REYKJAVIK (Reuters) - Iceland's president has urged party leaders to come up with a plan to form a majority government after talks on building a coalition failed for the third time following the October election and concerns grew that a new vote could be called.
Failure to form a government could delay the gradual lifting of capital controls imposed after the 2008 financial crisis - seen as key by investors to reinserting the economy into global financial markets.
"I reminded the party leaders of their responsibility to reach an agreement on the forming of a government," President Gudni Johannesson said in a statement.
Iceland's anti-establishment Pirate Party became the third party to fail to form a government on Monday after trying to build a center-left coalition with the Left Greens and three other parties.
Previous talks led by the Left Greens and the center-right Independence Party also failed.
"Right now it's free for all negotiations. We are going to pull out a little bit to see how things unfold, if other parties are going to show willingness to move ahead in some direction," Pirate Party leader Birgitta Jonsdottir told Reuters.
One possible step could be talks to form a grand coalition of parties across the political spectrum after the Oct. 29 election, said Gretar Thor Eythorsson, politics professor at the University of Akureyri.
If all else fails, the president could ask the current coalition of the Progressive and Independence parties to continue as a temporary government with new elections next year, Eythorsson said.
"If we would have this kind of minority government and an election maybe in April, that will probably delay some of the issues that I think need be done sooner rather than later, such as capital controls," he said.
Pawel Bartoszek, a member of parliament for the Reform Party that has been part of all three attempts to form a coalition, said he hoped talks would finally succeed.
"I still believe we have a responsibility trying to form a majority before we try different options like new elections," Bartoszek told Reuters.
While a minority government cannot be ruled out, Iceland has no such tradition, unlike some of its Nordic neighbors.
(Reporting by Stine Jacobsen in Oslo, Ragnhildur Sigurdardottir in Reykjavik and Daniel Dickson in Stockholm,; Editing by Alistair Scrutton and Ed Osmond)