Iceland parties talk with president for new govt

Reykjavik: The leaders of Iceland's Social Democratic Alliance and the Left-Greens were set to meet President Olafur Ragnar Grimsson on Tuesday to discuss the forming of a new government coalition.

Former prime minister Geir Haarde, leader of the Independence Party, tendered his resignation on Monday after his coalition with the Social Democratic Alliance collapsed in the face of public protest over the financial crisis.

Grimsson was trying to put together a new government on Tuesday.

"Steingrimur Sigfusson and Ingibjorg Gisladottir will both meet the president at 1100," said Ornolfur Thorlacius, a spokesman for the president's office.

The leaders of the parties met Grimsson individually late into Monday night but talks ended without resolution. Iceland's ruling coalition collapsed under pressure from sometimes violent demonstrations, the first world government to fall as a direct result of the global economic crisis.

Analysts have said a minority government of the Social Democrats and the leading opposition party, the Left-Greens, was the most likely outcome of Tuesday's talks.

Former Foreign Minister Gisladottir, the Social Democratic leader once seen as a possible replacement for Haarde, said on Monday she would not seek the job and would take a leave of absence for one or two months.

In announcing her intention to step back from the political turmoil, Gisladottir proposed Social Affairs Minister Johanna Sigurdardottir could be a candidate for prime minister.

The Left-Greens and the Social Democrats disagree on a number of issues including accession to the European Union, which Gisladottir's party supports. The global financial crisis hit Iceland in October, ending a decade of rising prosperity by triggering a collapse in the currency and financial system.

To stay afloat last year, Iceland negotiated a $10 billion aid package crafted by the International Monetary Fund and effectively froze trade in its currency.

Left-Green leader Sigfusson has struck a populist note and has called for negotiations to be reopened with the IMF to make the reforms better suited to Icelandic needs.