Senior figures in Iceland have thrown their weight behind Geir Haarde, the country’s former prime minister, in the second day of a high-profile trial into alleged negligence in the handling of the 2008 banking crash.
Mr Haarde is thought to be the first politician in the world to face a criminal trial in connection with the global financial crisis and faces up to two years in jail if found guilty. He is effectively charged with doing to too little to protect the country from an overheated banking system in the run-up to 2008.
But on the first day of outside testimonies David Oddsson, who was head of the central bank at the time of the crisis and now edits a large national newspaper, said that no one could have foreseen the collapse of the banking sector.
“It came out of the blue when the banks fell,” he said, making similar arguments to those of Mr Haarde, who gave evidence on Monday. Mr Haarde said in the previous court session: “Nobody predicted that there would be a financial collapse in Iceland’’ in 2008.
Another witness called on Tuesday was Björgvin Sigurðsson, the former commerce minister, who also defended the government by saying that they had been on high alert at the time of the crisis, and that several courses of action had been prepared.
Mr Haarde was the prime minister during the pre-crisis boom years when the country’s banking sector ballooned to 10 times the size of gross domestic product, measured by assets. He was ousted from power after its three biggest banks collapsed in October 2008, leaving Iceland with immense debt and a deep recession.
Critics of the trial in Iceland question why parliament, now controlled by centre-left parties, voted to indict Mr Haarde in 2010 while rejecting charges against Social Democratic ministers who were serving in government at the same time.
Others argue that no one person could be responsible for an event as complicated as the financial crisis. “The people are not screaming out to punish this man,” said Stefán Ólafsson a professor at the University of Iceland, talking about the mood in the country this week. “But many people are hoping that the trial will provide more information about what went wrong.”
All of the witnesses called to the Landsdómur, a special court set up in 1905 to hear cases against elected officials, said that there had been many warning signs in the run-up to the crisis that in retrospect should have been heeded.
Arnór Sighvatsson, who was a member of the financial stability joint committee before the crash, said that already in 2005 the banks were in danger of facing liquidity problems should the capital markets dry up. Mr Sigurðsson said that the situation in 2008 was so bad that “bankers feared that one little article in a British paper could have caused a bank to fall”.
The trial is part of broader Icelandic efforts to hold people accountable for the country’s economic problems in 2008, with a parallel investigation under way into suspected criminal wrongdoing in the banking sector. Last month the former chief executive and chairman of failed lender Kaupthing Bank were formally indicted on charges of fraud and market manipulation.
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