Iceland closer to joining EU after left-wing victory

On an 85 percent turnout, the governing caretaker coalition of the two left-wing parties won 34 seats in the 63-seat legislature.

The Social Democrats saw a minor last-minute surge, winning 30 percent of the vote, or 20 seats - slightly higher than polls on Friday had predicted, while their partners to their left won 21.5 percent of the vote, or 14 seats, substantially less than the 27.4 percent they had predicted to win.

The centre-right Independence Party, viewed by voters as the architects of the country's economic collapse, saw its support drop to 23 percent, delivering just 16 seats, the lowest result in its history.

"The people of Iceland are settling the score with the past, with the neo-liberalism that has been in power here for too long," said the Social Democratic prime minister Johanna Sigurdardottir after the vote, adding: "There is a demand for a change of values."

Symbolising the shift, the last prime minister, Geir Haarde, drummed out of his job by the self-styled Busahaldabyltingin, or Kitchenware Revolution, in January, was a former central bank economist, while the new prime minister had been an air stewardess and her finance minister and leader of the Left Greens, Steingrimur Sigfusson, a lorry driver.

The two left parties have reportedly enjoyed a good working relationship but are on opposite sides of the question of whether to apply for EU membership.

The Social Democrats believe the crisis, or kreppa, has taught them that their small economy will only be battered again and again if they do not seek the shelter of the 27-country bloc.

Ms Sigurdardottir has said she wants to begin the application process "within weeks" of the election.

The Left Greens, for their part, say the EU is too undemocratic and "neo-liberal", the very ideology, they say, that caused the crisis in the first place. They also fear loss of control over the country's natural resources.

The Independence party meanwhile has traditionally opposed EU membership as well, but analysts believe that this uncompromising stance has lost it the support of sections of the business community who agree with the new prime minister that there is no alternative to beginning negotiations with Brussels.

The EU itself has said that it would be happy to see the north Atlantic nation apply. The application would proceed rapidly, as the country already applies some 75 percent of EU legislation through its existing membership in The European Economic Area (EEA) along with Liechtenstein and Norway.

Tough bargaining over Iceland's pristine fisheries is expected to be a major point of division - with 2011 expected to be the earliest possible date of admission.

Ahead of the elections, analysts puzzled over how such a major split at the heart of the governing coalition could be resolved.

However, taking into account the minor parties, the final seat tally shows a strong majority in favour of the EU.

The centrist Progressive Party, which recently changed its position and now backs applying for EU membership, won nine seats, and the Citizens' Movement, which grew out of the protests that led to the government resigning and also supports such a move, won four, giving the pro-EU fraction in the parliament a total of 33 seats.

The current coalition is unlikely to break up over the issue, but the Social Democrats have been given a clear mandate for negotiations.

Indeed, after the vote, the Left Green leader hinted that his party would be open to the launch of accession talks in order to maintain their relations with the Social Democrats.

The two parties however both back returning to the voters with a referendum on the issue ahead of any formal application.