What does Yanis Varoufakis mean by "surplus recycling mechanism"? Yanis Varoufakis, the current finance minister of Greece, talks about a "surplus recycling mechanism", a term he coined and uses to describe (as I understand it) a relief valve for economies running a surplus.

While I haven't read his book, I watched some of his talks and read his blog posts. I couldn't quite figure out what he means by this. Could someone please explain what he means by "SRM", and why he considers it important, crucial even, to prevent major recessions?

Here's what I've figured out so far. The surplus being talked about is the trade surplus. That is, countries which export more goods than they import run a surplus, and get a net influx of cash (or, in the past, gold). This cash can either be hoarded, or reinvested. Internal expenditure is ignored as irrelevant, as only the interactions between countries are being looked at. If hoarded beyond a certain breaking point, bad things happen. A surplus recycling mechanism compels a country to reinvest the cash overseas.

Or so it seems. Is my understanding of what "SRM" means correct? Also, if so, according to Varoufakis (or Keynes, who apparently had the exact same realisation around WW2 time), how exactly does hoarding without bound cause bad things / recession?

It would also help to know whether Varoufakis' ideas / interpretations are widely accepted by mainstream economists, currently being debated, or are a fringe/minority view.
"Surplus recycling" is a term coined (to my knowledge) by Varoufakis to describe the fact that a country that enjoys a trade surplus should reinvest the surplus in the domestic economies of its trading partners. Such a policy was conduced with success by the United States in the years following WW2, where the Marshall plan and similar policies in Asia took place, mainly for political reasons.

As Varoufakis states it, there is no reason for the market to proceed to such a transfer, yet it does sound reasonable to keep trade partners in good shape.

In Europe, Germany's trade surplus is notable for being the only important European surplus. Surplus recycling is one way the Greek government is trying to get Germans to feel right about handing out money to European countries that are struggling with their economy, another infamous attempt being WW2 reparations.

I believe you're somewhat wrong in your interpretation because the question here is not whether to reinvest or not (this is a problem which is well treated by "classic" macroeconomics), but where to reinvest the money. The alternative is hence between domestic and foreign investments, and there is no known economic mechanism that supports foreign investments unconditionally. Varoufakis work aims at fostering foreign investment from Germany to southern Europe. I don't see anything controversial in his definition, but he is defining a policy, not a model.

The problem with solely-domestic investments is that, on the long term, it weakens trade partners, which weakens domestic economy in turn. I don't think there is much debate among the fact that trade balance is not a self-correcting problem. The real debate (and it's political for the moment, an open field for economic research) is on what end the policies to solve the problem has to be carried: the one for which it is easier to solve (Germany), or the one for which the problem is worse (Greece).

The amount of money we're talking about is sizable to say the least, and can be viewed here as suggested in a comment.