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Iceland celebrated a major victory this week in its four-year battle with Britain and the Netherlands over failed bank Icesave when a European court vindicated its controversial stance that taxpayers don't have to pay for bankers' mistakes.
In a move that stunned financial observers, the Court of the European Free Trade Association (EFTA) on January 28 sided with Reykjavik and against powerhouses London, The Hague and the European Commission.
Icesave, the online British arm of Icelandic bank Landsbanki and which had 340,000 Dutch and British account-holders, went under when tiny Iceland's bloated financial sector collapsed in 2008 and the country was pushed to the brink of bankruptcy.
Reykjavik refused to use taxpayers' money to compensate Icesave's Dutch and British savers, a decision that infuriated then-British prime minister Gordon Brown to the point that he used anti-terrorism laws to freeze the assets of failing Icelandic banks in Britain to protect British depositors.
The Hague and London had to step in and shell out 3.9 billion euros ($5.5 billion) to compensate Dutch and British account-holders.
Embroiled in a bitter row, Reykjavik finally hammered out two agreements with the Dutch and British governments to refund the debt. But Icelanders protested fiercely against deals that would have left the country drowning in debt for decades, estimated at 12,000 euros ($16,200) per citizen.
They rejected the agreements in two referendums in 2010 and 2011, which meant the only way to pay back the money was to wait until the assets of failed parent Landsbanki had been recovered.
Britain and the Netherlands, together with the European Commission, took Reykjavik to court over its refusal to pay.
But the court ruled that European Economic Area nations like Iceland "enjoy a wide margin of discretion in making fundamental choices of economic policy in the specific event of a systemic crisis."
Icelanders were elated over the verdict, the matter not only a financial one but, more importantly, one of sovereignty and national pride.
The day after the verdict an editorial in daily Morgunbladid hailed President Olafur Ragnar Grimsson for vetoing the first negotiated agreement and forcing a referendum, and credited the people with the legal victory.
"The nation did not prove as gutless as the government and its henchmen," it wrote.
But while Iceland rejoiced in its David-over-Goliath triumph, it remains angry about the way it was treated -- many say bullied -- by its longtime ally Britain.
"Now that the outcome is clear ... we are bound to consider the methods that were used to force Iceland to the negotiating table in this matter – not least by the UK and the Netherlands," Prime Minister Johanna Sigurdardottir told AFP.
"This matter proves that small nations must never succumb to the tyranny of more powerful nations in the international community," Sigurdardottir said.
The president agreed.
"The Gordon Brown government decided, to its eternal shame, to put the Icelandic government on a list of terrorist states ... We were there together with al-Qaeda and the Taliban on that list. We have not forgotten that in Iceland," he said.
Gretar Thor Eythorsson, a University of Akureyri political science professor, said that referendums are criticised because voters may not be competent to decide complicated matters.
"The Icesave matter has shown us that this is wrong," he argued.
"That process therefore benefits the cause of those who have debated for increased direct democracy, both nationwide and on the municipal level. That, in my opinion, is what we gained most, in terms of democracy."
Britain and the Netherlands are not walking away emptyhanded. Landsbanki's recovered assets are enough to repay all of its priority claims and still have money left over.
So far, about half of London's and The Hague's money has been refunded.
And four years after it teetered on the brink, Iceland's economy is looking rosy again.
Reykjavik has targetted a budget surplus for 2014 and its 2.6 percent growth in 2011 looks set to be repeated for the full-year 2012.
It has already begun paying off the $2.15 billion rescue loan it received from the International Monetary Fund.