Note to Icesave judgment of the Court of the European Free Trade Association (EFTA) of January 28, 2013. On deposit-guarantee schemes, discrimination based on territory and sovereign debt after the financial crisis in Iceland

Abstract

The key issue decided by the EFTA Court in its judgment Icesave was whether the European banking legislation in 2008 required European Union (EU) Member States and therefore also Member States of the European Economic Area (EEA ) to nationalize private debt left by the bankruptcy of Landsbanki bank in the UK and the Netherlands (Icesave branches) when this debt lacked a connection to the Icelandic economy and territory. Did European law (EU / EEA) require at the time and place to convert part of that private bank debt (guaranteed deposits) into sovereign debt? The answer, at least for events in Icelandic adjudicated under the earlier Directive 94/19/EC on deposit guarantee schemes is negative. The Court further finds that there was no discrimination neither under the scope of the directive in question (which was not even applied) nor under the general prohibition of discrimination under Article 4 EEA Agreement (failure of comparison test). This article argues that while the Court’s conclusion is accurate, its legal reasoning leaves two legal essential questions unanswered. Firstly, discrimination on the grounds of territory is a separate category that is not prohibited by EU/EEA law. Secondly, this is a question of powers reserved exclusively to the State. Given that the European banking legislation then in force left intact the fiscal and budgetary sovereign powers of the EU/EEA States, the emergency measures adopted by Iceland fell outside the scope of the harmonized European law. The effectiveness of European law cannot be extended indefinitely to impose State responsibility for breach of law EU / EEA in these circumstances.