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Iceland's leader resigns amid turmoil

REYKJAVIK, Iceland — Iceland's coalition government collapsed Monday, the first government to fall as a direct result of the global economic turmoil.

Prime Minister Geir Haarde resigned and disbanded the government he has led since 2006. As personal savings have been wiped out and joblessness soars, Icelanders — once among the world's wealthiest people — have taken to the streets in protest, throwing eggs and toilet paper at Haarde and other parliamentary leaders.

Protests have mounted throughout Europe, where the political backlash to the crisis is growing. In Ireland, Britain, Spain and other countries where bankruptcies and home foreclosures are rising, polls show approval ratings of leaders are sinking. In Eastern Europe and Greece, where there is less of a government safety net, protesters have spilled onto the streets by the thousands.

Last month's collapse of the Belgian government, which had been wrestling with long-standing conflicts, was also hastened by the banking crisis, analysts said.

Perhaps nowhere has the economic crash been more spectacular than Iceland, an island of 300,000 on the edge of the Arctic Circle. Last fall, its largest banks went bust and the value of its currency plummeted. In recent days, protests intensified as no leader took responsibility for the crash, prompting police to use tear gas for the first time in half a century.

Haarde announced Friday that he would call early elections and said he would step down. He cited health reasons and said doctors were treating him for cancer. But ahead of those planned elections, Haarde's Independence Party could not come to terms with the Social Democrats, its main partner in the two-year-old coalition that was to stay in power until 2011.

Iceland has been mired in crisis since October, when the country's banks collapsed under the weight of debts amassed during years of rapid expansion. Thousands of citizens have protested, clattering pots in what some commentators called the "Saucepan Revolution."

The country's krona currency has plummeted, hitting many Icelanders who took out special loans denoted in foreign currencies for new homes in the boom years. In addition, Iceland must repay billions of dollars to Europeans who held accounts with subsidiaries of collapsed Icelandic banks.

Iceland's figurehead President Olafur Ragnar Grimsson said he would hold talks with Iceland's four other main political parties late Monday before asking one of the organizations to form an interim government. Today, he's likely to ask Foreign Minister Ingibjorg Gisladottir, head of the Social Democratic Alliance, to govern with smaller opposition parties until elections are held.

Iceland's leader resigns amid turmoil 01/26/09 [Last modified: Monday, January 26, 2009 11:27pm]
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