Fri Mar 16, 2012 1:12pm EDT
* Former PM Haarde is accused of gross negligence
* Lawyer says he should be acquitted of all charges
* Iceland's top three banks collapsed in 2008
By Omar Valdimarsson
REYKJAVIK, March 16 (Reuters) - Iceland's former Prime Minister Geir Haarde could not have prevented the island's financial crash in 2008, his defence lawyer said on Friday, in the final day of a trial that has done little to heal the wounds caused by the economic meltdown.
Haarde, who is accused of gross negligence for failing to rein in the country's banking sector before it imploded, is the only global political leader to face prosecution over the wider crisis which engulfed the world economy.
"Geir Haarde should be acquitted of all charges. This case should never have been brought to trial," Andri Arnason told the court on Friday, summing up the case for the defence.
"Not even the most efficient surveillance institutions of the world were able to foresee what happened."
Iceland's top three banks all collapsed in late 2008 after years of debt-fuelled expansion. The country of just 320,000 people was forced to borrow around $10 billion from the International Monetary Fund and other lenders.
The economic collapse has shattered many Icelanders' confidence in the government. Many had hoped Haarde's trial would assign blame and allow the country to move on with its economic recovery.
But there has been little new information and a parade of former and current politicians have by-and-large testified they were either ignorant of the problems at the time or could do nothing about them.
Iceland's economy contracted more than 10 percent in the 2009-2010 period, forcing hundreds of businesses into bankruptcy and sending unemployment on the island soaring.
ASSIGNING BLAME
Hulda Thorisdottir, political science professor at the University of Iceland, said the causes of the crash were too complex to allow all the blame to be laid at one door.
But given the lack of simple answers, Icelanders are likely to nurse a sense of injustice for years to come.
"The main purpose of the trial is to find the guilty party, and the second purpose, to achieve a sense of justice through the proceedings with the quest for the truth," she told Icelandic radio.
"I am terribly concerned the trial will not be successful."
The court is likely to hand down its verdict in four to six weeks. Haarde faces a maximum of two years in prison if found guilty.
Although several former financial executives have been arrested, Haarde is so far one of only a handful of high-profile figures to be tried.
"In many ways it's good to have the opportunity to come down there and have a chance to tell your side, because for the last three years society hasn't really provided any listening opportunity," former foreign minister Ingibjorg Gisladottir said in the daily newspaper Frettabladid.
Arnason said Haarde, prime minister from 2006 to early 2009, was being used as a scapegoat, and the special investigation commission which looked into the crash had found leading government officials had not been negligent.
He added the actions of Haarde's government had actually helped Iceland after the crisis.
"It is clear that Iceland has not emerged from the crisis as the worst hit country - in fact, many countries have landed in a deep recession for many years to come," Arnason said.
On Thursday, prosecutor Sigridur Fridjonsdottir said it was obvious Haarde had been negligent.
"It is more difficult to pinpoint his appropriate punishment as we have no precedents in this country," she said.
Fridjonsdottir said there had been warning bells long before the banks' collapse. The government had allowed them to expand their balance sheets to around 10 times the country's gross domestic product, making them too big to save when the credit crunch hit. (Writing by Simon Johnson, Editing by Alistair Scrutton)
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