An interview with one of the most discussed and unconventional greek economists, who did not hesitate to challenge the current official approach to dealing with Greece’s huge debt and propose his own distinctive ideas for dealing with the crisis.
Q. In your blog, you state that Europe is not only in an economic crisis, but also in an existential crisis. Could you elaborate on this idea?
A. The idea of ‘Europe,’ not to be confused with the continent itself, acquired considerable potency after 1945 as a ‘space’ that promised shared prosperity, a bulwark against authoritarianism, and greater democracy. As a young person, growing up under Greece’s military democracy, ‘Europe’ resonated in my mind with this dream of a safer, more prosperous open society in which people speaking different languages and indulging different cultures could be united. I suspect that the peoples of Eastern Europe in the late 1980s, as well as Turks a decade ago and Ukrainians more recently, saw ‘Europe’ through the same prism.
However, in the early 1990s Europe opted to set up the Eurozone which, as a monetary union, was badly designed and ill-equipped to sustain a large scale international financial crisis. So, after Wall Street’s collapse, the Eurozone’s faulty architecture spawned an economic crisis which is our era’s Great Depression. The European leadership’s response was to deny that the Eurozone’s design was at fault and imposed a frightful mixture of huge loans and harsh austerity in order to prop up the collapsing and fragmenting monetary union. It was an impossible task that caused a deep crisis of Europe’s real economy.
The only way of maintaining these inane policies, in the face of the immense social costs that they were causing, was to adopt increasingly authoritarian governance, especially in the European periphery. As the Eurozone is a large portion of the European Union on which the latter’s future depends (as it is impossible for the EU to survive the collapse of the euro), the repercussions of the euro crisis are being felt even in parts of the EU that did not espouse the euro.
The depression in the periphery, combined with powerful deflation in the core, have combined over a period of four years to turn ‘Europe’ from from an idea that exuded the promise of shared prosperity to an iron cage in which its peoples are feeling increasingly incarcerated. The existentialist crisis that I mentioned was a direct repercussion of this ‘transformation’ and produced the awful results of the recent European Parliament elections which constitute proof that the only beneficiaries of the crisis, of the austerity policies that reinforce it, and of the authoritarianism which is necessary for their implementation, are the xenophobes, the racists, and the bigots for whom nationalism is the last resort.
“The depression in the periphery, combined with powerful deflation in the core, have combined over a period of four years to turn ‘Europe’ from an idea that exuded the promise of shared prosperity to an iron cage in which its peoples are feeling increasingly incarcerated.”
Paradoxically, Europeans in the centre of the European Union are inimical to its institutions while, at once, those outside the EU (e.g. Ukrainians) are still attracted to its long forsaken promises. Just like the Roman Empire, whose borders were expanding at a time when its core was crumbling, so too the EU is facing a genuine, existentialist angst; a struggle for its meaningful survival at a time when its borders continue to expand.
Q. Last year, you gave the keynote speech for the Modern Greek Studies Association conference at Indiana University. You covered your personal experiences discussing the crisis under the media spotlight, and stated that your “greatest personal loss was the loss of the illusion of isegoria.” Please explain what you meant by that, and discuss whether you believe the state of dialogue regarding the crisis is still in such a bad state.
A. Ancient Athenian democracy was unique in that it invented not so much the notion of majority rule but, more pertinently, that of isegoria – the notion that ideas and proposals should gain traction on the basis of their merit as opposed to the popularity, wealth, or discursive power of the person or persons that advocated them. In short, it should not matter who said what, or even how well they put it. What should matter was the quality of the idea on offer. Tragically, isegoria not only never gained much traction in the EU but, to boot, it has receded considerably due to the Eurozone crisis. These days, a good idea on how to deal with the Eurozone crisis stands next to no chance when uttered in a Spanish or Greek accent. Even the current President of the European Central Bank, an Italian, had to declare, before getting the position, that he is more… German than many Germans. Matters are getting worse, not better, on this count. While no one is prepared to acknowledge this, accents, nationalities, and the ethnic/cultural background of proposers is becoming increasingly important when particular proposals are aired within the EU. Isegoria is losing one battle after the other to Unisegoria, at Europe’s expense, of course.
Q. How has European culture (art, music, theatre) been affected by the current crisis?
A. We used to think that culture benefits from hardship. Indeed, not much genuinely good cultural products have come out of people that were content and lacking substantial problems. The Great Depression gave rise to the Grapes of Wrath, Greece’s 1930s spawned a magnificent generation of authors and poets, even the Soviet Union’s oppressive grimness generated important literature, music, theatre, film.
Unfortunately, this is not what we observe in Europe today. The onslaught of the neoliberal logic in the art world, which mostly takes the form of a ‘postmodern turn,’ has joined forces with the collapse of the states’ support for artists, writers, and musicians to create a bifurcation: mega-stars amongst cultural producers catering to the financiers, institutional curators etc., and a marginalized ‘lot’ whose occasionally genuine flair is failing to penetrate the general public, which is at the mercy of the oligarchic, systemic media. Art, film and music that streamed out of Europe’s pores in the 1950s, the 1960s, even the 1990s (as the East Block was being integrated with the West) have dried up, and are being replaced by commodified art, on the one hand, and pseudo-revolutionary reactions, on the other. The human condition resisting, of course, its complete diminution, there are always exceptions to this pattern; exceptions that confirm, time and again, the stupendous power of the human psyche to create fascinating narratives of its… self.
Q. You’ve stated that it is vital for the European banking system to be unified. How would it be feasible to unite such fiscally diverse economic and political systems?
A. We do not need to unite fiscal and political systems in order to unite our banking systems. When nations choose to give up their currencies, it is the highest form of idiocy to pretend that they can retain separate banking systems. If they wanted national monetary autonomy, they should not have entered the Eurozone. Once in, they must accept a simple idea: €1000 must be worth the same in a Greek, a Spanish and a German bank. For this to be so, there must exist a common deposit insurance system, a common bank supervisor and a uniform system for dealing with failed banks. Even if this does not happen overnight, it can come about step-by-step, which is my recommendation: every time a bank is in trouble, it should the ‘Europeanized’; that is, it should be pumped up with European funds, from the European Stability Mechanism, its Board should be appointed afresh by the European Central Bank, and it should be cleansed forthwith with a view to re-selling it to private investors, so as to ensure that no taxpayer is short-changed.
Q. Do you believe that the manner in which the troika has handled the Greek crisis is primarily responsible for the current state of the Greek economy? Or, do you believe that the long established general interests within the Greek system, such as product cartels, union interests, & inadequate fiscal government policies, has also played a significant role?
A. The troika-led Greek program will, I have no doubt, be taught in Universities and Business Schools for decades to come as an example of how not to manage a state that has gone bankrupt. Think about it: The Greek state went bankrupt and what did the troika do? They lent it the largest loan in human history on condition that it, the bankrupt party, should… shrink its national income by 30%. One does not need to be an economist to realize that this was stupid, cruel, and particularly unusual punishment that did nothing to help the Greeks repay their accumulated debts.
“The troika-led Greek program will, I have no doubt, be taught in Universities and Business Schools for decades to come as an example of how not to manage a state that has gone bankrupt.”
Q. If the troika allows a further debt-reduction, in other words partial bankruptcy, do you see potential for the Greek economy to recover, and become competitive in the markets? Or, have we entered a vicious cycle of “salvation” interventions that will not help the situation long-term?
A. I cannot answer this question more than I can solve a system of three equations in one unknown. Put differently, the Greek situation has three unknowns that must be pinpointed, and turned into ‘knowns,’ at once: One is the percentage of the debt-forgiveness, or haircut, to be granted. But there are another two: investment and bank losses. In other words, Greece needs simultaneously: (a) debt relief or a haircut; (b) public investment to restart growth; and (c) a proper handling of the Greek banks’ black holes. Whether Greece will recover or not will depend on whether Europe, at long last, decides on a combination of these three ‘numbers’ that provide a real ‘solution’ to the puzzle, or enigma, of the Greek economy.
Q. Do you have any suggestions for websites or books that you would recommend for those who want to establish a better understanding of the economic situation in Greece and Europe?
A. For Europe at large I recommend www.eurointelligence.com and Ambrose Evans-Pritchard’s column in the London-based Daily Telegraph (even though I disagree with him violently some of the time). For Greece, the best website (again even though I do not agree with them all the time) is macropolis.gr.
Yanis Varoufakis bio
Varoufakis studied Economics at the Universities of Essex, East Anglia, Cambridge, Glasgow, and the University of Sydney. He is now a Professor of Economic Theory and director of the Political Economy Program at the University of Athens. He also holds a Visiting Professorship at the Lyndon B. Johnson School of Public Affairs of the University of Texas at Austin. Varoufakis has been a vocal participant in the media debates regarding the Global and Euro Crisis beginning in 2008. His latest book, published in 2013 is The Global Minotaur: The True Origins of the Financial Crisis and the Future of the World Economy.