By Omar Valdimarsson
REYKJAVIK, Nov 20 (Reuters) - A $10 billion IMF-led package may rescue Iceland's financial system but the government faces a backlash from the public, angry at how a prosperous island became an economic basketcase almost overnight.
Public ire with politicians and financial chiefs has found an outlet in the protests that have become a regular sight in the capital since the crisis took hold last month.
Traditionally, Icelanders would grumble quietly in their corner but the wave of protests signalled an important change in mentalities, said Sigmundur Ernir Runarsson, a news director for Iceland's Channel 2.
"The anger we see now is directed at this destruction and particularly the fact that no one seems man enough to accept responsibility for it," he said.
"New sagas are being written every day and even though the battles are still waged with words only, the battle spear is not far away."
Thousands of voters in this North Atlantic island state streamed into the capital Reykjavik at the weekend in the largest public rally since the start of the crisis. The peaceful protest is scheduled to be followed by another on Saturday.
The financial crisis has prompted speculation in local media of elections early next year. Support for joining the European Union has soared to 70 percent, prompting Prime Minister Geir Haarde, a long-standing opponent to membership, to convene a commission to study the issue.
Membership is a pre-requisite for adopting the euro, a step that has become increasingly popular with residents since the collapse of the crown currency.
CRIPPLING RATES
Thousands of Iceland's 320,000 people now face the prospect of losing their homes and savings as a result of the financial meltdown.
The central bank hiked interest rates by six percentage points to a record 18 percent last month as a condition for receiving aid from the International Monetary Fund.
But there has been scant criticism of the fund from ordinary people, politicians or local media.
Runar Sigurdsson, a 62-year-old guest house owner, said he had not wanted to see Iceland borrowing from the fund at first. Now he is more upset that it took so long to win an IMF loan.
A decision on the IMF programme was delayed until Iceland agreed to sort out its wrangles with Britain and the Netherlands over its obligations to foreigners who had deposits in failed bank Landsbanki.
Other lenders were reluctant to step in with cash until the IMF programme was in place.
"Now it's clear that it should have come earlier, and would have come earlier, had our leaders not behaved like fools -- telling the world that we would not honour our legitimate commitments," Sigurdsson said.
"If we want to be a part of the global community -- and to think that we don't need to is simply dumb -- we need to play according to the rules, not just the ones we like," he said.
Artist Dagmar Agnarsdottir, 56, appeared resigned to the IMF-led loan but was bitter at the leaders who led the country so badly astray.
"The problem I have is the betrayal and humiliation that a relatively small group of people have created for this country, probably no more than 30 people in all," she said.
"It hurts to know that we're the laughing stock of the outside world and even more to know that it's largely because of the greed and irresponsibility of these people," she added.
-- For a related news story, click on [ID:nLK742332] (Editing by Jon Boyle)