No silver bullet will cure all the problems of capitalism – we need commonsense and political will. Yanis Varoufakis

Greek economist and author Yanis Varoufakis talks to IRIS

Printed in Irish No 21 January 2012
http://issuu.com/anphoblacht/docs/iris25/1?e=4548481/4617068 

A PROFESSOR OF ECONOMICS at the University of Athens and a much-sought-after commentator on mainstream media, Yanis Varoufakis is a person of contradictions. As a teenager he was arrested for distributing political leaflets promoting the Greek Socialist Party and he cites political and economic heroes in Che Guevara and Marx. But this has not hindered the forging of a successful academic career in economics, a discipline the limitations and deficiencies of which he is ever ready to enumerate.
Yanis has a solution to the euro crisis – bad bonds, zombie banks and economic free-fall. If you don’t mind mixed metaphors, Yanis believes he can cap the well but there’s no silver bullet to cure all the problems of capitalism and the free market.
When Yanis recently visited Dublin, ROBBIE SMYTH got an audience sandwiched in between a day of briefings, interviews and a public meeting and heard how a theorist firmly in the left wing socialist camp has what he thinks could be the panacea for the conservative free-market Europe.
YANIS VAROUFAKIS positively fizzes with energy. Ensconced in a Leinster House meeting room, I got 40 minutes with this disarmingly witty, articulate force of nature. Yanis is just 50, looks decades younger and (despite spending a day in the hothouse confines of the Irish parliament) was focused, energised and probably for the umpteenth time ready to tell of his plan to save the European economy.
But first how did Yanis get here?
“My mother and my father lived through a dictatorship. I grew up through a dictatorship. My father spent eight years in a concentration camp. When I was seven, the police broke the door down and dragged him out and he disappeared into a football stadium that had been turned into a prison.
“My uncle was sentenced to death for political activities in 1970 to 1971. So it was impossible not to be political. I was political from the age of zero.
“When the dictatorship fell in 1974, I was a young teenager, I was already organising and distributing leaflets and all that.”
Economic and political heroes
On the economic side, Yanis says: “It would have to be Marx because Marx was the first person and the only person that gave me a glimpse into the astonishing and wonderful and awful contradictions of our era.
“I think that Marx defines my frame through which I look at the world. Marx moved at some point from being an activist, a philosopher, a revolutionary critic, into being a political economist. That’s where he loses me.”
And his political heroes? “Like many young people in the 1970s, Che Guevara was high up in the list”. In Greece itself? “It would be Aris Velouchiotis, partisan leader, Communist Party member, effectively responsible for starting the resistance against the Nazis, and he was never one of those communists who became entrenched in Communist Party machinations.
“When I was young I was extremely impressed by Andreas Papandreou, the father of the [then] current prime minister, to the extent that I joined the Socialist Party he set up in 1974. I was one of the first kids who set up the youth wing of the party.”
Greek view of Ireland
Yanis explained his support for the Troops Out Movement and how as children they sang songs about Irish hunger strikers from the 1920s.
“When I was growing up, Ireland was very close to our hearts, particularly the conflict in Northern Ireland. The people that I associated with in Greece (though none of us had ever met an Irish person!), we felt that Belfast was our second home.”
The Irish economy in Europe
When it comes to talking about the economy we get closer to the crux of Yanis’s economic theories regarding the eurozone crisis.
“The problem with this crisis is that because the revolutionary aspects of our lives have taken a beating in the last 20 years, Europeans are indulging in a inane and ridiculous game of trying to look at their circumstances as unique to themselves. For instance, after Greece blew up, the Irish were very much concerned that they should not be thought of as similar to the Greeks.
“Soon after that, the Portuguese were saying, ‘We’re not Irish.’ Now the Italians will want to pretend that they are very different to the Spaniards, who were previously saying they were not like the Portuguese!
“I always talk about the crisis as being a European crisis and I never talk about ‘the Greek crisis’. I incur the anger of the media by denying there is such a thing as a Greek crisis.”
A climate change view of the economic crisis
“When it comes to climate change, it takes many different forms: for instance, floods in north Queensland and bushfires in Siberia – two very different phenomena yet they have the same cause. It is silly to refer to one or the other as separate. If you do that you don’t know what is going on.
“They keep saying, ‘What do you propose about Greece?’ My answer is, ‘Nothing.’ I don’t propose anything about Greece because nothing that can happen in Greece can solve Greece’s problems unless it’s an attempt systematically to deal systematically with the crisis at a European level.
“I am very much afraid from what I hear in Ireland that you have the same problem that the Irish people are insular in the sense that if they do the right thing then they will be rewarded within the context of the Irish economy. That is impossible.”
The Roosevelt/United States example
“Imagine if you were in 1930 now in the United States of America and you happened to be in Ohio state and there was this question, ‘What can Ohio do to end the Great Depression?’ The answer is, ‘Nothing.’ But it is not an answer that people like to hear. I understand that psychologically because people would like to be owners of their own fate.
“I say, ‘You know what, mate, there is nothing you can do about it as an Irishman or woman or as a Greek or as a Portuguese, but there is something you can do about it as a European.”
Tolstoy’s happy families
The logic of Yanis’s argument is clear but I asked about the wider social and economic problems in the Irish economy, not just debt and banking problems but healthcare, housing, education and political corruption. Yanis’s answer is to quote the opening lines of Tolstoy’s ‘Anna Karenina’: “All happy families are alike, but unhappy families are unhappy each in its own different way.”
Developing the theme, Yanis continues, “We are now unhappy in different ways and yet the causes of our unhappiness are one and the same. Unless we realise that we will not be able to deal with the causes of our unhappiness.
“Greece has malignancies that the average Irishman or woman would not be able to comprehend and which are very different to your malignancies. We have completely different circumstances we are facing. In Greece, we have a corrupt state, much more corrupt than the Irish state is.”
Silver bullets are for zombies and werewolves
So what is the solution?
“Silver bullets are all very well when you have zombies and werewolves. We don’t have zombies or werewolves. We have a very simple crisis which can be solved very simply so we don’t need a silver bullet; we need a modicum of commonsense and political will to apply that commonsense and solve a problem.”
He says we have three problems in Europe that affect everyone:
1)        A banking sector catastrophe, everywhere including Germany;
2)       A significant problem with debt;
3)       A massive under-investment crisis.
“Mrs Merkel and the powers that be are saying we have to continue down the road of austerity and this is making the problem worse.
“There are others who say, we should have a common economic policy, a fiscal union, effectively a federation. When I hear that, I panic, because I know we are not going to have a federation before the euro zone collapses so what is the point in talking about it?
“Our proposal – Stuart Holland and I – (it is called ‘A Modest Proposal for Overcoming the Euro Crisis’) is to use the institutions we have without any treaty changes otherwise it won’t happen.”
Varoufakis and Holland believe that the European Central Bank (ECB), the European Investment Bank (EIB), and the European Financial Stability Facility (EFSF) could be reassigned the tasks that they have in such a way as to deal with the three problems.
They argue that the EFSF, instead of lending money to Ireland, Greece or Portugal (money that cannot be repaid, therefore exacerbating the problem), should recapitalise the banks forcefully, just like it happened in 1992 in Sweden, in 1998 in Korea, and in 2009 in America under the TARP programme “which means that you expropriate the bankers, simply because you won’t give them the capital for nothing – you take shares”.
“It is not a radical idea,” says Yanis. The next step is to deal with the debt, he says.
“You take the euro zone debt in its entirety, each member state’s debt and you slice it into two parts, the first part which is legal, according to Maastricht, is the 60% of GDP debt which you shift into the ECB. They don’t buy it, they service it.”
The idea is that, over time, the ECB replaces short-term and medium-term member state debt with longer-term cheaper debt.
“The ECB issues another long-term bond over 20 years at a low interest rate and this is owned by the member state.
“The beauty is that this happens for every country in the euro zone. Suddenly, the whole mountain of debt, which is mostly interest, the whole debt crisis goes away. The ECB has not printed money, the ECB has not paid anything and no German taxpayer is guaranteeing Ireland’s loans.”
The remaining debt will be “serviced by the member state country; with the debt crisis gone, the spreads will fall on servicing this debt”.
Under-investment in the EU
Varoufakis and Holland believe that the EIB has the willingness, the track record and the capacity to effect very large investment projects that will boost the economy of the euro zone, not just Ireland or Greece. “The EIB has a long list of potentially profitable projects it would love to invest in.”
Wouldn’t this mean that the EIB would end up driving local economies? “It is exactly what Roosevelt did under the New Deal [the programme to transform America’s economy which had been shattered by the Wall Street Crash]. The way that Roosevelt got the American economy out of depression was by utilising the capacity of the federal government to borrow to invest in the states. That’s what we need to do.”
But what about the banking sector, the bad governments, the lack of regulation that created this problem?
“There is no silver bullet which will cure all the problems of capitalism. I really don’t believe that there is any simple policy one can implement that will rid us of all the malignancies and troubles that come with capitalism.
“Capitalism will always be a problematic socio-economic mode of production but, you know what, currently we are in freefall and the freefall is like 1929 – it is not conducive to progressive politics.
“The only people that benefit from the freefall are the xenophobes and the nasty underbelly of our societies. This set of policies is not going to be a blueprint for the good society. It is a blueprint for arresting the freefall and giving us an opportunity to sit down both within our communities, our nation states and within the euro zone, the European Union, even globally, to discuss ways of rationalising our world.”
Want to see more of Yanis? Have a look at:
http://yanisvaroufakis.eu/