Why can't we get a deal like this from the ECB?

professore

This to me would be a credible deal ... the one Iceland narrowly rejected by referendum:

Under the terms of the rejected deal, Iceland would have paid the money back with 3.3% interest to the UK, and 3% to the Netherlands, over 30 years between 2016 and 2046.

Under the previous proposal, the money was to be paid back with 5.5% interest between 2016 and 2024.

Analysts say a resolution of the issue is vital to Iceland's prospects for recovery because it would allow the country to return to the financial markets to fund itself.

http://www.bbc.co.uk/news/world-europe-13022524

As it currently stands we get 1% interest rate reduction IF we relinquish control of our corporation tax ... and have everything sorted by 2013 or 2014. This is a terrible deal and realistically impossible IMHO. The level of pain it will bring will bankrupt a lot of private citizens. I don't believe the current program is half tough enough to do it as the scale of the debts are so large.

I think it is clear if we rescind the bank guarantee now together with tough measures to close our budget deficit we can go back to the markets and fund ourselves tomorrow. If Iceland can do it, so can we. We are not Greece or Portugal. We have a competitive private sector and a relatively young population. Thoughts?

SupaNova

I think it is clear if we rescind the bank guarantee now together with tough measures to close our budget deficit we can go back to the markets and fund ourselves tomorrow. If Iceland can do it, so can we. We are not Greece or Portugal. We have a competitive private sector and a relatively young population. Thoughts?

The fact that we are struggling to make cuts and tax increases under EU pressure would make me think that it is unlikely we would tackle them faster on our own.

Sand

Iceland stood up for itself, and made it clear that it wasnt going to be intimidated by threats, that it wasnt willing to pay off private banking debts.

That incentivised the creditors to offer better terms to try and persuade Iceland to cover the money they had lost. Hence the improved terms of the second deal over the first rejected deal.

Ireland on the other hand never stood up for itself, was easily intimidated, was led by a government that made a stupid decision to guarantee the entire banking system, and was too stupid and too stubborn to recognise their error and reverse it in time. Hence we got punitive terms designed to punish us for crimes, real and imagined.

The problem we have now though is the advocates of the "Do whatever the ECB says!" strategy have entirely exhausted any reserves the Irish state may have had, and with it, any options for alternative strategies.

Scofflaw

Because Iceland does not need to borrow any more from the UK or Holland, and because there is no question in their case of Holland or the UK wanting or needing Iceland to do anything bar pay back the money.

cordially,
Scofflaw

Pete_Cavan

The deal Iceland voted to reject was to do with repaying loses resulting from their default which the British and Dutch governments reimbursed. They still took the IMF bailout, and this situation has no bearing on our bailout. Also, the fact that Iceland defaulted on bank debt yet still needed to be bailed out is proof that the Sinn Fein line that if we defaulted on bank debt, we could reject the bailout money and go back to the bond markets is pure fallacy.

karlth

Pete_Cavan wrote: »

The deal Iceland voted to reject was to do with repaying loses resulting from their default which the British and Dutch governments reimbursed. They still took the IMF bailout, and this situation has no bearing on our bailout. Also, the fact that Iceland defaulted on bank debt yet still needed to be bailed out is proof that the Sinn Fein line that if we defaulted on bank debt, we could reject the bailout money and go back to the bond markets is pure fallacy.

Iceland never defaulted, the government just never guaranteed private bank debt.

The reason was Iceland wouldn't have been able to and had a very independent central bank governor that seriously dislikes the EU.

Guy:Incognito

The Iceland situation is nothing to do with or like ours.


It's €4b that the UK and Dutch governments, off their own backs, paid to their own citizens when an Icelandic bank, operating in the uk and Holland folded, then went looking for the money off Iceland.

They had a referendum on whether they should pay this money back that theu are not really obligated to pay. Even then it was as close as 58 -42

professore

SupaNova wrote: »

The fact that we are struggling to make cuts and tax increases under EU pressure would make me think that it is unlikely we would tackle them faster on our own.

Would we need to tackle them faster? If the markets see that we are cutting our budget deficit (increasing corporation tax is not the way to do it BTW!) then surely they would lend to us? Our bond spreads are already below Portugal and Greece, and that's with the weight of the bailout on top of our budget deficit.

I'm not one who claims it will be back to the Celtic Tiger if we do this, but at least we would regain our economic soverignty? I also believe that this is going to be much worse in a few years time and the ECB won't want to know as it will be dealing with Spain and bankrupt banks in the European core countries.

professore

Also to clarify, I think Sinn Fein's economic policies are nuts ...

professore

Also our capacity to repay would be greater as we would have less debt. If we could borrow at 6% on the markets, considering we are at 9% now, we are close to the price the ECB/IMF are looking for, and we would need much less. This is assuming of course that the government keeps to the current austerity plan, which is a big if.

Scofflaw

professore wrote: »

Also our capacity to repay would be greater as we would have less debt. If we could borrow at 6% on the markets, considering we are at 9% now, we are close to the price the ECB/IMF are looking for, and we would need much less. This is assuming of course that the government keeps to the current austerity plan, which is a big if.

And assuming the markets completely ignored the fact that we had defaulted. Why people continue to think that I have no idea.

Also:

The UK and Dutch governments are preparing court action against Iceland to recover 4bn euros (£3.5bn) lost when the country's bank system collapsed.

It follows a referendum in Iceland which rejected a repayment plan.

The UK said it was "disappointed" by the "no" vote, while the Dutch finance minister said the time for negotiations was "over".

Iceland's Finance Minister Steingrimur Sigfusson said that resolving the row in court would take at least a year.

But he told the BBC: "It is very important to emphasise that the UK and the Netherlands will begin to get their money back later this year."

He said the failed bank would be able to pay out on about 90% of claims from the UK and Dutch authorities.

cordially,
Scofflaw

fred252

what court would hear such a case?

is there a precedent for this?

professore

Scofflaw wrote: »

And assuming the markets completely ignored the fact that we had defaulted. Why people continue to think that I have no idea.

I guess they already have priced in that we are going to default. So that's old news. The markets have no memory. I would much sooner invest in this Ireland with a large chunk of the bank debt off its books than an Ireland with this huge burden and no guarantee that we have seen the last of it ...

Scofflaw

fred252 wrote: »

what court would hear such a case?

The Court of Justice of the European Free Trade Association States - the EFTA equivalent of the ECJ.

fred252 wrote: »

is there a precedent for this?

Yes, of course, countries take each other to court all the time under their various international obligations.

cordially,
Scofflaw

Scofflaw

professore wrote: »

I guess they already have priced in that we are going to default. So that's old news. The markets have no memory. I would much sooner invest in this Ireland with a large chunk of the bank debt off its books than an Ireland with this huge burden and no guarantee that we have seen the last of it ...

The markets rather evidently do have a memory, though - that's why Iceland still isn't able to sell bonds on the international markets.

The Icelandic people were damned if they did and damned if they didn't. It looks as if they still couldn't stomach the idea of paying off the debts of privately owned banks - even if the revised deal was considerably more generous.

The consequences of this referendum vote is that Iceland's years in the financial wilderness could be extended much further.

Moody's and other ratings agencies look set to downgrade the country even further, making it prohibitively more expensive to borrow on the open markets.

Iceland's bid to join the EU will be paused or even vetoed by Britain and the Netherlands. And the tiny Atlantic economy is facing legal action in the EFTA court which might force it to pay up sooner than planned and at a punitive interest rate.

Democracy doesn't pay if you're an Icelander.

Source: BBC

It's very easy to deny reality, but it doesn't change reality to do so.

cordially,
Scofflaw

thebman

The reality seems to be that Icelandic people believe they have a strong enough domestic economy to shut out these nations and investors and go back to their old way of living before the financial bubble.

I don't think such a solution could work for Ireland. We are too much export orientated and foreign investment reliant to be able to go it alone like Iceland.

fred252

Scofflaw wrote: »

The Court of Justice of the European Free Trade Association States - the EFTA equivalent of the ECJ.



Yes, of course, countries take each other to court all the time under their various international obligations.

cordially,
Scofflaw

and what is the worst punishment this court could impose on a country like iceland?

fred252

decent article on the consequences of the "no" vote;

http://www.forexyard.com/en/news/Iceland-can-pay-bill-in-Icesave-court-case-cbank-2011-04-11T211126Z-UPDATE-1

Scofflaw

fred252 wrote: »

and what is the worst punishment this court could impose on a country like iceland?

Fines, same as the ECJ, followed by eventual suspension from the EFTA, and consequent loss of access to EU markets.

cordially,
Scofflaw

beeftotheheels

Scofflaw wrote: »

Fines, same as the ECJ, followed by eventual suspension from the EFTA, and consequent loss of access to EU markets.

cordially,
Scofflaw

You skipped a step. They could award damages and costs to the complaining nations which is what the UK and Netherlands are seeking.

The UK and the Netherlands want their 4bn back (with interest) so if they win the court will tell Iceland to pay up, not over the long term proposed in the referendum, but immediately (although it would be open to the UK and Netherlands to agree a repayment schedule if they saw fit, exhausting their goodwill may not have been the best idea here).

Then, if Iceland failed to comply with that order they could impose fines etc etc but it won't get to that...

The bigger point than fines, is the faith of the markets. The only place we really see sovereign states ignoring the judgments of international courts to which they are signatories is in the human rights arena.

If Iceland were to ignore a judgement against them in a commercial matter then the markets would close to Iceland. Why would you lend to Iceland if you knew there was a risk they wouldn't pay you back, even if you had a court order ordering them to?

You're no longer just taking the risk that they can't pay you back, you're also taking the risk that they could unilaterally decide that they won't pay you back. Iceland, as a small nation, couldn't live with that rep. So, if they lose, they will pay, or at least agree to pay, long before it gets to fines.

Scofflaw

beeftotheheels wrote: »

You skipped a step. They could award damages and costs to the complaining nations which is what the UK and Netherlands are seeking.

True, but that's not a punishment but rather the judgement of the court.

beeftotheheels wrote: »

The UK and the Netherlands want their 4bn back (with interest) so if they win the court will tell Iceland to pay up, not over the long term proposed in the referendum, but immediately (although it would be open to the UK and Netherlands to agree a repayment schedule if they saw fit, exhausting their goodwill may not have been the best idea here).

Then, if Iceland failed to comply with that order they could impose fines etc etc but it won't get to that...

The bigger point than fines, is the faith of the markets. The only place we really see sovereign states ignoring the judgments of international courts to which they are signatories is in the human rights arena.

If Iceland were to ignore a judgement against them in a commercial matter then the markets would close to Iceland. Why would you lend to Iceland if you knew there was a risk they wouldn't pay you back, even if you had a court order ordering them to?

You're no longer just taking the risk that they can't pay you back, you're also taking the risk that they could unilaterally decide that they won't pay you back. Iceland, as a small nation, couldn't live with that rep. So, if they lose, they will pay, or at least agree to pay, long before it gets to fines.

Quite true - unfortunately, we're quite likely to get a rendition here of how the markets have short memories etc. Iceland is off on a diplomatic offensive:

The Governor of the Central Bank of Iceland says that the Moody’s ratings agency has confirmed it will hold off on re-evaluating Iceland’s sovereign debt rating following Saturday’s Icesave referndum. He has also asked the other major ratings companies to hold judgement.

A lot hangs in the balance, RUV reports — including finance for the new Budarhalsvirkjun hydro power station.

Moody’s had previously said that its Iceland credit rating would be immediately re-evaluated if the country voted ‘no’ in the referendum; and that it would probably be lowered. The Icelandic government was fearful that such a downgrade would make foreign finance, including for public works projects, a lot more expensive. That is one of the reasons the government was hoping for a ‘yes’ vote. A large chunk of the money for Budarhalsvirkjun is coming from the European Investment Bank on the understanding that Iceland’s credit rating remains the same (or better) than now.

Mar Gudmundsson, governor of the Central Bank of Iceland, says that his staff have been in regular contact with the ratings agencies over recent weeks, urging them to move carefully and slowly. The negotiations appear to have worked: “Moody’s has, for example, decided to do nothing until at least after next weekend because we have arranged a meeting with them in Washington on Sunday. I also have good hope that we will maybe get a little more time from the others,” Gudmundsson told RUV yesterday; specifically naming Standard and Poor’s.

Read more: http://www.icenews.is/index.php/2011/04/12/moodys-takes-wait-and-see-approach-to-iceland-rating/#ixzz1JJ3p4UB0

cordially,
Scofflaw

fred252

beeftotheheels wrote: »

If Iceland were to ignore a judgement against them in a commercial matter then the markets would close to Iceland. Why would you lend to Iceland if you knew there was a risk they wouldn't pay you back, even if you had a court order ordering them to?

given their current "beligerence" why is the IMF lending to them at the moment?

the markets are effectively closed to ireland eventhough we have no court order against us.

i think exclusion from the EU free trade agreement, that Scofflaw pointed out, would be the big issue for them. (although they do a lot of trade with the U.S. and Japan)

RachaelVO

Scofflaw wrote: »

The Court of Justice of the European Free Trade Association States - the EFTA equivalent of the ECJ.

Now this is gonna seem totally dumb, but seeing as Iceland are not yet part of the EU, can any ruling be enforced? They still need (afaik) to have a referendum to accept any entry into the EU. I know that part of their membership acceptance is part taking in negotiations about the money owed to the British and Dutch, but how can an EU ruling force them to pay out if that's what it finds is appropriate?

beeftotheheels

Scofflaw wrote: »

True, but that's not a punishment but rather the judgement of the court.

Point taken!

Scofflaw wrote: »

Quite true - unfortunately, we're quite likely to get a rendition here of how the markets have short memories etc.

Doh! I promise I never intended to open that whole can of worms, I was young and stupid and I didn't think through the consequences of my actions...

On the flip side, at least now it will be harder to make that argument when the ratings agencies downgrade Iceland, and the results of the Icelandic referendum are at risk of being set aside in a court of law... Not that that will necessarily impact on the "Markets have a short memory" and "Lets hold a referendum" brigade any time soon.

Maybe I should just join them, I too believe that the markets have a short memory, when compared to the lifespan of an Oak for example....

beeftotheheels

fred252 wrote: »

given their current "beligerence" why is the IMF lending to them at the moment?

the markets are effectively closed to ireland eventhough we have no court order against us.

i think exclusion from the EU free trade agreement, that Scofflaw pointed out, would be the big issue for them. (although they do a lot of trade with the U.S. and Japan)

It is not belligerence at the moment. Their side is arguable, no guarantee that the UK and Netherlands will win.

I haven't seen the actual arguments and have seen suggestions that the case is about forex and timing more than capital which might make their case stronger. I suspect that the UK & Netherlands will win, but until the Court rules no body knows.

The markets are closed to us at the moment because people doubt that we can pay, if our economy improves we expect the be able to return to the markets once people believe that we can pay.

Imagine the economy improving such that our debt looks manageable, but the markets still not lending to us because the doubted that we would pay. We'd be out of the markets for x years based on our inability to pay, and would remain locked out (or charged a huge risk premium) until it was blatantly clear that we would always comply with court orders against us.

The market has a memory, and a democratically elected Government refusing to honor debts and court judgments which it could afford would not play well, would result in a risk premium for several years, possibly until that government was replaced.

beeftotheheels

RachaelVO wrote: »

Now this is gonna seem totally dumb, but seeing as Iceland are not yet part of the EU, can any ruling be enforced? They still need (afaik) to have a referendum to accept any entry into the EU. I know that part of their membership acceptance is part taking in negotiations about the money owed to the British and Dutch, but how can an EU ruling force them to pay out if that's what it finds is appropriate?

Scofflaw's point was that they are already a member of the European Free Trade Association along with Norway and Lichtenstein (and all EU Member States).

It is kind of like a light version of the EU, it doesn't deal with lots of the complex areas that the EU deals like environment, ECB, external relations etc etc...

The one area that it governs is free trade between all the members which is what this case will be argued on.

In fact, the free trade rules between Ireland and France (2 EU Members governed by the EU treaties) are almost identical to the free trade rules between Ireland and Iceland (an EU and an EFTA member governed by the EFTA rules).

As an EU Member, we normally talk about the EU, but we're also an EFTA member (as are the UK, Iceland and the Netherlands)

RachaelVO

beeftotheheels wrote: »

Scofflaw's point was that they are already a member of the European Free Trade Association along with Norway and Lichtenstein (and all EU Member States).

It is kind of like a light version of the EU, it doesn't deal with lots of the complex areas that the EU deals like environment, ECB, external relations etc etc...

The one area that it governs is free trade between all the members which is what this case will be argued on.

In fact, the free trade rules between Ireland and France (2 EU Members governed by the EU treaties) are almost identical to the free trade rules between Ireland and Iceland (an EU and an EFTA member governed by the EFTA rules).

As an EU Member, we normally talk about the EU, but we're also an EFTA member (as are the UK, Iceland and the Netherlands)

OK, that makes sense, so If for example there is a ruling against Iceland by the EU, does the EFTA have to consider it in any dealings with Iceland? Would and EU ruling against Iceland stop for example France trading with Iceland?

wiseguy

Scofflaw wrote: »

.. and consequent loss of access to EU markets.

Trade works both ways, If the EU engage in a childish trade war then they have much more to lose than the Icelanders whose backs are to the wall.
And the message this would send out to any prospective EU members and existing EFTA partners would be strong and negative. EU has already lost a lot of credibility with its childish handling of the financial crisis within the euro-zone and the periphery members including Ireland.
Any future EU referendum's here are doomed already due to growing anti-EU sentiment.
The EU was build on cooperation, solidarity and respect of democracy, acting like a bully would lead to its demise and sends out wrong message.

beeftotheheels

RachaelVO wrote: »

OK, that makes sense, so If for example there is a ruling against Iceland by the EU, does the EFTA have to consider it in any dealings with Iceland? Would and EU ruling against Iceland stop for example France trading with Iceland?

Nope, think I may have confused things. The EFTA has its own court http://www.eftacourt.int/ which is distinct from the Court of Justice of the European Communities (otherwise referred to as the ECJ) http://europa.eu/institutions/inst/justice/index_en.htm.

The Court of Justice is the court for EU rules, the EFTA Court is the Court for the EFTA rules.

The Netherlands and UK are not going to the Court of Justice since as you point out, Iceland is not a member of the EU. They are going to the EFTA Court arguing that Iceland breached the rules of the EFTA (as Iceland is a member of EFTA).

Nothing to do with the EU. All EU Members are also EFTA members, but all EFTA members are not EU members.

I guess it is like saying that all Dubs are from Leinster, but not all Leinster people are from Dublin. In this case, the game is rugby, the opposition Toulouse so the Dubs in question don their Leinster blues and head to the Aviva. If the game was GAA (the game which has traditionally had a lot more support and coverage) and the opposition Cork the Dubs would don their Dublin blues to head to Croke park. Toulouse will never play in Croke park unless they take up playing GAA (Iceland join the EU)

If The EFTA Court rules against Iceland then Iceland will comply with that ruling (they have publicly stated so http://www.bbc.co.uk/news/world-europe-13047176 )

If, however, Iceland refused to comply despite the various sanctions being applied then as a last resort they could be kicked out of the EFTA. If they got kicked out then that would impact on their trade with all EU Member States + Norway (important) + Lichtenstein (not sure that they would cry over this one). It will not get to this though, if they lose they will comply.

Scofflaw

wiseguy wrote: »

Trade works both ways, If the EU engage in a childish trade war then they have much more to lose than the Icelanders whose backs are to the wall.
And the message this would send out to any prospective EU members and existing EFTA partners would be strong and negative. EU has already lost a lot of credibility with its childish handling of the financial crisis within the euro-zone and the periphery members including Ireland.
Any future EU referendum's here are doomed already due to growing anti-EU sentiment.
The EU was build on cooperation, solidarity and respect of democracy, acting like a bully would lead to its demise and sends out wrong message.

Don't be ridiculous. If Iceland loses the case at the EFTA court, it can either comply or not comply with the ruling. If it doesn't comply, it will face fines. If it doesn't pay the fines or comply, it will face suspension from EFTA, If it us suspended from EFTA, it will lose access to EFTA/EU markets, because it will be in breach of an agreement it has signed up to, and the obligations it acquired when it signed.

Reducing the question of compliance with international treaty obligations down to a schoolyard paradigm of 'big meanies' and 'poor little victims' is utterly fatuous.

regards,
Scofflaw

Scofflaw

Here's the "big meanies" swinging into action, with a vicious threat of Reasoned Opinion:

The Authority has taken note of the outcome of the Icelandic referendum concerning the Icesave issue. We now expect a swift answer from the Icelandic government to our Letter of Formal Notice of May last year. We will assess the government's reply before we take further steps in the case.

Unless the letter from the government contains arguments that alters our preliminary conclusions in the case, the next formal step would be to send Iceland a final warning, a Reasoned Opinion. This final warning will give Iceland two months to rectify their breach of the EEA Agreement. If Iceland continues to be in breach of the agreement, the case will be sent to the EFTA Court.

cordially,
Scofflaw

RachaelVO

Thanks beeftotheheels that clears that up for me

So many facets. I do wonder now though, is there a chance that Iceland could actually win any proceedings taken against them?

Unpossible

wiseguy wrote: »

Trade works both ways, If the EU engage in a childish trade war then they have much more to lose than the Icelanders whose backs are to the wall.

If I'm not reading this wrong, 75% of Icelands exports are to the EU, whereas 0.1% of the EUs exports are to Iceland.
Admittedly I'm not great with reading articles like this, but never the less it looks like the only one who will lose out in a trade war is Iceland.

fred252

Scofflaw wrote: »

Don't be ridiculous. If Iceland loses the case at the EFTA court, it can either comply or not comply with the ruling. If it doesn't comply, it will face fines. If it doesn't pay the fines or comply, it will face suspension from EFTA, If it us suspended from EFTA, it will lose access to EFTA/EU markets, because it will be in breach of an agreement it has signed up to, and the obligations it acquired when it signed.

Reducing the question of compliance with international treaty obligations down to a schoolyard paradigm of 'big meanies' and 'poor little victims' is utterly fatuous.

regards,
Scofflaw

so they'll have to sell all that fish elsewhere then? there'll be plenty of takers right...

beeftotheheels

RachaelVO wrote: »

Thanks beeftotheheels that clears that up for me

So many facets. I do wonder now though, is there a chance that Iceland could actually win any proceedings taken against them?

If they are prepared to go to Court they must believe that they have a chance of winning. Politically they have to fight it since their electorate have rejected the deal, but you cannot go to court if you believe that your arguments have no merit, not least because you would have difficulty finding a lawyer to take the case.

Many jurisdictions impose sanctions on lawyers who take merit less cases.

I suspect that a lot more has gone on behind the scenes between the countries involved than has been published. I'd probably be prepared to put €5 on the UK and Netherlands winning, but that is almost an instinctive bet.

I wouldn't feel anywhere near confident enough to bet €20 on the outcome, we just don't know enough about what was said when and to whom.

beeftotheheels

Scofflaw wrote: »

Here's the "big meanies" swinging into action, with a vicious threat of Reasoned Opinion:



cordially,
Scofflaw

I hadn't realized until Scofflaw's quote above that the initial action was being taken by the Surveillance Authority of EFTA (very lazy I know) so I have now had a quick look at their website and thought I'd set out below a very brief summary of what the state of play is, as it appears to be different from what we are understanding.

Press release http://www.eftasurv.int/press--publications/press-releases/internal-market/nr/1253

Now, I should point out that I have zero experience dealing with that Surveillance Authority, but I'm assuming that what we are looking at is on a par with Infraction/ Infringement proceedings by the European Commission which I have some experience of. Below is simplified (to the point of being slightly wrong).

Assumptions.

The Surveillance Authority is the guardian of the EFTA agreement in the same way that the Commission is the guardian of the EC treaties.

Where the Commission view that a Member State is in breach of their obligations under the EC treaty they can begin infraction/ infringement proceedings.

There is a set formula where the Commission write to the Member State telling them why they believe that the domestic rules do not comply with EC law and asking for more information. The Member State writes back, giving the additional information sought and agrees or disagrees that the laws are in breach of EC law. If they agree, then they change their laws and the story ends there.

If they disagree then the Commission can send out a reasoned opinion again stating why they view the rules to breach EC law. Again the MS can agree or disagree, and if they agree they change their laws and it ends there.

If they disagree then it goes to Court.

However, the Commission never looks for damages, they only look for a ruling obliging the MS to change their laws going forward. If the MS changes their laws on the steps to the Court the Commission drops the case.

However, having a MS in breach of their EC law obligations can cause damage to other citizens. Say the Commission took infraction proceedings against Spain alleging that they were levying an illegal capital duty in breach of the capital duties directive, the Commission just wants Spain to stop levying the tax going forward. However, any companies who paid the illegal tax have lost out and will want their tax back/ damages.

If the Commission gets a judgement against the MS, then the companies usually sue in the domestic courts (Spain in this example) and get their tax back + interest although it can take some time.

This case

The Surveillance Authority is alleging that Iceland failed to properly implement a directive into domestic law. If they are like the Commission, then if Iceland changes the rules going forward the Surveillance authority ceases to have a case.

The Dutch and British Governments may continue to press their case, for which they have to prove

1. That the directive was directly effective (SA seems to view this as a dead cert)
2. That the directive was intended to confer rights on individuals (the directive is all about protecting depositors so probably easy enough to prove), and
3. That those depositors lost out by virtue of Iceland's failure to implement the directive properly (this might get interesting depending on when the British and Dutch governments stepped in to take on the risk of their depositors)

Crucially what this means is that, if the case is proceeding on the foot of failure to implement the directive properly, the UK and Netherlands are not looking for Icelandic taxpayers to underwrite the debts/ deposits of their banks. They are looking for damages against the government for failing to protect those depositors in advance by having a sufficient protection fund.

It seems like a small pedantic point, but it means the case is not about taxpayers bearing debts, it is about damages for a failure in government oversight. It makes the case more "unique" and probably lessens the impact of any fall out from the case for others.

If anyone has more experience/ thoughts on this am sure the thread would welcome your insights.

RachaelVO

beeftotheheels wrote: »

I suspect that a lot more has gone on behind the scenes between the countries involved than has been published. I'd probably be prepared to put €5 on the UK and Netherlands winning, but that is almost an instinctive bet.

You're probably spot on about that. I was doing some looking on some dutch sites and I found this.

Minister Jan Kees de Jager (Financiën) wil dat de rechter zich uitspreekt over de voortdurende Icesavezaak met IJsland. Wat De Jager betreft is de tijd van onderhandelen met IJsland voorbij nu de IJslandse bevolking opnieuw het met Nederland en het Verenigd Koninkrijk afgesloten akkoord heeft afgewezen in een referendum.

http://www.depers.nl/economie/560192/Icesave-zaak-is-aan-rechter.html

When you translate this it's basically saying that the dutch aren't happy with the outcome of the referendum, and that the time for negotiations is over. Now that's what everyone knew anyway as it's been reported. However the english translation of the dutch doesn't come across nearly strong enough from a Dutch perspective! They are livid, and the word I highlighted in the quote is much stronger than what it's been translated into "closed" or "over".

There has been speculation (that's all it is now is speculation) that the Dutch govt will take some form of action if they don't get their money back, and from what I understand of it, it will have nothing to do with any ruling!

(My other half is dutch, and we live in good ol Nederland, and I can speak dutch, just in case you were wondering how I knew that.

And thanks for answering my questions

Scofflaw

RachaelVO wrote: »

You're probably spot on about that. I was doing some looking on some dutch sites and I found this.



http://www.depers.nl/economie/560192/Icesave-zaak-is-aan-rechter.html

When you translate this it's basically saying that the dutch aren't happy with the outcome of the referendum, and that the time for negotiations is over. Now that's what everyone knew anyway as it's been reported. However the english translation of the dutch doesn't come across nearly strong enough from a Dutch perspective! They are livid, and the word I highlighted in the quote is much stronger than what it's been translated into "closed" or "over".

There has been speculation (that's all it is now is speculation) that the Dutch govt will take some form of action if they don't get their money back, and from what I understand of it, it will have nothing to do with any ruling!

(My other half is dutch, and we live in good ol Nederland, and I can speak dutch, just in case you were wondering how I knew that.

And thanks for answering my questions

They're being pretty blunt on the issue of blocking Iceland's application for EU membership:

EUOBSERVER / BRUSSELS - Mixed messages on the status of Iceland's EU accession application are coming from different actors in the bloc. But the Netherlands has said that after the country's second rejection by referendum of an agreement intended to resolve a bitter banking dispute between the Hague and the small island, there is now "no way" Iceland will be able to join the European Union.

"I think at this moment there is no way to get Iceland to join the EU. In that there is no option," Sylvester Eijffinger, Tilburg University economics professor and Dutch Prime Minister Mark Rutte's advisor on the Icesave banking conflict, told Morgunbladid, Iceland's main daily newspaper.

"Everyone is amazed. This is the second time that there has been a disturbance to the agreement because of the involvement of the president of Iceland and the referendum result. The last contract included a very generous offer by the British and Dutch authorities," Eijffinger added.

The Dutch advisor also said that the country should "replace the president". Icelandic President Olafur Ragnar Grímsson has twice now referred deals made between Reykjavik and the Hague and London to referendums.

although the Commission remains positive:

However, EU enlargement commissioner Stefan Fule and his colleague in charge of the single market, Michel Barnier, on Monday said that while the European Commission would "closely monitor" further developments regarding Iceland's "obligations deriving from membership in the European Economic Area", the vote on Saturday would not affect its EU accession process.

"The outcome of the referendum does not impact on the ongoing accession negotiations, to which the commission remains fully committed."

http://euobserver.com/9/32160

cordially,
Scofflaw

RachaelVO

Scofflaw wrote: »

They're being pretty blunt on the issue of blocking Iceland's application for EU membership:



although the Commission remains positive:



http://euobserver.com/9/32160

cordially,
Scofflaw

I've been looking all afternoon, and that wasnt all, there is talk of cutting off trade, diplomatic connections, not allowing flights use airspace... I don't know if they can, but that is all the speculation and "political gossip" going around at the moment, and on local television forums!

Scofflaw

RachaelVO wrote:

I've been looking all afternoon, and that wasnt all, there is talk of cutting off trade, diplomatic connections, not allowing flights use airspace... I don't know if they can, but that is all the speculation and "political gossip" going around at the moment, and on local television forums!

I suspect a lot more is possible within the EFTA arrangements than would be the case if Iceland were an EU member.

Mind you, harking back to the OP, we actually have a very good deal from the ECB - about €70bn at 1.25%. Short-term, though.

cordially,
Scofflaw

RachaelVO

I'm gonna go back to stupid question time for all us thicks

Scofflaw wrote: »

I suspect a lot more is possible within the EFTA arrangements than would be the case if Iceland were an EU member.

Do you think that other countries would disapprove of these actions if the Dutch were to do such a thing? Could the EU/EFTA tell the Dutch to stop being so dramatic and take action against them? Or is this strictly the domain of the Dutch?

Mind you, harking back to the OP, we actually have a very good deal from the ECB - about €70bn at 1.25%. Short-term, though.

This loan, is this amount that is to be paid back by the EU/IMF bailout? Is that why it's short term?

later12

RachaelVO wrote: »

This loan, is this amount that is to be paid back by the EU/IMF bailout? Is that why it's short term?

No, that's the rate the ECB are giving us for emergency liquidity provision.

Basically so that when the banks are locked 5pm every evening, there is, theoretically, enough hard cash inside all the banks for them bank to be operational next morning.

beeftotheheels

RachaelVO wrote: »

Do you think that other countries would disapprove of these actions if the Dutch were to do such a thing? Could the EU/EFTA tell the Dutch to stop being so dramatic and take action against them? Or is this strictly the domain of the Dutch?

Good question and a fundamental difference between the EFTA (which governs only trade) and the EU which governs a whole load of interaction between Member States.

Legally, the Netherlands can do a lot more to Iceland than they could to us. Anything not governed by the EFTA is governed by the bilateral relations between the Netherlands and Iceland, and it is unlikely that any country would leap to Iceland's defense unless the Netherlands did something illegal.

I guess that it is a lesson for us all that we don't live in a vacuum and that unilateral actions can provoke unwelcome reactions!

karlth

A few points need to be clarified:

Any threats by the dutch finance minister about blocking EU membership for Iceland will probably be welcomed because the majority of Icelanders don't want to join the EU. It would probably be more effective to threaten pushing Iceland into the EU.

The EFTA court can only rule if regulations have been broken. Then UK and the Netherlands will have to state their case before an Icelandic court to get compensation.

The problem with their case is that it will be very difficult to prove that UK and dutch deposit owners actually got a bad deal compared to icelandic deposit holders. The bankrupt bank will probably manage to pay out all the deposits but deposit holders in Iceland get their money in Kronas (which has devalued considerably) while UK and dutch deposit owners get their money back in pounds and Euros. According to law all deposit holders should have been paid back in Kronas but they weren't.

karlth

beeftotheheels wrote: »

Legally, the Netherlands can do a lot more to Iceland than they could to us.

Netherlands are facing a Catch 22 situation.

They essentially need to prove that the deposit fund has a state guarantee but by proving that they would make their own government liable for all dutch deposits.

Which is why this case will never go before a court. A deal will be made somewhere down the line.

beeftotheheels

karlth wrote: »

The EFTA court can only rule if regulations have been broken. Then UK and the Netherlands will have to state their case before an Icelandic court to get compensation.

The problem with their case is that it will be very difficult to prove that UK and dutch deposit owners actually got a bad deal compared to icelandic deposit holders. The bankrupt bank will probably manage to pay out all the deposits but deposit holders in Iceland get their money in Kronas (which has devalued considerably) while UK and dutch deposit owners get their money back in pounds and Euros. According to law all deposit holders should have been paid back in Kronas but they weren't.

From my reading of it this is not entirely correct. If the SA takes the case to the Court, and the Court rules against Iceland, then yes, the UK & Netherlands start in the Icelandic Courts but with a right of appeal to the EFTA Court.

They don't seem to be arguing based on capital export neutrality and freedoms. The case seems to be based on failure to implement a directive properly. If that failure is proven, and has caused harm to the Dutch/ British depositors/ Government, then they have a prima facie case against Iceland, regardless of whether the Icelandic depositors suffered due to the same failure. If the Icelandic depositors also suffered then they may have a cause of action against the Icelandic government, but the letter sent by the SA makes clear that their view of this issue is not based on discrimination, it is based on what they view to be a procedural failing by the Icelandic government.

What I think could be interesting, and I don't know because of the issue around timing, is whether the British and Dutch governments would have standing to take an action based on a failure to implement a directive by another EFTA Member State, despite the fact that had they allowed their depositors to suffer those depositors would clearly have had standing. But this procedural point would need to go to the EFTA Court and could not be unilaterally decided by an Icelandic tribunal, and I suspect that politically any arguments Iceland raised around standing would be unpalatable since the Dutch and British governments did what Iceland failed to do and protected their deposit holders in line with the directive which Iceland failed to implement properly.

Scofflaw

karlth wrote: »

A few points need to be clarified:

Any threats by the dutch finance minister about blocking EU membership for Iceland will probably be welcomed because the majority of Icelanders don't want to join the EU. It would probably be more effective to threaten pushing Iceland into the EU.

Sure:

The vast majority of Icelanders are still opposed to joining the European Union according to a new opinion poll published today, March 17, in the business newspaper Viðskiptablaðið. 55.7 percent oppose EU membership while 30 percent favour the step. 14.2 percent are uncertain.

A recent poll by Capacent published on March 10 put the opposition to EU membership at 50.5 percent, the support at 31.4 percent and the uncertain at 18 percent.

The last poll before that was published by Capacent in July 2010 putting the opposition at 60 percent, the support at 26 percent and those uncertain at 14 percent.

Every poll published in Iceland since August 2009, made by different polling companies, has shown a large majority of Icelanders against joining the EU and only about 1/3 in favour.

I wouldn't necessarily call that "the vast majority", but it's unquestionably a solid and definite majority opposed - and the language itself is perhaps telling.

karlth wrote: »

The EFTA court can only rule if regulations have been broken. Then UK and the Netherlands will have to state their case before an Icelandic court to get compensation.

The problem with their case is that it will be very difficult to prove that UK and dutch deposit owners actually got a bad deal compared to icelandic deposit holders. The bankrupt bank will probably manage to pay out all the deposits but deposit holders in Iceland get their money in Kronas (which has devalued considerably) while UK and dutch deposit owners get their money back in pounds and Euros. According to law all deposit holders should have been paid back in Kronas but they weren't.

The EFTA Surveillance Authority seems to be very strongly of the opinion that the Directive has been breached:

EFTA Surveillance Authority wrote:

In its emergency response to the banking crisis in October 2008, the Icelandic Government made a distinction between domestic depositors and depositors in foreign branches. Domestic deposits continued to be available after they were taken over by New Landsbanki, whereas the foreign depositors lost access to their deposits and did not enjoy the minimum guarantee. It is not possible to differentiate between depositors to the extent they are protected under the Directive. By acting as it did and leaving the depositors in Icesave's Dutch and UK branches without even the minimum guarantee, Iceland acted in breach of the Directive.

It's not really a case of 'compensation', but rather whether Iceland is duty-bound to pay the depositors - or, as is, to pay back the governments who paid those depositors on their behalf. I'd have to call that fairly open and shut - Iceland discriminated between Icelandic and foreign depositors, which it's not entitled to do.

cordially,
Scofflaw

beeftotheheels

karlth wrote: »

Netherlands are facing a Catch 22 situation.

They essentially need to prove that the deposit fund has a state guarantee but by proving that they would make their own government liable for all dutch deposits.

Which is why this case will never go before a court. A deal will be made somewhere down the line.

Again, not true.

The Netherlands and UK are arguing that Iceland was obliged to protect their depositors up to €20k in line with the directive. Both the Netherlands and the UK have implemented this directive and guarantee deposits in excess of this limit.

So, getting the sought refund from the Netherlands does not require the Netherlands to guarantee all debt, it requires them to guarantee up to €20k per deposit which they already do in line with the directive.

There is no downside for them taking the case other than the costs, and I suspect that it will go to Court.

Based on the referendum I cannot see how Iceland can now settle in a manner that would be palatable to the counter parties, domestic anger in the counter party jurisdictions will require this to be fought out - see our Dutch translations and coverage above.

beeftotheheels

Scofflaw wrote: »

I'd have to call that fairly open and shut - Iceland discriminated between Icelandic and foreign depositors, which it's not entitled to do.

See commentary above - the case is not progressing on the basis of discrimination but on the basis of failure to implement a directive. It is easier for the UK and Netherlands to win, Iceland cannot get out of it by saying "our depositors also suffered".

I think it is clear from the press release that they believe that there was discrimination, they're just not threatening action on that basis but going for the "lower hanging fruit" **hanging my head in shame at using that phrase**

Apologetically,

Beef

karlth

Scofflaw wrote: »

I'd have to call that fairly open and shut - Iceland discriminated between Icelandic and foreign depositors, which it's not entitled to do.

The Icelandic government guaranteed deposits in Iceland. That included billions of Euros in deposit owned by non Icelanders. Deposits in Iceland were guarantee because the whole financial system disappeared overnight. Iceland turned into a economic disaster area which required economic martial law.

Iceland responded just like the UK and dutch would have if a large foreign nation knocked on their door with a bill for 90% of their GDP incurred by a private company. They are asked: Why do we have to pay?

Their claim is that the deposit guarantee scheme doesn't have state guarantee which is why the Dutch and the UK haven't shown any interest in pleading their case before a court until now:

"First and foremost, European countries need to take a close look at how the deposit guarantee scheme is organised. It was not designed to deal with a systemic crisis but with the collapse of a single bank.“
Dutch Finance Minister Wouter Bos

karlth

beeftotheheels wrote: »

The case seems to be based on failure to implement a directive properly. If that failure is proven, and has caused harm to the Dutch/ British depositors/ Government, then they have a prima facie case against Iceland, regardless of whether the Icelandic depositors suffered due to the same failure.

Exactly, which is why it will be very difficult to prove any harm.

An Icelandic bank failed and under normal circumstances deposit holders would only have received around 20% of their money back.

But due to emergency legislation by the Icelandic government deposit holders, both foreign and domestic, will end up receiving 100% of their money back. Not only that but instead of being paid out in Kronas(deposit fund regulation) all foreign deposit holders will be paid back in their domestic currency:

Lets say that I had 10.000 euros in an account in Iceland and you had 10.000 in an Icesave account in the Netherlands.

Now you still have 10.000 euros while I, being located in Iceland, only have around 6.000 euros in Icelandic kronas.

Who got the better deal?