Iceland’s center-left Social Democratic Alliance Party was chosen Tuesday to form a new government with the Left-Green movement following the collapse of the conservative government amid deep economic troubles. President Olafur Ragnar Grimsson made the decision after Prime Minister Geir Haarde, who had led the island nation since 2006, was toppled Monday by angry protests over the country’s slide into economic ruin. Haarde announced resignation the same day.
The Greens will be a junior partner until general elections are held. Haarde had called for new elections in May, but Grimsson said Tuesday that elections could be called at any time from late March to early June.
The shift brings a renewed debate over Iceland’s place in Europe. Haarde’s conservative Independence Party had dominated coalition governments since 1991 and has long been skeptical over the prospects of Iceland joining the 27-nation European Union.
But Ingibjorg Gisladottir, chairman of the Alliance, wants Iceland to enter the European Union (EU) and supports the substantial loan from the International Monetary Fund (IMF) that has helped Iceland weather its economic collapses.
The Left-Greens, however, remain skeptical over the EU and have suggested that Iceland re-negotiate its IMF loan to lower the interest rate.
"We have taken the baton - the government should be operational before the weekend," Gisladottir said.
Since the global credit crunch hit, Haarde has nationalized banks and negotiated about $10 billion in bailout loans from the IMF and individual countries. But his government came under sharp criticism for failing to adequately oversee Iceland’s banking system and protect the once-prosperous nation of 320,000 people.
Iceland’s banks collapsed last year with huge debts amassed during years of rapid expansion. Unemployment and inflation have spiraled and the IMF predicts that Iceland’s economy will shrink by about 10 percent in 2009, which would be its biggest slump since Iceland won full independence from Denmark in 1944.
“I’m surprised,” said Scott Isom, a junior in international cultural studies from Oregon, in reference to this rapid expansion. “I can’t really think of anything [that the nation exports].”
“It just shows how bad this market is right now,” said Christian Evans, a junior in biology from Colorado. “An entire country has essentially gone bankrupt.”
Thousands of angry Icelanders have demonstrated against the ousted government in recent weeks, clattering pots and kitchen utensils in what some have called the "Saucepan Revolution."
Though largely peaceful, protesters have doused Reykjavik’s parliament in paint and hurled eggs at Haarde’s limousine. Last Thursday, police used tear gas to quell a protest for the first time since 1949.