Icesave and the Financial Crisis: Legality, Sovereignty, and Diplomacy Under International Pressure in Iceland’s 2008 Collapse

The Icesave dispute involved Iceland, the UK, and the Netherlands concerning financial responsibilities following the collapse of Icelandic banks during the 2008 Credit Crunch. This conflict underscores how crises can provoke significant diplomatic and legal challenges. It highlights Iceland’s financial collapse and the pressures from larger states such as the UK and the Netherlands, which sought to enforce their interpretations of EU economic rules. The dispute illustrates the tension between financial constraints and state sovereignty. Iceland faced immense pressure from institutions like the IMF and the EU to accept responsibility for private debts. Analysing the dispute contributes to understanding how international legality is constructed and challenged during financial and diplomatic crises, revealing the vulnerabilities of smaller states amid global economic instability. The chapter emphasises crisis-driven diplomatic and legal dynamics, providing insights into how international pressure and legal contestation shape state actions during crises.