So many business jets and helicopters use Reykjavik’s small downtown airport that the local MP is demanding limits so that residents can get some sleep. In the city’s docklands, construction of a huge new concert hall – Reykjavik’s answer to the Sydney Opera House – is under way and should be finished by 2010. And on the northern waterfront cranes swing through the icy sky of the world’s most northerly capital, adding to a mid-rise swath of new commercial buildings and offices that have materialised in the past decade. On the main shopping streets stores selling Prada, Gucci and Dior are juxtaposed with quaint shop/houses and trendy bars.

Only 200,000 people live in the greater Reykjavik area, but this is a city that punches above its weight and has grand ambitions. Newly minted billionaires have brought a vigour to a city that ten years ago was a business backwater. With no oil, gas or mineral wealth Iceland’s prospects seemed mediocre and its export potential limited to cod and quirky pop music.

The catalyst for a dramatic turna-round was the deregulation of the formerly state-controlled financial sector. The move unleashed an unprecedented credit boom and helped to create a business elite now known locally as the billionaire boys club. Flush with cash raised domestically and from international markets and headed by fresh-faced entrepreneurial chief executives, firms such as Bakkavor Group, FL Group and Baugur have used Reykjavik as an unlikely base for aggressive overseas expansion.

They bought or invested in British business such as Singer & Friedlander, Geest, Hamleys, House of Fraser, Karen Millen and easyJet and made similar moves in most of Northern Europe. Trophy assets such as West Ham Football Club followed.

It is the business magnates behind these firms who are responsible for the noise at the airport. Their helicopters fly in from their weekend country retreats (the salmon fishing in Iceland is among the best in the world), their aircraft leave to check on assets in London and their business partners and investment bankers jet in to pitch ideas to them.

The success of these firms has attracted overseas investment far out of kilter with Iceland’s own small economy. The three largest banks, Glitnir, Landsbanki and Kaupthing, are huge relative to their home market. It is one reason for the run on the currency sparked by a mini-financial crisis in Iceland last year. Standard & Poor’s, the credit rating agency, gave warning last week that it may cut the country’s sovereign rating, causing alarm bells to ring in financial centres from Moscow to New York. The central bank is also taking flak. To tame inflation it has lifted interest rates to a record 13.75 per cent.

More than 90 per cent of the population own their homes and bankers estimate that a third of home loans are now taken in euros. “A lot of criticism has been directed at the central bank over the raising of interest rates and the argument is that it doesn’t work because we don’t live in an independent economy,” Thorsteinn Siglaugsson, an economic consultant, said.

The banks argue that the mini-crisis of 2006 acted as a wake-up call, giving them a year to prepare for the credit crunch. They chased retail deposits at home and abroad and became less reliant on short-term capital market borrowing. Sub-prime exposure appears to be minimal, but there are some unsold leveraged loans about, making it difficult for everyone.

“It means we’re focusing on certain niches, for instance geothermal energy and seafood,” Magnus Bjarnason, executive vice-president at Glitnir, Iceland largest bank, said. “This is a very challenging time for all financial institutions in the world.” The local stock market, heavily weighted to the banks, is down 36 per cent since July.

Full employment means that loan quality remains excellent. High education standards, a fervent work ethic, a booming jobs market and recruitment by the financial sector have left big skills shortages elsewhere. Many people hold down multiple jobs and the retirement age is 70. Mr Siglaugsson said: “Even if the very worst happened to Iceland and the banks laid off staff, you would have thousands of the best-qualified and entrepreneurial people in the country available that other industries like software really need.”

In the new City Hall, the newly elected Mayor Dagur B. Eggertson is also grappling with labour shortage issues. At 35, the former doctor turned politician holds the second-most powerful political post in the country and is being tipped as a future prime minister. Among Mr Eggertson’s first moves in office was to raise wages for kindergarten staff after lobbying from working mothers (almost all women of working age are employed) that the best nursery teachers had been lured into more lucrative private sector jobs. “We are a small country, with few people, and many tasks . . . and running a modern city requires a feminine touch,” he said.

Mr Eggertson is also examining the vexing issue of that downtown airport.

The main international hub is almost an hour’s drive away, at Keflavik, a legacy of a vast American military presence that ended suddenly in 2006, but it is a journey that irks executives who are used to five-minute journeys to meetings across town. Tenders to redevelop the adjacent universities and hospital areas due in the new year will probably help to determine its fate.

The billionaire boys

Jon Asgeir Johannesson, 39
Runs the retail empire Baugur (which means ring in Icelandic). His marriage last Saturday to Ingibjorg Palmadottir, his long-time partner, in downtown Reykjavik is the talk of the town. As well as Mr Johannesson’s recent tax-related court battles, his father Johannes Jonsson’s colourful rags-to-riches tale, his self-confessed battle with booze and his talkative former mistress have been fertile ground for Iceland’s gossip columnists

Bjorgolfur Thor Bjorgolfsson, 40
Known internationally as Thor Bjorgolfsson. Dubbed Iceland’s first dollar billionaire, the Sunday Times Rich List estimates his wealth at £2 billion, although recent setbacks on the Icelandic stock market may have reduced that figure. He made his first fortune selling a brewery that he had established in Russia in the early 1990s. Through the investment firm Novator he has since diversified into banking, pharmaceuticals and more. His father Bjorgolfur Gudmundsson chairs Landsbanki, Iceland’s second-largest bank, and led the consortium fronted by Eggert Magnusson that bought West Ham United for £85 million last year

Lydur Gudmundsson, 40, and Agust Gudmundsson, 43
Co-founders of the Bakkavor food group, which operates 55 factories and employs about 20,000 people in eight countries. Annual sales exceed £1 billion and, after its purchase of Geest, the group is now the largest provider of fresh prepared foods and produce in the UK. The brothers’ net worth is estimated at about £600 million. They both also sit on the board of the investment group Exista

Vital statistics

Origin of name The Norwegian Ingolfur Arnarson became Iceland’s first permanent settler in about 871. He named it Reykjavik, or Smoky Bay, after the steam rising from geothermal vents on the shoreline

Population: about 200,000 in the greater Reykjavik area, two thirds of the country’s total

Names Last names are normally formed using the first name of the father followed by son or dottir (son or daughter). So Pal Gudmunsson’s son Jon becomes Jon Palsson

GDP $14 billion

Exchange rate £1 to 130 kronur

Cost of living Draft beer £5

Visa regulations no restriction on EU nationals for up to three months

Time zone GMT

Tax income tax maximum 40 per cent, corporate tax 18 per cent

Per capita income $40,000 a year, sixth-highest in the OECD.

Flights BA flies from Gatwick to Reykjavik on Sunday, Monday, Thursday and Friday. Other airline carriers from the UK include Icelandair and Iceland Express

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