A European court has cleared the Icelandic government of failing to guarantee minimum levels of compensation for UK and Dutch savers in the collapsed Icesave bank.
Icesave, run by the Icelandic Landsbanki, collapsed in 2008 along with all of Iceland's banking system.
The UK and Dutch savers were bailed out completely by their governments.
The ruling may halt the UK's attempt to get all of its money back from the Icelandic government, the BBC reports.
The Icelandic government said it took "considerable satisfaction" from the ruling from the European Free Trade Agreement (EFTA) Court.
"Iceland has from the start maintained that there is legal uncertainty as to whether a state is responsible for ensuring payments of minimum guarantees to depositors using its own funds and has stressed the importance of having this issue clarified in court," it told the BBC.
When Icesave, an online savings bank, went bust in the autumn of 2008 at the height of the international banking crisis, the UK government stepped in.
To maintain public confidence and prevent a run on any other banks, the then UK chancellor Alistair Darling decided to bail out 230,000 UK savers in Icesave to the full extent of their savings - about £3.5bn - not just to the maximum decreed by European rules for deposit compensation schemes.
At the time, the Icelandic scheme was responsible for the first 20,887 euros (£16,300) of compensation, with that being topped up to then ceiling of £50,000 per person by the UK Financial Services Compensation Scheme (FSCS).
A ruling from the little known EFTA court has put a fundamental objective of European idealists in doubt; that banks should be able to offer savings accounts to customers across Europe and that customers, in turn, should be confident that their deposits will be protected.
The court says that Iceland did not have to compensate Icesave customers in the UK because the relevant European directive did not oblige the government to set a minimum amount for compensation, nor did it force the state to pick up the tab if banks themselves could not pay.
However, all this happened at the height of the financial crisis in 2008.
Since then, the European directive on deposit guarantee schemes has been amended, so that it now lays down that the state shall ensure that the guarantee is set at a minimum level of 100,000 euros for each saver.
However, there is still an element of doubt over how robust this guarantee would be if a country as small as Iceland was engulfed by another major crisis.
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