REYKJAVIK (Reuters) - Social Democrat Prime Minister Johanna Sigurdardottir swept to victory in Iceland's election on Sunday after street protests over an economic meltdown toppled the previous conservative-led government.
Though having won a small, but outright, majority, her new centre-left coalition government needs to overcome disagreements about entering the European Union and decide how to cut spending and raise revenues to get state finances back in order.
"Our time has come!" Sigurdardottir, 66-year-old leader of the Social Democratic Alliance, told cheering supporters early on Sunday.
With all votes counted, results given by daily newspaper Morgunbladid on its website showed the Social Democrat and Left-Green caretaker government, which came in after the old administration fell, had won 34 seats.
This gives it a majority of 3 in the 63-seat parliament.
The Social Democrats won 20 seats from Saturday's election and the Left Greens 14.
Sigurdardottir said the vote, held two years ahead of schedule, would mark the first time since the Icelandic Republic was founded in 1944 that left-of-centre parties had won a majority.
The election showed the depth of anger at the long-ruling Independence Party, which oversaw Iceland's boom years but was blamed for the economic crisis that erupted last year when banks collapsed under a weight of vast debts.
TOUGH DECISIONS AHEAD
It had its worst election and fell to 16 seats from 25 at the last election in 2007.
Icelanders took to the streets in January after their banks buckled under debt that was used to fuel aggressive overseas expansion into financial services.
The economy went into meltdown and Iceland's currency plummeted, forcing the government to agree a $10 billion IMF-led rescue for the nation of 300,000.
Iceland still expects the economy to contract by more than 10 percent this year and inflation was 15.2 percent in March.
Left-Green leader Steingrimur Sigfusson, finance minister in the caretaker government, said informal talks with the Social Democratic Alliance on a new government would be held on Sunday and then expected more serious negotiations later.
A key issue will be finding a compromise between the Left-Greens anti-EU stance and Sigurdardottir's desire to get entry talks with the bloc underway quickly.
Sigurdardottir, who is convinced she can find such a compromise, has said Iceland should quickly start talks and then hold a referendum. She also wants to adopt the euro and says this could be possible within 4 years.
Sigfusson also told Reuters he was optimistic a solution could be found. However, opinion polls show Icelanders remain split on EU entry. Sigurdardottir has said that once they have understood the benefits they would back entry.
A new party, formed from the grassroots movement that led the protests, was set to win 4 seats, a TV projection showed.
(Additional reporting by Omar Valdirmarsson)
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