Sigrún Davíðsdóttir's Icelog

Iceland pre-and post-collapse

ESA takes Iceland to the EFTA court

with 12 comments

Some things happen slowly and this is one of them: after a long process the EFTA Surveillance Authority is taking Iceland to the EFTA Court for breaching European rules regarding the depositor guarantee scheme. This is what the press release says (and further information under this link):

“The EFTA Surveillance Authority has today decided to take Iceland to the EFTA Court over its breach of the Deposit Guarantee Directive[1].

According to the Directive, Iceland was obliged to ensure payment of a minimum compensation of  EUR 20.000 per depositor after Landsbanki and its Dutch and British branches, called Icesave, collapsed in October 2008. More than three years after the bankruptcy of the bank, Iceland has still not complied with its obligation.

The Deposit Guarantee Directive seeks to enhance consumer/depositor confidence in the banking system in the event of banks going bankrupt. The banking system depends on trust and consumer confidence and the Directive is a key instrument in that respect.

In May 2010, the Authority issued a letter of formal notice to Iceland, giving the Government the possibility to justify its position. After carefully examining Iceland’s reply in May 2011, the Authority issued a reasoned opinion on 10 June 2011. The purpose of this reasoned opinion was to give Iceland a final possibility to comply with the Directive.

Iceland has now replied to that reasoned opinion, but remains in breach.

“The Authority’s position is unchanged. Iceland must comply with its obligations under the EEA Agreement. It must ensure compensation of all depositors under the conditions prescribed by the Deposit Guarantee Directive and without discrimination,” reiterates Mrs Oda Helen Sletnes, president of the EFTA Surveillance Authority.

The Authority notes that the bankruptcy estate of Landsbanki has started to pay out the claims of depositors. However, according to the information provided by Iceland, those claims will not be paid in full before the end of 2013.

“One of the main purposes of the Directive is to avoid depositors having to have recourse to bankruptcy procedures. More than three years after the deposits became unavailable, the claims have still not fully been reimbursed. This only serves to underline the importance of compliance with the Deposit Guarantee Directive,” says Mrs Sletnes.

The case will now be brought before the EFTA Court. Iceland will have the opportunity to present its position.  If the EFTA Court finds that there is a breach, Iceland will be required to take immediate actions to comply with that judgment.”

For those interested, Icelog has written on ESA and Icesave a number of times. Here is a collection of earlier logs on this subject.

Follow me on Twitter for running updates.

Written by Sigrún Davíðsdóttir

December 14th, 2011 at 10:18 am

Posted in Iceland

12 Responses to 'ESA takes Iceland to the EFTA court'

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  1. Not a shock….the court will look at relevant facts rather than extraneous politics / PR. What would be the consequences of an order for immediate restitution plus interest for breach?

    andy

    14 Dec 11 at 10:21 am

  2. Hi Sigrún,

    The ESA’s press release says “Iceland to be taken” to court. So far the ESA is only gassing. Making threats. It hasn’t done anything but make noise yet. Before we get excited and enthusiastic for a good round of world-shaking legal circus-ry we need to see some action. So far the Bureaucracy at the Centre of the EUniverse has only queried if Iceland is willing to permit it to set up its tent and posted some handbills and made some vacuous promises, to set up its tent, to poke its nose into wholly Icelandic economic decision-making for a sideshow, and now, again, another promise to set up its tent. What is needed is some real action from the Bureaucratic circus. No sense to tie up butter and egg money buying tickets until then.

    It should be some show, though, if the ESA gets it out of committee and books it onto a docket. The questions are marvelous questions. They should generate some very real interest. The main one seems to be generating some consternation. This question is, may a sovereign nation be coerced to accept liability debt accruing to private enterprises that were headquartered in the nation, but accrued the debt in operations in other nations, where those enterprises were under the sovereign regulation of the other, host nations, wherefore the home nation had no practical regulatory control of the enterprises’ operations, or successes or failures in those extra-national markets?

    If the answer is “Yes”, the EFTA is going to fall apart in very short order, but some financial institutions presently feeling seriously pinched by their recent mad practices will be very relieved (see http://www.zerohedge.com/news/why-uk-trail-mf-global-collapse-may-have-apocalyptic-consequences-eurozone-canadian-banks-jeffe for a readable and educational rundown).

    If the answer is “No”, there will be some financiers and banks luging from prosperity to where they would like to see Icelanders instead of themselves.

    From the spectator point of view it should be great fun, if we don’t take team loyalties too seriously.

    R.L.Dogh

    16 Dec 11 at 3:49 am

  3. “where those enterprises were under the sovereign regulation of the other, host nations, wherefore the home nation had no practical regulatory control of the enterprises’ operations,”

    UNTRUE. Landsbanki’s Icesave product was ‘passsported’ into UK, where it was regulated by the Icelandic regulator, not by the UK FSA. Other Icelandic-owned banks in the UK were indeed regulated by the FSA; depositors in these banks were immediately compensated by the UK compensation scheme and are not part of EFTA’s case.

    “may a sovereign nation be coerced to accept liability debt accruing to private enterprises ”

    RIDICULOUS. That is of course not the question at issue. Iceland signed up to an agreement to operate a compensation scheme for deposits in banks under its regulation (and those included Icesave). The compensation scheme was theoretically in place – and advertised as such to depositors who could be expected to believe in it, but it failed to fulfil its obligations when called upon. Normally (in most countries I know of at least), deposit compensation schemes are funded, not by the government but by the (other) participating banks as a condition of them being licensed to operate. The problem here was of course that (a)there was no standing fund and (b)the other main banks also collapsed so it simply could not pay. The question then is whether the state (whose responsibility it was to set up a viable scheme) is responsible or not. That seems to be a valid question for the court to decide.

    But I guess you know all that and are just playing silly games.

    anrigaut

    16 Dec 11 at 9:21 am

  4. The universe lacks sufficient zeros to express my endorsement! Foreigner Doghu defines the issue perfectly: wily Europeans poking their snouts into wholly Icelandic economic decisions. It is outrageous. No business of theirs what we do with our money. So they lost their savings. A risk, my friends, a risk! Now they want it back? Ha, ha! (I, Gummi , laugh at the weak-kneed foreigners panicky rush for the exits)

    I predict this – we will handily win our case against the ESA with a perfect legal strategy: Innocent by Reason of Insanity.

    Exhibit A: Only a nation of recklessly inbred schizophrenics would grant honorary citizenship to Bobby Fisher.

    Exhibit B: And elect as President the cretin Olafur Ragnar Grimsson.

    To any doubters in the jury pool we shall play a video of Ollie, (obviously under the influence of psychotropic medications, crystal meth and peppermint schnapps), assuring the world that we are by nature and bloodline the best bankers in the world.

    Case closed. Afram Island!!
    Gummi

    Gummi

    18 Dec 11 at 1:09 am

  5. anrigaut,

    If what you assert of Landsbanki, under your heading “UNTRUE”, that Landsbanki was regulated by Icelandic regulation, not the UK FSA, was true the UK FSA had no business stating terms or levying demands on Landsbanki. The UK FSA’s option would have been, in such case, to communicate entirely with its Icelandic counterpart, with its ultimate, and really sole, authority option being to order Landsbanki to remove itself, lock, stock, barrel and depositor account, back to fully off-shore, to Iceland.

    Instead, the UK FSA moved to prevent Landsbanki when it undertook to repatriate its assets to Iceland following the UK FSA making what appear to have been deliberately and intentionally tailored impossible to comply with demands. With Landsbanki assets locked up by UK FSA, a sovereign British authority, action and not available to Landsbanki, or Iceland, for distribution to depositors who might demand, or per the Icelandic depositor stop-loss scheme, Iceland, of course, could not distribute compensation. Britain, for its action to take Landsbanki funds, also took Landsbanki responsibility to compensate the depositors whose funds it had taken into ‘protective custordy': If it did not its not doing would have shown the custody to not be ‘protective’, or even “protective” (in fiction to facilitate a state theft of lucrative assets for redistribution to native organisations).

    But had Landsbanki been able to regroup, with all assets, including UK savers’ deposits, in Iceland there is a good chance it would not have failed, since a good number of UK savers would have accepted having their deposits fully off-shore in exchange for continuation of having an honest bank paying an honest interest, which was a rarity in Britain then (see http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/144/144w271.htm for some narrative evidence what British savers were meeting from their banks).

    Had the UK FSA dealt with its counterpart in Iceland and let that authority and Landsbanki deal with the Landsbanki situation and had Lanndsbanki then failed and had Landsbanki then been unable to appropriately compensate Landsbanki depositors in Britain, then Britain would have had a cause for complaint and a case to assert. Then Iceland, as the sovereign authority administering would have had administrative responsibility and liability to guarantee the outcome.

    As is, Britain has liability for the whole, including the failure of Landsbanki, which it did not permit to occur ‘naturally’, if it would have. Cf., in criminal law, murdering a shopkeeper in course of robbing him who had a “probably” terminal illness (this is what Britain has to assert in its defense, that Landsbanki was dying, so it did not really commit murder).

    As for compensation schemes, and agreements to maintain such, Iceland does seem to have had one, and that scheme does appear to have carried out its duties responsibly, once it got out of hospital and back on its feet after the mugging the whole of Iceland’s economy took at the hand of John Bull the Bank Basher and his Lowland cohorts…

    Quite a recovery that the Icelandic banks’ TIF made, what? Embarrassing, really, you know: They are about the only ones on their feet now… Everyone else looking for taxpayers to lean on, or lein on, rather…

    This is the problem: Iceland had honest banks. They were leveraged, but leveraged as banks, within bank leverage traditional limits, and, are you ready for this astonishing bit? They were leveraged from REAL ASSETS! Not from synthetics or hyper-recursively-re-used hypotheticals or rehypothecations themselves leveraged from the same and the same and the same again, all connected, by legend, to clients-funds at some remove.

    Thus, the Landsbanki compensations were ultimately repayable from actual bank incomes, from genuine loans on genuine assets, and sales of genuine, instead of hypothetical assets.

    The problem is that almost no one else’s banks were operating with real assets. This means they don’t have real asset generated real income to reach back to. They NEED to guarantee by their sovereigns backed by those sovereign’s agreeing to extort to whatever extent may be needed to cover their too-big-to-fail tails for the gambling debts they have accrued.

    And there is little Iceland setting the example of a nation who did not so cover, and whose banks’ compensation fund did. If Iceland did not have to, why does everyone else? Why should everyone else? The answer is, of course, that Iceland’s banks were doing honest banking. But that is an answer everyone is at all costs trying to avoid recognizing.

    The ESA is puffing and threatening to attempt to suggest to any who might buy it that Iceland is not off the hook, that Iceland has not resolved its situation, but only dodged it. So Iceland is no different from anyone else.

    As soon as a real case is really filed on a real docket the facts of the case will have to be discovered (brought out and laid out to be argued). The ESA is putting off and putting off, trying to avoid that moment. It hasn’t any arguments to make. And worse, it hasn’t any bluster either. No smoke and mirrors to flash and obscure. So the EFTA court is going to be sitting fully exposed. Even if the EFTA court’s judges are corrupt and wants to make a knot of the case and turn all on its head for their ESA friends (and all those powerful interests who Must have an answer to give their people when they say, “But Iceland didn’t have to!” the court won’t be able to help them. At least not without doing so right out in the open and up front where everyone will see the decision for bent.

    If the case makes it to the EFTA court we should see something we can write into a story we might title “The ESA’s Irrefutable Evidence”. It will be mostly a paraphrase of Hans Christian Anderson’s story of “The Emperor’s New Clothes”. The ESA will begin by proclaiming, “We have a splendid case! A really splendid case! Wait ’til you see the splendid case we clothe this issue in!”

    The silly games, you see, are not my own. So if I seem silly, you must forgive me, I am amused.

    To re-introduce a little sobriety, you might go back to review what Britain had for a depositor protection scheme at the time its financial pirates gutted and scuttled Northern Rock. It is good to see they at least somewhat reformed, at least got religion, since then. Of course, like all who get religion it is the others not half the scoundrels they had been who they suddenly see as sinners around them…

    R.L.Dogh

    18 Dec 11 at 1:31 am

  6. Gummi,

    My reference was to the ESA asserting intent to investigate the Icelandic decision to renew loans to VBS, Saga Capital and Askar Capital, actions undertaken in Iceland for reasonable reasons relevant only to the Icelandic economy (keeping kroner circulating) at a time the only currency in Iceland was the parochial to Iceland IK. I waited to see how the ESA might justify that, to make it relevant to the EFTA. I wait still…

    R.L.Dogh

    18 Dec 11 at 1:49 am

  7. The ESA case regarding VBS, Saga Capital and Askar Capital regards state aid and is therefore central to the functioning of the EEA, as is made clear in the press release: http://www.eftasurv.int/press–publications/press-releases/state-aid/nr/1555 – and on Icelog: http://uti.is/2011/11/an-esa-investigation-into-loans-to-vbs-saga-capital-and-askar-capital/

  8. Sigrún,

    My understandings are 1.that the EFTA is an inter-state (EEA) trade agreement, wherefore its agreement terms monitoring agency, the ESA, would have jurisdiction to surveille EEA inter-state trade activities only, trade activities engaged in between commercial entities of the EFTA member states, not within them, and 2. that Iceland, in 2009, being effectively isolated by its economic collapse, lack of foreign currencies and reliance on its own domestic currency (essentially having only IK to spend or loan) which currency was then viewed as effectively ‘worthless’ for trade by other nations, would have been then confined to transacting with VBS, Saga and ASKAR in Iceland, in IK and effective in Iceland only.

    In cases where dealings were between Icelandic enterprises and other nations’ enterprises at that time, as I recall, extremely tight central bank control was in effect, for which Icelandic importers had considerable difficulty paying for goods to import.

    My assumption is that for these conditions the government’s extensions of the loans was in IK with no defined conversion rates, or expectations (the ESA conversion rates seem to be current, for present convenience of relative amount correlation, not historic for then-and-there-existing conditions), wherefore the extension was entirely for domestic purposes, e.g., to maintain Icelandic businesses and enterprises in Iceland, to prevent bankruptcies, to continue employments and continuation of IK circulation in Iceland.

    If my understandings and assumptions are correct, there would be no direct or proximate connection between the loan extensions and Icelandic EEC trade. The Icelandic maintenance of entities capitalizing Icelandic enterprises within Iceland would effect the EEC only in preventing Iceland’s economy from entire and total systemic collapse into and within itself, and that preventative effort positively effecting Iceland’s ability to recover to be able to participate further as an EEC member.

    If this is the case, the ESA is not even stretching its jurisdiction, it is entirely outside of it, attempting to act as a supra-national nation-monitoring authority. Does this not seem to you what the ESA is pretending, in its press release, to have authority to do? And, were the ESA allowed to extend its authority to surveille EFTA related activities to authority to surveille the in-nation activities of, and interactions between states and enterprise entities that engage in both domestic and EEC activities, what effect would that have in situations like Iceland’s banking one now? Where bank parts have been definitively separated into domestic and non-domestic portions?

    My suspicion is that the ESA would like to establish itself to have a ‘precedent’ to assert an extension of its authority to the at present entirely domestic Icelandic banks, which were formerly international, and in their international components subject to EEC and EFTA rules and agreements, and therefore, in those components, ESA authority.

    On a related note, where was the ESA and its authority when Britain and Holland were violating EEC and EFTA rules and agreements, singling out the Icelandic banks for extraordinary “supervision”, supervision quite unlike anything imposed upon others (what other British bank, for example, was required to maintain deposit-taking as a charitable activity, as KSF was when Kaupthing was the dominant shares-holder, when the FSA required it keep 95% of deposits in liquid form)?

    r.L.Dogh

    19 Dec 11 at 1:52 am

  9. The Dogh’s bark is worse than his bite.
    Have you looked into rabies shots?
    Afram!
    Gummi

    Gummi

    22 Dec 11 at 7:47 am

  10. Gleðileg jól, gummi! (and Sigrún, too)

    Some Christmas reading you might find interesting:

    michael-hudson.com/2011/12/democracy-and-debt/

    http://michael-hudson.com/2011/11/icelands-fair-value-vultures/

    April 1 2009 http://www.publications.parliament.uk/pa/cm200809/cmselect/cmtreasy/144/144w273.htm

    April 16 2010 http://www.publications.parliament.uk/pa/cm200910/cmselect/cmtreasy/478/47813.htm

    The first two especially are good to read before reading the ESA’s Application for a Declaration. You may then notice the ESA appears to be attempting to help UK and NL “Vampire” (I like this word better than “vulture”, since I have never met or seen an aggressive vulture) Iceland. The other two illustrate British banks vampiring British homeowners, one, dispossessing them of their homes, and two, attempting to roll back to the times of tenancy, instead of ownership.

    All are solid reading, so perhaps more work than pleasure.

    R.L.Dogh

    25 Dec 11 at 1:52 am

  11. The injections are not painful and far preferable to an anguished death foaming at the mouth and biting at strangers. Do reconsider.

    Gummi

    Gummi

    7 Jan 12 at 8:41 pm

  12. […] money from the Landsbanki WuB. Then there is of course this small matter of unpaid interest and the ESA case – yet another collapse […]

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