Authorities in Iceland began the trial of Geir Haarde, former prime minister of Iceland, for his alleged failure to prevent financial crash of 2008. He is the only global political leader to face prosecution for failing to prevent a 2008 financial crash and is being alleged of playing a major role in the decline of the country’s economy.
The top three Icelandic banks collapsed due to debt fuelled expansions in late 2008. The north Atlantic nation, with a population of just under 320,000 people, borrowed around $10 billion from the International Monetary Fund and other lenders after the financial meltdown.
In 2010, the Icelandic parliament voted to prosecute Haarde at the court of impeachment for his role in the crisis. However, Haarde denied the charges and has vowed to defend him in the court of law. “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,” Haarde told in his opening statement to the court. Special prosecutors are investigating crimes linked to the crisis.
Icelanders are blaming a clique of businessmen, politicians and bankers for engineering the unprecedented financial crisis. Haarde faces accusations of being guilty of failing to take proper measures to impede the 2008 financial crash while being in power as the prime minister from 2006 to early 2009. He is accused of overlooking banks which inflated balance sheets as much as nine times the size of the island’s economy, resulting into total collapse of the banking system.
“I believe that we did everything possible to urge the banks to downsize their balance sheets,” said Haarde.
Lehman Brothers froze the access of Icelandic banks to funds which led to the collapse and resulted into the takeover by the state. Iceland somehow managed to protect its domestic operations yet let their international operations to bankruptcy.
“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,” Haarde said.
“By then, of course, it was too late.”
The economy crashed and the country was enforced to impose capital controls to prop up the value of its krona currency. Thousands of British and Dutch depositors suffered heavy losses of around $5 billion when their savings in Icelandic banks vanished.
Iceland’s banking institutions made a come back after borrowing on the international bond markets and getting its investment grade back from Fitch in February.
Top executives at Kaupthing Bank have been prosecuted on fraud charges in February.
Prosecutors insist the government had the major role and duty to prevent the banks from becoming too big to save in the event of a crisis and handing the burden of their debts onto taxpayers.