By Jenna Gottlieb and Jill LawlessREYKJAVIK, Iceland -- Five years after Iceland's economic collapse, early returns signaled that austerity-weary voters are favoring the return of a center-right, euroskeptic government, widely blamed for the nation's financial woes. Icelanders appeared to be opting for the Progressive and Independence parties, who are promising to ease Icelanders' economic pain, shunning the Social Democrat-led coalition that has spent the last four years trying to turn the country around after the crash. Iceland's economic recovery has been hard and uneven, and many voters appear to have been swayed by the center-right parties' promises of tax cuts and mortgage relief. With 33% of the vote counted, according to Icelandic television network RUV, the Independence Party would have 20 seats; the Progressive Party 19 seats; the Left-Greens 9 seats; the Social Democrats 9 seats; and Bright Future 6 seats. "We are very happy, we are very grateful for the support that we see in the numbers," said Independence Party leader Bjarni Benediktsson. The likely shift to the right following Saturday's parliamentary election would almost certainly shelve Iceland's plans to join the European Union, with which it has begun accession talks. Both the Progressives and Independents oppose joining the 27-nation bloc. Progressive Party chief Sigmundur David Gunnlaugsson and Benediktsson were the two most likely candidates for prime minister under the system of proportional representation used for elections to Iceland's 63-seat parliament, the Althingi. The two parties governed Iceland for several decades, often in coalition, overseeing economic liberalization that spurred a banking and business boom -- until Iceland's economy crashed spectacularly during the 2008 credit crisis. A volcano-dotted North Atlantic nation with a population of just 320,000, Iceland went from economic wunderkind to financial basket case almost overnight when its main commercial banks collapsed within a week of one another.
The value of the country's currency plummeted, while inflation and unemployment soared. Iceland was forced to seek bailouts from Europe and the International Monetary Fund.Despite being widely blamed for the meltdown, the Independents and Progressives say they are now best placed to lead the economic recovery. The Progressives are promising to write off some mortgage debt, taking money from foreign creditors. Benediktsson's Independence Party is offering lower taxes and the lifting of capital controls that he says are hindering foreign investment. Voters "were introduced to a plan that would bring us quicker out of the crisis than has been the reality," said Benediktsson. "People are now looking forward and asking themselves... what kind of a plan is the most likely one to bring more growth, more job creation, to close the budget deficit, and have Iceland grow into the future?," he said. Whatever the final outcome, 70-year-old outgoing Prime Minister Johanna Sigurdardottir has said she will retire from politics after the election. Iceland's first female -- and first openly gay -- prime minister, she was elected as head of a center-left alliance in 2009 on a wave of public disgust at the previous administration. Since then, Iceland has in many ways made a strong recovery. Unemployment has fallen and the economy is growing. But inflation remains naggingly high, and many Icelanders still struggle to repay home and car loans they took out -- often in foreign currencies whose value soared after the crash -- in the years of easy credit. Some accuse the government of caving in to international pressure to compensate Britain and the Netherlands for their citizens' lost deposits in the failed online bank Icesave. Icelanders have twice rejected repayment deals agreed to by Sigurdardottir's government. "The government that many people thought was cleaning up the mess is getting severely punished for the last four years," said journalist and political analyst Egill Helgason. "I don't know whether they deserve it. In many ways I think not. But this is politics -- cruel."
Some voters say the outgoing government did as good a job as could be expected."We cannot forget that everything collapsed here and still health care, schools and society in general functions better than in most countries", said Jon Gunnar Bjornsson, an operations manager of one of Iceland's new, post-crisis banks. "We still retain ownership of hospitals, the road system and the utility companies. I'm not sure we could have expected more. "But still people are unhappy and want someone to take their debt away and shower them with golden fairy dust." Full results are expected early Sunday. ___ Lawless reported from London. Associated Press writer David Mac Dougall in Reykjavik contributed to this report.