I wrote this post for the Reykjavík Grapevine last Monday, after the Icesave verdict had been passed down but it didn’t make it into print. 

An almost palpable ripple of relief passed through Icelandic society at precisely 10.30 am on Monday, January 28, when the EFTA court passed a judgment stating that Iceland had been within its rights to refuse claims by the UK and Holland over the failed Icesave online bank.

This put to rest one of the nastiest disputes in Icelandic history – one that had Iceland pitched against some of its closest foreign allies, and which polarized the nation into two camps incessantly hurling verbal assaults at each other.

icesave_russian_roulette2For those who don’t know what Icesave is … here’s a brief summary. Icesave was an online bank that Icelandic bank Landsbanki launched in the UK and Holland in 2006 and 2008, respectively, and subsequently planned to roll out in several other European countries, in true megalomaniac style. To our great fortune Iceland was hit by an economic collapse that scuppered those lofty plans, otherwise we would have been up the proverbial creek even more severely than we already were – and the paddle wouldn’t even have been invented yet.

Icesave promised high interest rates and was pushed as a super-smart alternative in banking, drawing on every “pure, pristine, natural, reliable” Iceland-cliché available. And it worked: in its first 18 months, Icesave managed to collect over 4 billion pounds Sterling, and was doing brisk business in Holland, as well.

But alas, in October 2008, Landsbanki collapsed, and Icesave shut down – the website simply closed, and depositors were unable to access their money. Enter the UK and Dutch governments, who immediately compensated their citizens for their lost deposits, planning to collect back from the Icelandic government later. However, the tiny Depositors Insurance Fund in Iceland was not exactly endowed to meet such hefty claims. Consequently the UK and Holland turned to the Icelandic government, kindly asking them to pony up funds for the debt.

The resulting dispute was too long, drawn out and complex to get into here. Suffice it to say that the three governments went through months and years of trying to hammer out various deals, which the Icelandic people kept rejecting, essentially on the grounds that regular citizens should not pay for the failure of a private bank.

Complicating the issue were various factors. One was this: when the Icelandic banks, including Landsbanki, collapsed, the Icelandic government compensated all Icelandic depositors IN FULL for their lost deposits. However, when Icesave collapsed, British and Dutch depositors only received the minimum compensation stipulated by EU law, or around 20,000 Euros per account. This was what the Icelandic government declared itself willing to pay in the subsequent negotiations.

Now, you may think that Iceland has a right to compensate its own citizens for whatever amount they want, and the foreign depositors should have to abide by the rules of their own countries. But it’s not quite that simple. Icesave, you see, was a BRANCH of Landsbanki, not a subsidiary. Because of this, there was no difference between depositors in London or depositors in, say, Akureyri. Both outlets were branches of the mother bank. Had Icesave been a SUBSIDIARY, however, it would have had a different legal status, and would have come under British or Dutch jurisdiction, as applicable. In that case, depositors would have been covered by insurance funds in their own countries.

So one of the claims in court by the UK and Holland was that Iceland had violated an EEA directive which states that a country may not discriminate against the citizens of another EEA country. Iceland has compensated Jón Jónsson in Akureyri in full, but was refusing the compensate John Johnson in London, even though technically they had the same legal claim on the bank.

Long story short: several Icesave agreements were negotiated, and all were rejected by the Icelandic public. By the time of the third agreement – wryly known as Icesave III – it had become clear that the assets of Landsbanki would probably be sufficient to cover the priority claims – that is, the depositors’ compensation. But the UK and Holland were also demanding interest on the debt – and this is something a majority of the Icelandic people could not accept.

So Icesave III was rejected, and the UK and Holland initiated proceedings against Iceland at the EFTA court. And this time they were playing hardball. The sum of the final Icesave deal had incorporated only the 20,000 EUR per account. Because the deal had been rejected, the demand was that Iceland should repay ALL deposits in full, which would have meant a serious blow to the Icelandic economy. This caveat was known during the negotiation process, and this was the reason so much emphasis had been put on trying to reach a settlement. Everyone knew that, if Iceland lost the case, the ultimate debt would wind up being far greater than the amount negotiated, and could potentially cripple the state treasury. Conversely, if Iceland won, the treasury would be off the hook with regards to payments.

It was a gamble. And when Icesave III was rejected in a referendum, the dice was thrown.

On Monday, January 28, the gamble paid off when Iceland was acquitted of all claims by the UK and Holland. Still, that does not mean that “Iceland stuck it to the bankers” – the myth that the foreign media loves to espouse – or that the debt will not be paid. The Landsbanki assets will cover the Icesave debt in full, something that was not clear from the outset, but is now. The interest payments, which would in any event have come out of the state treasury, will not have to be paid, nor will the deposits have to be compensated in full.

As I said before, this is a very, very basic rundown of the Icesave issue. I’ve deliberately left out several tangents, such as the UK’s invoking of anti-terrorist legislation against Iceland during the economic collapse, which still festers in the minds and hearts of some of my countrymen (most notably our president). But the important thing for most of us is that the Icesave abomination, which just kept returning, zombie-like, to haunt our nightmares, has finally been put to rest. May it remain forever dead and buried.