Iceland's Coalition Government Falls in Economic Crisis

January 27th, 2009

The coalition government in Iceland has collapsed following the international banking crisis.

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%.

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