EFTA court declares Iceland currency restrictions legal

At the same time as the Icesave case continues, the EFTA court has already passed verdict on another Icelandic issue and came down on the site of the Reykjavík authorities: Iceland’s currency control restrictions do not break European law.

So serious was the crisis in Iceland when the banking sector collapsed that the implementation of the ongoing króna currency restrictions was justified. This is the verdict of the EFTA court in the case brought by Pálmi Sigmarsson against the Central Bank of Iceland.

At the end of 2009 Pálmi applied for an exemption to the rules so that he could transfer around ISK 16 million (EUR 100,257, onshore at today’s rate) into the country — Icelandic krónur which he has bought cheap overseas at the unofficial offshore exchange rate. The Central Bank rejected the application and the 16 million krónur were therefore stuck offshore, unusable.

Pálmi appealed the bank’s decision to the Reykjavík District Court; saying that the currency restrictions were against European regulation on the free movement of capital within the EEA.

In January the Reykjavík court decided to turn to the EFTA court for legal advice in the case and prepared a formal enquiry to send.

The EFTA court released its answer to the question yesterday, coming to the conclusion that a serious crisis had hit Iceland in the aftermath of the financial collapse — a crisis so serious that it was right and proper for authorities to take up protectionist measures like currency controls. The currency exchange restrictions are not, therefore, a breach of the EEA Agreement.