It is said that writing a book in Iceland is considered a form of national service, as community or military service is in other countries.

Like other such claims, it is one that you think could be true in this country, whether it is or not. Such is the importance of reading and writing to a people who are called “the most literate” in the world.

Books matter here. At the weekly flea market by Reykjavik’s harbour, for example, a corner of the cavernous hall is filled with sellers of used books. Amid the smoked fish, vintage records and woolen sweaters, you can lose yourself in a mountain of worn tomes.

Given the population, it is said that more books are published here, per capita, than anywhere else in the world. In a country of 319,000, some 400 to 500 new titles appear every year. It is also said that one in 10 Icelanders write a book in their lifetimes.

Near Reykjavik, the farm of Halldór Laxness is preserved as a shrine, drawing pilgrims from around the world. Laxness, whose expressionist work has been widely translated, won the Nobel Prize for Literature in 1955.

This love of literature is sewn into the culture. It has its roots in the Icelandic Sagas, tales of love, war, courage and treachery written between the 12th and 14th centuries. There are some 40 of them, recounting life 300 or more years earlier, when this country was settled by the Vikings.

The Sagas are not easy reading. They describe the rough justice of a more primitive society. The blood feuds between families are chilling.

The Sagas are now thought to be fiction, though for centuries Icelanders considered them to be true. Many still do. “Saga tours” roam all over the country, claiming this valley or island is where Snorri, Grettir and others lived.

True or not, the Sagas create a people’s iconography. This indigenous literature is as important to Iceland’s national consciousness as Shakespeare is to Britain or Twain is to America. It gives Icelanders, who cling to an ice and lava footprint at the edge of the world, an enduring sense of who they are.

A people’s identity is always a mystery for a foreigner anywhere. But it’s particularly hard in a country with a language few people speak. And even harder in a country laid low by what is commonly called “the crisis,” or Iceland’s meltdown, the economic malaise that has turned this country into a hedge fund gone south.

It is easy to fall in love with Iceland, and star-struck visitors do. At the superb Lindin Bistro Café in Laugarvatn, the heart of the Golden Circle, the theatrical maître d’ in epaulettes made nine trips from his native Austria before moving. He loves it here.

And why not? Visitors see a clean, organized, generous society and extraordinary personal moral freedom (which is why most children are born out of wedlock). They see a handsome people living on an island of natural wealth, with that well-honed Scandinavian instinct for art, architecture, fashion and design.

They see them drinking the world’s cleanest water and eating its freshest fish and tastiest lamb. They see good public services, tidy towns, an indefatigable people who work and play hard, whether herding horses under the midnight sun or clubbing until dawn. They see a resourceful, creative, egalitarian society that does little in moderation.

Yet this is only one truth of Iceland. It is easy to see only the “whipped cream and jam,” as the late essayist Bill Holm concedes in his rhapsodic chronicle of Iceland.

The more troubled picture is of a crazed, acquisitive people who were persuaded by greedy bankers to borrow astounding amounts to pay for homes and cars, in foreign currency. When the markets collapsed last fall, they lost everything.

Icelanders travelling abroad couldn’t use their credit cards; diplomats couldn’t settle their hotel bills. In fact, Iceland has since closed several of its embassies. Icelanders are so deeply in debt — a friend says his family’s share is about $2 million — that many are leaving for Norway.

This madness began a few years ago when Icelanders began investing feverishly, persuaded they were gifted financiers. Their former prime minister even said as much. As a prominent journalist says, the boast was silly. “Now that confidence is gone.”

Burdened by debt, humbled by failure, Icelanders will have to abandon finance and return to traditional ways of making a living, such as fishing, which many had abandoned. They may have to join the European Union — which, like the Norwegians, they have always rejected — to stabilize their currency, worth half of what it was two years ago.

Iceland remains a wondrous place that has made some bad choices. Now this nation of scribblers has a sad, new plot of treachery, avarice and betrayal, a fresh Saga for the 21st century.

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