Despite some confused reports to the contrary, this weekend’s result does not mean Iceland will withhold refunds to the British and Dutch governments for the money they lost bailing out Icesave account holders in 2008.
Some international media sources have framed the referendum as a simple question of “should Iceland pay the Icesave money back or not?” In reality, the question was much more complicated and even after Icelandic citizens voted against the repayment contract, the British and Dutch governments will still receive very substantial refunds.
The Icesave accounts in the Netherlands and the UK were operated by Landsbanki, which was based in Iceland. Landsbanki paid into the Icelandic Depositors’ Guarantee Fund in strict accordance with European law. However, no country’s depositors’ guarantee fund holds enough money to refund depositors after a total systemic banking crash of the magnitude which hit Iceland in autumn 2008. In the interest of domestic stability the British and Dutch governments therefore decided to refund Icesave savers directly when Landsbanki collapsed. They then sent the bill to Reykjavik.
Depositors are priority claimants on the bankrupt Landsbanki estate. This means that when Landsbanki’s assets are sold, they are first-in-line to recover their losses. By bailing out customers, the British and Dutch governments replaced the savers and became priority claimants on their behalf.
What the Icesave referendum was about was essentially whether or not the Icelandic Depositors’ Guarantee Fund should take a loan from Britain and the Netherlands in order to pay them back upfront (albeit with money borrowed from them) and therefore replace both governments as priority claimants on Landsbanki.
Icelandic voters decided on Saturday that it should not. This means that the British and Dutch governments remain priority claimants on Landsbanki.
Landsbanki now says it should be able to retrieve 90-100 percent of lost money for priority claimants over the next few years – including the British and Dutch governments. And furthermore, a third of that amount is due to be paid out this year. The Icesave referendum has no impact on the winding up of Landsbanki or to the payment amounts or time schedule. It only dictates to whom the money will be paid.
In the quite-likely event that the total Landsbanki winding up period returns all lost money to London and The Hague, the trilateral dispute would only be about interest payments during the time spent waiting for the money. The EFTA Surveillance Authority now awaits the response from the government of Iceland before deciding whether to start preparing a legal case against Iceland before the EFTA Court to establish whether or not the Icelandic taxpayer is legally responsible for the debts of Landsbanki – a private bank.
During the long negotiation process between the three countries and the three deals which were struck and then repealed (once by the British and Dutch governments and twice by Icelandic voters) the fundamental question of whether the taxpayer is ultimately responsible was never properly answered. As Minister of Finance Steingrimur J. Sigfusson told reporters this week: “Now it certainly will be”.