Iceland's former Prime Minister Geir Haarde on Monday (5 March) became the world's first leader to be put on trial on charges of negligence over the 2008 financial crisis.

Haarde, who was a premier from 2006 to 2009, is being accused of "gross negligence" in failing to prevent the collapse of Iceland's top three banks - Glitnir, Kaupthing and Landsbanki – all heavily involved in risky investments on the US real estate market.

Icesave ad in London: Britain is demanding compensation for the bankrupt bank (Photo: mydogminton)

One of the main architects of Iceland's transformation from a fishing nation into a financial services hub, Haarde is also accused of failing to control the country's fast-growing banks and of having withheld information indicating the country was heading for financial disaster. He faces a sentence of up to two years in prison if found guilty.

"None of us realised at the time that there was something fishy within the banking system itself, as now appears to have been the case," Haarde told the Reykjavik court on Monday. He denied all charges and said that "only in hindsight is it evident that not everything was as it should have been."

Unlike EU countries, Iceland allowed its banks to go bust. The tiny nation of 320,000 people was forced to borrow €7.5 billion from the International Monetary Fund and other lenders, but its economy has since rebounded and was upgraded to investment status by Fitch ratings agency in February.

Icelanders in a referendum last year also rejected a deal aimed at paying some €4 billion in compensation to the UK and the Netherlands, whose citizens had put their savings in Icelandic banks. This has turned into a major irritant in Iceland's EU membership bid, which sees waning support among its people.

A February poll carried out by Gallup shows that only 26.3 percent back EU membership, down from 37 percent in January. A referendum on joining the EU may be held as early as next year, its government said.