The trial has started of Iceland’s former prime minister Geir Haarde. He is accused of failing to take measures to prevent the financial crash in 2008 that meant the country needed a 10 billion euro IMF bailout.
He is also accused of failing to rein in Iceland’s top three banks which went bust after years of debt-fuelled expansion.
Trevor Williams, Chief Economist at Lloyds Bank Corporate Markets, explained the problem: “They borrowed heavily. Internationally flows of money into Iceland were huge, they used that money to leverage, they bought a lot of assets overseas, these assets fell dramatically in value, which meant that they couldn’t cover their liabilities so they were effectively insolvent and bankrupt.”
Haarde denies the charges and told the court: “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.”
He blamed the banks — whose balance sheets grew to around nine times the size of Iceland’s economy —saying the government did not fully understand how much debt they had and officials and regulatory authorities tried their best to prevent the crisis. He added: “My conscience is clear.”
Haarde is the only political leader in the world to face prosecution over the crisis. He faces up to two years in prison if found guilty.
Top executives Iceland’s Kaupthing Bank were recently charged with fraud and market manipulation.