Iceland, the first of many countries in the financial crisis to be submerged by its bloated banks, uniquely refused to make taxpayers pay for the follies of private bankers. For this choice the country was bullied by Britain and sued by the Efta Surveillance Authority. On Monday, the sorry saga ended as it should: with Iceland’s unqualified and final victory in the Efta court.
When the Icelandic banking system disintegrated in 2008, the government divided banks into domestic and foreign parts. In Landsbanki’s case, foreign liabilities included deposits in its UK and Dutch Icesave branches. When a bank run made the accounts inaccessible, Iceland’s deposit guarantee scheme was overwhelmed by the total banking collapse. London and The Hague cried foul; the UK even applied antiterrorism laws to freeze Landsbanki assets.
Four years and much bad blood later, UK and Dutch outlays to bail out their countries’ Icesave depositors look set to be repaid in full by Landsbanki’s estate. But, not content with their place in the creditor queue, for years they pressured their small neighbour for a sovereign guarantee. The conflation of the government’s obligations with those of private banks was averted only thanks to Icelanders’ fierce resistance in two referendums.