After lengthy negotiations, drawn out political debates and two referendums in Iceland, the case was brought before the EFTA Court* which announced its verdict in January, acquittingIceland on all acouts. The court’s ruling is a great relief for Icelanders and ends a four year period of uncertainty. Had Iceland lost the case, payments to the governments ofthe UK and Netherlands might have exceeded 20% of the country’s gross national product. Furthermore the EFTA Court’s ruling may promt the EU to modify their legislation for cross-borderbanking.
There have been clear signs that Iceland’s economy is getting back on its feet, mostly thanks to a constant positive balance of trade. The EFTA Court’s ruling should support this trendby removing considerable uncertainty. GDP growth is expected to hover around 2% during 2013 and 2014 with unemployment between 5% and 10% depending on the region. Although Iceland is isolated in geographical terms, it is obviously not immune to developments elsewhere. As the country seems to have resolved many of the domestic and internationalissues arrising after the demise of all its largest banks in 2008, continued recovery will be closely linked with that of the world economy.
*The Court of the European Free Trade Association (EFTA Court) is entrusted with monitoring the obligations of those EFTA States which have ratified the EEA Agreement (Iceland, Liechtenstein, andNorway).