Tuesday, January 27, 2009

Icelandic Prime Minister Turns Over Reigns to Leftist Coalition

Sources: Wall Street Journal, Financial Times

After yesterday’s resignation of Icelandic Prime Minister Geir Haarde, President Olafur Ragnar Grimsson asked opposition leaders to set up a new leftist coalition between the Left-Greens and the Social Democrats. In Iceland, the president, as the Head of State, can dissolve Parliament to hold new elections. The move marks the end of 17 years of right-wing leadership that transitioned the country from a fishing economy to a banking giant within the span of a generation. However, the quick shift to a privatized free-market economy ultimately led to the country’s downfall. Haarde cited cancer as the reason for his resignation but public protests over the handling of the country's financial meltdown no doubt contributed.

The economic crisis has prompted a marked increase in political support for left leaning parties such as the Social Democrats and especially the Left-Greens. Now the third largest party in Parliament, support for the Left-Greens has surged to a 28.5% minority stake in the government since the banking meltdown last fall, according to a recent poll by the Market and Media Research Agency. The two minority parties may struggle to form a coalition, as they differ on major issues such as EU membership and whether to accept IMF aid; the Social Democrats support the IMF plan while the Left-Greens want to renegotiate it.

Left –Green party leader Sigfusson hopes to boost environmentally friendly small and medium-sized industries instead of focusing on the aluminum and fishing industries, Iceland’s two major exports. At a press conference yesterday, he also relayed that he has no plans to privatize Iceland's three major banks, which were nationalized last October, and hopes to return the country to a traditional Nordic economy with a public-private balance.

1. How can a coalition government aid Iceland socially and politically?
2. Besides those listed here, what problems do you foresee for Iceland’s leftist coalition?
3. In a global recession, can a bankrupt economy afford to prioritize sustainable development and the environment? Why or why not?

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