I took issue with the abrupt ending of "refused to make depositors whole[...]".
That sounds like unilateral action, whereas what happened was that there was a dispute about how deposit guarantees should be treated within the EFTA agreement, and all parties involved ultimately didn't insist on what they individually felt like doing, but followed the rulings of the EFTA Court.
But yes, it was a big learning experience for everyone involved. But that's exactly the reason it's important to make the distinction.
It's not that Iceland was unilaterally callous and pursuing those relatively small amounts was deemed small potatoes. Rather, EFTA rules were clarified in a way that would also apply to e.g. French depositors in Danish banks should a similar Danish default occur in the future.
What happened with domestic depositors is that the Icelandic state was free to selectively grant benefits to whomever it pleased once it became clear that its banks weren't subject to the EFTA deposit guarantees for anyone.
That's also an important distinction, and is why the action didn't violate the rules of the trade area.