If l lent money to someone on the understanding that they would pay me back, and they refused to do so, that would be theft, so why is this any different.

Would some legal eagle say what the likely outcome would be if Iceland were sued for theft in the International Courts.

not paying back a loan is not theft if you go bankrupt.

Because Island did not mean to bankrupt and therefore had no intention to keep UK’s money. When an investment is made, a certain level of risk is taken and it is always the investor who takes the risk. In my opinion UK should have never invested public money in a foreign country. As far as l know there are some really reliable banks in the UK and l was really surprised to hear that your own government did not use them.