Prime Minister Geir Haarde had called early elections for May Iceland's coalition government has collapsed under the strain of an escalating economic crisis. Conservative Prime Minister Geir Haarde announced the resignation of his cabinet, after talks with his Social Democratic coalition partners failed. He said he could not accept the Social Democrats' demand to lead the country. Iceland's financial system collapsed in October under the weight of debt, leading to a currency crisis, rising unemployment and daily protests. The economy is forecast to shrink by almost 10% this year. The coalition between Mr Haarde's Independence Party and Foreign Minister Ingibjorg Gisladottir's Social Democratic Alliance had been under strain in recent months. Mr Haarde told reporters on Monday: "We couldn't accept the Social Democratic demand that they would lead the government." The Independence Party currently controls 25 of the country's 63 parliamentary seats, to the Social Democrats' 18. Meltdown The announcement comes three days after the prime minister called an early general election for 9 May, adding that he would not stand for health reasons. The coalition government, in place since 2007, had been due to remain in place until 2011. ICELAND'S WOES October 2008 - Government takes control of three largest banks
20 November - IMF approves $2.1bn (£1.4bn) loan for Iceland
26 November - Annual inflation rate hits record 17.1%
20 January - Economy forecast to shrink by 9.6% in 2009
23 January - PM Geir Haarde calls snap election for 9 May
26 January - Government resigns following breakdown of coalition
Reality bites in Iceland Timeline: Iceland's crisis Iceland bloggers react to crisis Activists fight Iceland woes Ms Gisladottir said a more powerful leadership was needed. "The government's actions in the last weeks and months were not swift enough," she said. Her party is now expected to look for new partners to form a government until the election. President Olafur Ragnar Grimsson said he would not give any party a mandate to form a new government until Tuesday at the earliest. In recent months the Social Democrats had urged Mr Haarde to fire the central bank governor and move towards closer ties with Europe. Iceland, a country of about 300,000 people, has traditionally sought to stay outside the EU. But last month European Union Enlargement Commissioner Olli Rehn said the island might apply for membership as soon as this year. The extent of Iceland's trouble became evident as conditions tightened in global credit markets last year. It emerged that the country's banks, which had amassed debt during years of rapid expansion, owed about six times the country's economic output. Money from around the world had also poured into Iceland because interest rates there exceeded 10%. Icelandic Crisis We have the opportunity to build a new truly democratic society Stefan Thorgrimsson, Reykjavik Mr Haarde's government responded to the financial collapse by nationalising leading banks. It also negotiated about $10bn in loans with the International Monetary Fund and donor countries. Commerce Minister Bjorgvin Sigurdsson resigned on Sunday citing the pressures of the economic meltdown.
Bookmark with: Delicious
Digg
reddit
Facebook
StumbleUpon What are these? E-mail this to a friend Printable version
The coalition government in Iceland has collapsed following the international banking crisis.

Icelandic Prime Minister Geir Haarde 

Prime Minister Geir Haarde of the conservative Independence Party had begun talks with coalition partner party Social Democratic Alliance in the run-up to an early general election planned for May. It was reported yesterday that these talks had failed and the coalition was dissolved. The centre-left Social Democrats will now try to build a coalition with opposition parties, according to the BBC.

The Independence Party currently has 25 of the 63 seats in the country's unicameral Althing (parliament), and the Social Democratic Alliance holds 18 seats. The remainder of the government consists of the Left-Green Movement (9 seats), the Progressive Party (7) and the Liberal Party (4).

The coalition was formed after the election in 2007, but became uneasy after the global financial crisis caused Iceland to nationalise its banking system and ask for help from the International Monetary Fund, with Social Democrats seeking closer ties with the European Union and the replacement of the head of the central bank. Social Democrat leader and Foreign Minister Ingibjörg Gísladóttir has suggested Jóhanna Sigurðardóttir, the Social Affairs and Social Security Minister, as the next prime minister.

Iceland's interest rate is now 18%, with GDP expected to fall 9.6% this year. Inflation has reached 13.1%.