ICELAND will not have to pay back the British and Netherlands governments for its failure to honour deposit guarantees made to savers in online bank Icesave.
Icesave, run by the Icelandic Landsbanki, collapsed in 2008 along with all of Iceland’s banking system.
In a dramatic ruling yesterday, the court of the European Free Trade Association (Efta) ruled that Iceland did not violate international law regarding equal treatment for all depositors in a bank regardless of country of origin during the Icesave dispute.
When Landsbanki collapsed, Icelanders were able to withdraw money from their Icesave deposits, but many foreigners could not.
UK and Dutch savers were subsequently bailed out completely by their governments.
In the UK, the then chancellor Alistair Darling decided to bail out 230,000 savers in Icesave, not just to the maximum decreed by European rules for deposit compensation schemes, but to the full amount of their savings, about £3.5 billion in total.
The Icesave dispute has been a source of on-going friction between the Nordic nation and Britain.
In two separate referendums, Icelanders voted against repayment schemes drawn up by their government to satisfy the British and Dutch claims.
Last week, former Icelandic prime minister Olafur Ragnar Grimsson said his country would “never forget” its treatment by Gordon Brown during the financial crisis.
Yesterday, the current Icelandic prime minister, Johanna Sigurdardottir, hailed the Efta court’s decision.
“It is cause for celebration that Iceland’s case has prevailed in the Icesave dispute,” said a statement from her office.
“With the ruling of the Efta court, an important milestone in this long story has been reached.”
The estate of Landsbanki has been paying back the funds, which it will continue to do.
The Efta court, a co-operation group of which Iceland is a member and which has links to the European Union, rejected the case brought by the Efta Surveillance Authority, the body overseeing the bloc’s rules.
In a ruling, the court dismissed all three of the claims brought by the Surveillance Authority against Iceland, partly on the grounds of the unprecedented extent of Iceland’s banking collapse. It also said that the depositor protection rules did not mean a country itself had to fund the deposit guarantee scheme.
Had the court found against Iceland, it could have paved the way for the UK and the Netherlands to sue Iceland for up to €2.3bn (£1.95bn) in damages.
On Twitter, the musician Björk captured the national mood in Iceland. “Congratulations to the Icelandic nation on winning the Icesave case!!” the singer wrote.
“Justice occasionally happens.”