Iceland forms coalition gov't, freezes EU talks

Iceland's centre-right Progressive and Independence parties agreed on a coalition government on Wednesday and said they would freeze EU-accession talks until the country's voters approve continuing with an application in a referendum.

Iceland forms coalition gov't, freezes EU talks

World Bulletin/News Desk

Iceland's centre-right Progressive and Independence parties agreed on a coalition government on Wednesday and said they would freeze EU-accession talks until the country's voters approve continuing with an application in a referendum.

Both parties made big gains in elections last month where voters, fed up with years of austerity and rising debts, handed the incumbant Social Democrats the worst defeat of any ruling party since independence from Denmark in 1944.

Progressive leader Sigmundur Gunnlaugsson will be prime minister in the new government, becoming one of Iceland's youngest leaders at 38.

Independence Party leader Bjarni Benediktsson will be the new finance minister.

Immediately after the bank crisis, support for EU membership rose as some saw it as a way to bring economic stability in the future. But Europe's sovereign debt problems reduced interest in joining a bloc with which Iceland already has good trade ties.

The party leaders also presented a pact where they stated the government planned to use the assets of the estates of the failed banks to help cut the debt of households, a pressing issue which is seen as having held back the recovery.

Iceland's top three banks all collapsed in the space of a few days in late 2008 after the global credit crunch stopped them being able to cope with massive debts.

Many home owners are also burdened with high levels of debt and one of the key promises of the Progressive Party during the election campaign was to find a way to reduce the debt.

But that will involve tricky talks with the claimants on the estates of the old banks, which include several U.S. hedge funds.

Last Mod: 22 Mayıs 2013, 18:01
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