Raza: Yanis Varoufakis is a world renowned economist and a former member of the Greek parliament.
He was Minister of Finance for 7 months and resigned shortly after the people of Greece voted overwhelmingly
against the continuation of austerity policies imposed by the Troika. He is a also professor
of economic theory at the University of Athens and the author of numerous books, the latest
being, "And the weak suffer what they must? Europe's Crisis and America's Economic Future."
Yanis Varoufakis, thank you for joining
us today.
Varoufakis: Thank you! It's a great pleasure!
Raza: So I want to start of with some historical context. In your book, the Global Minotaur,
you state: "There is no such thing a as Greek crisis but rather that Greece is symptom of
a broader shift in global economic history". Do you think that policy-makers
and everyday people should revaluate their understanding of the crisis? And can you also
take us through history and help us understand this?
Varoufakis: Imagine we were in 1930
in South Dakota or in Delaware and we were
discussing the Delaware crisis or the South Dakotan crisis, it would be absurd! Of course
South Dakotans were suffering, of course the weakest part of the United States of America
were in dire states but the crisis was a crisis of global capitalism and in particular of
American and if it were not for the New Deal that Franklin Delano Roosevelt introduced
throughout the United States, and if it wasn't, even worse, I should say, for the second World
War which lifted aggregate demand and ended the crisis that had been unleashed by the
financial sector collapse in 1929 - then that crisis would have continued, similarly, Greece
is the weakest link in the European chain
- therefore it's the first domino to have
fallen and it has fallen very badly for the
Greek people - but to think of it as a Greek
crisis is to misunderstand, misconstrue, what's been going on.
There is one crisis - the crisis of the Eurozone
and it takes many different forms. So for instances here in Germany, where
we are now speaking, it takes a form of negative interest rates, so if you a pensioner you're
pension fund is in trouble because they cannot
invest your money and get interest in order
to add to your capital for a rainy day for
when you retire. In places like Ireland, you
have a dual economy: You have the Irish who have managed to be connected to Facebook and
Google and they are doing reasonable well and the others were not and they are doing very badly.
You have a situation where France has a debt that is unsustainable as we speak and a budget
deficit which cannot be contained without
creating greater social tensions and possibly
giving rise to a Marine Le Pen presidency.
All of these are part of the same crisis and
until and unless we look at it as one crisis
with a view to identifying the causes of this
crisis and the remedies for this crisis as
a whole, we are going to be continuing along
the path of denial, the price of which is
Europe being the sick of man
and woman of the global economy
Raza: So you state that it was the fall of
the Bretton Woods System that occurred and
that America turned into a deficit sucking
up all the capital surpluses of the world
and it played as a recycler, if you want to
put it that way, of people's labour or profits
- and it was the collapse of this system,
this recycle mechanism, that Wall Street
played that led to the European Crisis today - is that an accurate depiction?
Varoufakis: Let me restate, yes, but let me
restate it using my own words. Capitalism
requires surplus and recycling - just like
the planet requires environmental recycling - so does capitalism require a mechanism that
takes the surpluses, the profits if you want,
from where they are being produced and invests
them in areas that are in deficit, that have
losses, where demand
is low and unemployment is high. Unless you have this recycle mechanism capitalism
fails. These recycle mechanisms are part and parcel of every major state or have been for
200 years now: Germany had it, Britain has it, so think of Yorkshire as a deficit area
and London as a surplus area, unless you have the British state recycling those suprluses
from London to Yorkshire - the English Union breaks down - and that applies to the global level as well.
The American understood this perfectly well as we were exisiting the second World
War and this is why they setup Bretton Woods.
Bretton Woods had two pillars: 1 was stability of foreign exchanges, exchange rates - managing
the value of money throughout the global capitalist economy - that was one pillar and second
pillar was recycling. For the
first 10 to 15 years of Bretton Woods, the
American were recycling their own surpluses. They were the only surplus country frankly,
Europe was in ashes after the second World War. And the Americans, think of the Marshall
plan, it was not a philantrophic exercise, there was an element of philantrophy, an element
of geopolitics pushing the Soviets away from the heart of Europe, but from an economic
point of view, from a marcoeconomic point of view the purpose of the Marshall Plan is
to take Dollars suprlus from America, give
it to the Europeans so that Europeans could
buy American exports and this lasted as long as America had a surplus but towards the mid
to the end of the 1960s America lost its surpluses, and there was a great worry in Washington
DC at the time. How can we remain dominant if we had no surpluses to recycle? And the answer
that they gave, people like Paul Volcker, was brilliantly simple and audacious - and it
was okay - if we can't recycle our own surpluses because we don't have any we will recycle
other people's surpluses. So from the 70's
onwards with the collapse, the willful destruction,
by the Americans who have created Bretton Woods of Bretton Woods, what we have was a
second post war phase, where American operates like a huge vacuum cleaner - it sucks into
its territory the exports of Germany, of Holland, of the oil exporting countries, of oil in
other words, with Japan later China - and
how is it paying for this deficit? By sucking
into Wall Street the profits of those companies of the foreigners. So it was recycling other
people's money, other people's surpluses,
and it was doing this magnificently and audcaiously
up until 2008 and until the financilizations
bubbles that were built on these capital flows
to Wall Street exploded and since then this recycle mechanism worldwide is broken down and
we have a global crisis. Europe, because we tried to create a mini-Bretton Woods here,
with affecting to the Europe, but without
the recycle mechanisms within Europe, we are
the sick man or woman of the global economy because we don't have
this recycle mechanism within our territory
Raza: So it's not social security programs,
it's not inflexible labour markets - this
is the root of the crisis if I understand
you correctly?
Varoufakis: Let me give you a very simple example because
if you can't explain this simply - you don't understand it, it's very simple.
Compare Nevada and Ireland. Two states that are very different in terms of asthetics, one
is green the other is desert, but in terms
of population more and less the same.
The economy is based on low corporate tax rates on financial companies, on real estate - very
similar to Ireland. Now compare and contrast to what happened to in 2008 in Nevada to what
happened in Ireland and do it by imagining that the dollar zone in the United States
of America was structured like the Eurozone. What would have happened to Nevada? I'll tell
you what would have happened: If America was structured the way Europe is, catastrophic
in other words, okay, what would have happened is this:
The first thing that went wrong in both Nevada and Ireland was that Real Estate
went down, prices collapsed, developers lost their money, they couldn't pay the bank, the
banks went bust. Right? The difference was that in the United States was the Fed, the Federal
Reserve, and the FDIC (Federal Deposit Insurance Corporation) that salvaged the banks in Nevada.
If the state of Nevada had to borrow internationally in order to bail-out the banks and pay for
the emloyments benefits of the construction workers like the Irish had, then the state
of Nevada and the banks of Nevada and the economy of Nevada would have gone down the
drain and then there would have been domino-effect throughout the United States. This is exactly
what happened in Europe. We have a common currency but we don't have these shock absorbing
recycle mechanisms that the United States has developed over a period of 150-180 years.
