Luxembourg Court backs Iceland’s decision not to pay banker-created Debt





By LUIS MIRANDA | THE REAL AGENDA | JANUARY 29, 2013

Who has to pay the bankers in Iceland’s banking crash? Not the Icelanders. Different from countries such as Spain and Ireland, Iceland decided that taxpayers should not pay for the excesses of an industry that had grown disproportionately, but most importantly, that had ramped up the country’s debt to a point where upwards of 90 % of the debt written under the country’s name was actually bank debt.

Iceland will compensate the British and Dutch two of the countries that had bet more heavily in the fictitious financial products offered by banks out of Iceland. The citizens said no twice through referendums, and now, five years after the collapse of its banking system, a Luxembourg court just gave the northern nation the reassurance that they did what needed to be done to get rid of the bankers’ tentacles.

The Court of the European Free Trade Association (EFTA) believes that the country did not violate any law when it refused to return to 300,000 savers money deposited in foreign entities offering some interests that then seemed to good to pass. “It is a victory for democracy. It sends the message that banks can not reap the benefits and send the bill to taxpayers when things go wrong, “says Magnus Skúlasson, an Icelandic economist.

The court, which also represented Norway and Liechtenstein, provides a very interesting nuance: Iceland is not obligated to pay as “the deposit insurance fund was unable to meet its obligations in the event of a systemic crisis “. The decision by the court would be equal to the FDIC fund not having enough cash to ensure the banking entities in the United States, with bankers demanding that U.S. taxpayers assumed the responsibility of a carefully crafted collapse of the American banking system. Just as in the case of Iceland, U.S. taxpayers would not be liable for the banks’ misconduct and therefore they wouldn’t have to pick up the tab.

A community spokesman was quick to answer that Brussels clings to the obligations of the deposit insurance funds that remain “valid also if there is a systemic crisis.” Nevertheless, the European Commission says it needs time to study the ruling. “The ruling is also good for the Netherlands and the UK. If they had won, it would mean that the nation-state is responsible for all bank deposits, something no country wants, “adds Jon Danielsson of the London School of Economics.

After the bankruptcy, the governments in London and Amsterdam used their coffers to compensate customers of the Icelandic bank. Shortly after they began the legal process that came to an end yesterday, as the ruling that Reykjavik considered “satisfactory”, does not admit any appeals.

Despite the support of the courts, Iceland has ended up paying some of the money. Reykjavik has already repaid about 3,300 million euros, about half of the total paid in Icesave, that corresponds to debt that the government itself was actually responsible for. The money corresponds to the debt from Landsbanki, one of three banks that failed in 2008 and led the entire country’s banking system to bankruptcy. The amount paid is more than 90% of the guaranteed minimum that the State was obliged to return.

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