Iceland’s former prime minister Geir Haarde has gone on trial for failing to prevent the island nation’s 2008 financial crash, the only global political leader to face prosecution over the wider crisis which engulfed the world economy.
Iceland’s top three banks collapsed in late 2008 after years of debt-fuelled expansion. The country of just 320,000 people was forced to borrow about $10 billion from the International Monetary Fund and other lenders.
The country’s parliament, the Althing, voted in 2010 to prosecute Mr Haarde over the crisis at a special court of impeachment set up in 1905, which has so far never been used. He denies the charges.
“None of us realised at the time that there was something fishy within the banking system itself, as now appears to have been the case,” Mr Haarde told the court yesterday in opening questions from a special prosecutor investigating crimes linked to the crisis.
Many Icelanders blame a small and closely connected group of businessmen, bankers and politicians for the crisis. Mr Haarde, prime minister from 2006 to early 2009, is charged with gross negligence for failing to take proper measures to prepare for an financial crash. He faces up to two years in prison if found guilty.
He is also accused of failing to rein in banks whose balance sheets grew to around nine times the size of the island’s economy in the years leading up to the crisis.
“I believe that we did everything possible to urge the banks to downsize their balance sheets,” said Mr Haarde.
“We believed until the end that saving one of the banks would be sufficient. It wasn’t until the last few days before the collapse that we, or certainly I, realised how interlinked they all were – they were more or less one and the same.”
By then, of course, it was too late. The economy nosedived and the country was forced to impose capital controls to prop up the value of its krona currency.
It also became embroiled in a damaging fight with Britain and the Netherlands over $5 billion of losses suffered by depositors in foreign accounts of Icelandic banks.
The economy has started to recover from the crisis, having borrowed on the international bond markets last year and getting its investment grade back from the ratings agency Fitch in February.