Iceland refused to pay creditors. Perhaps if it refused to pay only those creditors who wore red socks on Tuesdays that would be sufficient reason to justify it to you?
No, Iceland refused to accept that bank deposits in Iceland were its responsibility. So they were not creditors to start with.
The EEA/EU agreed. The 20k euro (100k now) protection only applies
up to the amounts stored in the country's protection scheme.
If a country doesn't want or cannot pay for the 'guarantee' there is no legal requirement for it to do so. Most countries have about 1% coverage of their bank deposits.
This is the case since 2008.
Remarkably the EU has protected amounts over 100k, they should get zilch. In fact why is the EU doing this, far too generous.