1 Pfirter, Didier, “Diplomatic Conflict Resolution”, in Baudenbacher, C. (ed.), Dispute Resolution (Stuttgart: German Law Publishers, 2009), at p. 21.Google Scholar

2 As Hansen explains: “Critics of the diplomatic or power-based approached generally argue that it is too closed and secretive, gives too much power to larger and richer countries, and compromises core values such as fairness, consistency and predictability. Critics of the adjudicative or rule-based approach, on the other hand, focus on political realities.” See Hansen, Patricia, “Perspectives on Diplomacy, Arbitration and Adjudication from the United States and Latin America,” in Baudenbacher, C. (ed.), Dispute Resolution, supra note 1, p. 66.Google Scholar

3 INDEFENCE, information, news and documents are available on the Internet at <http://www.indefence.is> (last accessed on 21 July 2011).

4 Iceland, Bill amending Act No 96/2009 (Icesave 1). A second bill was passed on 30 December 2010 (Icesave 2). A third bill was passed on 16 February 2011 (Icesave 3).

5 The bilateral agreements (1, 2 and 3) were negotiated between Iceland, the UK and The Netherlands outside the European legal order (by means of diplomacy) but in the referenda held on 6 March 2010 and on 9 April 2011 they were perceived by 93% and 58,9% of Icelandic voters as negotiated under duress and jeopardizing the economic future of the small country.

6 EFTA Surveillance Authority, Letter of formal notice to Iceland for failure to comply with its obligations under the Act referred to at point 19a of Annex IX to the EEA Agreement and Article 4 of the EEA Agreement of 26 May 2010.

7 Letter of Michel Barnier, European Commissioner, to Mr. Sigfússon of 17.8.2010 which replies to the letter of the Icelandic Minister of Finance, Stingrímur J. Sigússon, of 11.9.2010.

8 On EEA law see Elvira Méndez-Pinedo, M., EC and EEA law: A comparative study of the effectiveness of European law (Groningen: Europa Law Publishing, 2009).Google Scholar

9 ECJ, Opinion 1/91on the EEA Agreement [1991] ECR I-06079.

10 Stefánsson, Stefán Már, The EEA Agreement and its Adoption into Icelandic Law (University of Oslo: Centre for European Law, 1997), p. 17.Google Scholar

11 Agreement on the European Economic Area, Brussels OJ No L 1, 3.1.1994 and Agreement between the EFTA States on the Establishment of a Surveillance Authority and a Court of Justice. OJ No L 344, 31.1.1994.

12 Source: EFTA Secretariat, Chart available on the Internet at <http://efta.int/eea/eea-institutions.aspx> (last accessed on 21 July 2011). On EEA Law see generally Norberg, Sven and others, The European Economic Area. EEA Law. A Commentary on the EEA Agreement (Stockholm: Fritzes, 1993)Google Scholar, see especially pages 119–121 on the EEA Council.

13 On the powers of the EEA Joint Committee, see EFTA Court, Case E-6/01 CIBA, 2002 EFTA Court Report, 281. The EFTA Court holds that the powers of this institution are not limited to those matters where specific powers or functions have been set out in the EEA Agreement. The EEA Council has the competence to solve political disputes (droit d'évocation).

14 Directive 94/19/EC of the European Parliament and of the Council of 30 May 1994 on deposit-guarantee schemes, OJ 1994 L 135 5–14. The Directive 94/19/EC was incorporated into the European Economic Area legal order by Decision 18/94 of the EEA Joint Committee No. 18/94 amending Annex IX (Financial Services) to the EEA Agreement and into Icelandic national law by Act No 98/1999 on Deposit Guarantees and Investor-Compensation Scheme. This law set up the Depositors' and Investors' Guarantee Fund (Tryggingarsjóður) funded by a contribution of a 1% average percentage of insured deposits referring to the previous year.

15 ECJ, Case C-222/02 Peter Paul v. Bundesrepublik Deutschland [2004] ECR I-09425; see also the Opinion of Advocate General Stix-Hackle delivered on 25 November 2003 on the same case.

16 EFTA Surveillance Authority, Letter of formal notice to Iceland, supra note 6, and Letter of Michel Barnier, European Commissioner, supra note 7.

17 Various documents released on the Internet are available at <http://www.island.is> (last accessed on 21 July 2011).

18 ECJ, Case C-222/02 Peter Paul v. Bundesrepublik Deutschland [2004] ECR I-09425.

19 Opinion given by Advocate General Six-Hackl in the Case C-222/02 Peter Paul, ECR [2004] I-09425 who argues that, even if the State liability was a necessary conclusion of the Directive 94/19/EC, the maximum responsibility for the State would be to compensate the depositors up to the minimum guarantee of €20.889.

20 See the jurisprudence of the ECJ on the State liability for breaches of EU law, notably the Joined Cases C-6/90 and C-9/90 Francovich, ECR [1991] I-5357; the Case C-334/92 Wagner Miret v. Fondo de Garantia Salarial ECR [1993] I-6911; Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur and Factortame III, ECR [1996] 1-1029.

21 State liability for breaches of EEA law is a doctrine created by the EFTA Court; see Cases E-7/97 Erla María Sveinbjörnsdóttir 1998 EFTA Court Report, 95; Case E-4/01 Karl K. Karlsson hf. v. The Icelandic State, 2002 EFTA Court Report, 240; Case E-1/07 Criminal proceedings against A, 2007 EFTA Court Report, 245; and Case E-8/07 between Celina Nguyen and The Norwegian State, judgment of 20 June 2008, not yet published in EFTA Court Reports, see OJ C 33, 7.2.2008, p. 10.

22 New Directive 2009/14/EC of the European Parliament and of the Council of 11 March 2009 amending Directive 94/19/EC on deposit-guarantee schemes as regards the coverage level and the payout delay (Text with EEA relevance) OJ 2009 L 68/4. On 12 July 2010, the Commission adopted the most recent legislative proposal for a revision of the Directive on Deposit Guarantee Schemes (COM(2010)368 final).

23 The European Parliament also kept silent on the fundamental issue of liability/immunity of the State in the event of systemic failure of the banking system and the inability of the DGS to provide sufficient funds to depositors. European Parliament, Report of 27 November 2006 (Doc. INI/2007/2199).

24 Andenas, Mads (ed.), Financial Markets in Europe: Towards a Single Regulator, (London: Kluwer Law International, 2003)Google Scholar; Fonteyne, Wim, International Monetary Fund, EU: From Monetary to Financial Union. Overcoming the remaining hurdles to financial integration in Europe (Washington: IMF, 2006)Google Scholar; Gillian Garcia and Maria Nieto, Bankruptcy and reorganisation procedures for crossborders banks in the EU: Towards an integrated approach to the reform of the EU safety net, Journal of Financial Regulation and Compliance (in press).

25 Articles published by Professor Stefán Már Stefánsson on Icesave in the Icelandic newspaper Morgunblaðið on the 12, 13, 14 and 15 January 2010; see also Report by law firm Mishcon de Reya to the Icelandic Parliament 19 December 2009, not published, on the second Icesave agreements negotiated between Iceland, the UK and The Netherlands. Report available on the Internet at <http://www.island.is> and <http://www.indefence.is> (last accessed on 21 July 2011); see also interview with MEPs Eva Joly and Alain Liepitz on Icelandic TV, programme Silfur Egils, broadcasted on 10 January 2010.

26 ECJ, Case C-222/02 Peter Paul v. Bundesrepublik Deutschland [2004] ECR I-09425.

27 For a national court of last instance there is an obligation to refer to the ECJ if EU law is not sufficiently clear. In order not to refer to, the matter must be equally obvious to other national courts. ECJ, Case 283/81 Cilfit srl v. Ministro della Sanita [1982] ECR 3415.

28 The UK and The Netherlands argue that, by placing all deposits located in Iceland at new Icelandic banks, covering all Icelandic institutions but letting overseas branches go insolvent, the Icelandic government was unfairly (or “illegally”) guaranteeing the deposits for Icelanders or residents in Iceland, individuals or corporations, and therefore discriminating depositors in the UK and The Netherlands by reason of nationality.

29 EFTA Surveillance Authority, Letter of formal notice to Iceland, supra note 6, and Letter of Michel Barnier, European Commissioner, supra note 7.

30 All documents are available on the Internet at <http://www.island.is> and<http://www.indefence.is>.

31 The situation is complicated by the position of the different treatment of the so-called “wholesale” depositors in Iceland by comparison to the UK and the Netherlands.

32 Articles published by Professor Stefán Már Stefánsson in Morgublaðið, supra note 25.

33 Art. 63 (ex Art. 56 TEC) and 65 TFEU (ex Art. 58 TEC).

34 Art. 107 TFEU (ex Art. 87 TEC).

35 This article reads: “Within the scope of application of the Treaties, and without prejudice to any special provisions contained therein, any discrimination on grounds of nationality shall be prohibited”; see also ECJ, Case C-148/02 García Avello [2003] ECR I-11613 as well as case C- and C-55/94 Gebhard [1995] ECR. I-04165.

36 And this is precisely the argument used by the European Commission to justify general guarantees given by different EU States to deposits in their territory during the financial crisis in 2008–2009. European Commissioner Neelie Kroes, speech given in Brussels on 6 October 2008, available on the Internet at <http://www.europa.eu> (last accessed on 21 July 2011).

37 Craig, Paul and De Búrca, Grainne, EU Law. Text, cases and materials (Oxford: Oxford University Press, 2007), at pp. 758, 763–764, 696–700.Google Scholar

38 Craig and De Búrca, EU Law, supra note 37.

39 See Opinion of Mr Advocate General Ruiz-Jarabo Colomer delivered on 12 May 2005 in Case C-207/04 Paolo Vergani v. Agenzia delle Entrate, Ufficio di Arona [2005] ECR I-07453.

40 EFTA Surveillance Authority, of 4 December 2009, available on the Internet at <http://www.efta.int/> (last accessed on 21 July 2011).

41 Ana Petrovic and Ralph Tutsch, National Rescue Measures In Response To The Current Financial Crisis, European Central Bank (ECB: Legal Working Paper Series no. 8, 2009), available on the Internet at <http://www.ecb.int/pub/pdf/scplps/ecblwp8.pdf> (last accessed on 21 July 2011).

42 EFTA Surveillance Authority, Letter of formal notice to Iceland, supra note 6.

43 Letter of Michel Barnier, European Commissioner, supra note 7.

44 Stefán Már Stefánsson, Articles published in the Icelandic newspaper Morgunblaðið, supra note 25.

45 Due to the exceptional circumstances, the EU Finance Ministers meeting on 7 October 2008 concluded that “public intervention had to be decided at national level in a coordinated framework”. Official documents available on the Internet at <http://www.europa.eu> (last accessed on 21 July 2011).

46 The Directive 2001/24/EC on the reorganisation and winding-up of credit institutions only provides for the principle of universal jurisdiction of home country. See Gillian Garcia, Lastra, Rosa Maria and Nieto, Maria, “Bankruptcy and reorganization procedures for cross-border banks in the EU: Towards an integrated approach to the reform of the EU safety net”, 17(3) Journal of Financial Regulation and Compliance (2009), pp. 240–276 Google Scholar; see also webpage from the European Commission on crisis management <http://ec.europa.eu/internal_market/bank/crisis_management/index_en.htm> (last accessed on 21 July 2011).

47 Speech by the European Commissioner Neelie Kroes, Brussels, 6 October 2008, document available on the Internet at <http://www.europa.eu> (last accessed on 21 July 2011).

48 Ana Petrovic and Ralph Tutsch, National Rescue Measures In Response To The Current Financial Crisis, supra note 41. It is also very unclear from this Report whether nationalisations measures adopted/to be adopted by Austria, Germany, Ireland, Latvia, Lithuania, Netherlands, Poland, Portugal and the UK in 2009 would pass the same non-discrimination test that Iceland has been imposed to accept by diplomatic means.

49 European Commission, “State aid Commission approves revised Irish support scheme for financial institutions”, Press release, Doc. IP/08/1495, 13 October 2008, document available on the Internet at <http://europa.eu/rapid/pressReleasesAction.do?reference=IP/08/1495&format=HTML&aged=0&language=EN&guiLanguage=en> (last accessed on 21 July 2011).

50 M. Elvira Méndez-Pinedo, EC and EEA law, supra note 8.

51 All these legal uncertainties were known to the UK financial authorities. See UK, Report of the Financial Markets Law Committee April 2008 (UK) on banking reform and depositor protection, available on the Internet at <http://www.fmlc.org/papers/Issue133depprot.pdf> (last accessed on 21 July 2011) and <http://www.citysolicitors.org.uk/FileServer.aspx?oID=353&lID=0> (last accessed on 21 July 2011).

52 Stefán Már Stefánsson, Articles published in the Icelandic newspaper Morgunblaðið, supra note 25.

53 ECJ has declared that: “ … direct taxation falls within the competence of the Member States … ”; See ECJ, C-345/04, Centro Equestre) [2007] ECR I-0142 at para. 19.

54 In the new Irish Declaration annexed to the Lisbon Treaty it is stated that the EU will have no new competences on taxation.

55 Centre for European Reform, “Beyond banking: What the financial crisis means for the EU“ (ECPS, Policy brief 2008); document available on the Internet at<http://www.cer.org.uk> (last accessed on 21 July 2011).

56 Different documents were produced by or under the supervision of the European Commission on the necessary reform of the Directive 94/19/EC where the liability of the State for the sufficient provision of funds under the DGS home country national scheme was never stated. All documents from the European Commission available on the Internet at <http://ec.europa.eu/internal_market/bank/guarantee/index_en.htm> (last accessed on 21 July 2011).

57 Bengoetxea, J., The Legal Reasoning of the European Court of Justice (Oxford: Clarendon Press, 1993).Google Scholar

58 Martin Wolf, How the Icelandic saga should end, Financial Times, 1 January 2010, available on the Internet at <http://www.ft.com/cms/s/0/0522bbac-0175-11df-8c54-00144feabdc0.html> (last accessed on 21 July 2011).

59 Petersmann, Ernst-Ulrich, Shaping Rule of Law Through Dialogue (Groningen: Europa Law Publishing, 2009), foreword.Google Scholar

60 Petersmann, Shaping Rule of Law through Dialogue, supra note 59.

61 Report of the Parliament Special Investigation Committee on the collapse of the Icelandic banks published in April 2010, available on the Internet at <http://www.althingi.is> (last accessed on 21 July 2011).

62 Letter from Commissioner Michel Barnier, supra note 7.