Iceland's centre-right coalition partners, rewarded by voters after four years of strong growth, agreed yesterday to discuss forming a new government after retaining a majority in Saturday's election.
The Prime Minister, Mr David Oddsson, and the Foreign Minister, Mr Halldor Asgrimsson, leaders of the two government parties, said they would meet possibly today for negotiations after voters accepted their promise of continuing stability and prosperity, refusal to make lavish spending promises and hints that taxes could be cut.
Party leaders met briefly yesterday for preliminary talks and for a television discussion. While it was not a foregone conclusion that Mr Oddsson and Mr Asgrimsson would form a new government, it should be easy to reach a deal as they already agree on most policies. With the government retaining a majority, it is under no pressure to move quickly.
Talks will also involve reshuffling the cabinet to reflect the greater strength of Mr Oddsson's party and the poorer showing of Mr Asgrimsson's, to bring in more women ministers and to replace the Fisheries Minister, Mr Thorsteinn Palsson, who is leaving politics.
Final results on the state broadcaster RUV showed Mr Oddsson's Independence Party, already the biggest in Iceland's ancient parliament, increasing its members to 26 in the 63-seat Althing from 25 in the last election in 1995.
Its share of the vote, in which 84 per cent of the 201,525 eligible electors took part, rose to 40.7 from 37.1 per cent.
Mr Asgrimsson's Progressive Party dropped to 12 from 15 seats and its share of the vote fell to 18.4 from 23.3 per cent.
The Progressives, a centrist party with strong support in rural areas, found themselves squeezed between Mr Oddsson's conservative Independents and the leftwing opposition alliance.
The coalition lost two seats to the Liberals, set up by a former minister in protest over the way fishing quotas are issued.
The present system allocates lucrative tradeable quotas, free of charge, to people on the basis of past fishing activity.