Iceland left set for poll win amid economic crisis

By Patrick Lannin

REYKJAVIK (Reuters) - Iceland's centre-left parties were heading for victory in an election on Saturday after protests over the country's economic meltdown toppled the previous conservative-led government.

A projection on state television RUV from initial results of the voting, which ended at 2200 GMT, showed the Social Democrat/Left-Green caretaker government that stepped in after the old administration fell would win 35-36 seats, a majority in the 63-seat parliament.

"There is good reason to smile. If this will be the result, it is a historic victory," said Prime Minister Johanna Sigurdardottir, the 66-year-old leader of the Social Democratic Alliance.

Voters looked to have punished the centre-right Independence Party, which led the previous coalition government. That administration collapsed in January, widely blamed for last year's crisis in which Iceland's economy imploded as its banks collapsed under the weight of vast debts.

The television projection gave the Independence Party 15 seats, down from 25 at the last election in 2007.

Though heading for a parliamentary majority, the new government faces tough decisions to cut spending, raise revenues and find ways to reduce surging unemployment.

EU QUESTION

The parties also have to find a compromise between their differing views on the European Union in order to start membership talks and later hold a referendum.