By Omar R. Valdimarsson
REYKJAVIK, Jan 16 (Reuters) - Iceland has named a special prosecutor to investigate whether anyone broke the law in the banking collapse that triggered the country's economic meltdown.
Olafur Thor Hauksson, a former sheriff from a town of just 7,000 people, was appointed this week to probe for any illegal dealings linked to last year's failure of the banking system and collapse of Iceland's currency.
Citizens -- many of whom have lost their savings and face economic hardship -- are angry. They complain that no one high up in the government or at the central bank has taken responsibility for the crisis.
Hauksson is approaching the job with an open mind. "It is well known that when people or companies are facing extreme financial difficulties or bankruptcy, some individuals resort to questionable acts, such as moving assets unlawfully," he told Reuters.
"We do not know whether such acts were committed in the run up, during or after the collapse of the Icelandic banks."
Hauksson, born in 1964, is under no illusion about how tough it will be to get to the bottom of things in a country of just 320,000 people, where power has been concentrated in the hands of a few.
"I come from a town even smaller than Reykjavik and I have worked in villages of only 500 people. Sometimes you are dealing with your next-door neighbours," he said. "The only way to maintain credibility under these circumstances is to hold everyone to the same standard."
TOUGH SEARCH
Just finding someone who was qualified and willing to take on the role proved difficult. The justice minster had to extend the application deadline to find the right person.
A decade of rising prosperity ended suddenly in the space of a few days last October when Iceland's three biggest commercial banks collapsed under the weight of billions of dollars worth of debts. The Icelandic crown virtually stopped trading.
The country was forced to borrow $2.1 billion from the International Monetary Fund and take loans from several European countries. It has since set about trying to fix its economy.
Much of the ire has been directed at Prime Minister Geir Haarde and central bank Governor David Oddsson, for failing to spot warning signs of impending economic peril, or for not doing enough to mitigate the problems.
Oddsson, previously Iceland's longest-serving prime minister, has the staunch support of fellow Independence Party stalwart Haarde. Oddsson is credited with building the foundations for the economic boom.
Hauksson, a large, cheerful man with a passion for fly-fishing, said he would focus on the law, not the blame game.
"There is plenty of blame to go around, but in the press and the national debate, acts that are legal but perhaps not necessarily moral, are fused together. My role as prosecutor will be to find out whether or not people stepped over the line which separates the two."
(Writing by Anna Ringstrom and Adam Cox in Stockholm, editing by Mark Trevelyan)