x Abu Dhabi, UAESaturday 16 December 2017

Iceland puts politician on trial for failing to prevent economic collapse

Iceland is the first country to put a leader on trial for his handling of the financial meltdown.

Brokers at the German stock exchange in Frankfurt on Friday, as markets rise on news of Greece's deal to cut its bond debt.
Brokers at the German stock exchange in Frankfurt on Friday, as markets rise on news of Greece's deal to cut its bond debt.

AMSTERDAM // Europeans may be getting the feeling that the worst of the financial crisis is behind them.

On Friday, Greece announced that private investors had agreed to write off more than half of their loans to the country, thereby staving off, for now, a messy default.

Iceland, another economy devastated by the financial crisis, has taken a more cathartic step towards settling accounts.

On Monday it became the first country to put a leader on trial for his handling of the financial meltdown.

Geir Haarde, who led the country from 2006 to 2009, is believed to be the only politician anywhere to be facing jail for his handling of the crisis. His fate is being watched by people in other debt-ridden European countries, such as Greece and Ireland. His fellow Icelanders, some 300,000 still fairly well-off Scandinavians who earn much of their income from fishing, are mostly interested in restoring a sense of Nordic solidarity, said Silla Sigurgeirsdottir, a political scientist at the University of Iceland.

"The most important thing is not that he is convicted. The most important thing is that somebody says I'm sorry, I made a mistake, I neglected my duty," she said.

Iceland almost went bankrupt in September 2008 when its three major banks collapsed and were put in receivership. The stock exchange lost 90 per cent of its value and GDP plunged, although it is now recovering more rapidly than much of Europe. The banks had profited from years of deregulation and had expanded rapidly abroad.

The crisis left the British and Dutch governments to pick up the bill for some 500,000 of their citizens who had deposits with Icelandic banks.

That issue is still outstanding after Icelanders twice voted against a proposal to pay for those losses.

Mr Haarde is not charged with responsibility for creating that bubble, although he was minister of finance from 1998 to 2005. Neither is he accused of corruption or of criminally profiting.

He is being tried under a 1905 clause that targets government officials who fail to take action to prevent harm to the Icelandic public and its economy - basically gross negligence.

He denies that he had specific information that could have helped diffuse the crisis and has said that recommendations that he received and did not act on would not have prevented the meltdown. But for many observers the question is not whether he acted correctly but whether politicians should be held accountable in this way.

"A bad policy decision should generally not be held accountable in a judicial way. It will be dealt with in the electoral process," said Nicolas Veron, of the Brussels-based think tank Bruegel.

In many of the European countries that were hit by the crisis, governments that were in power have paid a heavy electoral price.

In Iceland, Ireland, Portugal and Spain among others, ruling parties were defeated because of the financial debacles.

Elaine Byrne, and Irish political scientist at Trinity College in Dublin, said that despite the ousting of the governing party in 2011, many in Ireland were still dissatisfied.

"People in Ireland are very disappointed that people have not yet been held to account and that people have retired on large pensions and with golden handshakes but that there have not been prosecutions," she said. On the other hand, for most of the Irish, the issue has become less urgent since the elections and there is little expectation that prosecutions will be possible. Ireland simply did not have the same legal framework as Iceland, said Mrs Byrne.

Greece, a country whose financial problems have been threatening to take down the whole of the euro zone, is a different case. There, officials have been accused by the European Commission of having skewed economic data. Trials are possible. But, said Mr Veron of Bruegel, the problems in Greece are so pervasive that, "the judicial system is part of the problem". Trials would be meaningless, he said.

In Greece, which has just managed to write off more than €100 billion of its privately held debt, the issue is viewed rather differently. Dimitri Sotiropoulos, a political scientist at the University of Athens, said that Greece's problems were much more comprehensive and went much further back than those of Iceland. "You do not put prime ministers on trial for such complicated, structural, historically determined, multidimensional problems," he said.

His Icelandic colleague, Silla Sigurgeirsdottir, demurred and said that her country's example was important to keep people believing in government.

"We have to see that democracy can work and that it is not just about the possibility to vote but also about the ability to hold your representatives to account."

 

foreign.desk@thenational.ae