On the bar in an Icelandic nightspot stands a collection glass asking customers to "give generously to save the federal bank – foreign currency only."

As the world's top bankers flew in to sort out the current economic chaos, we arrived in the capital city of Reykjavik to find the public spirit in surprisingly fine fettle.

Despite a wave of bankruptcies and city centre protests, the locals remain hell-bent on enjoying themselves – a topic on which they pretty much wrote the book.

Reykjavik boasts a social scene to rival all heavyweight contenders.

Night after night, revellers pack into attics and basements to party until dawn and beyond.

We sit in the Kaffibarinn, a downtown hotspot made famous partly due to its association with Blur frontman Damon Albarn, who was rumoured to have a stake in the business at one time.

Mocked up to look like a London Underground station, the hangout has immediate tourist appeal and, the previous night, had beer-hungry hordes queueing up the road.

Today the bar is empty, except for us and our headaches, which we intend to cure with another pint of Viking, a locally-brewed, unforgiving lager.

Stories exist about Icelandic prices being the highest in Europe but, especially in the current economic climate, this is not the case.

Expect to pay around £12 for a decent meal. And, as the collection glass says, they need all the foreign money they can get, so think of every purchase as helping a good cause!

So, with the city cheaper than ever, it doesn't explain why it is so quiet or where all the people are on a Saturday afternoon.

The Nordic barmaid soon explains.

This week is the 10th annual Iceland Airwaves music festival, a week-long extravaganza which showcases the country's hottest talent alongside music industry favourites.

Tonight, US reggae-pop band Vampire Weekend and Brazilian indie-electro outfit CSS headline the super cool Reykjavik Art Museum.

But first, everyone is at the Blue Lagoon party.

The Blue Lagoon is a naturally-heated health spa built into the volcanic countryside and, on a normal day, bathers unwind in the steaming, light-blue salt water.

But today is the Iceland Airwaves hangover session – and that is anything but relaxing. Hundreds of lunchtime clubbers line the Lagoon's rocky shores raving to guest DJs before the festival's final night.

Back at the Kaffibarinn we're in no need of banging bass lines, and decide that we'll visit the Blue Lagoon en route to the airport on Monday.

Trips are organised by local tour operators and tailored to specific flights.

In the meantime, we turn our attention to the next day's trip inland.
Reykjavik Excursions and Iceland Excursions run trips to see the natural phenomena that set Iceland apart from other European holiday destinations.

Glaciers, volcanoes, and the Northern Lights are all on offer, with trips to suit varying wallet sizes. We decide on a route that takes in the world-famous geyser and the dramatic Gullfoss waterfall.

A geyser is a crater through which boiling water and steam erupt after a build-up of pressure. Strokkur, the only one still regularly active in Iceland, goes off about every 10 minutes, so you won't leave disappointed.

The sight of gallons of water forced 20 feet into the air by nothing more than nature is breathtaking.

It is, however, accompanied by a damp smell of rotten eggs as sulphur escapes from under the ground.

Down the road is Gullfoss – not just a waterfall, but a chasm surrounded by potential danger. As a photo opportunity it is spectacular, but only go exploring in the correct footwear as the icy conditions are treacherous.

Back on the coach, the bizarre terrain helps the 90-minute journey back to the hotel pass quickly.

Roll upon roll of hardened lava fields stretch into the distance, hinting at the area's explosive past.

Back at the bar, we prepare to journey home, leaving Iceland in the same unstable financial situation in which we found it.

The collection glass now contains euros, sterling and dollars.

Whether it is half-full or half-empty is unclear, but one suspects that the plucky people of Reykjavik would opt strongly for the former.

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