By the standards for judging such things in most places, Iceland these days is in dire straits.

Inflation for the 12 months through May was running at about 100 percent and rising. Even more serious, the fish catch, which accounts for about three-quarters of the country's exports, is down sharply. Capelin have virtually disappeared and cod are about 40 percent below the level of two years ago.

But Iceland is used to adversity. Being a mound of mainly windswept volcanic rock on the edge of the Arctic Circle, it is hardly paradise in the best of times, unless, it seems, you happen to be an Icelander. "I feel a physical happiness when spring is coming," said Halldor Laxness, the country's 82-year-old Nobel laureate in literature, whose simple joy at nature's small favors is a typically Icelandic way of looking on the bright side.

In a thousand years of inhabited history, Iceland has endured the tyrannies of invaders and the tribulations of economic reversals so many times that its people are not easily alarmed. So despite current difficulties, a visitor finds the mood noticeably buoyant in these high-summer days with temperatures in the low fifties. The rhapsodically blue sky of (an admittedly rare) sunny day is, natives boast, a tribute to another of Iceland's blessings--underground thermal waters so hot that the country escapes the pollution that comes from using oil or coal for heat.

Not that the problems can be ignored. They are just put into their proper perspective. The surrounding seas suddenly have turned colder, and that is why the fish take is so reduced, explained Prime Minister Steingrimur Hermannsson, the fisheries minister.

"But we are not talking about a new ice age," he observed in an interview.

Given that there is little anyone can do about making the oceans a few degrees warmer, Hermannsson said the national strategy is "to cross our fingers and hope that the fish will come back." They have, of course, always done so in the past.

To combat inflation, Hermannsson's new center-right coalition government has adopted a package of stiff measures that will cut the standard of living by at least 5 percent in the next year. But with luck, the galloping increases in the cost of living will also slow to a reasonably comfortable 30 percent.

A combination of rising import costs, borrowing abroad, weak foreign demand for fishing products and a tradition of indexing salaries has kept the pace of inflation moving upward. A succession of governments, including two in which Hermannsson was involved, fiddled with the economy but decided that as long as there was full employment and steady growth, nothing dramatic was necessary.

No longer. Unchecked, inflation would have hit 130 percent this year, making nonsense of Iceland's currency and holding out the prospect--especially if the fishing drought remains--of collapse. In the biggest move, indexing was suspended, so unless other restraining actions start to take effect, next winter for Icelanders will seem even longer and darker than usual.

As it happens, however, Iceland's weather--a local topic of discussion on a par with fish and prices--is not nearly so terrible as the country's name implies. Iceland actually means "island," not "land of ice." The country is at the end of the Gulf Stream, and while gales are plentiful, the average January temperature is higher than New York's.

The weather as a rule is cloudy, damp and windy, but bearable. In the winter there are about three hours of daylight and in the summer it never really gets dark. One way of dealing with what is an undeniably dreary period between October and May is to get away to brighter climes, and Iceland's 230,000 citizens are big travelers to the south.

They nearly always come back.

"I've never met an Icelander abroad who wasn't homesick," said President Vigdis Finnbogadottir, the country's leading booster as ceremonial head of state. "They miss the smell of birch, moss and lava," she said, recalling her own time away, mostly in France. But not even she would argue that Reykjavik in spring beats the Riviera.

That urge to fly away explains the stature here of Icelandair, the country's airline, best known to Americans as a pioneer of cut-rate transatlantic air fares. Icelandair is still ferrying North Americans, although many others now compete for that market.

The airline went through a very bad patch in the late 1970s, according to its president, Sigurdur Helgason, because of soaring fuel prices, the recession and its purchase of a DC10, which promptly was grounded by the U.S. Federal Aviation Administration after another of the wide-body jets crashed. Lately, however, Helgason said, business has improved, and a new generation of American backpackers, once again attracted to Europe by the strength of the dollar, is streaming aboard.

Like many prominent Icelanders, Helgason has a U.S. education. He is a graduate of Columbia; Prime Minister Hermannsson has a degree from Cal Tech. They are, therefore, particularly sensitive to American tastes--another explanation for their innovation of classless air travel.

In fact, there are a good many noticeable similarities between the Icelandic and American national personalities, conservative in some ways and liberal in others. Overall, Icelanders seem a proud and patriotic people who protect their country's identity in a way Americans might well understand.

On the social front, about a third of Iceland's babies are born out of wedlock. One young mother, the wife of an aspiring politician, said she was 20 when her first child was born, and she was still living at home. Some months later the couple married and soon had two other children. The arrangement was entirely ordinary. The mother said that she is opposed to abortion and that divorce, in her circle, is a scandal, whereas illegitimate births are an everyday occurrence.

Icelanders say they are the most egalitarian people in Europe. The feeling of informality is heightened by the custom of calling everyone by his first name. In as small a world as their island in the North Atlantic, there is no room for pretension, they explain.

But guarding the purity of their language is another matter. Without Icelandic as the national tongue, they would be far less an identifiable people. Over the centuries, they have resisted modernizing or homogenizing the language to bring it into line with others in Scandinavia. They make a special effort to devise Icelandic words for new terms, such as computer, rather than pick up, say, the English version.

While to outsiders that may seem like a lot of trouble, Icelanders would not have it any other way.

"We don't need to go to other sources to invigorate our cultural heritage," said a newspaper editor.

Having struggled in so many ways down through the ages, the people of Iceland know well who they are.