As many of our readers are no doubt aware, a public referendum last spring overwhelming voted against paying Britain and the Netherlands the billions of crowns both countries are demanding for losses incurred by depositors in their countries who put money in the Icesave online bank, which crashed in the fall of 2008.
Earlier this summer, the European Free Trade Association Supervisory Authority (ESA) ruled that Iceland must pay up on Icesave
. A statement
from the ESA said in no uncertain terms that Iceland "is obliged to ensure payment of the minimum compensation to Icesave depositors in the United Kingdom and the Netherlands, according to the Deposit Guarantee Directive."
Well, the deadline looms ever closer, as now Iceland has until 10 September to either pay 670 billion ISK, or go to EFTA court.
Minister of Finance Steingrímur J. Sigfússon told Fréttablaðið
that he expects most of the assets of Landsbanki - of which Icesave was essentially an "online branch" - to cover the money owed, although he contends there are still details that need to be worked out.
"It is interesting that when the ESA ruling came, no one blinked an eye over what it meant in real terms," he said. "It naturally means that if we don't intend to fight the ESA, then we have to pay this sum."
Iceland's chances in EFTA court are difficult to assess. The ESA cites the Deposit Guarantee Directive, an international finance treaty of which Iceland is a signatory. Whether the court sides with ESA's or Iceland's interpretation of this treaty is unclear.
But a victory in EFTA court might prove a mixed blessing - while avoiding paying billions of crowns, foreign investors might feel reluctant to put their money in a country that will go to court to avoid paying debts. On the other hand, it may also set a new precedent in international banking.
Whatever the outcome, the case is sure to attract global attention. Stay tuned.
Iceland has about one month to pay the UK and Holland on Icesave, or go to an international court to get a final ruling on the matter.