Iceland parties strike deal on new government
REYKJAVIK (AFP) — Two left-wing parties in crisis-hit Iceland agreed Saturday to form an interim coalition to replace the country's recently resigned government, the leader of one of the parties said.
"I believe we're now in the clear and open. By this time tomorrow (Sunday) we should have a new government," head of the Left Green party Steingrimur Sigfusson told reporters in Reykjavik.
The announcement came after five days of talks between the Left Greens and the Social Democrats to create a minority government to replace outgoing Prime Minister Geir Haarde's right-left coalition that was forced to resign on January 26 over Iceland's deep economic crisis.
Thousands have lost their savings and jobs since the once booming financial sector crumbled in October, and many blame Haarde for the crisis that forced Reykjavik to take control of the major banks as the currency nosedived.
The new government talks had stumbled Friday after the centrist Progressive Party, which had pledged its informal backing to the new coalition in parliament, appeared to backtrack, reportedly charging key policy proposals were too vague and demanding more influence.
Progressive Party leader Sigmundur Gunnlaugsson however told reporters late Saturday his party had agreed to offer the needed parliamentary support to the new coalition.
"The Progressive members of parliament have reached the conclusion that we will defend the government from a vote of no confidence," he said, stressing that his party would not commit to voting with the coalition on every issue.
The new government is expected to be presented around midday (1200 GMT) on Sunday after it has been approved by the two parties' lawmakers, and should receive the blessing of President Olafur Ragnar Grimsson later in the afternoon, Sigfusson said.
Social Democrat Johanna Sigurdardottir, 66, has been tipped to head the coalition, thus becoming Iceland's first woman prime minister and the modern world's first openly gay head of government.
One of Iceland's most experienced politicians, Sigmarsdottir served as minister of social affairs in the outgoing government and is known as a champion of social causes, earning her the nickname Saint Johanna.
The new government is unlikely to remain in place for long however, since Haarde shortly before his resignation called snap elections for May 9.
Both the Social Democrats and the Left Greens have meanwhile decided to propose holding them earlier, on April 25, Sigfusson said.
Saturday's announcement came shortly after around 1,500 people gathered outside the parliament to celebrate that weekly protests since October had helped force through the resignation of Haarde's government.
"The demands of the people have been met. Therefore today is a celebration," main protest organiser Hordur Torfason told the cheering crowd.
In addition to forcing out the government and prompting new elections, the demonstrators also take credit for pushing the Financial Services Authority regulatory body to swap its board and replace its director.
The only main protest demand that has yet to be met is the ousting of central bank chief David Oddsson, widely viewed as the main culprit of Iceland's economic meltdown after he as prime minister liberalised the country's financial markets in the 1990s.
Iceland, a country of just 320,000 people, was until the crisis one of the most prosperous members of the Organisation for Economic Cooperation and Development.
In the past decade, Iceland posted average annual growth of four percent, peaking at 7.7 percent in 2004. In 2007, it registered growth of 4.9 percent.
But the Icelandic economy is now expected to shrink by 9.6 percent this year and see no growth in 2010, while unemployment, once almost unknown in Iceland, is expected to reach 7.8 percent in 2009 and 8.6 percent in 2010.
And in November, it became the first Western European country to be rescued by the International Monetary Fund since Britain in 1976, receiving a 2.1-billion-dollar loan from the international body.
Jóhanna Sigurðardóttir.
The newly formed Icelandic coalition interim government will take office today, according to a coalition leader. The new government will also include a new prime minister, Jóhanna Sigurðardóttir, the country's and the world's first openly gay prime minister.

"If everything goes as planned now a new government will take over this afternoon," said Steingrimur Sigfusson, who heads the Left-Green Movement.

On January 27, it was announced that the nation's coalition government had collapsed and dissolved following a banking financial crisis. In October of 2008, Iceland's banking sector collapsed and was largely nationalised. Iceland's interest rate is now 18%, with GDP expected to fall 9.6% this year. Inflation has reached 13.1%. Just before the announcement of the government taking office, nearly 1,500 people were protesting outside the parliament building over the collapsed government and the recent financial crisis, but protesters seemed happy about the change.

"The demands of the people have been met. Therefore today is a celebration," said protest organizer Hordur Torfason to the crowd who were cheering about hearing the news.

The new minority coalition will consist of Jóhanna's Social Democratic Alliance and the Left-Green Movement with backing from the Progressive Party. Jóhanna will be replacing the current prime minister, Geir Haarde who resigned on January 26, and is the chairmen of the nation's independent party and a critic of Jóhanna. He criticizes her appointment because he believes she will not help the economic crisis, resulting in more government spending.

The quick appointment of the new government also means an early election, which is scheduled to take place on April 25.