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Today at 10:30 local time the court of the European Free Trade Association will hand down its ruling in the case brought by the British and Dutch governments against the government of Iceland for the country's refusal to sign onto a debt repayment agreement over their losses in the failure of Landsbankinn's Icesave investment accounts. At stake for Iceland whether the country's A-3 credit rating will drop down below the level of junk bonds and whether the state will owe up to 2.6 billion dollars, an amount equivalent to over $8.000 per Icelander.

But first, some background on the case -and then updates as the news comes in.

Iceland was one of the poorest countries in Europe at the start of the 20th century. My boyfriend's grandfather grew up in one of the traditional sod houses. The country's first TV broadcast was in 1966. Most "staple" fruits and vegetables didn't show up in grocery stores until the 1970s. Etc. Yet the country raced ahead, especially in the 1990s, becoming a cosmopolitan nation, one of the wealthiest in the world per-capita.

Until the house of cards came tumbling down in 2008.

We call them the "útrásarvíkingar" - the "outvasion vikings". You call them "banksters", but really, they're more than that. They're not some shadowy cabal of old money folks hiding in the shadows. They went around in the limelight, throwing around their money that they got from leveraging one speculative deal on the next, with questions of where all this money came from brushed aside with "we're just that good" excuses, sometimes with a subtle nationalistic appeal about other countries lacking the daring to thrive in this modern world. They funded the arts. They funded building construction. Criticism was unfortunately often all too muted - until the crash, when everyone piled on to try to present themselves as being the most against them.

The most controversial aspect of the crash was an investment prYpogram called Icesave. There are a lot of misconceptions about it, so let's clear them up. First off, it was not an account for high roller / speculative investments. Most accounts were invidual retirement funds (pensioners), and municipal investment funds (aka, your city council wants a safe place to stow away some money to make interest). The entire accounts were not insured. However, a limited amount were. When Landsbankinn crashed, the insurance fund backing these accounts did not have enough cash on hand to pay out completely. The British government and Dutch governments reimbursed the remainder and demanded that the Icelandic reimburse them. When Iceland wavered, the British went one step further, classifying various Icelandic entities as entities under an anti-terrorism law suchly that they were able to seize their assets (a move that was too little too late to make much money, but plenty to start to harden Icelandic resolve against ever paying them).

Nonetheless, knowing that the country faced a potentially devastating lawsuit if they were not repaid, the previous (conservative) government began negotiating a repayment scheme. The president (normally an apolitical office) invoked a rarely-used power to send the scheme to a public referendum, where it overwhelmingly lost, with 92% voting against. In the post-crash anger, the former government lost power to a new left-center coalition who, nonetheless, continued working to negotiate a repayment scheme. Using as leverage the results of the previous referendum, they negotiated a much milder repayment scheme. Nonetheless, it too was vetoed and the referendum ruled against it, 58% saying no. With it clear that negotiations were going nowhere, the British and Dutch, as expected, took the case to the EFTA.

In the meantime, Iceland sunk plenty of money into reorganizing the banks and helping them get out of receivership. With a recovery in the value of its assets, Landsbankin was able to negotiate the sale of enough value to pay off all of its Icesave debt. This unfortunately had no bearing on the case at the EFTA.

The British and Dutch arguments against Iceland are that, first, they failed to meet their treaty-obligated insurance of their banks, and secondly, that they acted in a discriminatory manner by bailing out their own citizens but not the citizens of other nations.

Iceland countered the first claim that the accounts were indeed insured, as mandated by Icelandic law; the insurance program failed, but treaty does not require that the government personally back the insurance program, only that it ensure an insurance scheme exists. Furthermore, to require that small nations personally take full responsibility for their banks debts would effectively legislate small countries out of international banking altogether, that it's an unmeetable burden.

As for the discrimination angle, Iceland argued that the accounts were handled by the rules that were in place when the accounts were laid out straight up until the day of the crash. Iceland did pass an emergency law when the crash occurred backing the accounts of the Icelandic branch, but it argued that a government choosing to help its citizens in an emergency after it occurs in no way represents a policy of international discrimination.

What will the EFTA say? Well, we should find out in a matter of minutes here.

Update: Rás 2 says Iceland won!!!  I'll try to find an article for you all with the details

Update 2: The Icelandic media is now covering it, I haven't found anything in English yet. The judgement is online. Not only did Iceland win, but the European Commission which intervened has to pay all costs and all the money spent by the British and Dutch is unrecoverable. Wow! There's a press conference being covered right now on Ras2.

Update 3: And for our prime minister's reaction...   ;)

Originally posted to Rei on Mon Jan 28, 2013 at 02:20 AM PST.

Also republished by Community Spotlight.

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