Warming to euro
Iceland is negotiating with Russia for a multi-billion-euro loan and looking at ways to secure foreign currency as it tries to rebuild a financial system that has all but collapsed.
Here some scenarios of what could happen next:
IMF RESCUE
Whether Iceland strikes a deal with Russia or not, analysts believe it will have little choice but to ask for help from the International Monetary Fund. The scale of banks' foreign currency debts and the degree to which investor confidence has been damaged mean a wide package of measures will be needed.
An IMF official said Iceland had already asked the Washington-based lender for funds but no amount had been agreed. But an IMF spokesman said no official request had been made.
IMF help could restore some confidence at home and abroad. Funds could be used to help Iceland cover basic import needs, provide assistance to banks and support the currency.
THE RUSSIA QUESTION
Iceland has a team in Moscow seeking to arrange an emergency loan. After the island initially said it had obtained a loan of 4 billion euros ($5.5 billion), it conceded a deal had not been reached. Prime Minister Geir Haarde said on Friday 4 billion euros was a "ballpark figure".
Analysts say this will not be enough to solve some of Iceland's problems but it will be a step in the right direction and have a short-term positive impact on the Icelandic crown.
What is harder to determine is what Russia may ask in return. Moscow would be extending its influence to that of a NATO member at a time when relations with the West are strained.
BANKS TO LOOK INWARD
One of Iceland's first tasks is to get its banks functioning again. Top firms including Kaupthing, Landsbanki and Glitnir went on a borrowing spree and built up businesses in Europe only to see it all come crashing down last week.
According to Thomson Reuters data, those three banks have a combined $62 billion in foreign currency debts outstanding.
As well as having to worry about foreign creditors, Icelandic banks have billions of dollars' worth of deposits in other countries that need to be repaid. A diplomatic row broke out between Iceland and Britain, where thousands of account holders have been unable to get their money.
Asset management arms and trading businesses are expected to be sold or wound down, something which is already happening at Landsbanki, where 550 people have already lost their jobs.
"I do not think we will see these banks outside Iceland any more. They will be wiped out and the healthy parts will be sold," said Nordea analyst Bjarke Roed-Frederiksen.
POLITICAL FALLOUT
It is likely this generation of political rulers and finance chiefs will be discredited by the crisis and analysts do not exclude government changes well before an election due in 2011.
Anger arose from the way the crisis was allowed to get out of hand, the banks allowed to expand rapidly abroad without controls, and the lack of measures to prevent a currency crash.
Some politicians have criticised central bank chief David Oddsson and called for him to step down.
WARMING TO EU AND EURO?
After seeing their currency collapse and government and central bank apparently helpless to prevent an economic crisis, some political leaders are already calling for the euro sceptic nation to move towards the European Union. The eventual goal would be to adopt the single European currency and replace Iceland's own volatile unit of exchange.
Such demands run into Iceland's deep-seated independent streak, forged by the harsh climate as well as by the idea that the fishing lobby might have to make concessions to Brussels' fishing policy and allow more access to its waters.
EU accession is a drawn-out process, entry to the euro zone even more so, so neither is a quick fix to the current woes. Prime Minister Haarde has stressed this last point but even some who have been long opposed to joining the bloc are softening.
