Geir Haarde London's reaction to the collapse of the bank, including Prime Minister Gordon Brown's threat to sue Iceland to recover British savings, h

Iceland's prime minister on Monday accused Britain in an interview of "bullying a small neighbour" over funds frozen in the online bank Icesave, and threatened to take legal action in response.Geir Haarde told the Financial Timesthat London's reaction to the collapse of the bank, including Prime Minister Gordon Brown's threat to sue Iceland to recover British savings, had made the island's banking crisis worse."The UK authorities have said they will sue us... well, both countries can sue if they see it fit. Going to court is one way of settling disputes in a civilised way," Haarde told the newspaper.Brown's government has used anti-terrorist laws to freeze the assets of failing Icelandic banks in Britain as it attempted to protect the deposits of thousands of savers and public bodies.
But Haarde rejected suggestions his government had abandoned British savers, saying: "To claim we were running away from our obligations was unfounded and reacting in this way... caused us more damage than was necessary."
He said London's move to put part of Icelandic bank Kaupthing's British operations into administration "led to the collapse" of the parent bank. He said he would support Kaupthing's plans to sue the government.The collapse of Icesave and its millions of pounds in British deposits sparked a major diplomatic rift, but the rhetoric has since been toned down.Icelandic and British officials "met in a friendly atmosphere" in Reykjavik on Saturday to discuss the crisis, according to a joint statement which also reported "significant progress" on recovering savers' deposits.