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The snow has arrived early in Reykjavik after an unusually long and warm summer. The freeze has brought out the ghostly green haze of the aurora borealis, the Northern Lights, the shape of which shifts dramatically across the small city's black skies.
The bars and restaurants of Iceland's
capital are packed, the Range Rovers and BMWs parked nose to tail along the streets of the central 101 district, and music is pumping from a black Hummer limousine cruising by.
"What can we do? It's difficult times but we've spent all day talking about it, watching the news getting worse and worse, we had to go out and be with friends. Maybe it's like the party at the end of the world," says Egill Tomasson, 32, sitting in the Kaffeebarinn bar.
Iceland is on the brink of collapse. Inflation and interest rates are raging upwards. The krona, Iceland's currency, is in freefall and is rated just above those of Zimbabwe and Turkmenistan.
One of the country's three independent banks has been nationalised, another is asking customers for money, and the discredited Government and officials from the Central Bank have been huddled behind closed doors for three days with still no sign of a plan. International banks won't send any more money and supplies of foreign currency are running out.
People talk about whether a new emergency unity government is needed and if the EU will fast-track membership. On Friday, the queues at the banks were huge, as people moved savings into the most secure accounts. At the weekend people were buying supplies of olive oil and pasta after a supermarket spokesman announced that they had no means of paying the foreign currency advances needed to import more foodstuffs.
The North Atlantic island is an unlikely player on the global financial stage.
It is famous for its fish, geysers and for winning the UN's "best country to live in" poll last year.
But Iceland built its wealth on the worldwide credit boom and now the crunch is sweeping it away, bankrupting a people for whom the last eight years have been, for most of them, one long party.
The nation's rags-to-riches story began in the 90s when free market reforms, fish quota cash and a stock market based on stable pension funds enabled Icelandic entrepreneurs to go out and sweep up international credit. Britain and Denmark were favourite shopping haunts, and in 2004 alone Icelanders spent £894 million ($2.4 billion) on shares in British companies.
In five years, the average Icelandic family's wealth increased 45 per cent.
But, as a result of the international banking crisis, the billionaires who own major names such as - in Britain alone - West Ham United football club, the Somerfield supermarket chain, Hamley's toy shops and the House of Fraser department stores are in trouble and the country is drowning in debt.
Iceland's cheap labour force, the Poles and Lithuanians, have left already, and the tourist season is over. Iceland is on its own.
In the Kaffeebarinn, Egill Tomasson isn't drinking because he has a music festival to organise. Iceland Airwaves takes place in two weeks; more than 100 Icelandic bands and 50 foreign ones will play. Most of the tickets have been sold in krona, but the international acts must be paid in euros, which is going to cost the organisers dearly.
"People here are going to need this festival," says Tomasson. "This crisis has been a heavy blow. And many people should have a bad conscience for what has happened. Someone should be prosecuted, they have sucked Iceland dry, taken the money and ran.
"People I know who have gone to the UK or the US to study have found their grants worthless, they are stranded."
Like many his age, Egill has only a vague memory of harder times before the boom. Older islanders call them the "Krutt-kynslotin" - the cuddly generation.
"They will have to get their hands dirty now," says chef Siggi Hall.
"When everyone was extremely rich in Iceland - you know, last month, it was with money that they never have earned. Now those who were extremely rich are just normally rich, but they think they are poor."
Hall is due to open his new restaurant on 17 October, but insists the crisis is not worrying him.
Outside the city's Hofdahollin car showroom, Runar Olafsson and his top salesman are sharing a Marlboro. They are not expecting any customers today.
"A few years ago we couldn't get enough top-end cars and we started importing them. We were selling 120, 140, a month. But it turned around so fast," says Olafsson.
"It's so dramatic, just in one month. We have already seen two dealers go down.
"Customers would come in and we would apply for credit online for them, a 100 per cent loan, and they can drive away in their new Range Rover. It took ten minutes, it was very easy. But 60 to 70 per cent of those loans were in foreign currency, Japanese yen or Swiss francs, and they have gone up 90 per cent as the krona burns. A car worth 5 million krona now has a 9 million loan on it; how are people going to make those payments?"
Foreign currency loans are a problem for homeowners, too.
"Loans have been very cheap, house prices rose and there was a lot of good-quality house building. But the building has halted, nothing is being finished, nothing is selling. The interest rates are staggering. What people are doing now is swapping houses if they want to go bigger or smaller. That is what is keeping us afloat," says estate agent Ingolfur Gissurarson.
Hellgrimur Helgason, who writes an outspoken newspaper column, says: "The Icelandic psyche is an important part of all of this.
"Before the market reforms the country had stagnated, no one thought Icelanders could be businessmen. We were poor fishermen or farmers, so it had an incredible effect on confidence when we saw these young men out buying up British and Danish companies.
"Everyone grabbed at the new opportunities like children. It was no surprisethat Hamley's toy shop was one of the first purchases."
Gunnghilder Sveinbjarna and her friend are ordering their second bottle of red wine in Reykjavik's Bar 5. Tonight the young women are feeling no pain.
"We come out at the weekend to forget our children and our problems, and this time we will drink extra hard to make sure we forget the economic crisis too," says Gunnghilder, raising a glass.
"Tomorrow, the sore head."
HIGHS AND LOWS
* Iceland was declared the best place in the world to live last November, topping a United Nations survey of per capita income, education, healthcare and life expectancy.
* The nation of 320,000 has free health and education, owns the most mobile telephones per head, and has the world's highest proportion of working women.
* Now its banking system has liabilities of more than $158 billion, leaving its $22 billion GDP for dust. Trading in the shares of six major financial institutions is suspended, interest rates have leaped to 15.5 per cent and the krona's freefall on the international currency markets is surpassed only by the catastrophic failure of Zimbabwe's currency. Foreign currency is running out as international banks refuse pleas to lend money.
- OBSERVER
