An interview with Yanis Varoufakis concerning the current crisis of the Eurozone.
Yanis Varoufakis, a former finance minister of Greece, is leader of the MeRA25 party and Professor of Economics at the University of Athens.
Cross-posted from Yanis’s website
Edited by BRAVE NEW EUROPE
What did you think when the Euro-group elected its new leader last week? Was this the outcome German chancellor Merkel had wished for?
My first thought was that it spelled the end of any possibility of harmonising corporate tax rates across the Eurozone, an issue on which I am on Ms Merkel’s side. The second thought was that the Irish finance minister’s victory was a victory for forces pushing for greater, not less, austerity across the European Union. It was not a good moment for Europe. [From the above you can see that I never automatically opposed whatever Ms Merkel favours!]
If you look at fiscal and monetary politics in the Euro area today – what is your impression? Have the Europeans learnt a lesson from the Greek crisis?
To begin with, please let us not conflate Europe’s rulers with the… Europeans. Turning now to your question, Europe’s leaders resemble the Bourbons: they have forgotten nothing and they have learned nothing. More precisely, while the ECB’s monetary policy reaction has been far improved since Mario Draghi succeeded the catastrophic Jean-Claude Trichet’s, however monetary policy has long ago reached the limits of what it can do. So, the only thing that matters now is Europe’s fiscal policy.
Our fiscal stance remains the most tepid and the weakest amongst developed economies. It must be considered yet another dereliction of duty for two reasons, one ex ante and one ex post.
The ex ante failure has to do with policy in 2020: Taking out all the loans provided to business (that are irrelevant fiscally), the fiscal injections into the EU economy are: (a) small overall and (b) hopelessly lopsided, with Germany on the one hand pumping a great deal more fiscal power into its economy while Italy and Spain cannot – the result being a magnification of Europe’s greatest weakness: our internal imbalances.
The ex post failure stems from the demise of the idea of a Eurobond – the only instrument that could prevent, in 2021 or 2022 (when the fiscal compact is re-energised) massive new austerity in countries like Italy and Spain. Since the budget deficit of these nations will exceed 10% of GDP, you can imagine that the fiscal consolidation necessary to return to the fiscal compact is going to produce a further increase in the imbalances that have been tearing the Eurozone apart since 2010.
You are very critical of the European Recovery Fund. Why?
For at least three important reasons: First, it was devised as a substitute to the Eurobond, which it is not. Secondly, because its structure is divisive and likely to cause greater disunity among Europeans. Thirdly, because it will be too little and it will come too late to counter-act the new austerity that the re-introduction of the fiscal compact will bring. Let me explain these three objections in greater detail.
While it is true that the Recovery Fund involves a degree of common debt, it is explicitly (and legally) designed as a one-off debt with specific details on how and when it will be repaid. Thus, we have wasted a fantastic opportunity to create the equivalent of US Treasury Bills, which is what makes the dollar powerful and the United States far better placed to absorb shocks.
Moreover, I am appalled that the Commission specified in advance, based on backward looking data, which country will receive how many billions. It was an awful thing to do because it set one country, one people, against another. What we needed was a sum that would be diverted to regions in Europe most in need of support. There are poor parts of Germany that will be harder hit than richer parts of Spain. The total sum available should be distributed ex post on the basis of the needs of particular European regions and sectors, not by means of the usual sordid bargain in Brussels that divides a pie between governments.
Lastly, this Recovery Fund will do very little to ameliorate the austerity that the re-introduction of the Fiscal Compact will necessitate. It will fail in the same way that the many billions of the structural funds failed to ameliorate the effects of austerity between 2010 and 2016.
What consequences will the Fund have in Europe?
It will entrench the false view in Northern Europe that it was all about hand-outs to the Southerners while, at once, entrenching the false view in Europe’s South that the whole of the North benefits from pushing the South into greater impoversihment.
What will happen to the working class people in the Euro-Zone?
It will continue to watch its prospects decline both in the North and in the South while the financiers and the members of the boards of directors of large companies enjoy the fruits of socialism for the oligarchy and stinging austerity for the majority of the Greeks and of the Germans.
Will the consequences be different for Greece and Germany, aka South and North?
Yes and no. Workers in the North and in the South will be facing increasing precarity and will be getting angrier and more discontented. Except that the rate of deterioration will be much greater in countries like Greece, the result being the continuation of the mass exodus of young people which makes our countries of the South impossible to sustain as functioning societies.
What role are the “frugal four” playing – isn’t it legitimate to keep in mind the public debt in each country?
Governments have a duty to defend their people from a number of threats. One of them is excessive public debt. But, there is also excessive private debt. And, even more ominously, low investment that jeopardises a nation’s chances to repay both private and public debt. The so-called frugal four are working in favour of large conglomerates that want to eat their cake have it: They like the effect Italy and Greece are having at keeping the exchange value of the euro low (so as to maximise their exports, eg, to China) and the interest rates below zero (so as to get free money from the ECB). Like all free-riders, they take what suits them but then take no responsibility for the damage that the policies favouring them do both to the South and to their own working classes (which find themselves increasingly squeezed and indebted as part of the same process that squeezes and pushes the South further into debt).
You frequently speak of “oligarchs” – who are they in Europe?
In the early fifties, when the EEC was first created, they were the captains of the steel and coal industries. Soon after, they were joined by the electrical goods industries plus the automakers. In the 1980s the captains of industry were increasingly sidelined by the bankers who, by 2008, had ended up as the masters of Europe’s destiny.
Can the European oligarchs at least provide new jobs and/or be competitive with the US or China?
Absolutely not. The capacity of European financialised capitalism to produce good quality jobs is at its nadir and is getting worse and worse due to the EU’s failure to create the public finance instruments that DiEM25 has been proposing for years now – e.g. a joint European Investment Bank and European Central Bank program by which EIB-bonds can be backed by ECB-bonds to mobilise idle cash (that is currently destroying German pension funds) and turn it into green investments.
Most observers have no doubt that there will be austerity in exchange of money from the fund. What austerity else can Greece bear, keeping in mind the sacrifices that have already been made?
This is like asking a patient nearing death as a result of having been subjected to massive radiation how much more radiation she can take!
What is the current state of the Greek economy? Debt is still at 180 percent, despite 200 billion Euro for bailing out the banks?
Greece’s debt is unpayable not despite but because of the banks’ bailout. Since 2009 I have been saying that Europe’s rulers, and this is where I do blame Ms Merkel, cynically saved idiotic bankers by transferring their losses onto the shoulders of Europe’s weakest taxpayers. Ms Merkel, Mr Sarkozy, the troika and everyone else who has maintained this crime-against-logic for a decade will forever by guilty in the conscience of Europe’s progressives. [And, by the way, Greece’s debt is now well about 200% of GDP!]
What will Europe look like if the Recovery Fund really delivers on 750 billion Euro?
Sad and divided. For a start, of these 750 billions, 250 billions will be loans. The last thing Europe’s devasted businesses that are facing insolvency need are more loans – Greece’s fate provides a great lesson to those who refuse to recognise this simple truth. As for the remaining 500 billions, more than 100 of them are re-purposed funds (i.e. not new money) and another 200 will be sacrificed to buy the frugal four’s consent. That leaves us with, at best, 300 billion. It sounds a lot but it is puny. Over three years it comes to less than 1% of GDP. Given that the austerity that Berlin will demand and Brussels will impose will be more than 4% of GDP over the same year, the only conclusion is that, as the pandemic (hopefully) subsides, European capitalism will be inflicting another unnecessary blow to itself – just as in 2010.
In your view – what would be an adequate program to cope with the Corona-devastation?
DiEM25 has already answered this – our 3 point plan.
The ECB must issue a long-maturity, 30-year, Eurobond for €1 trillion euros solely backed by the ECB, with the possibility of further issuance in needs be. This €1 trillion should then be used to replace national debt, in proportion to the coronavirus-induced regional recessions & public health costs.
The ECB must inject a €2,000 European Solidarity Cash Payment to every European resident
The EU must create a European Green Recovery & Investment Programme funded by EIB bonds approximately equal to 5% of the EU’s GDP, to be backed in the bond markets by the ECB.
You are talking about “class war”. Are we already there?
We have been there since 2010. The austerity imposed upon Greece in May 2010 was the first move toward a fiscal consolidation in Germany (and all other countries) that shrank German workers (and every other European working class’) total income and job prospects.
What should the workers and/or leftist parties do to stop the class war? Or will they have to fight? And can they be the winners?
Form a transnational, pan-european movement with a single economic agenda that we campaign for in Holland, Finland, Germany, Greece, Italy, everywhere. This is what we at DiEM25 have been working towards. Can it succeed? Yes, it can. Will it succeed? It depends on us.