Iceland's government collapses amid financial meltdown


Iceland's coalition government collapsed today under the pressures of a financial meltdown and prime minister Geir Haarde said he would hand in his resignation to president Olafur Ragnar Grimsson.

"I really regret that we could not continue with this coalition. I believe that that would have been the best result," he told reporters at parliament.

Foreign minister Ingibjorg Gisladottir, the Social Democrat leader who had been considered a potential replacement for Mr Haarde, announced she would not seek to be prime minister and would take a leave of absence for one or two months.

Mr Haarde's government, a coalition between his Independence Party and the Social Democratic Alliance, has been under pressure since the global financial crisis hit Iceland in October, causing the collapse of its banks following a decade-long boom fuelled by cheap foreign funding.

"I will go to the president and hand in the government's resignation. Then I will have a meeting with the opposition leaders to discuss the possibility of a national unity government," Mr Haarde told reporters.

He said he hoped someone from his party could lead a unity government but one analyst said he thought the public would demand change.

"This is not unexpected and at least it is the end of the pain politically. I would view it as good news because it should give us more clarity rather than less," Lars Christensen, head of emerging market research at Danske Bank, said.

"Obviously, the left wing is likely to get a very good showing in the election. The likely verdict of the Icelandic people is that they will want the current government well out of the way."

Polls show both coalition parties trailing the opposition Left-Green Party, indicating that a shift in power is likely.

The government collapse did not cause any new trade in Icelandic CDs or the island country's krona currency.

Mr Haarde had already said on Friday he would not seek re-election because he has cancer, and had proposed an early parliamentary election on May 9th. Mr Haarde has said he wanted to keep running Iceland until the vote.

Protests have been held regularly on Saturdays since the crisis started last year and for six days straight since Tuesday last week.

Foreign minister Gisladottir had several meetings with Haarde over the weekend and today to discuss her conditions to keep their coalition alive.

She had called for the resignation of the board of the central bank and its governor, David Oddsson.

Icelandic media also reported that she had demanded to be prime minister until the election, but today she proposed that social affairs Minister Johanna Sigurdardottir take the job instead.

Under the Icelandic constitution, the president is charged with finding a new government with sufficient parliamentary backing.