Iceland turns 90 facing grave risks

By Wojciech Moskwa - Analysis

REYKJAVIK (Reuters) - Iceland marked the 90th anniversary of its autonomy on Monday with its economy in ruins, its confidence fading fast and its future uncertain.

The country faces pressing problems concerning its immediate economic situation and more strategic, long-term questions over whether to stay independent or try to join the European Union.

Ravaged by the global financial crisis, Iceland's three top banks collapsed in October, an emphatic end to an era of cheap foreign funding which had driven a decade-long economic boom.

"Our situation has never been worse in 90 years... and most people still don't realise how serious it is," said Vilhjalmur Bjarnason, a professor of finance at the University of Iceland.

"We can't really see the end of what is happening right now," said researcher Andrea Gudbjorg from opinion polling company Capacent. "There are no signs of a turnaround."

Iceland's 320,000 residents, among the most affluent in the world, are staring at a protracted recession with the economy seen shrinking 10 percent next year. Construction sites around Reykjavik have been deserted and unemployment is set to soar.

Prime Minister Geir Haarde is under growing pressure to resign, blamed by many for failing to spot the warning signs of the economic collapse and major lapses in regulations.

"The government has slept through this entire crisis," said Jonina Sigurjous, a nurse. "How could it get so bad? We never had to worry about things like the crown (currency) or jobs."