Crisis claims first cabinet in Iceland

Hurriyet Daily News with wires

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"I really regret that we could not continue with this coalition," Prime Minister Geir Haarde told reporters, adding that he would now try to build a broad coalition comprising all parties in parliament. Foreign Minister Ingibjorg Gisladottir, the Social Democrat leader who had been considered a potential replacement for Haarde, announced she would not seek to be prime minister and would take a leave of absence for one or two months.

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.


The global meltdown in Iceland caused the collapse of its banks following a decade-long boom fuelled by cheap foreign funding.

Icelandic Prime Minister Haarde 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.

’Left to get good showing’
"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," Christensen told Reuters news agency.

The Left Green Movement would be the biggest party in parliament, or Althingi, if an election were held this month, gaining 23 of the 63 seats, a Jan. 24 poll published by Frettabladid showed. Steingrimur Sigfusson, leader of the Left Greens, said in an October interview with Bloomberg that he’s ready to lead the country and predicted then a return to more government control.

Minister of Business Bjoergvin G. Sigurdsson resigned on Sunday, saying he was partly to blame for the collapse of the island’s financial system. Sigurdsson, 38, also called on the head and board of the country’s Financial Supervisory Authority to step down.

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

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 9. Haarde has said he wanted to keep running Iceland until the vote.

Widespread protests to topple government
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 yesterday 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 foreign minister had demanded to be prime minister until the election, but yesterday 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.