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Crisis claims Icelandic cabinet Crisis claims Icelandic cabinet
(20 minutes later)
Iceland's coalition government has collapsed as a result of an escalating economic crisis. Iceland's coalition government has collapsed under the strain of an escalating economic crisis.
Prime Minister Geir Haarde announced the resignation of his cabinet, after talks with coalition partners failed. Conservative Prime Minister Geir Haarde announced the resignation of his cabinet, after talks with his Social Democratic coalition partners failed.
Iceland's financial system collapsed in October under the weight of debt built up during years of rapid growth. He said he could not accept the Social Democrats' demand to lead the country.
The currency has since plummeted and unemployment soared. The cabinet had faced daily protests with demonstrators accusing it of ruining the country. Iceland's financial system collapsed in October under the weight of debt, leading to a currency crisis, rising unemployment and daily protests.
The economy is forecast to shrink by 9.6% this year.The economy is forecast to shrink by 9.6% this year.
Mr Haarde told reporters on Monday: "I really regret that we could not continue with this coalition. I believe that that would have been the best result." The coalition between Mr Haarde's Independence Party and Foreign Minister Ingibjorg Gisladottir's Social Democrats had been under strain for the past three months.
Mr Haarde told reporters on Monday: "We couldn't accept the Social Democratic demand that they would lead the government."
The announcement comes three days after the prime minister called an early general election for 9 May, adding that he would not stand for health reasons.
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The coalition between Mr Haarde's Independence Party and Foreign Minister Ingibjorg Gisladottir's Social Democratic Alliance had been under strain for the past three months. Ms Gisladottir said a more powerful leadership was needed.
The prime minister said he would speak to Iceland's president to dissolve the government formally. "The government's actions in the last weeks and months were not swift enough," she said.
Last week Mr Haarde called an early general election for 9 May, adding that he would not stand for health reasons. Her party is now expected to look for new partners to form a government until the election.
The Social Democratic Alliance is now expected to look for new partners to form a government until the election. In recent months the Social Democrats had urged Mr Haarde to fire the central bank governor and move towards closer ties with Europe.
The Social Democrats have urged Mr Haarde to fire the central bank governor and move towards closer ties with Europe.
Iceland, a country of about 300,000 people, has traditionally sought to stay outside the EU.Iceland, a country of about 300,000 people, has traditionally sought to stay outside the EU.
But last month European Union Enlargement Commissioner Olli Rehn said the island might apply for membership as soon as this year.But last month European Union Enlargement Commissioner Olli Rehn said the island might apply for membership as soon as this year.