- The Washington Times - Tuesday, January 27, 2009

REYKJAVIK, Iceland | Iceland’s coalition government collapsed Monday, leaving the island nation in political turmoil amid a financial crisis that has pummeled its economy and required an international bailout.

Prime Minister Geir Haarde said he was unwilling to meet the demands of his coalition partners, the Social Democratic Alliance Party, which insisted upon getting the post of prime minister to keep the coalition intact.

“I really regret that we could not continue with this coalition. I believe that that would have been the best result,” Mr. Haarde told reporters.

Mr. Haarde, who has been prime minister since 2006, said he would officially inform the country’s president, Olafur Ragnar Grimsson, that the government had collapsed. Mr. Grimsson, largely a figurehead, has asked Mr. Haarde’s government to remain in place until a new administration is formed.

Last week, Mr. Haarde called elections for May - bringing forward a contest originally slated for 2011 after weeks of protests by Icelanders upset about soaring unemployment and rising prices.

But Mr. Haarde said he wouldn’t lead his Independence Party into the new elections because he needs treatment for cancer.

Foreign Minister Ingibjorg Gisladottir, head of the Alliance Party, is expected to start talks immediately with opposition parties in an attempt to form a new government that would rule until the new elections are held.

Ms. Gisladottir said Monday she won’t seek to replace Mr. Haarde as Iceland’s leader, proposing Social Affairs Minister Johanna Sigurdardottir - an Alliance member - instead.

The prime minister told reporters Monday that he had proposed Education Minister Thorgerdur Katrin Gunnarsdottir to be the new prime minister, but Ms. Gisladottir rejected that offer.

“It was an unreasonable demand for the smaller party to demand the premiership over the larger party,” Mr. Haarde said.

He said he hoped a national government, formed from all of Iceland’s main political parties, could lead the country until the elections.

The Alliance Party also has sought the ouster of central bank governor David Oddsson, Iceland’s former prime minister, and sought changes to the Iceland Constitution to allow it to become a full member of the European Union.

Iceland has been mired in crisis since the collapse of the country’s banks under the weight of debts amassed during years of rapid expansion. Inflation and unemployment have soared, and the krona currency has plummeted.

Mr. Haarde’s government has nationalized banks and negotiated about $10 billion in loans from the IMF and individual countries. In addition, Iceland faces a bill likely to run to billions of dollars to repay thousands of Europeans who held accounts with subsidiaries of collapsed Icelandic banks.

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