Iceland prime minister trial update

Gylfi Magnússon

11 witnesses gave testimony to the Landsdómur trial of former Icelandic Prime Minister Geir H. Haarde yesterday – day five. They included the current Prime Minister and Minister for Foreign Affairs.

Highlights from the day’s testimony include:

Prime Minister Jóhanna Sigurðardóttir saying that laws should have been put in place forcing the FME financial regulator to break its confidentiality code and personally let the Prime Minister know of any potentially serious situations arising. She said that Geir Haarde was not in a position to do much to prevent the bank’s from collapsing and that the auditing companies had too much power. She described as ‘reprehensible’ how positively the banks’ positions were described in Central Bank of Iceland reports in the lead up to the crash – adding that she did not remember ministers ever receiving information on an impending bank crash from then-Central Bank of Iceland governor Davíð Oddsson before he addressed the cabinet at a panicked meeting on 30th September 2008. She said that meeting came as a shock and that Davíð practically recommended locking the country down. He recommended implementing a national unity government and was visibly shaken. This was not surprising, given the seriousness of the message he was relaying, Jóhanna said. Jóhanna Sigurðardóttir is now PM but was previously minister for social affairs in Geir’s government from 2007 to 2009.

The present Minister for Foreign Affairs, Össur Skarðhéðinsson, was industry minister in Geir’s government. He told the Landsdómur yesterday that on the weekend it was decided that the government would take over three-quarters of Glitnir Bank, there was no mention at all of any danger the action could cause other banks to fail. He told the court he had asked about the possibility at that weekend’s meeting at the Central Bank and was told that one of Landsbanki’s chief executives, Sigurjón Þ. Árnason, had said at a meeting the previous day that action to take over Glitnir would not adversely affect the other banks. Össur said that he was not personally convinced at the time that Sigurjón was telling the truth.

Össur also told the court of the reason he was at the Central Bank meeting at all. He said that his then-party leader and foreign minister Ingibjörg Solrún Gísladóttir had called him while he was at the gym and told him to get to the Central Bank right away because Glitnir was in collapse. When he expressed doubt that he was the right man for the meeting and suggested she send commerce minister Björgvin G. Sigurðsson instead, Ingibjörg apparently replied that he would have Björgvin’s personal assistant as an expert counsel but that he was not to tell Björgvin himself because the issue needed to be kept quiet for the time being. He said that the cabinet meeting on 3rd October was the first time the banking crisis had been formally discussed (although ministers had talked extensively about it among themselves) and that commerce minister Björgvin G. Sigurðsson vented his frustration and criticism at the meeting.

Asked if he remembered the government ever pressuring the banks to move their headquarters overseas, as has been widely discussed in court this week, Össur said that he did not; and added that Left Green MP (and present day Minister for the Interior) Ögmundur Jónasson had practically been slaughtered for suggesting such a thing in 2007.

Another key witness on Friday was Gylfi Magnússon, University of Iceland economist. Gylfi was drafted in to the minority government from February 2009, after Geir Haarde resigned, as an un-elected expert commerce and trade minister. He told the court that the Central Bank of Iceland effectively went bankrupt in October 2008 when its board decided to loan Kaupþing Bank EUR 500 million in an effort to save the latter. He said that although the Central Bank said at the time that the loan represented only a fifth of its foreign capital reserves, in reality most of that money was not readily accessible. The decision to loan money to Kaupþing in the hope it would survive the crisis was ill-advised, Gylfi said. He said it was the wrong decision both because it decimated the Central Bank’s currency reserves and because it was throwing money into a bank which there was really no hope of saving.

Although the Central Bank had EUR 2.5 billion in foreign capital on paper, in reality it had much less readily available. If it really had 2.5 billion euros available then there would have been no need for the currency exchange restrictions and the IMF loan, Gylfi said. Currency reserves were not nearly big enough, he concluded.

Information based on live coverage from the trial by RÚV.

Comments are closed.