Iceland's ruling coalition collapses

A NATIONAL unity government is on the cards for Iceland following the collapse of its ruling coalition yesterday, the first government to fall victim to the global financial crisis.

Three months after Iceland’s debt-laden banks imploded, sparking economic chaos and mass street demonstrations, prime minister Geir Haarde handed in his resignation and that of his government after just 18 months yesterday.

“I will have a meeting with the opposition leaders to discuss the possibility of a national unity government,” said Mr Haarde.

On Friday he called a snap election for May and announced he would not stand for office after doctors discovered a cancerous tumour in his oesophagus.

The Icelandic leader had planned to stay on in office until the election, but he under- estimated the fury of ordinary Icelanders.

For 16 weeks they have taken to the streets of the capital, Reykjavik, in noisy protests, banging drums, pots and pans and demanding the government take responsibility for the economy’s collapse.

On Saturday, 6,000 people crowded into the square before the Althing parliament building chanting “Vanhæf ríkisstjórn!” “incapable government”. On Sunday, the minister for commerce resigned, followed by the financial regulator chief.

Last-minute negotiations yesterday to save the coalition failed when the Independence Party rejected the idea of letting Social Democratic leader, Ingibjorg Gisladottir serve as prime minister until May.

Ms Gisladottir, foreign minister in Mr Haarde’s administration, had just returned to work after treatment for cancer; yesterday she announced that she was going on a two-month leave of absence.

Mr Haarde will depart for treatment in The Netherlands shortly.

The May election, two years early, will see a dramatic shift to the left with the business-sceptical Left-Green bloc likely to finish as the strongest party.

The Social Democrats hope to salvage some credibility with voters as the ones who brought down the government.

And, freed from their eurosceptic coalition partner, they will use the election campaign to push for Iceland’s membership of the EU and the euro zone, a view polls show is shared by a majority of the population.

Voters are likely to be less kind to the Independence Party, in office since 1991.

Mr Haarde has come under attack for not firing David Oddsson, the central bank governor and his predecessor as IP leader. Mr Oddsson is seen as an intrinsic part of the Icelandic business elite that ran the banking sector and helped make the island, on paper at least, one of the world’s most affluent nations in 2007.

But the affluence was fuelled by debt and the collapse in world credit markets revealed that Iceland’s privately-owned banks had liabilities 10 times the size of the economy. The banks were nationalised in October and, a month later, the country received a two-year $2.1 billion (€1.6 billion) emergency credit from International Monetary Fund, along with loans from other countries.

Ordinary Icelanders have braced for hard times with their economy which is set to shrink by 10 per cent in the coming months.