Iceland ex-PM to trial over economic collapse

Iceland’s former prime minister Geir Haarde could be sent to jail for two years for his role in his country’s spectacular economic collapse in 2008.

Haarde today faces trial in a unique setting: Iceland’s Landsdomur court was established a century ago, but has never been used before, reports Sweden’s Dagens Industri.

Last week, Haarde and the party he led when prime minister in 2006-9 attempted to have the country’s Parliament call off the trial, but they lost a vote on the issue. 

Linked to the trial is the ongoing question about what to do with the country’s currency. Recent polls have put forward adoption of the Canadian dollar as one solution. However, there was a near-political disaster over the weekend when Canada’s ambassador to Iceland cancelled a speech he had been due to deliver in support of the idea. Iceland’s currency may be trading at half its pre-crisis value, but such a speech was seen as excessive political interference in Iceland’s internal affairs by the ambassador’s bosses in Canada’s federal capital Ottawa.

According to recent polls, when asked which currency should replace the ISK, Icelanders picked the Canadian dollar, followed by the US dollar, euro and Norwegian krone.

Canada’s Globe and Mail, which first leaked the proposed speech, noted over the weekend that iceland today is the world’s smallest country to retain its own currency.

However, it added that the currency soared 90% between 2000-2007, before crashing 92% in 2008 in the wake of the financial crisis. Capital controls imposed thereafter in the form of currency controls have brought stability, but mean that foreign investors are unable to withdraw assets from the country.

As previously reported in InvestmentEurope, this remains the key challenge for fund and asset selectors active in the Icelandic market. Ongoing recovery in the economy coupled with a relatively young population and low dependency ratio mean that there are few buckets into which to invest cash building up in the financial system, for example, from monthly payments into pension funds.

Last month Fitch Ratings upgraded the country’s debt, but warned that there were still big challenges to further recovery. Besides managing the country off capital controls, the government also faces further fallout from IceSave, the deposit business that put billions of pounds and euros of UK and Dutch retail savers at risk when its parent Landesbanki went bankrupt in 2008. The EFTA Court is threatening to fine Iceland if its government does not pay the compensation due to depositors under EU and EEA rules.

 

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