Iceland was handed a huge win today by the court of the European Free Trade Association.
The court said that Iceland did not break the law when it decided not to cover the losses of foreigners who had deposited money in Landsbanki, the Icelandic bank that failed in 2008.
"A tiny North Atlantic nation with a population of just 320,000, Iceland went from economic wunderkind to financial basket case almost overnight when the credit crunch took hold.
"Some 340,000 British and Dutch savers lost deposits when Icesave, an online subsidiary of Iceland's Landsbanki, collapsed along with the country's other banks in 2008.
"The savers were repaid — to the tune of $5 billion — by the British and Dutch governments, who have been trying ever since to get their money back. Icelandic voters have twice rejected deals brokered by their government to reimburse the two countries."
Iceland had tried before to settle this case, but its voters decided via referendum that Iceland would not refund foreigners invested in the failed banks.
The New York Times reports that this case has provoked intense animosity between Iceland and Britain.
"In a recent interview with British television, Iceland's president, Olafur Ragnar Grimsson, denounced Britain's 'eternal shame' for invoking the terrorism laws," the Times reports. "'We were there together with Al Qaeda and the Taliban on that list,' he said. 'We have not forgotten that in Iceland.'"
The Times also points out that Iceland's economy is improving. Fitch even raised its credit rating saying the country's ""unorthodox crisis policy response has succeeded in preserving sovereign creditworthiness."