I don't think it was as simple as that. Because the banks were not bailed out, many people lost their savings. The majority of the savers were not living in Iceland. So in effect, the money that the banks owed (to those savers) was already invested in Icelandic properties and Icelandic companies but those investments were paid for by other non-Icelandic Europeans.
I remember small government authorities in other countries had invested in Iceland's banks, and lost a fortune of tax payers money they had invested. They had to make brutal cuts to public services to write their losses off, and whole communities had to suffer. Iceland might have done alright by letting their banks go bankrupt but communities in other countries were hit hard by it.