Geir Haarde Resigns As Icelandic Coalition Government Collapses

The global economic meltdown has claimed another victim - Geir Haarde, the former Prime Minister of Iceland.

Haarde will be stepping down as Prime Minister after his Independence Party failed to negotiate a deal with the Social Democrats. The inability to come to an agreement led to the collapse of the government.

This has not been a good week for Haarde. Late last week, he announced that doctors had found a tumor in his esophagus, and that he would call for early elections in May. He also announced that he would be stepping down at that time.

For many in Iceland, Haarde's scheduled departure in May was too far away, and they wanted him gone now. The country has been the victim of riots over the past few months, with many demanding that there be a new prime minister appointed immediately. The Social Democrats seemed to agree with this message, and refused to come to any sort of a deal with Haarde and his government.

What happened?

How did one of the wealthiest per capita countries in the world suddenly go belly-up?

The problem centered around the country's banking system. The three major banks of Iceland, Landsbanki, Kaupping Bank and Glitnir, all expanded aggressively over the past number of years. When the global economic meltdown hit, the banks buckled under the weight of a massive debtload, and were soon sent into receivership.

The Icelandic stock market crashed, wiping out the net worth of many of its citizens. To make matters worse, their currency plummeted in value, inflation soared and unemployment rates sky-rocketed. The country was forced to ask for a $2.1 billion dollar loan from the International Monetary Fund, and became the first Western European country to do so since 1976.

Iceland is now thought by many to be in the midst of a depression.

Given what has transpired over the past six months, one can hardly be surprised that the government has now fallen. It also can't be surprising that the Social Democrats and Independence Party couldn't come to an agreement.

It is hard to figure what the path to recovery for Iceland might look like. One thing is for sure - they have deep, deep problems that will take many years to correct.

Filed under: The Economic Meltdown