In a major victory for taxpayers in Iceland, an obscure transnational court ruled against the European Union and a similar supranational body last week, deciding that the tiny population of the island nation was not responsible for the massive liabilities of a private Icelandic bank that went bust during the 2008 economic meltdown. Establishment analysts blasted the decision as a “blow to global banking,” but Icelanders and proponents of the free market celebrated the verdict as a big win for the people and market principles — after all, they argue, citizens should not be forced to pay for the reckless and potentially criminal actions of a few bankers, widely criticized as “banksters” in recent years.
The Luxembourg-based European Free Trade Association (EFTA) court, of which the Icelandic government is a member, issued its landmark ruling on January 28 addressing two key charges against national authorities. Despite Iceland's not being a member of the EU, one of the cases against the country was filed by the European Commission, a sort of "executive branch" in the sprawling, increasingly powerful, and out-of-control European superstate. The EFTA “Surveillance Authority” also filed a case alleging a violation of its rules.
The first complaint was that the Icelandic government failed to obey an EU directive ordering it to pay about $25,000 worth of “insurance” to every foreign depositor by extracting it from domestic taxpayers — a proposition that would have devastated the 300,000 or so Icelandic citizens and their already-ruined economy for generations to come. While the bankrupt bank’s assets have been used to compensate foreign depositors, the EFTA court ruled that citizens were not responsible for the liabilities.
The EU dictate in question, which Iceland is supposed to subscribe to because of its membership in the European Economic Area (EEA), “does not lay down an obligation on the State and its authorities to ensure compensation if a deposit guarantee scheme is unable to cope with its obligations in the event of a systemic crisis,” the EFTA court ruling said. The verdict is final and cannot be appealed to any other court, meaning Iceland emerged victorious after years after wrangling with authorities in Europe.
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Photo of Icleandic man exiting Landsbanki branch in Reykjavik, Iceland: AP Images