Iceland's refusal to repay depositors legal

Iceland was within its rights not to repay billions of euro to the United Kingdom and Dutch governments, who were forced to compensate depositors after an Icelandic bank collapsed at the height of the global financial crisis, a court has ruled.

The decision was taken by the court of the European Free Trade Association (Efta), which ruled that Iceland had not broken depositor protection laws by refusing to compensate people who had invested in Landsbanki’s Icesave online banking accounts.

Following Landsbanki’s failure, the then British chancellor of the exchequer, Alistair Darling, used legislation drafted to combat terrorist organisations to freeze Icelandic assets – a decision that sours relations to this day.

The president of Iceland, Ólafur Ragnar Grímsson, refused a proposed deal and a referendum was held. The 350,000-strong population voted strongly in favour of rejecting the government’s concessions.

Iceland had faced charges before the Efta court that it had not guaranteed minimum compensation levels to Dutch and British savers – 230,000 of whom subsequently received £2.3 billion from the British exchequer. The case against Iceland, which is not a member of the European Union but which has signed up to EU common market rules as a member of the European Economic Area, was taken by Efta’s Surveillance Authority, which argued that it had breached EEA directives.

Despite the judgment, the British and Dutch governments have already got 90 per cent of their money back.