Last Saturday night I went to see ‘rock star‘ economist and former Greek Minister of Finance Yanis Varoufakis in conversation with George Megalogenis in a session called ‘And the Weak Suffer What They Must‘ (taken from the title of Varoufakis’s latest book which comes from Thucydides: ‘The strong do as they can and the weak suffer what they must’). First, some clarification: this was no ‘in conversation’. Varoufakis held forth for almost an hour with a couple of questions thrown in by Megalogenis. Second, his focus was not the weak, but the strong who do as they can, the powerbrokers who run Europe and the global economy. And he was mesmerising.
Addressing the overflowing City Recital Centre, Varoufakis said he’d entered politics ‘smack in the middle of a storm’ – and so in his brief nine months as Greece’s Minister of Finance he’d had an experience of politics most politicians don’t have in 40 years. He opened with a story about Harvard economist Larry Summers, ‘the academic responsible for most of the damage to the global economy’. After Varoufakis became finance minister, Summers came to him and offered his services for free. He wanted to give Greece an opportunity to end its deep, awful depression. They met in Washington after midnight.
Summers said: ‘Yanis you made a very big mistake. You won the election.’
Varoufakis said: ‘The fact you offered your services to me means you haven’t read my last book, because I mention you on every eighth page as the Prince of Darkness.’
Summers said: ‘At least you call me a prince.’ He told Varoufakis that in politics there are two kinds of people, outsiders who feel free to speak their mind. The system very soon ejects them. And insiders, who get a chance to mingle with the powers that be and make incremental change. The price they pay is they can’t speak out. ‘What are you?’ Summers asked. ‘An outsider or an insider?’ An outsider.
Varoufakis recounted a conversation he’d had with ‘the highest person at the IMF‘, mentioning no names. Their discussions about resolving Greece’s debt problems – or ‘trying to find a modus operandi between two teams’ (Greece and the IMF), as he put it – went for seven or eight hours. Afterwards when they were having a drink she said: ‘Look Yanis, of course you are right. This program we’re trying to impose on you can’t work. But you must understand that we’ve invested so much political capital in this program and your credibility depends on accepting it.’
One thing I’ll never regret, Varoufakis said, is saying no to the IMF and not becoming an insider.
On 11 June 2015 Varoufakis was negotiating with Wolfgang Schauble, ‘the most powerful man in Europe’, for 120 minutes. He was struggling to explain that he wouldn’t become another European finance minister who takes more money from taxpayers. During the conversation there was one moment of significance, which came when at some point Varoufakis tried another tack. He said to Schauble: ‘I’ve been in this business for five months, your people are not in the state my people are. For 5-10 minutes can we take our finance minister hats off? I want to ask your advice.’ Schauble said OK. So Varoufakis asked him if he’d sign the deal if he were him.
Schauble looked out the window for three minutes. Each minute was a week. Then he said: ‘No. As a patriot I wouldn’t.’ He said but he’d imposed similar austerity packages on other European nations so ‘how can I let you off the hook?’ He agreed that it was terrible for the people of Greece but he was trying to control the Eurozone.
Then Varoufakis asked us: ‘Why are we all here on a Saturday night talking about Greece? For the last six years Greece has been making headlines over fears its debt crisis might topple Europe. If Greece is capable of destabilising Europe, let alone the world, then there’s something wrong with Europe, not Greece. It’s the equivalent of New England in northern New South Wales destabilising Australia. Why is Greece reflecting a distorted mirror of the European economy that has not managed to recover its stability following the global financial crisis? In Australia there’s an illusion that we’ve weathered the financial crisis. But everything that begins in Greece eventually comes to Australia. Remember that the Cold War began in Greece on the streets of Athens in December 1944.
He said the Bretton-Woods agreement of 1944 created a planned global economy for 20 years, with interest rates at 5% and fixed currency exchanges. That world collapsed because one of its pillars collapsed: American surpluses. By 1966-7 America had lost its surpluses. When the Americans realised their own plan wasn’t working they got out a hammer and smashed it. Americans are extremely pragmatic people. On the other hand, the European ship can be sunk and on the bottom of the ocean and still they pretend they can start the engine. He said America and Europe have very different approaches to solving problems:
In America 10 elites meet and ask how can we get out of this crisis? In Europe 300 people get in a room and ask how can we pretend this crisis isn’t happening?
Europe is the largest economy in the world and it’s capable of destabilising the entire global economy. Lots of European countries are running phony economies of high debt to GDP ratios. How can this go on? This is not a redemptive crisis like a regenerating bushfire. This is a crisis similar to 1929 – crises which pulverise the economy. Investment collapses, jobs are lost, incomes decline, taxes fall, social service expenditure rises, budget deficits rise.
Megalogenis then asked: What is the German motivation in this crisis? A psychosis? The need to be the most thrifty nation in Europe?
Varoufakis replied: I’m going to surprise you. There is no German. One problem I had with our negotiations was that there is no German person, there are myriad views, it’s a very complex situation. Really your question is: ‘Is the Eurozone a conspiracy or a cockup?’ I think it’s a cockup. Ideally the blue collar workers and engineers of Germany want it to be the factory of Europe – but they’re so good at making things that they need export markets. This requires planning.
The New Dealers (in the Bretton-Woods negotiations) understood that there’s no point castigating someone for being in deficit when you’re in surplus. The Marshall Plan was created by pragmatic Americans deciding to give Europe the money to buy their suff. It was a financial recycling mechanism: I give you my surplus so you can buy my exports. For this thinking to take place you need an elite that thinks globally, which America had. But the Germans do not want to rule the world, they don’t want to lead. They were burnt by the two world wars.
‘Europe’ is not a European design. It’s an American design. In 1945 there was a plan to deindustrialise German factories – but at some stage, after destroying some 700, the Americans stopped destroying them. America realised it needed a strong, industrialised Germany and a united Europe. The ‘Speech of Hope‘ by Secretary Byrnes in Stuttgart in 1946 wiped out the German debt (part of which was owed to Greece). This was a problem for France, which didn’t want to alter the original agreement to deindustrialise Germany. So Washington made a deal with France: Germany could be the factory of Europe but France could run Europe. Hence the OECD (Organisation for Economic Co-operation and Development) is based in Paris. Hence French Christine Lagarde heads the IMF today. The French are good at producing good administrators. The Germans are not good at that, they are good at producing engineers. During those early postwar years America effectively oversaw the unification of Europe, which began as an industrial cartel, as its first name indicates: the European Coal and Steel Community. Cartels fix prices. Like OPEC. This is how Europe began, as an American-run cartel. This is the birth of the European Union.
With the ‘Nixon shock‘ of 1971 (notably his ending of the direct convertibility of the US Dollar to gold) Europe became an orphan – or, actually, America’s bastard. Europe was floating free. It was a disaster. The Deutschmark went through the roof. This led to an attempt to fix exchange rates in Europe.
Leading up to the global financial crisis, from 2001 to 2008 global income rose from the equivalent of 50 to 70. At the same time the paper economy (composed of the derivatives and other complex financial instruments that would scupper the global economy) rose from 70 to 788. Planet earth is simply not big enough to contain this overshoot – so the global economy collapsed.
Yanis said the response to this crisis – central banks printing money – was like giving cortisone to a cancer patient: it improves quality of life while the tumour does its dirty work underneath. He said 2016 will be the equivalent of the 1930s. The collapse has been slow in coming but it will come.
Varoufakis said he felt proud to be European last September when Angela Merkel welcomed refugees into Germany. It was a moment of solidarity between Germany and Greece, who both welcomed Syrian refugees. But after being lambasted by her own government and people Merkel allowed the Austrian government to start closing borders.
‘We don’t have a European Union any more,’ Varoufakis said. His next remark received spontaneous applause and a standing ovation from many in the audience: ‘The European Union is bribing the autocratic leader of Turkey to allow Europe to violate international treaties.’