Icelandic President Olafur Ragnar Grimsson has called for a European Union probe into how the bloc could have allowed Britain and the Netherlands to put so much pressure on Reykjavik in the dispute over the failed Icesave bank.
"It's worth an investigation for the EU to come to terms with how in the world member states could have agreed to the preposterous British and Dutch demands," Grimsson said in an interview with public broadcaster RUV on Sunday.
His comments came after Icesave's parent company Landsbanki, which collapsed at the end of 2008, announced late last week its recovered assets would be enough to repay all "priority claims" and still have 80 million euros ($A107 million) left over.
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That means the 3.9 billion euros Britain and the Netherlands spent compensating 340,000 of their citizens who lost money when Icesave collapsed can be refunded without tapping into public coffers.
Reykjavik has twice negotiated repayment deals, but both times they were vetoed by Grimsson, who baulked at making Icelandic taxpayers responsible for repaying - at a high interest rate - the debts of a private bank.
His vetoes pushed the issue to referendums, one in March 2010 and one this past April, and voters rejected them.
The European Free Trade Association (EFTA)'s surveillance authority ESA has warned the island nation it would be taken to court if it did not pay the money, while Britain and the Netherlands have hinted they could trip up the country's EU bid.
The revelation that the Landsbanki estate can cover the debt "shows us that this matter should have been handled sensibly from the beginning, that it was absolutely unnecessary to put the Icelandic people and our co-operation with the European nations in a straitjacket", Grimsson said.
Instead of rushing in and agreeing to "preposterous" demands from Britain and the Netherlands, "experience now shows ... that it can be sensible to wait", he said.
The Icelandic government and Landsbanki have said they expect to begin repaying the Icesave debt before the end of this year.
