What went wrong?
After a two-hour meeting between the leaders of the Pirate Party, Left-Green Movement, Reform Party, Bright Future and Social Democratic Alliance at noon, it became clear that an agreement on a five-party coalition will not be reached and formal talks will not be launched.
Birgitta [Jónsdóttir] explained that the parties had disagreed too strongly on certain issues for a compromise to be achieved, especially in terms of fisheries. - Pirate-Party-Led Coalition Talks Shatter, by Eygló Svala Arnarsdóttir for Iceland Review
It's not for want of trying, to be fair. In October last year the Pirates tried to address the issue of the fisheries by holding an open meeting about it. I'm not sure what the outcome was but if that's still an issue it can only mean that the factions most involved with fisheries either didn't attend the meeting or were overruled by the majority. I can't help wondering whether the fight over fisheries took them by surprise because they thought they'd settled it but all I can do is speculate; I don't speak Icelandic.
The result is that Iceland hasn't got a fully-functional government; the current ruling party has a limited mandate and will continue in that situation until the various parties find a way to work together. Parliament has reconvened in the meantime.
Some of the parties may be able to find a way to form a viable coalition; failing that Iceland may go back to the polls. Whatever happens, I'm disappointed that the Pirates didn't get the chance to shine. They could still do a lot of good as part of a coalition but it seems to me that they're not in a frame of mind to actually lead one.