This is my guess: The day Harald died was the day he was going to get a full promotion into being a Holy Knight. But whoever was there to do so saw things like the library and school and ordered Harald to dismantle them, as they only want Elbaf to be warlike and stupid. Harald refused, and he was DR'd through his Mark. Ostensibly to force him to destroy them with his own hands.
Loki stumbles onto it and is forced to kill him, but with the old giant getting amnesia via the sword in his head and to save his father's reputation and honor, he plays the villain.