Charting the crash

Peter Hegarty

With the election triumph of Angela Merkel it is clear that German attitudes to the economic collapse and its aftermath will remain dominant. In his new book Faisal Islam explores the causes and effects of the Great Recession with the clarity and common sense we have come to expect from the highly-rated economics editor of Channel Four News.

In his collection of case studies he draws on stories he has gathered during reporting assignments in the Eurozone and its impoverished and often miserable periphery. He draws too on hundreds of interviews he has conducted with ministers, bankers, traders, and with ordinary people struggling to get by. The latter category includes the South American migrants who recall being sold mortgages within minutes of touching down in boom-time Spain and who are now organising to resist eviction.


Islam argues that the recession was not inevitable. The crash resulted from conscious decisions: politicians chose not to ask questions about the ‘socially useless’ products banks were offering, or investigate their financial jiggery-pokery. These institutions, unsupervised, lent with reckless abandon, in this country betting everything on property

The book is strong on the link between recession and migration. Latvia has lost so much of its active population in the past decade that it has become demographically unstable. Millions of people have left the UK for a better life elsewhere in the last few years. A million people have left Spain in the last year alone to try their luck in Germany, or booming Brazil and Argentina. 

As the Eurozone continues its hesitant recovery support is building for measures, such as debt forgiveness or debt mutualisation, that might give more impetus to growth. But Islam warns that German caution stands in the way of thorough-going reform of the Eurozone.

A decade ago, while the periphery partied, Germany undertook wrenching economic reforms. These included the wage cuts and sharp reductions in benefits that have improved competitiveness and growth, as well as deepening poverty and inequality.

Germans believe in the efficacy of austerity, or ‘homework’, as ECB officials call it.  Most German voters believe that financial delinquents like Greece and Ireland will only redeem themselves by cutting and saving and – according to a recent YouGov poll – oppose fiscal transfer or loans to the strugglers.

Bold initiatives are unlikely for now. Pity President Anastasiades of Cyprus who pleaded with Chancellor Merkel to show “more solidarity” as the island’s economy collapsed. “You need to talk to the Troika,” she replied.