Iceland's commerce minister, Bjorgvin Sigurdsson, stepped down Sunday (25 January), just three days after prime minister Geir Haarde said he would not be seeking re-appointment while simultaneously calling for early elections in May.
The north Atlantic island has witnessed rolling protests in recent weeks as angry citizens demanded the government resign over the country's failing economy sparked by a collapse of the nation's banks last October.
Mr. Sigurdsson is the first top-level official to resign as a result of the crisis, creating doubts as to whether the government will last until May.
"I realised last night that for me at least there is no going back, the anger and distrust of the public is too deep for me to be able to regain their trust," Mr. Sigurdsson said.
Despite citing poor health as the main reason the prime minister will not seek re-election, most believe the economic situation was instrumental in Mr. Haarde's announcement.
Speaking to reporters over the weekend, Mr. Haarde said he believed the current situation would get worse if the current government did not continue until May.
EU doubts over bail-out plans
As Iceland comes to terms with the news, the Financial Times Deutschland newspaper reports Monday that the EU is concerned that member state bank bail-outs will fail to achieve the desired effect.
Referring to an internal analysis paper prepared by the Czech EU presidency, the newspaper notes that EU officials are concerned that money given to the banks is not being leant to businesses to get the economy moving again.
EU monetary affairs commissioner Joaquin Almunia reportedly wants national governments to put pressure on credit institutions to begin lending again.
In a further sign that credit is not getting through to businesses, the French government is to provide €5 billion directly in credit guarantees to aeroplane manufacturers Airbus, as the company's clients fail to secure the funding needed for new orders.
Under the deal, the Societe Financement de l'Economie FranÃ§aise, which was set up in November to stabilise the banking system, will provide an extra €5 billion in state guarantees to French banks, which in turn will provide the money to businesses.
Only last week, the French government offered €6 billion to the state's ailing car industry.
Britain enters recession
Meanwhile, the Office for National Statistics in Britain announced last Friday that the country was officially in recession, as new data showed negative growth for the fourth quarter of 2008, making it two in a row.
The data shows that the British economy shrank by 1.5 percent in the last three months of 2008, a bigger drop than economists had predicted. Growth contracted by 0.6 percent in the preceding three-month period.
The news of the first British recession since 1991 has increased pressure on Prime Minister Gordon Brown to sort out the country's economic problems.
A second bank rescue package announced last week failed to arrest a fall in share prices as investors fear a collapse in the country's banking system similar to that in Iceland.
Announcing an interim economic report last week, the EU's economy commissioner, Joaquin Almunia, said he considered Britain's financial sector to be one of the most exposed to the credit shortage.
Separately, record numbers of world leaders and business executives are to meet this week in the Swiss town of Davos where the World Economic Forum will start on Wednesday. The crisis will undoubtedly be the main topic of discussion.
The optimistic title for this year's event is "Shaping a post-crisis world".
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