Iceland's interim leftist government won a resounding victory in this weekend's general election as voters punished the conservatives they blame for the country's economic meltdown seven months ago.
Prime Minister Johanna Sigurdardottir says Saturday's election was "historic"
The conservative Independence Party, in power for 18 years until it resigned in January amid massive protests over the financial crisis that brought Iceland to the brink of bankruptcy, posted its worst-ever election score.
"We lost this time but we will win again later," party leader Bjarni Benediktsson said, conceding defeat having garnered just 23.6 percent of votes, far below the conservatives' previous all-time low of 27 percent in 1987.
Prime Minister Johanna Sigurdardottir of the pro-EU Social Democratic Party will now have to try to reach an agreement with its eurosceptic coalition partner, the Left Green Movement, on European Union membership.
The Social Democrats were credited with 30.3 percent of votes and the Left Greens with 21.7 percent, according to official estimates with 90 percent of ballots counted.
Those numbers would give the coalition an absolute majority of 52 percent, a first for a left-wing government.
The Independence Party was in power in the early 1990s when the financial markets were deregulated, and has been held accountable for the current crisis which has seen thousands of people lose their jobs and their savings.
Benediktsson admitted he got the voters' message.
"It has been clear that we have lost trust and we are just beginning to gain that back," he said.
Iceland was one of the most prosperous countries in the world until late last year, when the global financial crisis led to the collapse of its oversized financial sector and had a devastating impact.
The state had to take control of the country's three major banks in October, as the local currency, the Icelandic krona, lost 44 percent of its value.
Unemployment, which was virtually non-existent before the crisis, is expected to hit 10 percent by the end of this year as the economy shrinks by 10 percent, and inflation is currently hovering around 15 percent.
The country received a $2.1-billion (1.58-billion-euro) bailout from the International Monetary Fund in November, and some early signs of a recovery have been observed.
Sigurdardottir is a fierce advocate of joining the European Union quickly and adopting the euro, arguing that doing so would shelter the Nordic island nation of 320,000 people from global turbulence.
"If we apply immediately for EU membership we will be able to adopt the euro within four years," she said Saturday before polls closed, adding that Iceland "already meets 70 to 75 percent of EU criteria."
As the election results came in, she said: "This is a clear message that people want us to start thinking about the EU."
Yet her coalition partners, the Left Greens, are opposed to EU membership.
They have nonetheless insisted on the need for a debate on the issue which deeply divides Iceland amid fears that Brussels would interfere with its large fishing industry.
The fishing sector -- accounting for 36.6 percent of exports in 2008, second only to the aluminium industry -- is seen as crucial to Iceland's economic recovery.
Despite their opposing EU views, the Social Democrats and Left Greens insisted their coalition would continue, but they have not yet explained how they plan to overcome their differences.
Sigurdardottir said an absolute majority for her coalition, if confirmed, would be "historic".
"If this is the result, these will be historic elections, as this is the first time that leftist parties will hold a majority."
Meanwhile, a party formed at the height of the economic collapse and which has pushed for democratic reforms, the Civil Movement, looked set to enter parliament, credited with 7.2 percent of votes.