Former Prime Minister of Iceland Geir Haarde, centre. sits in a court in Reykjavik Monday March 5, 2012 . Iceland's former prime minister went on trial Monay as the first world leader to face criminal charges over the 2008 financial crisis that affected much of the world economy. Geir Haarde became a symbol of the bubble economy for Icelanders who lost their jobs and homes after the country's main commercial bank collapsed in 2008, sending its currency into a nosedive and inflation soaring. (AP Photo/Kristinn Ingvarsson) ICELAND OUT
REYKJAVIK, Iceland (AP) — A former prime minister of Iceland on Monday rejected charges he failed to adequately protect his country's economy from financial shocks, as he took the stand in the first criminal trial of a world leader to result from the 2008 financial crisis.
Geir Haarde said neither he nor financial regulators knew the real state of Icelandic banks' precarious finances until they collapsed in October 2008.
"I reject all accusations and believe there is no basis for them," Haarde said. He said it was the first chance he had to answer questions in the case.
Haarde became a symbol of the bubble economy for Icelanders who lost their jobs and homes after the country's main commercial banks collapsed in the course of one week in 2008, sending its currency into a nosedive and inflation soaring.
Prosecutors opened the case at the Landsdomur, a special court being convened for the first time in Iceland's history.
Part of their case hinges on a charge that Haarde failed to implement recommendations that a government committee had drawn up in 2006 to strengthen Iceland's economy.
Haarde told the court the committee's work could not have prevented Iceland's economic crash.
"Nobody predicted that there would be a financial collapse in Iceland" in 2008, he said, adding that the government did not fully understand how much debt the country's banks had on their books.
"The bankers did not realize that the situation was as dire as it was," Haarde said. "It was not until after the crash that everyone saw it coming."
Iceland's banking sector ballooned during a decade of boom, growing to nine times the tiny nation's annual gross domestic product, before collapsing under the weight of its debts.
Haarde told the court the banks' size would not have been a problem had it not been for two things: their fiscal recklessness and the global credit squeeze.
"We knew about the crisis, but not the banks' lack of accountability and their illegal activities, which not even the Financial Supervisory Authority seems to have realized," he said.
Haarde is accused of negligence for failing to prevent the financial implosion from which the small island country is still struggling to recover.
In the crisis' immediate aftermath — as unemployment and inflation skyrocketed — many sought to affix blame for the havoc across the 330,000-strong nation. A wave of public protests forced Haarde out of government in 2009.
Haarde has pleaded not guilty and sought to have all charges dismissed, calling the proceedings "preposterous."
He has insisted Icelanders' interests were his "guiding light," and he blamed the banks for the crisis, saying government officials and regulatory authorities tried their best to prevent the crisis and that his "conscience is clear."
The trial is expected to last until mid-March, with the court taking another four to six weeks to deliver its verdict.