Iceland ex-PM faces possible charges in meltdown

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http://news.yahoo.com/s/ap/20100928/ap_on_re_eu/eu_iceland_banking_crisis

Iceland ex-PM faces possible charges in meltdown

By GUDJON HELGASON and PAISLEY DODDS, Associated Press Writer Gudjon Helgason

And Paisley Dodds, Associated Press Writer – Tue Sep 28, 6:35 pm ET

REYKJAVIK, Iceland – Iceland's former Prime Minister Geir Haarde has been

referred to a special court in a move that could make him the first world leader

to be charged in connection with the global financial crisis.

After a heated debate Tuesday, lawmakers voted 33-30 to refer charges to the

court against Haarde for allegedly failing to prevent Iceland's 2008 financial

crash — a crisis that sparked protests, toppled the government and brought the

economy to a standstill by collapsing its currency.

Haarde faces up to two years in jail if found guilty. The court, which could

dismiss the charges, has never before convened in Iceland's history. A hearing

date has not yet been set.

Haarde, ex-leader of the Independence Party, is no longer in parliament and

stepped down from office last year following widespread protests and treatment

for esophageal cancer.

" I will answer all charges before the court and I will be vindicated. " Haarde,

59, told the Icelandic Broadcaster RUV. " I have a clean slate. This charge

borders on political persecution. "

Iceland, a volcanic island with a population of just 320,000, went from economic

wunderkind to fiscal basket case almost overnight when the credit crunch took

hold.

After dizzying economic growth that saw banks and companies in this tiny Nordic

nation snap up assets around the world for a decade, the global financial crisis

wreaked political and economic havoc in Iceland. Its banks collapsed in October

2008.

Unemployment has soared since then and the country has lurched from crisis to

crisis.

In April, an eruption at Iceland's Eyjafjallajokull volcano triggered a giant

ash cloud that disrupted global air travel for weeks and later restricted travel

to and from the island nation.

In the same month, a report into the banking collapse accused Haarde and the

central bank chief of acting with " gross negligence " in allowing the financial

sector to overheat without adequate oversight.

The 2,300-page government-commissioned report detailed a litany of mistakes made

in the lead-up to the bank meltdown.

Pall Hreinsson, the supreme court judge appointed to head the Special

Investigation Commission that issued the report, singled out seven former

officials including Haarde and central bank chief Oddsson for particular

criticism.

No other officials besides Haarde were referred for prosecution to the court on

Tuesday. Lawmakers decided Tuesday not to charge three other former ministers,

which angered some who felt the blame extended beyond Haarde.

" You could say that all of the four former ministers should have been charged or

none at all, " says Thorkell Sigvaldason, 35, a university student. " But on the

other hand, Geir Haarde was the leader and sometimes they have to pay for the

mistakes of their men. "

Teacher Bragi Johannnsson, 41, agreed that all four should face charges. He said

the laws are too lenient and must be toughened.

" I think there is a need for reform on the laws on politicians, " he said.

Haarde has blamed the banks in the past, and said he felt government officials

and regulatory authorities tried their best to prevent the crisis.

The report found that the country's three leading banks — Glitnir, Kaupthing and

Landsbanki — got too big and overwhelmed the financial system when they ran into

trouble with excessive risk-taking.

By the time the banks dropped in a domino-like sequence within a week of one

another in October 2008, the banking sector had grown to dwarf the rest of the

economy by around nine times.

In one major blunder detailed in the report, staff at the Icelandic central bank

forgot to extend a $500 million loan agreement, reached in March 2008, with the

Bank of International Settlements in Basel, Switzerland. A belated attempt to

receive an extension was not granted by the international bank.

The report said that it was a key error at a time when few things were more

important than building up Iceland's foreign currency reserves.

The central bank then turned to the Bank of England in April 2008, seeking a

currency swap agreement. Mervyn King, the British central bank's governor,

refused, but offered to help Iceland to reduce the size and burden of its

banking sector. Iceland rejected the offer at the time.

Before Haarde was prime minister, he also held the posts of finance minister and

foreign minister.

The special court will consist of 15 members — five supreme court justices, a

district court president, a constitutional law professor and eight people chosen

by parliament every six years.