In These New Times

Bloomberg

12th September, 2010

Iceland’s parliament must decide whether to charge leading members of the country’s 2008 cabinet with negligence that contributed to the island’s banking collapse after a committee recommended they be indicted.

The parliamentary committee will ask the Reykjavik-based legislature to indict former Prime Minister Geir H. Haarde, former Foreign Minister Ingibjorg Solrun Gisladottir, former Finance Minister Arni M. Mathiesen and former Business Minister Bjorgvin G. Sigurdsson, according to a written motion delivered to lawmakers yesterday. Should parliament vote in favor of indictment, it will be the first time a special court created in 1905 to oversee such cases will be convened.

The 2008 banking collapse 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. 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 incomes reduced by a fifth last year.

Parliament may reach a decision on the indictments within days, Sigurdardottir told reporters in Reykjavik yesterday.

The recommendation to charge Haarde, who was prime minister from 2006 until the beginning of 2009, was based on “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 Icelandic penal code, the committee said.

Bank Debts

Bjarni Benediktsson, chairman of Haarde’s Independence Party and leader of the opposition bloc, told reporters his lawmakers will vote against any motion to sue the four ministers. Haarde stepped down in 2009 following mass protests calling for the government to resign as the full extent of the banking crisis became apparent.

The committee of nine lawmakers was appointed in April after a separate commission investigating the causes of the 2008 crisis found that the then government, central bank and financial regulator had all been “negligent” in their failure to address some of the factors that exacerbated the collapse.

The commission alleges 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.

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 wondering how to recoup a total of $86 billion.

Icesave

The committee also found that Haarde should be indicted because he failed 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 Reykjavikvaldimarsson@bloomberg.net