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Europe's looming crisis

It all started with sub-prime loans in the United States. Or did it? As the IMF is called in to bail

It was Europe’s dark secret. While American banks were lending irresponsibly to homeowners who couldn’t pay, European banks were lending to emerging countries who couldn’t pay. Europe’s sub-prime crisis has now come home as heavily-indebted nations of the eastern bloc – Hungary, Ukraine, Belarus, Bulgaria, the Baltic states – are collapsing one by one into the arms of the IMF. “Icelandisation” is the new spectre stalking Europe.

And, as with sub-prime in urban America, this latest crisis was shockingly predictable. I visited Latvia at the height of the credit bubble 18 months ago, and it was clearly an accident waiting to happen. Riga, the capital, was bristling with upmarket shopping malls and classy bars that were all quite empty. Stalin-era flats were being sold for $200,000 in a country where the average wage was less than $400 a month. Latvia has hardly any industry, no energy and few natural resources apart from trees. But such was the irrational exuberance of foreign banks like Swedbank, it was awash with credit.

According to the Bank for International Settlements, western European banks have lent more than $1.5trn to eastern Europe. Austria has loans equivalent to 80 per cent of GDP and stands to make huge losses as Hungary and Ukraine collapse.

This week, the Austrian government had to cancel an auction of government bonds because it could not be sure that investors would buy them. It is not inconceivable that Austria itself could end up needing to be rescued.

Other European countries implicated in global sub-prime include Spain, which has loaned immense sums ($316bn) to Latin American countries such as Argentina. Britain has $329bn tied up in Asia - or did until values collapsed in the Asian stock market rout. Japan's Nikkei index fell to a 26-year low this week, wiping out tens of billions of yen. The losses are now winging their way home to British pension funds and banks such as the Royal Bank of Scotland and HSBC.

Banks behaving badly, then, but what's new there? Well, the Bank of England told us this week that global losses so far from the financial crisis amount to $2.8trn. But this includes only a fraction of the likely losses from global sub- prime, which have yet to land on balance sheets.

Until last week's rout in the Asian bourses, there were still economists who believed that emerging markets would not be greatly affected by the credit crunch. But the theory that developing countries, led by China and India, have "decoupled" from the west, no longer holds water. It is clear that they have been dependent on consumer spending in America and Europe all along - and now that western consumers are staying away from the shops, no one is buying their goods. The Baltic Dry Shipping Index, which tracks the cost of hiring ships for international trade, has fallen by 79 per cent this year, itself a signal of a severe global recession.

Gordon Brown's hints that Britain might be able to spend its way out of this recession has to be considered in this light. There is no guarantee, in such a climate, that the British government would be able to borrow sufficient to pay for further bank rescues (they are sure to come), along with the cost of three million unemployed plus a programme of Keynesian infrastructure spending, however desirable that may be.

Investors are already shunning the pound because of anticipated losses from the UK property crash. Sterling has fallen 28 per cent this year, further than in the Exchange Rate Mechanism crisis of 1992, when interest rates rose to 15 per cent. We could be heading for a classic 1960s run on the pound.

The government had hoped that a devalued pound would stimulate exports and pull Britain out of recession, as happened after Black Wednesday 16 years ago, but the economic climate is different. We make few things to export now and the world is not in a buying mood anyway. And it has had quite enough of our "innovative" financial services. Thus Britain's current account deficit of 6 per cent - what used to be called loosely the balance of payments - has suddenly re-emerged as a major economic issue. Borrowing may be a good thing in a recession, but international financiers, sovereign wealth funds, hedge funds and banks may not agree.

The UK has the honour of having been the last G7 country to call in the IMF - during the 1976 sterling crisis - and while the government is not yet filling in the application forms, Britain's finances would not impress the Fund's economists. Standard IMF lending conditions are: privatisation, cuts in government spending and increased interest rates.

We are going in precisely the opposite direction, slashing interest rates, borrowing to spend and nationalising the banks.

Seen another way, this is only an indication of the extent to which the IMF is no longer fit for purpose in the Great Deleveraging. In recent years, the Fund has been an engine of Wall Street neoliberalism and financial deregulation, which leaves it ill-equipped to deal with the new international environment of deflation and banking crashes. In addition, there is a fiscal crisis facing the IMF. It has only about $250bn in reserves to throw at a rolling financial crisis that has now engulfed half the planet, from Iceland to Pakistan. Gordon Brown has called on energy-exporting nations to stump up more cash for the Fund, but there is a strong case, too, for reviewing how the IMF operates. Set up as part of the Bretton Woods financial system in 1944, the Fund was designed to cope with episodic currency crises. It is now having to deal with potential insolvencies in countries the size of Argentina as well as bailing out entire regions such as eastern Europe.

It will have to be very much better capitalised if it is going to perform this role, and it will have to abandon much of its free-market ideology.

We need a new set of interventionist institutions capable of managing financial rescues on an international scale.

Ultimately, what is needed is an international central bank with the resources to provide liquidity guarantees, recapitalise banks and regulate international financial flows. This is an immense task, and the world may not yet be ready for it. But it is not a new idea: John Maynard Keynes argued for precisely this during the Bretton Woods negotiations in 1944. He even suggested a world reserve currency "bancor". This is the kind of thinking we need today.

The alternative, if nothing is done, is international tension, even war. Consider failing Ukraine with its large Russian population and its dependency on Russia for energy supplies, right at the moment when Russian dreams of becoming an energy superpower have been dashed by the collapse of the oil price bubble. Or look at nuclear Pakistan, where the entire country is disintegrating in financial chaos. And what about China? Will all those unemployed workers - where half the toy manufacturers have gone bust - go peacefully back to the paddy fields?

When heads of the "G20" group of nations meet in Washington on 15 November for what is being called "Bretton Woods II" they will not just be dealing with a banking crisis. They will be deciding the future of civilisation.

This article first appeared in the 03 November 2008 issue of the New Statesman, Israel v Hamas

Charlie Forgham-Bailey for the New Statesman
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"I teach dirty tricks": the explosives expert who shows armies how to deal with terrorists

Sidney Alford used to blow things up in his garage. Now his expertise is helping save lives.

“I’ll fetch the hammer,” says Sidney Alford, leaving me in a laboratory filled with mysteriously named drawers and small bottles with skulls on their labels. When he has fetched it – “it’s a jeweller’s hammer, given to me in Paris by a friend of Salvador Dali” – the 82-year-old plans to tap gently on a small mound of white powder called triacetone triperoxide, or TATP, better known as the explosive favoured by Isis in their suicide belts and homemade bombs. Because of its instability and destructive power, its nickname is “Mother of Satan”.

Tapping it with a hammer is enough to make it go bang.

Directing me to stand by the door, he searches for ear plugs before stuffing some paper in his ears – “I’m quite deaf, you know,” were almost his first words to me that morning – and begins to tap the Mother of Satan. On the fourth tap, it explodes in a genteel fashion with a flash and a pop. Its sensitivity to percussion is one of the reasons that jihadi bomb-makers suffer so many workplace accidents. “See,” Alford says. “You’d be OK walking, just don’t fall over or get shot.”

I have wanted to meet Sidney Alford ever since I heard about him from the investigative journalist Meirion Jones, who once uncovered a British man who sold £50m-worth of fake bomb detectors in Iraq and other countries. (The fraudster, James McCormick, was jailed for ten years in 2013.)

Giving a presentation to students, Jones mentioned that he could prove the gadgets were useless – just black boxes with radio aerials sticking out of them – because he had taken them “to a guy the BBC uses for explosives, who has a quarry in Somerset where he blows things up”. I decided then and there that I was very interested in being in a quarry in Somerset where someone blew things up. Maybe I would even get to press the button.

There was a less childish reason for visiting, too. Sidney Alford’s life story is interwoven with one of the technologies that defines the modern world: explosives. We fear explosives – suicide bombs, car bombs, bombs on aircraft – but we also need them, for everything from realistic film scenes to demolition. (Alford has a letter from Stanley Kubrick thanking him for his help on Full Metal Jacket.) Surprisingly, the best way to defuse an explosive is often with another explosive, something that Sidney’s company, Alford Technologies, has pioneered.

In other words, if you want to make something go bang – or, just as importantly, stop something going bang – he is the man to talk to. Quite loudly.

***

The first explosive materials Alford ever saw were fragments of bombs and V2 rockets left over from the German shelling of London. Born in 1935 in the suburb of Ilford, he moved with his family to Bournemouth when the Second World War broke out. When he returned, he found rich pickings in his battered neighbourhood in the form of magnesium incendiary bombs, which he filed down and turned into fireworks.

I ask him if, like my own father, he ever frightened his teachers with nitrogen triiodide, an unstable explosive compound that schoolchildren used to make themselves and set off in lessons to terrify unwary members of staff in the era before health and safety. “Oh yes,” he says. “I put it under my French teacher’s chair.” A pause. “He’d been in the army, so he didn’t make a fuss.”

Alford went to a grammar school, where he was an undistinguished pupil, angry that the headmaster wouldn’t let him learn German (rather than Latin) so he could speak to the Jewish child refugees he knew. But he was always interested in chemistry, and “by the fifth form, I’d recruit classmates to make bigger bangs”.

A chemistry degree came next, followed by a series of odd jobs, including diet research and studying the brain, an MSc in the science of environmental pollution, and two business associations with men he now characterises as “bad sorts”, who ripped him off.

By this time, he had moved to Ham, in west London, and had begun to take his chemistry experiments more seriously. It was the early 1970s, and the IRA’s bombing campaign had come to England. How could these weapons be neutralised, Alford wondered? Was it better to encase suspect packages in “blast containers”, or use shaped charges – typically, small cones that focus explosive energy into a point – to disrupt their ability to go off?

A brief digression on explosives is necessary here. When you think of something going bang in a spectacular fashion, that’s a detonation. “Detonare,” says Alford at one point during my tour of the quarry, relishing the Latin. “Like thunder.”

High explosives such as TNT, nitroglycerin or Semtex can be detonated by administering a violent shock to the main charge using a small amount of relatively sensitive and violent material in a metal capsule. This creates a hot shock wave, which sweeps through the substance faster than the speed of sound.

Old-fashioned gunpowder, house fires and your car’s internal combustion engine go through a different process, known as “deflagration”, where the chemical reaction moves through the molecules much more slowly. This burning is usually less dramatic and easier to manage. (Alford hates the term “controlled explosion”, reasoning that an expert should always control their explosions. If they fail, it’s a cock-up.)

The theory goes, then, that if you attack a munition just hard enough to ignite its contents but without causing a violent shock wave, it will deflagrate but, on a good day, it will not detonate. “Yes, it might make a massive fireball, but I’ve done it in jungles under a tree,” says Alford. “[With deflagration] the tree may lose most of its leaves, but with detonation, there is no tree.”

In the 1970s, he set up a makeshift laboratory in his suburban garage. There, he would experiment with making explosive charges, using measured quantities of material in different casings. He would leave his car engine running so any bangs could be plausibly written off as backfiring.

This cover story clearly didn’t wash with the neighbours, though, as first the police and then MI5 – “the most gentlemanly man” – came round to see why exactly a chemistry graduate they had never heard of was blowing stuff up in his suburban garage. When he explained himself to the security services, they put him in touch with the Ministry of Defence, and he was offered a contract.

***

Alford Technologies has a slogan: “For when you can’t afford to fail”. It also has an office in a business park outside Trowbridge in Wiltshire, but the real action happens at its testing ground, a former quarry amid the rolling hills of the Mendips, not far outside Bath. It feels like a cross between a scrapyard and a building site. “Here’s the bottom half of a Soviet mine, which we use as a brazier,” says Alford at one point, prodding it with a toecap.

Soldiers from various armies come here to learn about explosives and how to render them harmless. It’s vital work: last year in Iraq and Syria there were dozens of car bombs, with a single one in Baghdad claiming 250 lives. In Manchester this year an Isis-inspired jihadi killed 22 concert-goers and injured 250 with a backpack bomb apparently built from instructions found
on the internet.

Learning to counter such threats means understanding them; jihadists and other terrorists might have access only to basic materials, but many also display great ingenuity. When I ask why Alford has a packet of Tampax in his lab, he says the tampons can be dipped in liquid explosives and turned into cartridges: “I teach dirty tricks so they don’t get caught out by them.”

Sidney Alford’s contributions to the world of explosives rest on an unlikely substance: water. When he first began tinkering in his garage in the 1970s, engineers had already worked out a rough-and-ready way of disabling improvised explosive devices (IEDs). They used a gun barrel loaded with a blank cartridge to fire a jet of water that broke through the explosive’s casing and disrupted it. However, a sufficiently strong casing – say, one made of steel – could defeat this method.

In a low outbuilding in the quarry, Alford shows me his answer to this problem. Within a shaped charge, the force of a small explosion collapses a metal cone, turning it inside out and extruding it into a long, thin rod that shoots out at high velocity, about five times faster than a bullet.

The young chemist had an idea: why not combine the water from the older gun-barrel method with the accuracy and force of the metal jet in a shaped charge? In Alford inventions such as the Vulcan and the Pluton, the explosive charge shoots a targeted jet of water at high speed and with incredible accuracy.

Ho ho, you’re thinking. Water! Very scary. This is broadly what I thought until I saw one of Alford’s smaller shaped charges in action. After the demonstration with the hammer, he put on a pair of sturdy boots instead of brogues and we hopped into a small four-by-four to get to the base of the quarry. “Should I take my safety glasses?” I asked, even though we would be inside an old reinforced lookout hut salvaged from the Maze prison in Northern Ireland. “Oh no,” replied Alford. “If it goes wrong, it will kill you. No need to waste a perfectly good pair of glasses.”

The Vulcan is about six-inches long, with a case of grey plastic, and loaded with 30g of plastic explosives with a cone of water held in front of it. The explosive is “about two toasts’ worth of butter,” said Alford’s project manager, Matt Eades, who served in the Royal Engineers for 25 years.

Alford placed the charge above a 10mm-thick steel plate using the aluminium-wire legs as a tripod, inserted an electric detonator into the Vulcan, and we retired to the hut, whose thick, double-glazed windows gave a good, if smeary, view of the sandpit. “If you write a nice, ingratiating article about me you can press the button,” said Alford.

I pressed the button.

There was a significant bang, making me glad of my ear defenders, but the plume went straight upwards. When we ventured out to the sandpit, Alford practically skipped up the side and fished out the metal plate, now with a clean-edged circular hole punched straight through it.

This practical demonstration had followed a whirlwind tour of the various Alford Technologies products and a brisk explanation of the theory of explosives. Alford clearly enjoys naming his creations: the Vulcan sits in his display alongside the Krakatoa and the Vesuvius, which can also be used for bomb disposal and demolition. The BootBanger is so called because “it bangs car boots” while the Van Trepan cuts a neat, round hole in the top of a larger vehicle. The Bottler is not only shaped like a bottle, but named for the Australian slang “that’s a bottler”, which Alford translates as “the cat’s whiskers”.

Even the Dioplex, a linear charge that creates a chopping blade, has a story attached: “I thought it was a do-it-yourself device, but I thought ‘do it oneself’ sounded better. So: ‘Do It Oneself Plastic Explosive’.”

One of the things a trip to the quarry teaches me is that the ways in which humans try to kill and maim each other are nothing if not inventive. The company sells a version of a Bangalore torpedo, an old invention used by Alford’s own father when he fought in the First World War. This is a modular tube you can push underneath barbed wire, blowing it apart to clear a path for infantry. A stronger version was needed, Alford says, because of the advent of razor wire. “Barbed wire was soft steel, designed to keep in cows. Razor wire was designed to cut you.” The new Alford Bangalore Blade torpedoes through the wire coils, severing them using four aluminium cutters and creating an unobstructed 10m route through.

The Breacher’s Boot is a door-shaped panel filled with water, used to punch through walls in hostage situations. “It gives a ‘kick’ to the wall, so bits of it will fall down. You don’t want to use shaped charges then,” he says. “If there’s a person on the other side of the wall, you’d cut them in half. And if you simply used a mass of high explosive, the concrete would fly almost horizontally.”

A similar idea lies behind the Alford Strip, a sticky rope of explosives and tamping material used in terror arrests, where the police would once have used a sledgehammer to open a door, but are now much more worried about booby traps. You run the 25mm- or 42mm-long plastic extrusion down a door, window or wall and then lay a length of det cord far enough away from it to put service personnel at a safer distance.

Down in the quarry, having punched through one square steel plate, we now try ten taped together versus a 40g load of explosives and a copper cone. The result: a 2m-high flash and the same clean hole – although the jet doesn’t make it through all ten plates. It stops at seven.

This isn’t an error: the shaped charges can use copper, water, aluminium or magnesium, depending on the force and space needed. Magnesium is incendiary; water and aluminium might be chosen because they lose velocity very quickly. You cut through what you want to cut through, without damaging either the structural integrity of the object surrounding it or innocent bystanders.

This precision is particularly important in demolition work. Last year, Alford Technologies took over the contract to break up Didcot Power Station, slicing through steel beams to dismantle the decommissioned building. It was called in after a terrible accident on 23 February 2016, when four workers employed by a respected firm, Coleman and Company, were killed while trying to lay charges inside the structure. “There was this crash – I looked over my shoulder and saw the boiler coming down,” one of the survivors, Mathew Mowat, told the Birmingham Mail. “We ran in self-preservation – then there was a loud bang and a massive cloud of dust, we couldn’t see much for a few minutes.”

It took months to recover the bodies of all four missing men, who had to be identified from dental records and tattoos.

***

Over an Eccles cake in the main office, Alford tells me about some of his other jobs, including cutting up sunken ships in the Persian Gulf during the “Tanker War” of the mid-1980s, between Iran and Iraq, and joining a mission to retrieve £40m in gold bars from HMS Edinburgh, which sank in 1942 off the coast of Norway. (It was carrying 4,570kg of Russian bullion destined for the western allies.) The ship had been designated a war grave to stop it being plundered, and an air of mystery hung over the whole salvage project. Alford was told not to mention that he was an explosives expert.

Perhaps unsurprisingly, his work – and his anti-authoritarian streak – has caused conflict. “I’m doing things government departments ought to be doing,” he tells me in the car on the way to the quarry. “I’m in the anomalous position of someone who is quite admired, but also quite despised. Civil servants hate my guts.” When he was 40, he says, he asked for a formal job working with the department of defence, “and was told I was too old to have new ideas”. He set up Alford Technologies in 1985, and it now employs six people. The latest set of accounts at Companies House value the firm’s net worth at £2.3m.

Although Alford is scrupulously careful when handling explosives, he loathes health-and-safety culture. As we tramp round the quarry, he indicates a sign next to a pond, reading “Deep Water”, and tuts theatrically. He voted for Brexit to give the establishment a kick, not thinking it would actually happen.

It is a source of great chagrin that the government breathes down his neck, regulating what compounds he can keep and how he can keep them. “You have to have a licence for every substance,” he tells me in the car. “I’ve got them all. Well, it might be different if I wanted to go nuclear.”

 In 1996, he decided to make a stand against the pettifogging bureaucracy that, as he saw it, interfered with his work. Spooked by the thought of Irish republican terrorism, the regulators had insisted that he had to put a lock on his explosives store. “I told them that if the IRA really wanted to get my explosives, they would kidnap one of my family.” (He has two sons with his Japanese-born wife, Itsuko; the elder, 46-year-old Roland, now runs the business.) Besides which, he didn’t see why he should put an alarm on his few kilos of various explosives when the farmer next door had tonnes of ammonium nitrate fertiliser, a key ingredient in the IRA’s bomb-making.

The stand-off broke when his request to renew his explosives licence was turned down; soon after, the police came to raid his stores. He had tipped off a friendly journalist, however, and the visit was captured on camera and written up first in the local paper and then the Daily Mail, where Christopher Booker took up the cause of a Englishman’s inalienable right to keep high explosives in his shed. “I felt morally obliged to be prosecuted,” he says now.

The court case, documented in the newspaper clippings, sounds like a mixture of deadening legal procedure and high farce. At the magistrates’ court, Alford and a friend pursued and rearrested the next defendant, who tried to do a runner; when his case was kicked upwards to Swindon Crown Court, he turned up in an armoured Daimler Ferret, posing for photographs with his head poking out of the top, white hair tucked into a helmet. He was eventually charged with possessing explosives without a licence and fined £750, with £250 costs. The judge ordered the police to give him his licence back, but ticked him off for using the court system for political purposes.

Listening to this story, it becomes clearer why Alford never ended up in the warm embrace of an official government role. He offered his ideas to the Ministry of Defence, but he shows me a letter from April 1977, where an unlucky official reveals that he is “regarding your correspondence with diminishing enthusiasm”. Still, he is sanguine. “Most of my enemies have now gone to the laboratory in the sky, or retired,” he says. “I’m glad I didn’t work for them. Would I have fitted in? Probably not.” In any case, he has had some official recognition, receiving an OBE in 2015.

***

Alford’s work is used in war zones including Afghanistan, but also places like Cambodia, which are still riddled with unexploded ordnance from previous ground wars. Over the years, he has visited that country and Laos several times to practise new ways of dealing with old bombs. (The company produces a more affordable version of the Vulcan for non-military use.) He first went to Vietnam during the war; the last person, he says, to get a Japanese tourist visa into the country in the 1950s. The company’s brochures show smiling locals posing next to the sleeping monsters they have had to live alongside for decades.

But Iraq, too, is in dire need of methods to deal with cheap, homemade explosives. After Matt the Ex-Army Guy and Alford have demonstrated how to blow a door off its hinges, cut through a 50mm steel bar, and turn a fire extinguisher inside out – “that is unzipped in all known directions, it is a former IED,” says Alford, Pythonesquely – they show me the Bottler and the BootBanger.

They drag beer kegs into the boot of an old blue Nissan Almera, explaining that these were a favoured IRA device: who questions a few beer kegs in the street? First, they stick a Bottler between the front seats, showing how you would disrupt any electronics without setting the vehicle on fire – which would destroy forensic evidence. “They’d usually use a robot,” explains Matt. “And the robot usually leaves [the area], because they’re expensive.” A six-wheeler bomb disposal robot costs around £750,000.

We retreat again to the hut. I must be looking increasingly nervous, because Alford tries to reassure me about the building’s structural integrity: “If it tips over, it will take two weeks to get you out. But they’ll know where to find your body.”

As promised, the explosion is focused – and controlled, in the Alford-approved sense of the word. The windscreen is peeled back, lying on the roof, but the fuel tank didn’t ignite and the back windows are intact. “I know it might look like a mess,” says Matt, “but this would be classified as a result. You use a smaller bit of explosive to get rid of a larger one.”

Finally, it’s time for the big one. Matt slides the BootBanger, shaped like a suitcase, under the back end of the car. It has a curved sheet of 400g of plastic explosive through the middle, sandwiched by water on both sides and encased in nondescript grey plastic.

Now this is a bigger bang. I suddenly see the point of all those “Blasting!” warning signs that surround the quarry. If you drove past and heard this, you’d think the Russians had invaded. As an orange-red flame flashes and a deep, throaty boom fills the quarry, the beer kegs are fired out of the back of the car, pinwheeling 20 feet in the air and coming to rest yards away. Debris rains down on the roof of the hut. I swear I can hear the plinking sound of metal cooling. The car is now missing its back windscreen, and is, it’s fair to say, probably never going to pass another MOT. Nevertheless, it is still recognisably car-shaped; the skeleton is undisturbed.

Unfazed, Alford hurries to the car, and plucks a piece of paper from the boot, clearly left there by a previous owner. It is undamaged.

And then it’s time to rejoin the real world. As he drives me back to Bath, I ask Alford what it feels like to do what he does. He has saved possibly hundreds, maybe thousands of lives. “Yes, but in an already over-populated world,” he sighs.

I know he doesn’t mean it callously; he just doesn’t want credit for what, in his eyes, is barely a job at all. The schoolboy who wanted to make a bigger bang got his wish. 

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 03 November 2008 issue of the New Statesman, Israel v Hamas