fundraisers work to make that happen. Now think about the Icelandic bankers and taxpayers; in my opinion they should be utterly ashamed of themselves; they're a disgrace to their nation and to the World. It's a long way back from there. I hope they have something left to believe in.

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John Wicks

Feb 03, 2013 at 22:03

What's new? Have not ALL governments over the years wasted and squadered the taxpayers money. For a really GOOD example, look into the Australian and State Governments and you can see how it can be done on the grand scale by experts.

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Barry Payne

Feb 03, 2013 at 22:28

Apparently Kent CC got their money back:

As for charities, they have a responsibility not to invest in higher risk investments. Why do they have millions stashed away anyway? Donations are given so they can be spent, not hoarded.

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Uncle Bulgaria

Feb 04, 2013 at 21:50

@Barry - I wouldn't classify having less than a year's operating expense invested in a high rate savings account a particularly "high risk" strategy for a charity, nor an excessive amount to have invested - merely enough to run the hospice for about 9 months, whilst relatively risk averse but trying to maximise the rate they could get. Hardly hoarding is it.

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