Iceland's coalition government has collapsed under the strain of an escalating economic crisis.
Iceland's coalition government has collapsed under the strain of an escalating economic crisis.
Conservative Prime Minister Geir Haarde announced the resignation of his cabinet, after talks with his Social Democratic coalition partners failed.
Conservative Prime Minister Geir Haarde announced the resignation of his cabinet, after talks with his Social Democratic coalition partners failed.
He said he could not accept the Social Democrats' demand to lead the country.
He said he could not accept the Social Democrats' demand to lead the country.
Iceland's financial system collapsed in October under the weight of debt, leading to a currency crisis, rising unemployment and daily protests.
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.
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.
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."
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.
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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Ms Gisladottir said a more powerful leadership was needed.
Ms Gisladottir said a more powerful leadership was needed.
"The government's actions in the last weeks and months were not swift enough," she said.
"The government's actions in the last weeks and months were not swift enough," she said.
Her party is now expected to look for new partners to form a government until the election.
Her party 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.
In recent months the Social Democrats had 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.
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