After weeks of increasingly angry demonstrations, the government of Iceland has collapsed. Protesters, furious at how the country’s economy has been handled, finally got some satisfaction when Prime Minister Geir Haarde resigned on Monday, becoming the first world leader to lose power as a direct result of the global financial crisis.
Iceland was the fifth-richest nation on a per-capita basis in 2007, but now it is in the midst of a total economic meltdown. Last fall, its banks, which had gone on an aggressive foreign expansion spree, imploded and had to be nationalized. At the same time, its currency went into free fall and many of Iceland’s 320,000 citizens, who had taken on debt in foreign currencies, saw their savings vanish. By November the situation was so dire that Iceland grovelled for a US$2.1-billion loan from the International Monetary Fund as well as around US$8 billion from neighbouring nations to forestall national bankruptcy.
For Icelanders, the news keeps getting worse. The economy is expected to contract by 9.6 per cent this year, with inflation topping 13 per cent. The unemployment level, which was under two per cent in October, is forecast to soar to 7.8 per cent. Little wonder that the consumer confidence index has plummeted from 115 to 19.5 in a year, and one-third of the country’s citizens are now thinking of leaving their homeland.
It’s still not clear how the nation’s fragmented political parties will form a new government, let alone solve the economic mess. In the meantime, Iceland’s president has asked Ingibjorg Gisladottir, leader of the Social Democratic Alliance, to try to form a temporary coalition government with the Left-Green party until an election this spring.