Yanis Varoufakis is a heavyweight academic economist with a rare combination of style and substance. He talks to The Mint.
Economics professor, Yanis Varoufakis, describes himself as a “failed finance minister of a failed state called Greece.” This, the once senior politician who rocked up to a meeting at 10 Downing Street wearing what was described by one journalist as a “drug dealers’ coat,” is flamboyant even in his self deprecation.
Varoufakis appeared on the world’s screens when Greece’s financial calamity hit the news in 2010. His eventual defeat in a tussle with Greek’s creditors and resignation after only six months in politics established his significant political and media clout.
Having stood toe-to-toe with Europe’s bastions of neoliberal economics, does Varoufakis subscribe to the pocket analysis that says after 30 years of the neoliberal school’s dominance in the West, its credibility has been shot? He does; “to some extent.
“Of course I’d put it slightly differently. For me, neoliberalism was never an economic programme. It was always an ideology, like Marxism,” he says. He says the Politburo in the Soviet Union used Marxism to justify their actions, “But, Karl Marx would have had nothing to do with them had he been alive.”
Similarly, he believes that while Margaret Thatcher believed in neoliberalism, she rarely practised it. What she did, he says, had nothing to do with the theories of Friedrich Hayek: “Hayek would have been aghast at the growth of the British state under the Conservative party.
“Even the powers that be do not believe in their own legitimacy.”
“Neoliberalism was, for me, an ideology that provided a cover for financialisation,” says Varoufakis. “Not only in banking, but also the financialisation of real estate. The sale of council houses, which then became part and parcel of the whole financial dynamic.
“Once that collapsed in 2008, the ideology began to start withering. That’s my explanation of what went on. Who are the new liberals today? I don’t know.” He characterises the current Chancellor as simply doing, “whatever he can to keep a sinking ship from sinking,” rather than following any guiding tenet. And that principle of untethered self-preservation, according to Varoufakis, differentiates the current government from the Thatcher administration.
“Thatcher actually believed. She was prepared to go out there and visit working class people and preach to them that, smaller state, privitisation and more competition was going to make them happier and richer. Now you don’t have that. Now, what you have is a regime that has cynically shifted the burdens created by the bursting bubbles of financialisation onto the poor, while at the same time, reducing health and taxes; just very brutish stuff.
“I don’t think they even think that they believe in what they’re doing. I think they are simply doing it because they can and because it’s in their interests. I believe Reagan and Thatcher and Keith Joseph and these people, believed that their policies were serving the common good. Now, you have very cynical political moves. I saw them in the Euro group at their worst. People are coming to me and saying ‘you were right. But, we’re going to crash [your government] anyway.’ Thatcher would never have said to somebody like me – that I was right but she was going to do it anyway. Never. She considered herself to be right.”
“Every single economic prediction that they had ever made was lying in ruins.”
Varoufakis sees this pattern in which “even the powers that be do not believe in their own legitimacy,” as a measure of the extent to which the government is undermined: “That just goes to show the depth of the crisis,” he says. And while he sees the current degree of political atrophy as promising change, he is no more than hopeful that the change will be for the better and he says any prediction he might make “would not be upbeat.” He emphasises that he remains “forever hopeful” and insists that there is “no evidence on which to base optimism.
“You should never lose hope. Optimism is a very poor cousin of hope,” he says.
So was his time away from his academic career to be Greece’s finance minister a piece of action research into the Greek economy? “There was nothing I could possibly learn about the economy from this,” he says, adding: “I learned that [politicians] can be worse than I expected them to be at the political game.”
His part in addressing Greece’s debt crisis, “had nothing to do with the economy whatsoever. It was a power relationship,” he says. “My short but intense tenure could not teach me anything about economics. It taught me about naked, brutish, gunboat diplomacy-like power.”
He describes his experience as “all about a tug-of-war between me and my team on the one hand, and the creditors on the other. I was putting forward proposals to them that would be beneficial, financially, to them. And they were not interested.”
He says they were acting against the economy. “They had in the first Greek bailout in 2010, effectively shifted the burdens created by the financial sector, and in particular the French and the German banks, onto the shoulders of the taxpayers. So, they took losses that could not be retrieved from private agents, and they pushed them onto the shoulders of taxpayers.”
“I’m most probably going to fail. But, so what?”
At that point, according to Varoufakis, it became a political battle and while it had “huge economic impact” it ceased to be about economics. “It was a political game with economic repercussions,” he says. While Varoufakis accepts much of the impact on any economy comes from political decisions he maintains that the events of 2010 were extreme examples of that process.
He compares Gordon Brown’s actions to rescue the UK banks in 2008 with Greece’s position. He says the Bank of England’s independence of Brussels meant it could print “a hell of a lot of pounds” so the bailout did not require the severity of austerity measures Greece had to endure “to pretend it was paying its debts.” In contrast he describes his experiences during his tenure as a Greek minister between January and July 2015: “It wasn’t my economic arguments against their economic arguments. There were no economic arguments. The standard narrative that came down upon me: ‘These are the rules; this is what we’ve decided. If you don’t go along with it, you’ll be crushed.’ ”
“If they went ahead and threw us out, they would have violated almost every treaty of the European Union to do it.”
Varoufakis says he was not surprised by the nature of the EU’s political behaviour but he was unimpressed with its quality: “I knew exactly what was going to happen. I was hoping that they would be a bit more nuanced, and they would try to cover up their brutish political gaming by means of economic arguments. They didn’t even bother to do that. That was a surprise.”
And he insists that despite acting out of self-interest in “crashing” the Greek government, they failed to achieve those aims. His contempt is clear: “Look at them, they’re still locked in a Greek programme, which is not going anywhere. Every year they hail the recovery. In 2016, they even celebrated the first increase in GDP in the history of Greece since 2008. In 2017, they revised their estimates and they showed another 1.2% reduction in GDP in 2016. They will do the same thing in 2017.”
He says the politicians’ abandonment of any attempt to justify their actions was largely the product of weariness: “By 2015 I think they had given up. Seriously, I think they had given up. Every single economic prediction that they had ever made was lying in ruins.”
He describes as “just a joke” the decisions made by the European Central Bank and the International Monetary Fund. “I don’t believe that macroeconomics and microeconomics has ever produced more failed estimates than the estimates about Greece’s path following the bailout in 2010.”
And Varoufakis argues that the long-running sequence of bridging loans is not the only way the Greek programme has backfired. He believes that the recent tailspin in the fortunes of German chancellor Angela Merkel culminating in her failure to secure a coalition government has its roots in the Greek tragedy.
Greece’s prime minister, Alexis Sipras agreed to the bailout terms following intense pressure – described by Varoufakis as “17 hours of water boarding” – from EU officials with Germany seen as the chief tormentor. Varoufakis says, “Merkel’s image in Europe suffered significantly. Even within Germany, even though they were happy to have won against the Greek government, still she didn’t come out looking good, from that episode,” he adds.
Varoufakis agrees with the widely held view that her decision to open Germany’s borders to Syrian refugees brought on her demise. But he believes that the move was an attempt to recover her reputation that was tarnished by her government’s treatment of Greece.
“She had multiple arguments or reasons for letting them in,” Varoufakis says. “One was, the shortage of labour supply in Germany. But it’s my considered opinion that there was also a question of restoring her own image as a humanist, after what she did to the Greeks.”
The Mint put it to Varoufakis that there may be value in another popular view which is that Greece is a basket case, and had its government done better in addressing the weakness of the institutions, the tax raising powers, and so on, it might have won a better deal. “That’s rubbish. Complete rubbish,” says Varoufakis. Greece’ parlous position in 2010 was, he says, the product of bankers who couldn’t spot a bad debtor.
“I’m not going to defend the malignancies of the Greek state, but Greece has always been in a state of disrepair, always. We went into debt before we became a nation,” says Varoufakis. “The first debt was incurred by the Greek rebels in 1822 (five years before the first Greek state was created). In 1822, the rebels’ representatives came here to London, and they got a huge loan from David Ricardo. And of course, only 40% of that loan ever reached them. The rest was fees and interest, paid in advance. It was a scandal.
“But, Greece has never had a period of eight years of recession, despite all the corruption, tax evasion, you know, third world, under-developed institutions and all that. The reason why we have an eight-year old recession is because of Europe. And because of the bailout.”
He argues that had Greece not been in the Euro it would have had significantly less borrowing at the time of the 2008 crash. Why? “Because I would not give so much money to Greece with the Drachma. It was only the membership of the Euro, that made the German and French bankers, idiotically, think that lending to Athens or to Stuttgart was the same.”
So is there any hope for Greece in the Euro? “How can there be hope?” he responds. Varoufakis lists the squeeze on people and businesses including business tax upped to 30% with a 100% prepayment of the following year’s tax, this year, every year, “with no access to a creditor system so they can’t even borrow money.” In neighbouring EU member, Bulgaria, business tax, he says, is 10%, with no prepayment. And businesses are moving to Bulgaria where they can trade in Greece with no border and he estimates that on adding social security contributions, Greek business pay 75% of their profits to the state. And there is, he says, an exodus of capital and labour with young, well-educated people moving to England, Australia, China, India, Bangladesh and Latin America.
“This is like trying to destroy the country,” Varoufakis laments.
Britain’s exit from the EU was long-held to be the way forward by one-time backbencher now leader of the opposition, Jeremy Corbyn who has Varoufakis’ support. Varoufakis believes Corbyn has “refreshed his ideas.”
He praises the Labour leader for his courage particularly in his presentation of some of the complexity in the remain argument in the face of populist rhetoric from the rest of the remain campaigners as well as the pro Brexit camp who sought to “infantilise the audience,” according to Varoufakis. “It’s one thing to say we shouldn’t have gotten in; it’s another thing to say we should get out. This is to confuse tactics and dynamics. I think that Jeremy has learned that lesson. He took many hits as a result of this. It shows that he has moved on.”
“I’m not going to defend the malignancies of the Greek state, but Greece has always been in a state of disrepair, always.”
On the grounds that “one should be critical of one’s friends,” Varoufakis says he would like Corbin to be “more energetic” and “less of a Labourite.” He describes Labour as “a sectarian, small-minded party, like most parties are,” and urges Corbin to “rise above that to become a national leader.” And he counsels Corbin to forge ties with the likes of the Green Party and the SNP in a “progressive alliance.”
Varoufakis raps Labour for a “run of the mill” manifesto offering “nothing particularly radical” in its economics. But he says there was “some good stuff” coming from Labour on investment “to create good quality jobs in the green transition and green energy sector that Britain needs.” He commends the proposal of a public investment bank on which he said he had canvassed with shadow Chancellor, John MacDonald. The privately owned bank would issue bonds to “soak up” global excess liquidity “with the Bank of England buying them in the secondary markets to make sure that the yields are kept low,” Varoufakis says (see box, The easy answer). “These are things that Corbyn and John McDonald have been considering and to some extent, embracing. So, for me, that was important,” he adds.
His alliance with instinctively Euro sceptical Corbyn is intriguing in that Varoufakis’s pro European view is a the level where he sees “a rise of misanthropy, xenophobia and toxic nationalism,” which, if not halted threatens “a return to the 1930s.”
“I was so loathed by the creditors, and so vilified by their friendly press, because they understood what I was up to.”
In 2015 he founded the Democracy in Europe Movement 2025 (DiEM25) – a pan Europe group of about 100,000 people. “We’re not a confederacy. We are not an alliance of nation-based groups. We are one unitary, homogenous movement that takes different positions in different countries. We take these collectively, as Europeans,” he says.
“You can stand as a member of the Greek national committee of DiEM, if you’re German. We’re thinking very seriously of criss-crossing the boundaries in the European Parliament election, so having a Greek running in Germany, or a German running in Greece, or an Italian in France, to show that another Europe is already here. At least within our ranks.”
In an echo of the “sophisticated and wise” contradictions he values, Varoufakis declares his pride to be Greek. “I’m thoroughly Greek and very proudly patriotic, but I don’t need to be parochial in order to be patriotic. I don’t need to be nationalist to be patriotic. I don’t need to believe that my country is better than anybody else’s. I don’t need to believe that we need to barricade ourselves behind our borders.”
Varoufakis calls himself an “Economics professor, quietly writing obscure academic texts for years, until thrust onto the public scene by Europe’s inane handling of an inevitable crisis.” But this is not true.
He is probably incapable of doing anything quietly. And he jumped. It’s inconceivable that anyone might thrust him into anything. He wants to instigate change and he’s looking for a way. The Mint asked him: “Are you not hoping to do something quite incredible that’s going to probably take much longer than the rest of your life?
“Sure,” he said, “and I’m most probably going to fail. But, so what?” He is genuinely cool.
Varoufakis has the credentials to be an international voice for political or economic change. Following an appearance on BBC’s Question Time his ability to explain sparked an observation that he spoke in English – his second language – with greater coherence than other panellists did in their first. He has been acknowledged as “knowing more than anyone” about game theory. He is appreciative of challenging art – his wife is an installation artist. And he hangs with the likes of Brian Eno.
But here’s a sad thought: while Varoufakis might be equal to the task of delivering a cogent case, rich with dialectic, for a new regime, his voice might be lost under strident, populist arguments that ring true to the common people.
The easy answer
A growing debt overhang, quantitative easing with a Eurozone injection of €600 bn in 2015 and liquidity of some $900bn smells a bit like impending crisis. Who might come to the rescue this time? Varoufakis points to the US in the 1930s under Franklin D Roosevelt (FDR).
He explains: “There’s a fundamental difference between, 2009, when the G20 came together, and now. In 2009 all they had to do was to agree to print lots of money. That’s what they did in 2009. But now, we have excess liquidity. Now, they have to come together to do a new deal together. What was the FDR New Deal about? It was about soaking up excess liquidity and putting it into investment.”
The measures can, Varoufakis says, be fiscal as was the FDR deal, but he favours the establishment of a public investment bank, operating on banking principles, but soaking up the liquidity by issuing bonds directly to avoid the need to raise taxes and with the support of the central banks.
“If there is a joint press conference of the public investment banker, the government representative, and central bank representative and the government says: “Look, this is what we’re going to do.” 5% of GDP is being invested into A, B, C and D. It’s going to be done through bonds that the public investment bank is going to issue and the central bank is going to support it in the secondary markets. End of story.”
He says there is gathering urgency for a public investment ban for three reasons: “climate change, Vladimir Putin, who’s controlling us through gas pipelines and thirdly, the access to liquidity, which is crushing pension funds.
“This simple idea would deal with all these things at once, without any taxation.”
Varoufakis doesn’t know why Britain is not following his advice. But suspects it’s through a “false sense of security” garnered from Bank of England’s success and the spectacular failure of continental Europe to deal with crisis. But he offers an interesting insight into the European Union’s reticence.
“When I was minister I was, de facto, a governor of the European Investment Bank (EIB). I put forward this proposal to the board of governors of the bank and I was astonished that the EIB’s German president, Werner Hoyer actually spoke very much in favour of my proposal.
But he never got a green light for it from the European Council. Why didn’t it make it? because it didn’t get the green light from Angela Merkel. So, the question is, why is Merkel not giving the green light? because Germany’s finance minister, Wolfgang Schäuble, blocked it.
“The reason why he blocked it, was explained to me by Schäuble himself. He said his number one concern was how to enforce upon the French, German control over their national budget. So, for Schäuble anything that gave more breathing space to Paris, was inimical to his project of exerting control over the national budget of France.
“So, an investment policy that would have been good for Europe, to the extent that they would have given more degrees of freedom to Paris was inimical to this Franco-German war to the death. It concentrates the mind, doesn’t it?”