Party is over for chastened Iceland

By Brett Young

REYKJAVIK (Reuters) - The party's over now for chastened Iceland, a nation that had lived beyond its means for years.

People are angry and afraid after their once-gleaming economy virtually imploded in a matter of days, an early and spectacular victim of the financial tsunami that has roared around the world.

At the massive Hallgrimur's Church that looks over the capital Reykjavik, pastor Birgir Asgeirsson spoke about the pain and trepidation that have swept the island.

"I can feel much anxiety in the people I talk to because they don't know what's next," he said. "People here are proud. If we don't pay our debts, that's a catastrophic feeling for almost every Icelander.

"People are worried. People are angry."

Sara Dis Tumadottir, a sales assistant at a tourist shop in Reykjavik, admitted she was scared about the coming weeks and months.

"Icelanders are so used to good things," she said. "Everything will get more expensive, so people will not spend as much now."

Iceland woke up on Thursday to find Kaupthing, its largest bank, had been taken over by the state, drawing the curtain on years of economic growth that allowed the nation of 300,000 to live well beyond what it could afford.

But they are also waking up to the fact that the collapse of the overambitious Kaupthing only marks the end of the first stage in a longer, more painful process.

Prime Minister Geir Haarde has said it will take years for Iceland to recover, and Icelanders should get ready for a drop in the living standards they have come to expect.

SPECIAL COUNSELLING

A special counseling center will open on Friday.

"We have to take into account that there are thousands, dozens of thousands of individuals in Icelandic society who have been hit by what has been taking place over the last week or so," said psychiatrist Engilbert Sigurdsson from Landspitali University Hospital, who is overseeing the center.

"My take on the general feeling in society is that there is not panic. There is a lot of appropriate concern and anxiety ... (but) I don't expect any mayhem," he said.

Sigurdsson said he had already been in touch with Iceland's banks to provide support to staff.