Iceland's economic difficulties became evident in the autumn of 2008 as conditions tightened in the global credit market.
The krona has stabilised since its collapse in October 2008
Icelandic banks owed around six times the country's total Gross Domestic Product (GDP) and when the world's credit markets dried up, they were left unable to refinance loans.
Below is a timeline of events that have led the government to resign:
29 September 2008 - The Icelandic government takes a 75% stake of the country's third-largest bank, Glitnir, after it faces short-term funding problems.
6 October - Trading in Iceland's six biggest financial shares is suspended on the OMX Nordic Exchange Iceland. The government offers an unlimited guarantee for all savers and Iceland's parliament, the Althing, passes emergency legislation enabling the government to intervene extensively in Iceland's financial system.
7 October - Iceland's government takes control of the country's second and third largest banks, Landsbanki and Glitnir.
UK PM Gordon Brown condemned Iceland's handling of the collapse
8 October - Iceland takes control of its biggest bank, Kaupthing, in the wake of the British government's decision to invoke anti-terrorism legislation to freeze the bank's UK-based assets.
9 October - Icelandic Prime Minister Geir Haarde criticises the UK government, saying that he was upset and shocked that it had invoked "hostile" anti-terrorism legislation to freeze Icelandic banks' assets in the UK.
10 October - UK Prime Minister Gordon Brown condemns Iceland's handling of the collapse of its banks and its failure to guarantee British savers' deposits. He says its policies were "effectively illegal" and "completely unacceptable".
15 October - Iceland's central bank cuts the country's interest rate by 3.5% from a record high of 15.5%. A UK-based law firm is hired by the Icelandic government to prepare a lawsuit against the British authorities.
There have been frequent protests against the government since October
17 October - The amount of UK taxpayers' money in failed Icelandic banks edges close to £1bn.
20 October - Iceland's financial authorities formally announce the establishment of new Glitnir, Landsbanki and Kaupthing banks.
28 October - Iceland's central bank raises its key interest rate to 18% from 12%.
20 November - The International Monetary Fund approves a $2.1bn (£1.4bn) loan for Iceland. Iceland becomes the first Western European nation to get an IMF loan since the UK in 1976.
26 November - The annual rate of inflation in Iceland escalates to a record high of 17.1%.
16 December - Prime Minister Haarde tells the BBC he is preparing legal action against the UK over the collapse of the bank, Kaupthing.
18 December - The International Monetary Fund (IMF) says Iceland has taken the first important steps towards restoring financial stability. It says the key objective of stabilising Iceland's currency, the krona, is being met.
PM Geir Haarde resigned three days after calling an early general election
20 January 2009 - The Icelandic finance ministry says the economy is forecast to shrink by 9.6% in 2009 and see no growth in 2010.
21 January - Protesters angry at the economic crisis surround Prime Minister Haarde's car, banging on its windows and pelting it with eggs.
23 January - Prime Minister Haarde calls a general election for 9 May, two years early, adding that he will not stand again because of throat cancer.
26 January - Prime Minister Haarde announces the immediate resignation of the government, following the breakdown of talks with his coalition partner, the Social Democratic Alliance.
31 January - The former opposition Left-Green Movement and the junior partners in the outgoing coalition, the Social Democratic Alliance, say they have secured the necessary backing to form an interim government ahead of a general election on 25 April.
1 February - New Prime Minister Johanna Sigurdardottir sets out her government's plan to rescue Iceland from financial ruin. She says her priority will be to replace the central bank board, which failed to prevent the collapse of the banking system. She also says she will ask a parliamentary committee to look into joining the EU.