Iceland's former PM on trial over banking crash

Iceland's prime minister at the time of its 2008 banking crash pleaded not guilty to charges of negligence yesterday, as he became the first politician to stand trial for the financial crisis.

Geir Haarde, who stepped down as premier in 2009 following protests over his role in Iceland's economic collapse, labelled the charges "preposterous" and called for the case to be dismissed. "I declare myself innocent of all charges and will do my utmost to prove my innocence," he told the court, which consists of 15 judges. If found guilty, he faces up to two years in prison plus a fine, but could also get probation.

Mr Haarde is also the first person ever brought before the Landsdomur, a special criminal court created in 1905 to deal with charges against Icelandic government ministers. Yesterday, he stood by the decisions he made while in charge. "[The charges] are preposterous, especially in light of the fact that the decisions taken by my government in the lead-up to banking crash have all turned out to be right," he said.

Iceland's parliament, the Althingi, voted in September to indict Mr Haarde for allegedly failing to prevent the 2008 financial crisis that brought the economy to a standstill. However, it voted not to pursue charges against Iceland's former foreign and finance ministers.

The first count of the indictment accuses Mr Haarde of failing to initiate measures between February and October 2008 to avoid, "foreseeable danger to the fortunes of the state". The count also faults him for failing to act to reduce the size of Iceland's banking industry, whose assets had swollen to nine times the size of the tiny nation's gross domestic product. A special investigation commission had reported that the country's three leading banks – Glitnir, Kaupthing and Landsbanki – overwhelmed the financial system when they ran into trouble with excessive risk-taking.

The second count accuses Mr Haarde of failing to uphold his duty under the constitution to hold ministerial meetings on important issues. "During this period there was little discussion at ministerial meetings of the imminent danger; there was no formal discussion of it at ministerial meetings, and nothing was recorded about these matters at the meetings," the indictment said.

The defence spent much of the 30-minute session yesterday arguing about the right of eight of the judges to hear the trial.

Iceland's three main banks collapsed under their debts in 2008 during the global financial crisis. Mr Haarde was prime minister from 2006 to 2009 when they were still expanding rapidly.

Iceland had to take a bailout from the IMF and Nordic lenders after the crisis, and popular discontent and protests led to the fall of Mr Haarde's government. Iceland's taxpayers were forced to foot the £2.3bn bill to compensate British savers with money in Icelandic banks. The crash also left British councils, hospitals and universities £1bn out of pocket.