Iceland protests grow, premier vows to stay on

(Adds PM saying coalition holding, adds comment)

REYKJAVIK, Jan 21 (Reuters) - Angry protesters stepped up calls for a new Icelandic government on Wednesday and the country's prime minister said he had the support of his coalition partner.

Iceland Prime Minister Geir Haarde, speaking after his limousine had been pelted with eggs and cans by a crowd of demonstrators, said the government was "fully functional".

The government is coming under fierce pressure from Icelanders who are frustrated by the handling of a financial crisis that has wreaked havoc with the island's economy. Opposition politicians and demonstrators have called for Haarde and other senior officials to resign.

"The government is still fully functional and the coalition parties are going to continue their cooperation as confirmed to me today by Ingibjorg Gisladottir," he told journalists after meeting with lawmakers from his Independence Party.

Foreign Minister Gisladottir is head of the Social Democratic Alliance, which forms a coalition government with the Independence Party. Asked if there were plans for new general elections to be called during the spring, Haarde said:

"The Independence Party is always ready for an election."

Protests against the government and the central bank have become regular fixtures in the once-tranquil capital since the currency fell sharply and the financial system collapsed in October due to billions of dollars of foreign debt incurred by banks.

Footage on the Web site of Icelandic television channel RUV showed protesters surrounding Haarde's black limousine outside the government building in the centre of the capital Reykjavik.

Protesters first banged on the car with cans and then threw eggs at it before a bodyguard and police pushed them away.

The vehicle managed to drive away after riot police arrived.

"He was, I shouldn't say attacked, but there were some demonstrators who came quite close to him and they didn't look all that peaceful," said Haarde's press secretary, Kristjan Kristjansson.

"This happened in a parking place behind his office, he got into his car, and the police arrived and secured his car, and paved a way through the crowd for him to leave."

Chief police inspector Johann Thorisson said demonstrators had thrown eggs and snowballs at the prime minister's car, but that he had not been physically attacked.


The protest left the government building splattered with eggs and paint. The demonstrators then moved off to parliament, where on Tuesday protesters clashed with police, who used pepper spray and batons to drive them back.

By evening about 3,000 protesters had gathered to face riot police surrounding the Althing, hurling fire crackers at the building and chanting "disqualified government".

One demonstrator scaled the face of the parliament building, reaching a balcony from which he hung a sign reading "Treason due to recklessness is still treason".

Reykjavik police chief Geir Jon Thorisson said no arrests had been made at the demonstrations. "We are trying to give people the means to protest peacefully and we will avoid using force, as long as possible," Thorisson said.

The volcanic island's economy is expected to suffer a huge contraction this year while unemployment, once close to zero, is set to soar.

"People feel that it is incredible that after such a policy disaster that we faced last year, there has been no resignation, no minister, no one has resigned or responded, or taken responsibility for what happened," said Gunnar Helgi Kristinsson, political scientist at the University of Iceland.

Kristinsson said there was a substantial likelihood that the government would not survive the coming two weeks.

"I think it is more likely than not. It could happen today, next week or the weekend at the end of the month, especially since the Independence Party convention will be held next weekend," he said.

Haarde's Independence Party is due to begin a national congress of its members on Jan. 29 to discuss issues which include revisiting the party's long-standing opposition to Iceland seeking membership in the European Union. (Reporting by Omar R Valdimarsson; additional reporting by Patrick Lannin in Riga, Victoria Klesty in Stockholm and Wojciech Moskwa in Oslo; Writing by Niklas Pollard; Editing by Louise Ireland)