Iceland has won its legal battle to avoid paying back the Dutch and British governments for money paid to savers who lost out when internet bank Icesave went bankrupt.

The European free trade association (Efta) court on Monday dismissed all claims against Iceland, saying the directive did not apply to a ‘systemic
crisis of the magnitude experienced in Iceland’.

The court also said Iceland had not discriminated between Icelandic savers and those from the Netherlands or Britain.

High interest rates

The case arose following the 2008 bankruptcy of Landsbanki, which attracted thousands of savers from the Netherlands and Britain by offering high interest rates.

After the bank collapsed, the Dutch and British governments effectively paid back savers under the banking deposit guarantee scheme and then asked for the money back.

Although the Icelandic government first agreed, the demand was rejected in two referendums.

Landsbanki’s estate has now paid back some 90% of the money and is expected to repay the remainder, Icelandic officials say. Iceland owed €1.3bn to the Netherlands and €2.5bn to Britain.

Cross border banking

According to the Financial Times, the case has been closely watched in Europe because of its implications for cross-border banking.

‘It is of considerable satisfaction that Iceland’s defence has won the day in the Icesave case; the Efta Court ruling brings to a close an important stage in a long saga,’ the Icelandic Foreign Ministry said in a statement.