Former Icelandic Prime Minister Geir H. Haarde visited Ireland last week with bad news for the ‘Celtic Tiger’, saying its economy will shrink more than Iceland’s this year.
According to the Irish Independent, Haarde spoke at the Institute of European Affairs in Dublin, where he said that EU membership would not have saved Iceland’s banking sector last autumn and that proposed EU financial reforms now do not go far enough to prevent a future collapse.
Haarde said that Ireland’s predicted 10.75 to 12 percent GDP contraction and Latvia’s 18 percent recession are proof that Iceland would not necessarily have been protected from the global downturn as an EU member: by comparison, Icelandic GDP is predicted to contract by 10 percent this year.
Haarde, who was forced from office following the collapse many Icelanders blame him and his party for causing, said that the EU should create a stronger continent-wide guarantee system. Part of that system should force banks with operations in other EU countries to open subsidiaries there and not simply branches – thereby transferring risk to the host country for operations on its territory. Such a move would, for example, have significantly changed Iceland’s current Icesave situation.
According to Haarde, the reason for the Icelandic banking collapse was that the banks were too big for the Icelandic government to save, but too small to weather the international storm.