Iceland's resistance on Icesave money backed by court

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January 29, 2013 12:21 AM EST

Iceland was right to refuse to repay billions of euros to Britain and the Netherlands for bailing out depositors in a failed Icelandic bank, a European court ruled on Monday.

After the collapse four years ago of Iceland's top lenders during the credit crunch, the British and Dutch governments stepped in to repay savers in the online "Icesave" account run by Landsbanki and wanted Iceland to pay them back directly.

Iceland did not comply, triggering a row between the governments and potentially complicating the island's bid to join the European Union.

But the court of the European Free Trade Association (EFTA) bloc found Iceland did not break depositor protection laws by refusing to return the money.

Icelanders in referendums twice voted against repayment schemes drawn up by their government to satisfy the British and Dutch claims, leaving the estate of Landsbanki to pay back the funds, which it has steadily done.

"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.

The EFTA court, a cooperation 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 which oversees the bloc's rules.

In a ruling on its website, the court dismissed all three of the claims brought by the Surveillance Authority against Iceland, partly on the grounds of the massive nature of Iceland's bank collapse.

It also said the depositor protection rules did not mean a country itself had to fund the deposit guarantee scheme.

The Foreign Ministry said in a statement that 660 billion crowns (3.27 billion pounds) had already been paid out from the estate of Landsbanki, of which 585 billion crowns had gone to claims related to Icesave, or more than 90 percent of the total which the UK and Dutch authorities advanced to cover the minimum deposit guarantee for Icesave.

"It is important to bear in mind that payments from the estate of the failed Landsbanki will continue regardless of the ruling of the EFTA Court," the Icelandic Foreign Ministry added.

(Reporting by Omar Valdimarsson, writing by Patrick Lannin; Editing by Simon Johnson and Toby Chopra)

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