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Faisal Islam Has Spent Five Years Watching Europe Collapse

His book, The Default Line: The Inside Story of People, Banks, and Entire Nations on the Edge, documents the 2008 financial crisis and the aftershocks that are still being felt from Greece to the UK.
September 10, 2013, 4:00pm

Faisal Islam has been travelling around Europe to investigate the debt crisis since it started way back in 2008. As the UK's Channel 4's economics editor, he's witnessed more than his fair share of the avarice, egoism, and lunacy—from the UK housing bubble to the raids on Cyprus's banks—that's dominated European financial news for the past half decade.

Aside from his day job, Faisal has also managed to squeeze out a book called The Default Line, in which he brings together Europe's disparate crescendos into a concerto of crises and lays out the root causes of the financial meltdown. He also tells stories of planes flying cash into Greece and Cyprus to make sure the countries had physical currency in circulation, Russian oligarchs turning up in Nicosia in limos to secure their money before the banks got to it, and the politicians who refuse to tell their people what the situation really is.


I met with Faisal last month for a quick chat about economics, politics, and the future of Europe.

A protester pushes police lines during a general strike in Athens, 2011. Photo by Henry Langston

VICE: So, let’s start with my home country—what's your view on the situation in Greece?
Faisal Islam: My account of Greece is from two perspectives. First, there's the perspective of the Greek [media]—which is formed in part by announcements from the Troika [the three organizations that have regulated finances in Europe in recent years: the International Monetary Fund, European Central Bank and European Commission]. Then they have the reality of day-to-day life there, which I experienced while reporting on the country, speaking to people, to politicians. I was there for some amusing moments, for instance when Evangelos Venizelos mounted a coup against [then-Prime Minister] George Papandreou.

Venizelos arrives at his ministry—[members of the press are] all waiting outside – and nobody asks any questions. I was thinking, Oh my God, if this was Britain, we’d be monstering him! We’d be like, “Have you just mounted a coup, Mr Venizelos?” I was totally taken aback. I thought, politely, that I would leave the Greek journalists to shout the first questions in Greek, because I don’t want to be one of those annoying foreign journalists who jump in there and say, “It’s our story now.” It’s clearly a Greek story.


That, for me, illustrates the overarching unaccountability in Greece. If you're using a common currency with 17 countries—all of which are very different—you need to have media accountability at full power. And they sadly don't.

What's the second perspective?
The second perspective I have of the situation in Greece is that of the German public. Just to distil it down very simply, they have to be aware of the consequences of their decisions and how their political choices affect Greek living standards. They need to be cognizant that, by choosing Angela Merkel and by backing her [policies forcing Greece to adopt austerity measures], there are going to be certain effects on the rest of Europe.

I really would like to know, for instance, how the German political system is dealing with the rise of [fascist group] the Golden Dawn. I would like to take a German politician to Greece and tell him, “This is partly a result of your policies.” Last year, when we saw those atrocious numbers on unemployment, no one ever asked [President of the European Central Bank] Mario Draghi about it.

That's one of the first things we ask Central Bank governors here in Britain. When, in Nicosia, they had to introduce capital controls, no one asked Draghi a single question about it.

Photo by Henry Langston

No one asks the German finance minister, Wolfgang Schäuble, why he has the right to talk about morality when he quit as the leader of his party over a bribing scandal back in 2000either.
Unfortunately, instead of that, people tend to default to historical stereotypes. People shout “Nazi!” etc. It’s kind of a waste of time, actually. When the plane filled with bailout cash arrived in Athens [when Greece was running out of physical currency], its existence was denied; when another popped up in Cyprus, it was confirmed. But nobody asks the question of why that happened. In 2009, in Greece, the cash in circulation was 8.2 percent of the GDP. By 2012, it was up to 24.8 percent. If people knew the logistics behind a huge rise of notes in circulation, they'd panic.


That influx of banknotes requires a lot of trucks and boats. It was a military-style operation. In Greece, people are sensitive about military involvement. In Cyprus, they briefed us that this did happen because they felt Cypriots would be reassured by the idea of this massive flight that dropped loads of notes, and therefore they wouldn’t run to get all their euros out from the banks.

That’s a little story; it shouldn’t mean anything, but it does. Because the loss of monetary sovereignty in any financial crisis means that you lose your last resort—printing money. And that ended very badly in Germany in the 1930s, but we’re still doing it in the UK and they’re doing it in America.

What about Cyprus? What really happened there?
The European authorities' biggest concern in Cyprus was protecting Greece from any contagion. They were obsessed with that, and they were quite willing to let Cyprus suffer. It’s not surprising that Cypriots, who had a strong currency before they joined the euro—which was only five years ago—feel that there was a turn in the rhetoric there [inside the country] and begin to contemplate leaving the euro.

In Cyprus, the planes didn’t touch down until the parliament had agreed to certain things. I think that’s a good way of showing what reality looks like. You realize how close we are to certain dark things if, for instance, cash machines are running dry. Here in Britain, we were three to four hours from that happening back in 2008.

An anti-austerity protest in Cyprus. (Photo by Nigel O'Connor)

I find that the democratic deficit—when ostensibly democratic governments fail to fulfil the principles of democracy—is much more worrying than the financial one, especially in countries like Greece, Cyprus, and Spain.
We catch politicians in conferences saying, “Hooray, we stopped the indexing of wages, so now wages don’t follow prices.” Then, in a private chat, you ask, “Would you say that you’re celebrating cutting your people’s wages in public?” And they say, “No, no—I would never say that in public.” They never tell it straight to the people.


They need to really watch out. Because of that, they may really lose the young. What I’ve found is that young Europeans really value their purple passports—they allow them to travel anywhere. Let me put my own views aside here and say that, if their endgame here is political union [between EU states]—and it kind of has to be—then they can’t possibly lose the young or fail to deliver on their job and life opportunities.

The European authorities supported New Democracy in Greece and Mariano Rajoy in Spain, both of whom have been accused of corruption in some shape or form. How about that?
So here’s a perspective—me summarizing three years of travelling across the Eurozone and listening to people, the victims and the perpetrators. Despite the suffering—the riots, the protests—when push comes to shove, from Greece to Portugal, they all voted for center-right parties. Looking at this, I can only conclude that people in those countries are so frightened of their own political classes and their incompetence that they’d rather go with what Frankfurt and Berlin are dictating.

They haven’t defaulted on their membership in the Eurozone. They haven’t defaulted on their loans. But they are defaulting on Europe’s social model. In Germany, Merkel’s two favourite statistics are, first, that half of welfare spending globally is in Europe, despite having less than 10 percent of the world's population. That's a figure I haven’t checked, but that’s what they think.


The other is a graph showing bond yields going back 20 years [bond yields are the interest a country pays on its borrowing]. Twenty years ago, everybody was paying 10 to 15 percent, and it was fine. Why is 7 percent a crisis? It’s not, but it focuses minds. Seven percent got rid of Silvio Berlusconi. I’m sure that the Germans feel that in order to bring, say, Greece into the 21st century—to get them to do their homework—they’ll bring the situation up to the brink before they lend to Greece again [thus causing the panic that they hope will force reform in Greece].

By all accounts, this will be Merkel’s last term in office. She’ll have all the political capital in the world to come up with a grand, permanent solution.

Protesters smash the entrance to a Santander bank branch in London, 2011. Photo by Henry Langston

This would be a good point to talk about Britain. Britain's got the worst of both worlds, hasn't it? How did it get to a point where there's no euro here but the country is still tied to the Eurozone?
This is why I avoid salivating over the troubles in the Eurozone, as a lot of people are doing. We managed to cover a lot of cracks by printing a lot of money, but I don’t know how this will play out.

My worry about Britain is that people are leaving. It’s much more difficult to keep a track of this. People are leaving and emigrating because the job market is drying out and not taking on new entrants, not investing in the future. And the cost of living is out of control. If I were in my early 20s, I would think about emigrating.


A banker once told me that the most toxic financial instrument in the world is the mortgage. If you unravel that, it’s the cause [of the crisis]. Look at Spain and Ireland—they have no problem with their physical balance, it was mortgages and housing [that affected their economies]. And we’re feeding another bubble now.

I think it’s really important that this stuff is talked about and debated, because it seems that, in Britain and Europe, the leaders across all parties don’t seem to have learned the lessons on what went wrong between 2000 and 2006. And I’m not hugely hopeful that they’re going to deal with longer-term issues about how people in their 20s and 30s will create jobs, livelihoods, homes, and families.

The book is meant to communicate with these people and say that we should all start to think about what will be happening in five years. I’m not massively hopeful, but in order to set things right we have to learn lessons. It’s not a political book. I’m not espousing a particular political viewpoint, I’m trying to be quite practical and empirical and observational, and trying to say, "You didn’t do this differently." The stories speak for themselves—you don’t need to get angry about them. It’s just extraordinary.

This interview has been edited for concision and clarity.

Faisal Islam is economics editor for Channel 4. His book, The Default Line: The Inside Story of People, Banks, and Entire Nations on the Edge, is out now through Head of Zeus.

Follow Yiannis on Twitter: @YiannisBab

More on the global financial crisis:

Goldman Sachs of Shit

Austerity's Drug of Choice

Germany's Blood-Drenched Debt Could Save Greece's Economy