Tuesday, January 29, 2013


Something called the Court for the European Free Trade Association ("EFTA"), headquartered in Luxembourg, sent down a ruling yesterday about which I can make neither hide nor hair and which has the capacity to cause a serious amount of confusion and difficulty for the Euros as they struggle to form a more perfect union--particularly in the financial sector.

You might remember...after all who could forget...that in 2008, the entire banking sector in Iceland ceased to exist which was the first chapter in the decline and collapse of Euroland which quickly followed.  In the midst of the carnage there was a bank named Landsbanki (sounds like something out of Gulliver's Travels) that had a subsidiary named Icesave whose purpose in life seemed to be attracting deposits through offices in the UK and the Netherlands by paying above market interest rates which, by the by, is never a good sign.  And so it came to pass that every bank in Iceland went bust, there were massive restructurings, depositors of Icesave had their deposits transferred to a newly formed bank and...oh wait a minute I left something out.  Only the deposits of Icelander were transferred; the deposits of the Brits and the Dutch weren't.  They were out to dry and on two separate occasions a referendum in Iceland prohibited the government from paying out the foreign depositors.

As you might imagine this did not go down well with the UK and Dutch governments who promptly grabbed everything they had of the parent and the subsidiary and paid out their citizens in full using those funds in addition to a substantial amount of taxpayer's money to do so.  Law suits sprang up like tulips in the spring and then came the decision of yesterday.

Despite the fact that the EFTA rule required that all depositors be given parri passu treatment (see where I'm going with this), the court decided that given the systemic nature nature of the crisis and taking into account that Iceland is a small nation, Iceland need not be forced to make immediate restitution and could deny rights granted to their own citizens to another class of depositors.  The legal basis?  I guess it must be "it pays to be small" because there's nothing else around to justify this.

New agreements within the EU have made it clear that deposits of member state banks are now guaranteed up to 100,000 Euros by the member state in whom the deposit-taking institution is registered but one really must ask how good or enforceable is this codification if a bunch of good souls sitting in Luxembourg can decide that it's just not fair that poor little Iceland (or Luxembourg) be treated in this manner.  Or to put it another way, who the hell would be dumb enough to place deposits cross-border which, in case you missed it, plays hell with the concept of no borders which the latest mob running the EU is trying to make reality, and does very little to help convince the Brits for whom finance is their lifeblood that they really want to be in this thing whole-hog.

As for me who toiled mightily in law school in the last century convinced that we should be a government of laws, not men, has to wonder if this "It makes me feel good" practice of jurisprudence might extend to the action against our friends the Argentines which is scheduled to be argued in front of the 2nd. Circuit in a few weeks.  Look, we either have laws or we don't.  We either have contracts that are enforced or we don't.  I'm all in favor of people paying the consequence for stupid decisions but when you play by what everyone believes the rules to be and are forced into losses because of mere whim, then we venture in uncharted waters which are perilous for all.  To it's credit, Iceland has always said that they intend to repay all deposits owed and continue to do so even having been given this gift, but the dead-beat Argentines will honor no such obligation having no honor whatsoever.  They should not be rewarded by some made-up rule of law.  The obligations of both nations were there for all to see and openly agreed.  Enforce them.

No comments:

Post a Comment