The Referendum on saturday April 9 2011

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The Icesave Dispute

The Government of Iceland maintains that the EU rules on deposit guarantees, which have been incorporated into Icelandic law, do not impose a legal obligation on states to guarantee the deposits of customers of the banks over and above the assets of the guarantee fund in any given case. Thus, it argues, Member States cannot bear liability towards the banks’ customers if the states have established deposit guarantee schemes.

The Government of Iceland has also argued for common responsibility for a flawed system of rules on deposit guarantees which was not intended to cover the simultaneous collapse of the major part of a state’s financial institutions. It points out that Iceland met its obligations under EEA Law by establishing a deposit guarantee scheme which would have been adequate under ordinary circumstances.

The British and Dutch governments, on the other hand, have argued that liability for bank deposit guarantees is not limited to the assets of the guarantee fund involved and that it is up to the Member States to ensure that minimum deposit guarantees are paid. They also consider that by accepting full liability for deposits held by customers of the banks in Iceland, the Icelandic Government discriminated between the banks’ customers according to the geographical location of the banks’ branches. In addition, they maintain, the Icelandic Government undertook, by its declarations in 2008, to repay the minimum deposit guarantee amount. Finally, they consider that court proceedings to decide these matters would weaken confidence in the European financial system.

The position adopted by the British and Dutch governments has received support from the governments of EU Member States and also from the Norwegian Government, the European Commission and the EFTA Surveillance Authority (ESA).

Opinion is divided on how the judgement would fall if these issues were to be submitted to a court for resolution. The Icelandic, British and Dutch governments for example all argue that their view is supported by the case-law of the European Court.

The outcome of the negotiations which resulted in the Icesave Agreements, on the other hand, is that the Icelandic State is to guarantee that the British and Dutch governments will be reimbursed for that part of their costs that corresponds to the minimum deposit guarantee amount, with interest.