Friday, March 19, 2010

European Governments Fall

¹²Latvia Government Collapses Amid Economic Crisis

Financial Crisis Causes Iceland's Government To Collapse

By by Matthew Day, Telegraph, UK | 19 March 2010

The People's Party, the largest group in a five-party coalition, walked out amid disputes over how to cope with the country's severe problems. Unemployment has now hit 20 per cent and the economy contracted by 18 per cent last year. The People's Party quit after its action plan failed to get the backing of Valdis Dombrovskis, the Latvian prime minister, who labelled it "populist".

Mr Dombrovskis warned the People's Party's departure could cause yet further economic instability. "Any contradictions in the government are immediately reflected in the financial markets, and they directly affect the fiscal stability our country a policy that is truly responsible for the country cannot be self-centred," he said. But he said he remained confident that an emergency IMF bail-out worth £6.7bn would remain unaffected by the political instability.

New Era, Mr Dombrovskis's party, confirmed it had already extended invitations to other parties to join a new coalition in an attempt on gain the majority in Latvia's 100-seat parliament. It attempted to play down concerns about the prospect of a minority government at the helm of country in severe economic turmoil. Laila Dimrote, a spokeswoman for New Era, said: "This is not a big deal. Latvia has had many minority governments in the past, and often this is the case prior to elections".

This plays into the fact that Latvia and its neighboring countries are already in depression. This economic disease is rapidly spreading and converting back into the financial contagion [[from which it initially sprang: normxxx]], through the banking system, and is being retransmitted thereby as both financial and economic distress to the wealthier western countries that have large economic ties with Latvia [[ie, creditors of outstanding Latvian loans: normxxx]] and/or trade with them.


Financial Crisis Causes Iceland's Government To Collapse

By David Blair, Diplomatic Editor | 19 March 2010

Geir Haarde, the outgoing prime minister, had already been forced to call new elections for May 9 and announce that he will not contest this poll Photo: AP

Iceland's economic crisis toppled the government and destroyed the conservative prime minister's career yesterday when the entire cabinet resigned.

The island's administration collapsed after talks on forming a new coalition failed. Geir Haarde, the outgoing prime minister, had already been forced to call new elections for May 9 and announce that he will not contest this poll. The onset of a global recession is damaging governments across Europe, notably in Greece where rioters filled the streets earlier this month. But Iceland's leaders are the first political casualties of Europe's economic travails.

The government which Mr Haarde had hoped to lead until the election has now been formally dissolved. His Independence Party, which presently holds 25 of the 63 seats in parliament, was ruling in coalition with the Social Democratic Alliance. This Left-wing party had demanded the premiership and the leadership of the government during the negotiations to remake the coalition. Mr Haarde, who is also suffering from cancer, chose simply to resign rather than accept.

It will now fall to Ingibjorg Gisladottir, the foreign minister and leader of the Social Democrats, to form an interim government until the election in May. She has denounced Mr Haarde for failing to arrest the collapse of Iceland's economy. "The government's actions in the last weeks and months were not swift enough," she said.

Mass demonstrations against the government have become daily events in Reykjavik. Protesters gathered outside parliament have called for Mr Haarde's resignation and cheered his downfall. They have also picketed the central bank, whose governor, David Oddsson, has been denounced for failing to foresee the crisis.

While the world's economy expanded, Iceland developed what appeared to be a highly successful offshore financial services sector, based on high interest rates and low regulation. But it emerged that the country's banks had amassed liabilities equivalent to six times the island's entire economy. The government was forced to nationalise all three of Iceland's leading banks and to seek loans from the International Monetary Fund and other countries worth more than $10 billion (£6.5 billion).

Meanwhile, the value of the national currency, the Krona, fell sharply, placing an immense burden on people who had taken out loans in euros or dollars. Iceland, with only 310,000 people, has stayed out of the European Union and jealously guarded its national sovereignty. The country won independence from Denmark as recently as 1944.

But the economy is forecast to shrink by almost 10 per cent this year— by far the worst performance in the developed world. Iceland's crisis has reached such proportions that it may now be forced to submit an emergency application for EU membership. This would give it financial support from the EU's own funds and the relative security of joining the euro. Olli Rehn, the enlargement commissioner, believes that Iceland may apply later this year. If Iceland does bid for membership, however, this would have to be approved by all of the EU's 27 member states.

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