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EU to Join EFTA Watchdog in Suing Iceland Over Icesave Claim

The European Union has requested that it be allowed to join a case the European Free Trade Association’s Surveillance Authority has filed against the island for failing to honor depositors’ guarantees.

“The commission supports the need for clarity regarding Iceland’s obligations in the area of financial services,” the European Commission said in an e-mailed statement. “Such clarity is important in order to maintain confidence in the EU rules on deposit guarantee schemes, the internal market and ultimately European financial stability.”

ESA announced in December that it would sue the north Atlantic island for failing to compensate the U.K. and Dutch governments for depositor losses following the collapse of lender Landsbanki Islands hf in October 2008. The depositors were compensated by their governments after the failure left their savings in limbo. Iceland said in September that proceeds from the estate of Landsbanki will reach about $11 billion, enough to cover all depositors, and about twice the amount owed under the guarantee directive.

Never Lodged

“The fact that the EU has never before lodged an intervention in a case before the EFTA Court indicates that ESA pressured the commission into participating in the case, after having considered Iceland’s arguments,” Foreign Minister Ossur Skarphedinsson said in a telephone interview today. Iceland won’t object to EU’s demand to intervene and the bloc’s participation might “advance Iceland’s arguments,” he said.

Landsbanki’s winding-up committee said Dec. 7 it made a first payment of 432 billion kronur ($3.4 billion) toward reducing its obligations.

The EU’s decision to join in this case won’t upset the island’s bid for EU membership, the minister said. Iceland started EU-entry talks in July 2010 and will seek to vote on joining the bloc in 2013.

“It has always been the clear position of both the government of Iceland and the opposition parties, that the EU membership application and the Icesave case were two separate issues,” said Skarphedinsson. “Any change in Iceland’s position in that regard will only weaken Iceland’s arguments in this case and project a sense of disbelief in our cause.”

The EU also considers Iceland’s membership bid and the depositors’ guarantees dispute as separate issues, although the country’s failure to abide by EU rules will come into question during the accession negotiations.

“The actual case in front of the EFTA court has no direct link to Iceland’s EU application, but concerns a separate legal process,” the commission said. “However, more generally, Iceland’s capacity to apply the financial services acquis, including the Deposit Guarantee Directive, will be carefully assessed during the EU accession negotiations.”

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