Iceland’s Government Collapses

By JUDY DEMPSEY

BERLIN — Iceland’s coalition government collapsed Monday, the latest fallout from a global financial crisis that has sparked angry demonstrations against governments across Europe.

Prime Minister Geir Haarde said he was unwilling to meet the demands of his coalition partners, the Social Democratic Alliance Party, which had insisted upon getting the post of prime minister to keep the coalition intact, The Associated Press reported from Reykjavik, the Icelandic capital.

Last week, Mr. Haarde called elections for May, bringing forward a vote originally scheduled for 2011, after weeks of protests by Icelanders angered by soaring unemployment and rising prices. But Mr. Haarde said he would not lead his Independence Party into the new elections because he needed treatment for cancer.

Iceland has been in crisis since the collapse of its banks because of massive debt in September and October, with its currency, the krona, plummeting. The country’s commerce minister, Bjorgvin Sigurdsson, quit Sunday, citing the pressures of the economic collapse, The A.P. reported.

The demonstrations in Iceland, which have also demanded the resignation of governor of the nation’s central bank, have been mirrored elsewhere in Europe.

The Latvian government, which this month pushed through wage and spending cuts but also tax hikes in order to cope with the banking crisis, faced demonstrations that turned into violent riots. Neighboring Lithuania also had to contend with protesters after the government introduced a package of austerity measures to protect the financial sector.

In southern Europe, tens of thousands turned out in the Spanish city of Zaragoza last week to press the local authorities to deal with soaring unemployment as the country’s construction and retailing industries are hit by the global downturn. And in Greece, the government is still coming to terms with widespread student protests against education reforms.

In all cases, the demonstrations have had a mix of sentiments — anti-globalization, anti-capitalist and anti-reform.

So far, Europe’s largest economies, France, Germany and Britain, have been spared demonstrations. All three governments have introduced huge stimulus measures aimed at spurring employment and protecting banks.

Regardless of the outcome, the three countries will face large budget deficits and higher state borrowing, which economists say will be passed on to taxpayers. And in the case of France and Germany, the governments could find it more difficult to introduce bold reforms in a time of recession.

President Nicolas Sarkozy of France, who had advocated strong state intervention to protect his country against recession, is thinking twice about introducing a variety of reforms, especially involving high school education, because of the fear of demonstrations. Already, Mr. Sarkozy is dealing with another round of trade union strikes, which started Thursday, to protest against unemployment.

In Germany, Europe’s biggest economy, Chancellor Angela Merkel’s coalition government recently pushed through a batch of stimulus measures worth more than 80 billion euros. These are aimed at curbing unemployment by providing public money for roads, schools and consumer car-loan incentives.

But with many German companies already hit by the global slowdown and desperate to introduce savings and keep wages down, strikes cannot be ruled out. Lufthansa, the profitable national airline, has already called warning strikes, with its union demanding pay raises of more than 10 percent.

Still, despite the tens of thousands of workers who have been put on shorter working weeks, the Merkel government has not yet faced massive anti-capitalist demonstrations.

Instead, Germany’s leftist parties, fighting bitterly among themselves to gain political mileage during an election year, are heaping blame on bankers, not the regulatory processes, for the financial crisis.

Franz Müntefering, the leader of the Social Democrats, told the Sunday Frankfurter Allgemeine newspaper that while some bankers were competent, others had “lost track of what they were doing.”

In Iceland, Foreign Minister Ingibjörg Sólrún Gisladóttir, head of the Social Democratic 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, The A.P reported.

Ms. Gisladottir said Monday that she won’t seek to become Iceland’s new prime minister, proposing instead another member of her party, Social Affairs Minister Johanna Sigurdardottir.

The prime minister, who was also reaching out to potential prime minister candidates, told reporters Monday that he hoped a national government, formed from all of Iceland’s main political parties, could lead the country until the elections, The A.P. reported.

Di pos oleh Arbain Muhayat pada 27 January 2009