Touchés par la crise, les Islandais se rendent aux urnes en gardant l’UE à l’esprit[en] 

Iceland was hit severely by the economic downturn. Iceland's banking-sector assets had grown from about 96% of GDP in 2000 to about 800% by the end of 2006, and were worth around 10 times its GDP on the eve of the crisis. 

Iceland's centre-right government collapsed in January following the country's bankruptcy as a result of the global financial turmoil (EurActiv 30/01/09). Since then, the country has been governed by a centre-left coalition under interim Prime Minister Johanna Sigurdardottir. 

Last year, Iceland agreed a $10 billion rescue package led by the International Monetary Fund (IMF), and in January popular anger at the ruling Independence Party's handling of the economy led to street protests which toppled the conservative government. 

The Social Democrats and the Left-Green Party took power in a centre-left alliance, which is expected to win a big victory in the weekend vote and get a parliamentary majority. 

Rising unemployment

The unemployment rate rose to 8.9% in March and is expected to rise further. 

"The highest unemployment we have seen before was in 1967, when there was about 7% unemployment, the normal rate is about 1, 2, 3%," said University of Iceland politics professor Gunnar Helgi Kristinsson. 

The centre-left government has promised measures to create jobs, but tough financial decisions await it. 

Under the terms of the IMF programme, it has to reduce a budget deficit that will balloon to 13.5% of gross domestic product (GDP) this year. The IMF has also forecast that GDP itself will fall by nearly 10% in 2009. 

Iceland also has to negotiate with creditors to restructure the collapsed bank system, which left a heap of debts. 

Analysts expect the government to have to raise taxes and cut spending, partly by reducing public sector wages. 

"The general feeling is that we are in the midst of a crisis [...] the budget next year is going to see some severe cuts," said Kristinsson. "We have a year, at least a year, of great difficulties ahead of us and most of us accept that, I suppose." 

The government has taken steps to soften the impact of the falling crown, which has raised the cost of the foreign-currency loans taken out by tens of thousands of Icelanders. Many fear the crown will fall further, making it even harder to service debt. 

EU question

The now disgraced Independence Party has suggested Iceland unilaterally adopt the euro to replace the bedraggled crown. 

The government disagrees with such a move, but the issue with which the Social Democrats and Left-Greens will have to grapple is how to approach European Union entry talks, an question which the crisis has brought to the fore. 

The Social Democrats are the only party openly advocating EU membership. The Left-Greens have traditionally opposed it, but have said they would be open to the idea of a referendum. 

Commentators say the parties will have to find a compromise to take this question forward after the election. 

"I think the next government will apply for membership and then we will have a referendum," said Einar Mar Thorvarsson, a political science research assistant at the University of Iceland. 

The result of a referendum is not clear: polls show Icelanders are split, with many fearing a loss of sovereignty and less control of rich fishing stocks, which are of huge importance in a nation heavily dependent on fishing. 

"People are worried about the immediate future, though they see the future in the long term is bright," said Olafur Isleifsson, assistant economics professor at the University of Reykjavik. "The problem is knowing how much water has to go under the bridge before we get to that future." 

(EurActiv with Reuters).