Iceland has won a major victory in a European court. The nation’s economy collapsed in 2008, and its banking system went down with it. Today a European court upheld Iceland’s decision to refuse to cover foreign deposits from the U.K. and the Netherlands.

Iceland flag

The depositors had put over $10 billion in Icesave, an online branch of an Icelandic bank that went bankrupt. The International Monetary Fund estimates that if Iceland had lost the case, it could have been held liable for up to $2.6 billion in damages to the U.K. and the Netherlands. That amount adds to about 20 percent of the nation’s economic output currently.

The judgment was issued today by the European Free Trade Association in Luxembourg, clearing Iceland of complaints saying it had violated European Union rules about how deposits were protected. Iceland isn’t technically a member of the European Union, although it is an EFTA member.

The court dismissed the case, saying that the laws in question didn’t take into account a financial crisis that was as serious as the one Iceland went through in 2008. At that time Iceland refused to cover $5.4 billion in deposits made by British and Dutch depositors. The U.K. and the Netherlands covered those deposits, and then the case was taken to the EFTA court.

This case has major implications for future disputes over foreign deposits. The European Union has been striving to keep the continent’s financial system intact in spite of issues which step from cross-border banking.

Iceland said today that it expects to pay the deposits back in full, and that it has already repaid most of the money that the British and Dutch governments advanced for minimum deposit guarantees. Iceland’s foreign minister said today’s win was important because “Iceland is completely vindicated.”