Haarde Brands His Indictment `Absurd,' Blames Banks for Iceland's Crisis

Iceland’s former Prime Minister Geir H. Haarde, the first government leader to be indicted for economic mismanagement during the financial crisis, said he is the victim of political revenge and blamed the island’s banks for the collapse.

Haarde called the charges “absurd” and predicted he will be “vindicated at the end of the day,” in an interview with Bloomberg Television’s Mark Crumpton yesterday. “The crisis was not due to political decisions. It was partly the banks’ own doing.” While “political mistakes were made,” the charges are a case of “political opponents settling scores.”

The 2008 banking failure forced the island, the world’s fifth-richest per capita a year earlier, to turn to the International Monetary Fund for help and sent the krona plunging as much as 80 percent against the euro in the offshore market. Lawmakers had been debating the issue of whether to move against individual political leaders since a parliamentary committee on Sept. 11 recommended the four be charged for “negligence.”

Parliament voted 33 to 30 to charge Haarde in Reykjavik on Sept. 28. Lawmakers decided not to charge former Finance Minister Arni M. Mathiesen, former Business Minister Bjorgvin G. Sigurdsson and former Foreign Minister Ingibjorg Solrun Gisladottir. The indictment is the first time a special court set up in 1905 to hear such cases will be convened.

‘Violations’

Haarde, 59, who was prime minister from 2006 until the beginning of 2009, must be held responsible for “violations committed from February 2008 through the beginning of October of the same year, by intent or gross neglect, mostly violations against the laws of ministerial responsibility” as well as breaches of the penal code, the committee of nine lawmakers said. The same charges were brought against the other three.

Haarde said “everyone was aware” the island’s banks grew too big and neither the government nor the central bank foresaw the economic collapse. Still, he said, “hindsight shows many things could have been done differently” though bringing charges against him will set a “terrible precedent.”

The government of Prime Minister Johanna Sigurdardottir, in office since January last year, is struggling to rebuild the crippled economy as Icelanders come to terms with spiralling debt burdens and real incomes reduced by 20.3 percent last year.

The committee was appointed after a separate commission investigating the causes of the 2008 crisis in April found that the government, central bank and financial regulator had all failed to address some of the factors that exacerbated the collapse.

Oddsson

The commission had suggested previous central bank governor David Oddsson as well as former head of the Financial Supervisory Authority Jonas Fr. Jonsson acted negligently in the years leading up to the meltdown, according to the April report.

Jonsson and Oddsson, who now runs the country’s second- biggest newspaper Morgunbladid, escaped legal action when the state prosecutor said in June the Special Investigation Commission’s findings didn’t warrant a criminal probe.

Oddsson was head of government from 1991 until 2004, making him Iceland’s longest-serving Prime Minister and the principal architect of the privatization of the island’s banks. Haarde served as Finance Minister from 1998 until 2005.

The commission alleged that Haarde, Sigurdsson and Mathiesen didn’t exert enough pressure on the banks to shrink their balance sheets after they amassed debts equivalent to 10 times Iceland’s economic output, a development the commission said was key in fuelling the financial collapse.

$86 Billion

Kaupthing Bank hf, Landsbanki Islands hf and Glitnir Bank hf all collapsed within weeks of each other in October 2008 after they were unable to secure enough short-term funds to continue their operations. The state was forced to step in and take control of the domestic assets to create new local units. The banks’ failures left creditors trying to recoup a total of $86 billion.

The committee had also recommended the former ministers be charged for failing to ensure that Landsbanki created a U.K. subsidiary when selling its Icesave accounts there -- a measure that would have forced the British government to cover depositor claims, it said.

Iceland’s government has yet to settle a dispute with the U.K. and Dutch over how to settle $5.1 billion in depositor funds stemming from the failure of Landsbanki.

To contact the reporter on this story: Omar R. Valdimarsson in Reykjavik valdimarsson@bloomberg.net

To contact the editor responsible for this story: Tasneem Brogger at tbrogger@bloomberg.net

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