Q&A: Iceland parliamentary elections

Bjarni Benediktsson (l) and Sigmundur Gunnlaugsson (r) both hope to become PM

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Icelanders go to the polls on Saturday in parliamentary elections widely expected to deliver a heavy defeat for the centre-left governing coalition, four years after the country's near-economic collapse propelled it into power.

The two centre-right parties widely blamed for the crisis at the time are seen as likely to form a new coalition, and their leaders are in a two-way race to succeed the social democrat Prime Minister, Johanna Sigurdardottir, who is retiring from politics.

Both parties are Eurosceptic, and their success could halt the government's efforts to secure EU membership.

Who are the main contenders?

Normally Iceland's third party, the liberal, mainly rural-based Progressive Party, has soared in popularity as a result of its strong opposition to the government's plan to use public money to reimburse British depositors for money lost in Iceland's banking collapse. Opinion polls suggest the party could win 25-32% of the vote, up from 15% in 2008.

Its leader, Sigmundur David Gunnlaugsson, 38, is campaigning on a proposal to write off up to 20% of Icelanders' mortgage debts by forcing foreign creditors to waive part of their claims against Iceland's failed banks.

The conservative, free-market Independence Party, which has dominated Icelandic politics since World War II, fell spectacularly from grace in the 2009 election when many voters gave it the blame for the 2008 financial crisis. Then Prime Minister Geir Haarde was tried for his role in the crisis, but was only found guilty of a minor offence.

The party's current leader, lawyer-turned businessman Bjarni Benediktsson, 43, seeks to boost growth by encouraging investment, lowering taxes and lifting the previous government's controversial capital controls. The party is currently hovering at around 20-27% per cent in the polls, close to the 24% it won in 2008.

Opinion polls have the main governing Social Democratic Alliance at around 12%, meaning it could lose well over half the 30% of the vote it won in 2008. Its junior coalition partner, the Left-Green Movement, is polling around 7-9% - a steep drop from 22%.

Another two parties, Bright Future, a pro-European breakaway from the Progressives, and the pro-digital rights Pirate Party, are on about 6-10% each, and could play a role if none of the traditional coalitions win a majority.

Why is the government unpopular?

The widespread disenchantment with the government comes despite something of a turnaround in Iceland's economic fortunes since the banking collapse of 2008-9. The country has seen steady growth in recent years and unemployment has fallen to under 5% from its post-crisis peak of 10% in 2010.

But Icelanders' debt burden is still painfully high, and for the many that have price index-linked mortgages, this has been exacerbated by stubbornly high inflation. Some feel the government has focused on paying back international lenders at the expense of reversing ordinary peoples' fortunes. The government implemented a tough austerity programme to qualify for IMF loans. International capital controls introduced to prevent foreign creditors from withdrawing their money have been blamed for low foreign investment.

What about the EU issue?

Support for joining the EU shot up during the 2008 banking crisis as the EU was seen as a safe haven for Iceland's battered economy. In 2009, parliament narrowly voted in favour of joining, and the government applied for membership, although negotiations have been slow, hampered mainly by the issue of fishing - a key industry for Iceland.

Since then, the eurozone's economic travails and Iceland's own recovery have put a lot of Icelanders off the idea. In any case, Eurosceptics argue, Iceland already gets most of the benefits of full membership through existing free trade arrangements with the EU and by being part the EU's Schengen borderless travel area. The two centre-right parties that are leading the polls oppose EU membership, and the issue even split the governing coalition, adding to its unpopularity.

How does the electoral system work?

Iceland's 63-member parliament - named the Althingi, after Iceland's Viking-era national assembly - is elected by proportional representation, which ensures the number of seats won by each party corresponds to its share of the vote and usually prevents single parties from winning an overall majority.

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