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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.
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.’
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