Yanis Varoufakis: Presenting an Agenda for Europe at Ambrosetti

Yves here. If you followed Yanis Varoufakis before he became a household word (at least in Europe and in finance circles), you’ll recognize that he is making a layperson-friendly case for the Eurozone reforms that he, Stuart Holland, and Jamie Galbraith call A Modest Proposal. A new wrinkle is that he argues that the scarcity of bonds eligible for QE argues for one of its ideas, infrastructure spending funded by the EIB (those bonds would presumably be eligible for QE purchases).

By Yanis Varoufakis, Finance Minister of Greece. Originally published at

Dear All, Ministerial duties have impeded my blogging of late. I am now breaking the silence since I have just given a talk that combines my previous work with my current endeavours. Here is the text of the talk I gave this morning at the Ambrosetti Conference on the theme of ‘An Agenda for Europe’. Long time readers will recognise the main theme – evidence of a certain continuity…

Back in March 1971, as Europe was preparing itself for the Nixon Shock and beginning to plan for a European monetary union closer to the Gold Standard than to the Bretton Woods system that was unravelling, Cambridge economist Nicholas Kaldor wrote the following lines in an article published in The New Statesman:

… [I]t is a dangerous error to believe that monetary and economic union can precede a political union or that it will act (in the words of the Werner report) “as a leaven for the evolvement of a political union which in the long run it will in any case be unable to do without”. For if the creation of a monetary union and Community control over national budgets generates pressures which lead to a breakdown of the whole system it will prevent the development of a political union, not promote it.

Unfortunately, Kaldor’s prescient warning was ignored and replaced by a touching optimism that monetary union will forge stronger links between Europe’s nations and, following some large financial sector crisis (like that of 200), European leaders will be forced by circumstances to deliver the political union that was always necessary.

And so, at a time when America was recycling other peoples’ sures at a global scale, a Gold Standard of sorts was created in the midst of Europe, causing a wall of capital to flow into Wall Street fuelling financialisation and large-scale private money minting worldwide – with French and German rushing in to participate enthusiastically.

Within the Eurozone the illusion of riskless risk was reinforced by the fantasy that (in a union built on the Principle of Perfectly Separable Public Debts and Separate Banking Systems,) lending to a Greek entity was more or less equally risky as lending to a Bavarian one. As a result, net trade sures gave rise to net capital flows into the deficit nations, causing unsustainable bubbles in both the private and the public sectors. Our Eurozone growth model, ladies and gentlemen, relied heavily on private, bank-driven, vendor-financing for the net exports of the sur nations.

It was as if, in constructing the Eurozone, we removed all shock absorbers while ensuring that the shock, when it came, would be massive. And when that massive shock came, in the form of the Great Eurozone Crisis in 2010, following the global Crash of 2008, with my country, Greece, proving the canary in the mine, Europe decided to remain in denial of the nature of the crisis, insisting on dealing with the insolvencies caused by the bursting of bubbles (first in the banking sector and then in the realm of public debt) as if they were mere liquidity problems, lending to the deeply indebted nations through SPVs (special purpose vehicles) that resembled stacked CDOs (collateralized debt obligations). The end result was a transfer of potential losses from the banks’ books onto Europe’s taxpayers in a manner that placed most of the burden of adjustment on the crisis countries that could least bear it.

The results of this unhelpful approach percolated for a couple of years in the bond markets, with almost catastrophic effects (nearly taking down Italy) that Mario Draghi dealt with courageously in the summer of 2012. Alas, that successful intervention, while placating the money markets, forced the crisis to metastatise to the realm of the real Euro Area economy, to an asymmetrical investment strike at a time when idle savings (the crisis’ other face) accumulated pushing yields down and causing a crisis of confidence that whipped up deflationary winds throughout the continent. Winds that Mario Draghi is, once more, called upon to quell through the long time coming policy of quantitative easing (QE).

Five years of crisis, and counting, damaged our social fabric and culminated in a Europe that has lost legitimacy with its own citizens and much of its credibility with the rest of the world. A Europe that is proclaiming greater union and consolidation in name while in practice its most acute problems are in fact being, regrettably, re-nationalised.

The Eurozone, ladies and gentlemen, remains in the clasps of an existentialist crisis, totally independently of Greece (if I may add), that is getting worse, not better. It is a challenge for all of us that neither fiscal rectitude nor Keynesian stimulus can meet. Remaining stuck in the sterile debates on whether budget deficits should be cut or increased by insignificant amounts, and by nations lacking a central bank, is as dangerous as it is tedious. This is why, it seems to me, the tussle between France and Brussels, or Rome and Brussels, over the minutiae of their budgets, and whether a few tens of a percent are shaved off or not, is totally besides the point.

Something else is needed: a different logic, a rational redeployment of existing institutions in order to attack the problem at its roots. While debt-deflationary dynamics eat away at Europe’s potential for shared prosperity, European governments are imprisoned by false choices:

  • between stability and growth
  • between austerity and stimulus
  • between the deadly embrace of insolvent banks by insolvent governments, and an admirable but undefined and indefinitely delayed Banking Union
  • between the principle of perfectly separable country debts and the supposed need to persuade the sur countries to bankroll the rest
  • between national sovereignty and federalism.

These falsely dyadic choices imprison thinking and immobilise governments. They are responsible for a legitimation crisis for the European project. And they risk a toxic democratic deficit all over Europe from which only nationalists, populists, separatists, anti-Europeans and, indeed, Nazis like our very own Golden Dawn may profit.

Now I know that, in this fine country of two brilliant Marios,[1] to utter these words as QE (i.e. quantitative easing) is being unleashed, borders on the blasphemous. QE is all around us and a great deal of optimism hangs on it. At the risk of sounding like a party pooper (as my daughter often calls me!), let me say that I find it hard to imagine how the broadening on the monetary base in our fragmented, and fragmenting, monetary union will transform itself into a substantial increase in private investment in productive activity.

QE has indeed proven quite bad at this transformation even in solid, homogenous economies like Japan, the US, Britain. It is bound to prove worse in a fragmented Eurozone where asset purchases by the ECB are not even proportional to output gaps or aimed at the national economies experiencing the most powerful deflationary forces. I very much fear that the decoupling of the monetary base from the money supply that is always QE’s Achilles Heel will, in the case of the ECB’s QE efforts, prove far worse than it did in the experience of Japan, the United States or Britain.

The German case illustrates this well. In 2015, Germany’s total bund issuance will come up to only €140bn, courtesy of the Federal Government’s attempt to deleverage. However, the ECB is committed to buying €160bn worth of bunds in the same year. At the same time, German banks must increase their regulator-imposed liquidity reserves by around €20bn. And they are only allowed to use highly liquid paper, i.e. bunds. This translates into an aggregate structural demand for bunds of at least €180bn for 2015, well ahead of supply.

Under such circumstances, German financial institutions have no incentive to sell bunds as they need them, and their relatively high yields, to satisfy regulatory requirements. Predictably, bund prices across the maturity spectrum will quickly head up towards the ECB’s stated maximum, yield spreads across the Eurozone will collapse independently of any investment-led recovery in countries like Spain and Italy, and share valuations will be inflated to levels that have proved unsustainable in the past. The notion that this type of asset price inflation will help mobilise idle savings and convert them into productive investments, especially in the crisis countries, flies in the face both of empirical evidence from countries where QE was vigorously pursued previously and it flies in the face of basic macroeconomics.

In short, while the ECB is doing its best within the parameters it has been given, its ‘best’ is unlikely to be good enough. Something else is needed. Allow me to foreshadow what that ‘something’ might be. I call it a process of Decentralised Europeanisation. The long and the short of it is simple: We need to simulate a federal euro governance without federation, without further loss of national sovereignty, and under the existing Treaties.

Presently, Europe is sadly caught up in a false dilemma. On the one hand, there is the standard view that the way we are going in Europe today is leading us out of the crisis and it’s working. I don’t share that view. The other part of the false dilemma is to say that federation is the only alternative. I don’t think that is possible, and I don’t think it’s desirable, either. Thankfully there is a third option which I like to refer to as ‘Decentralized Europeanization’.

The idea is to Europeanise three or four basic realms of our political economies: Europeanise the banking sector, Europeanise a portion of the public debt, Europeanise aggregate investments (through the European Investment Bank and in association with the European Central Bank) and, finally, Europeanise a hunger and poverty alleviation program. Once these realms are Europeanized, national governments can manage painlessly to run balanced budgets even if the external position of a country (like Greece or Portugal) is negative. For if aggregate investment, if the banking malaise, if a portion of the public debt, if a food stamp program are ‘Europeanised’, then our national governments can run balanced budgets while no one will even want to now whether Greece or Portugal have a current account sur with Germany (just as no one in the United States knows, or cares to know, if New Mexico has a current account deficit with Texas).

As time is scarce, allow me to give only one example of this process of ‘Decentralised Europeanisation’. Of the four realms that need to be Europeanised (public debt, investment, banking and the humanitarian crisis) I shall concentrate on investment. The idea is simple:

  • Europe desperately needs growth-inducing, large-scale investment.
  • Europe is replete with idle savings too scared to be invested into productive activities, fearing lack of aggregate demand once the products roll off the production line.
  • The ECB wants to buy high quality paper assets in order to stem deflationary expectations.
  • The ECB would rather it did not have to buy German bunds or Italian or Spanish bonds for the reasons already mentioned or lest it be accused of favouring Germany or Italy or Spain etc.

Here is what the ECB could do to achieve its objective while overcoming both its ‘operational problem’ and the ‘macroeconomic concern’:

  1. The European Investment Bank (EIB) should be given the green light to embark upon a Pan-Eurozone Investment-led Recovery Program to the tune of up to 8% of the Eurozone’s GDP, concentrating on large scale infrastructural projects while its offshoot the EIF concentrates on start-ups, SMEs, technologically innovative firms, green energy research etc.
  2. The EIB has been issuing bonds for decades to fund investments, covering 50% of the projects’ funding costs. It should now issue bonds to cover the funding of the Pan-Eurozone Investment-led Recovery Program to the full; that is, by waving the convention that 50% of the funds come from national sources.
  3. To ensure that the EIB bonds do not suffer rising yields, as a result of these large issues, the ECB ought to announce its readiness to step into the secondary market and purchase as many of these EIB bonds as are necessary to keep the EIB bond yields at their present, low levels.

The merit of this proposal is that, essentially, it recommends that the ECB enacts QE by purchasing a single asset; the solid, non-toxic, non eurobonds issued by the EIB on behalf of all European Union states. Thus, the ECB’s operational concern about which nation’s bonds to buy is alleviated. Moreover, the proposed form of QE backs productive investments directly, as opposed as to inflating risky financial instruments.[2]

One may counter that the EIB may have difficulty finding shovel-ready projects worth hundreds of billions of euros to fund to the tune of €200 billion per year. In the longer run this is not so. Worthy pan-European projects, such as the European green energy union, or the digital union, will offer the necessary investment opportunities to the EIB. In the meantime, existing infrastructure projects that are moribund because national budgets are exhausted could be funded by the EIB if the EIB knows that the ECB has its back in the bond markets. By removing some of the burden from national budgets, the current decline in public investment could be reversed creating, without additional public debt or fiscal transfers, thus inspiring private investors to ‘crowd in’.

A European Recovery Program of such magnitude would, suddenly, remind the EIB that it has the (hitherto unrealised) capacity to:

  • become macroeconomically significant;
  • to endogenise investment risk while reducing it; and
  • to diminish the riskiness of the investment projects that it takes on simply through playing a larger role in Europe’s recovery

Conclusion

Europe’s future will be bright to the extent that we manage to use the euro crisis as an opportunity to bring about a United States of Europe. Anything less will lead to the fragmentation and eventual collapse of the euro (as Nicholas Kaldor had prognosticated in 1971) and the disintegration of the EU, with terrible consequences for Europeans.

However, while federation would have prevented this crisis, federating now is not a feasible solution to it. If anything, the euro crisis has, tragically, set one proud nation against another, making a ‘coming together’ politically impossible – for now. The current ‘difficulties’ we are facing within the Eurogroup, and the various stand-offs, are a reflection of political divergence caused by the crisis’ never ending ‘progress’.

Today I came to this fine venue to argue that what Europe needs is a solution to the current crisis that utilises, and re-deploys, existing institutions smartly and within the letter of current Treaties and rules. I have presented one example of how this can be accomplished in the realm of aggregate, pan-European investment. The proposal for an EIB-ECB partnership (where the ECB performs QE by purchasing EIB-bonds in support of a large-scale investment-led recovery program) demonstrates precisely how Europe can mobilise existing institutions (in this case the EIB and the ECB), Europeanise aggregate investment, and lead to recovery without any need for Germany to pay for this program or for the productive investments that will flow into the deficit nations.

Come to think of it, what we have here is the potential for simulating a European New Deal without the need for a federal treasury, for any type of fiscal transfers, or for any new institution. While the richer nations, with Germany at the fore, will not need to pay a single euro toward this European New Deal, Europe needs leadership from sur countries, like Germany, to bring this about.

In the early 1950s, the United States led Europe’s revivification with the Marshall Plan. It cost the American taxpayers 2% of GDP to transfer the necessary funds to Europe (money well spent even from an American perspective). The European New Deal will cost Germany, Holland, etc., nothing, since it will be funded through EIB-bond issues that, in fact, help mop up excess liquidity in Germany’s financial sector thus helping restore positive interest rates for German pension funds. It is my vision that Germany should lead the rest of Europe down this mutually advantageous path. Indeed, why not turn this into a legacy project that will, in decades to come, be known as the Merkel Plan. Such a development would help heal needless divisions and give European integration a much needed boost.

Today I only gave one example of Decentralised Europeanisation: aggregate investment. Similar solutions exist for Europeanising part of national debts, for unifying properly our banking sectors and for dealing with poverty and deprivation – without fiscal transfers, without deficit spending, without Germany footing the bill and, crucially, without loss of national sovereignty.[3]

Allow me to close with a heartfelt remark: The time has come to stop thinking of Europe’s recovey as a zero-sum game, where the interests of one nation are to be served by having some other nation pay. Europe has immense developmental potential which, however, requires an immediate paradigm shift within the existing Treaties and rules. Our generation has the duty to make that shift so that future generations can say that we enabled them to live in a truly united Europe; a Europe of shared prosperity in which being Greek or Italian or German is a cultural identity rather than a politically significant datum.

FOOTNOTES

[1] Here I was referring to Mario Monti (who was on the same panel) and, of course, Mario Draghi.

[2] Note that borrowing by the EIB has no implications in terms of European fiscal rules. It is recorded neither as new debt nor as a deficit for any of the member states, which means that new government spending could be funded without affecting national fiscal performance.

[3] Note that these ideas stem from the ‘Modest Proposal for Resolving the Euro Crisis’, co-authored by Yanis Varoufakis, Stuart Holland and James K. Galbraith

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41 comments

  1. /L

    The intensions was overall good but “mistakes” where made and “they” believed it would “work” despite the lack of of fiscal/political union. The crisis did go from bad to worse because of “mistakes”. Sure! how many times can the same “mistake” be made my mistake. The EU and monetary union is working just as planned, the class war is not by mistake, it’s deliberate and malign. No one can seriously believe that so called “structural reforms” will improve for the people of Europe or the give away of the public domain. It was clearly said that the S&G rules and CB construction (that also non Euro members have to follow) was constructed to punish the sinners (i.e. to curb democracy and politics in the interest of the people), so it works just as intended, a great “success”, the planning got the correct result.

    1. Cugel

      The minute Varoufakis started mentioning FDR and the New Deal, I immediately remembered that the very capitalists who were saved by him were calling him a “class traitor” and opposing bitterly every single initiative he proposed. They immediately forgot that angry mobs were throwing stones at Hoover’s presidential car in 1932. They hated bank regulations, the FDIC, the SEC, all the New Deal programs to put people to work and stimulate the economy that had the ultimate result of creating the consumer society that serves as the bed-rock of their profits and wealth today. They are utterly ungrateful and spend much of their time ever since trying to undo everything Roosevelt achieved. Through persistent lobbying they captured all the agencies designed to reign in and limit their destructive practices, like insider trading, asset bubbles and risky investment schemes that created the boom and bust cycle that led to the crash of 1929.

      The elites are morons, in all times and all places. They assume that because they are on top that their wealth proves their greater intelligence, morality and worth. They can’t stand that they would need saving from themselves and their own insatiable greedy instincts.

      They are in truth like a virus that cannot exist without the host, but mindlessly devours the body until it can no longer function, and then dies with its host.

      Of course they would ultimately benefit most of all from listening to Varoufakis’ proposals. Of course they will grind their teeth and fight him to the death. If he succeeds they will whine and complain for decades. If he fails then the Nazis will take over and suddenly they will find, as in Germany in the 1930s that they are no longer in control of the monster they created. Some of their predecessors wound up in Auschwitz, while the rest watched their assets bombed to rubble. Their descendants have learned nothing.

      Like the Bourbons of France “the never forget and they never learn.”

  2. /L

    The “Europe” dreaming “varufakis” of Europe is those who deluded the people about the Europe utopia dream. That it was about the people of Europe and not the elites power grabbing and power politics wanna make Europe a global hegemon.

  3. Nell

    To lighten the mood vis a vis the European quagmire try this bit of German satire.
    V for Varoufakis

  4. plantman

    I agree with /L that the euro “class war is no mistake”, and that the EZ works largely as it was expected to work. But it’s also a little disingenuous of V to say that the proposed activities of the European Investment Bank (EIB) “to embark upon a Pan-Eurozone Investment-led Recovery Program … concentrating on large scale infrastructural projects” does not constitute “fiscal transfers”. Of course, these infrastructure projects are fiscal transfers. What else would you call them?

    What’s odd about this whole arrangement, is that Germany pretends that it doesn’t understand what is needed to save the EU, when in fact, German reunification required trillions in fiscal transfers.

    How is it that they understood the problem in their own country, but find it impossible to understand the same issue when it relates to their neighbors in the South?

    I guess that’s what you call selective amnesia.

    1. Calgacus

      Of course, these infrastructure projects are fiscal transfers. What else would you call them?

      A better name would be what Wynne Godley called such activities – which are always necessary for any unified currency region – “Fiscal Equalisation”. I’m open to other suggestions. Fiscal stabilization? Fiscal response?

      The point is that “fiscal transfer” is a misnomer -it embeds and hides false economic assumptions. As Randall Wray says: Yes it is “fiscal”, no it is not “transfer”. The rich regions do not transfer wealth to the poor ones. Usually, fiscal “transfers” will make both regions richer in nominal and real terms.

      Of course you are right about selective amnesia.

  5. JEHR

    Varoufakis’s mind at work is something to behold. He has a admirable way of helping even ordinary folk to understand what is needed. Too bad the banks are only interested in their own profitability (achieved via fraud) and too bad the technocrats are also banksters! Aye, there’s the rub.

    1. susan the other

      And YV’s most interesting suggestion was to do some long term federated investing through the EIB so that the ECB could buy up those bonds and in the process (?) “soak up” all the excess liquidity with no particular place to go, thereby bringing interest rates up enough to fund German pensions. – But that in turn will be problematic for sovereign debt unless it is subsidized first so some income precedes the interest rate rise – but he probably covers that in his #2: Europeanize a portion of public debt via the ECB. The whole plan is an antidote to what is currently going on in the western world, that being socializing losses. This proposal reverses that and creates socializing gains. We could even try a United States of Europe right here in the USA.

  6. washunate

    This is a great read, hopefully showing where there can be both agreements and differences of opinion.

    For example, I heartily endorse this sentiment:

    Something else is needed: a different logic

    But then question this explanation:

    existing infrastructure projects that are moribund because national budgets are exhausted

    This makes it sound like it’s an accident. Which couldn’t be further from the truth. National budgets are bailing out the banksters. The Marshall Plan was great because there was a specific need – to rebuild Europe destroyed by war – supported by a generally good faith US actor, at a reasonable price. There is no such need today. And there is no such actor, either. And the prices keep expanding.

    What is going on in Europe is about the Anglo-American military and financial empire. To think that Pan-European infrastructure projects provide ‘something else’, a ‘different logic’, is to miss what is happening. At this point, Greek debt payments are practically going directly to fund US proxy wars in the Ukraine.

    That an academic/finance minister can give a talk about Europe without mentioning either NATO or financial fraud is intriguing, to say the least.

    1. bruno marr

      …my guess is that V is talking to many different audience in his presentation. The banksters may not be listening, but the general population is. Germany should take V’s “schmoozing” to heart, and start listening. Otherwise, this all gets real ugly.

      1. washunate

        Why should an average German citizen care about infrastructure? If you look around Germany, where exactly is there a massive lack of “large scale investment”? And more to the point, why isn’t the EIB funding it right now? It’s not because it’s against the law for them to fund such projects…as if creating more debt is the answer to a world awash in fraudulent debt, anyway.

        This is why Varoufakis playing it coy rather than saying what he means is counterproductive. He’s neither making the case for investment nor making the case for charity. He’s simply appealing to platitudes about a new deal that have no connection to what’s actually happening.

  7. Dan Lynch

    It’s not a bad proposal, academically speaking, but politically it’s probably a non-starter, like so many of Syriza’s other proposals.

    Yanis is saying “this is how I would do it if I were God.” We all play out those sorts of hypothetical scenarios.

    But Yanis is not God. The ruling elites are not going to change their ways out of the goodness of their hearts. They’re psychopaths, they only respond to power.

    1. Dan Allen

      It’s actually not Varoufakis playing God.

      This is why he titles it “modest proposal.”

      What this plan (maybe it’s half-baked) does is it avoids any changes to the Maastricht Treaty. In other words, given the confines of the Euros designs, this is what one can do to stimulate the European economies.

      Given the confines.

    2. Santi

      His duty, one of his most important duties as FinMin, is to keep repeating it and showing how it is doable, possible and beneficial for all the incumbents.

      We are seeing a strong use of here. We seem to be in the Perversity phase mixed with some Futility (“these Greeks are lazy, they just want to life of the German taxpayer, They will spend the money and come for more”). Next messages about how changing things will put in Jeopardy the current European construction and current success will be coming.

      Changing the ways to perceive reality, in this case how we perceive austerity and the European economy is a required step for making them accept change.

  8. Andrea1

    On the one hand: OK that is all very well (or not, opinions may vary.)

    Yanis V. is now the Finance Minister of Greece, his role is to serve his country, his people, as best as he can, in that quite lowly position, as measured in the grand scale of international politics.

    If he wants to discuss the EU / the Eurozone from that seat, or has great ideas or whatever, his audience should be European Gvmt., authorities, bosses, parties, forces, provided he can get a floor.

    Very disappointing. (Not that I am an EU / Eurozone champion.)

    On the other hand, opening things up, proposing new view-points, publishing stuff, can be a good strategy, provided it makes sense, is timely, is paid attention to. But then, ideally, or to be politcally effective, the gist has to be coordinated with positions taken in public, on the ground, in the political arena, etc. That dimension seems missing for now.

  9. Rosario

    I respect Yanis Varoufakis and he is clearly very intelligent, but I am more more cynical with respect to the international economic order. Since the late 70s there has been a global effort on the part of capitalists to reorder (regulation, law, tax policy, international trade) and reclaim (property, assets, etc.) all of the socialist achievements of the early to mid twentieth century. I’m one to think that our financial institutions and politics either serve that purpose, at worst, or, at best, do nothing to challenge it. Labor is all but dismantled and there is no coherent ideological challenge to capitalism. Because of this we see those hoping to buck the system speaking in its own obtuse, inhuman, and at times abusive language (this includes Varoufakis). I think he is afraid to say what he really thinks, that (as others said above) this structure is as it is on purpose.

    1. juliania

      Pardon me, but what is abusive about the language of this presentation? As has been observed above, the only ‘blame’ I could find in the piece was the accurate inference that financial problems began in Wall Street manipulations. Varoufakis does not have to flourish a rhetorical cudgeon – reality surely is coming home to those involved in finance that the books they may still wish to cook are disintegrating before their very eyes. If they want to survive, he is offering them a way to do precisely that.

      This is what Putin did, and FDR before him. The present course is unsustainable, and that affects all upon it, rich or poor.

      1. Rosario

        None at all in the presentation. I’m sorry I wasn’t clear, wrote the post too quickly. I do respect what he has to say. What I’m insinuating is that there is an inability to take the critique to the end. In effect, say how it really is. So he, as well as other heterodox economists who are given the opportunity to have a platform in mainstream politics, end up “being forced” to used the same reasoning process and as I referred to it, abusive language (a better phrase may be nonhumanistic[?] or inhuman language), to explain the predicament. Rather than, clarifying that this is an ethical and moral issue, not an economic one. Same goes with the minimum wage debate in the states. It is not an economic issue, it is ethical/moral. I do respect him very much, though the result of these debates with the Troika has made clear to me that the elite in Europe have already declared war on the lower classes a long time ago. It is difficult to reason with people that are so maligned however well read one is in their justifying ideology.

  10. different clue

    We should thank Mr. Varoufakis for writing a post like this with all the time and psychic energy pressure he is under. I am sure he has his strategic and tactical reasons to be seen explaining this yet again to a hostile Europe which will be seen yet again to be not interested and not caring. Perhaps it is a matter of giving Europe
    enough rope for Europe to hang its own image with in public view?

    Withal, it should become apparent over the next couple years whether Europe really is Greece’s blood enemy or only looks that way to my ignorant self from this distance. If it turns out that I am correct and that Europe is determined to engineer a wall-to-wall Holodomor for Greece for Europe’s own EuroNazi and TroikaNazi reasons, then the Greek government leader-thinkers might want to read Ian Welsh’s various blogposts on Greece and start thinking about how to counterdestroy EuroNazi Europe even more thoroughly than EuroNazi Europe plans to destroy Greece.

  11. /L


    “… much of Germany’s finance ministry accepts the “gangrenous limb” theory that Europe would be better off without Greece.
    Hawkish German officials accept what they call “the amputated leg theory,” which says Greece should be cut off like a gangrenous limb to spare the rest of the eurozone body.”

    About the investment for infrastructure, more as some in Spain,

    Neoliberal economics for more than 1/4 of a century have built up big public infrastructure need, not least in Germany. There is a big need but direct or indirect CB funding is forbidden and SGP rules forbids deficits. It’s about too kneecap the entire system not manicure on the surface. Like Junkers ideas on investment program, minuscule booth to needs for infrastructure and to recover the economy, unemployment. There will be a a proper scramble, everyone will try to grab what they could of the investment money.

    1. Carla

      When you think about it, applying the “amputated leg” theory to Greece makes little Greece (I mean small geographically and in population, not psychically or spiritually) very, very important to Europe. It means if Greece were “amputated,” Europe would not be able to walk unaided. If Portugal, say, turned out to be the other leg, then what if Italy or Spain followed? What part of the European body would one of those large (geographically and demographically) countries constitute? These thoughts are pretty gruesome, but the Germans brought it up, I didn’t. Have they thought this through AT ALL?

      1. Tsigantes

        Exactly Carla.

        This is all German & banking lies, hot air, propaganda and psychological pressure.
        In fact there is no legal way for any country or EU institution to force Greece out (remember Germany’s mantra “rules are rules”?). Only Greece can decide to opt out under Lisbon, and the process takes 2 years. One good reason why default within the euro (i.e. “over to you”) is Greece’s most honest option.

        Default within the euro would be painful for Greece, but equally painful for the creditors & ECB. Dangerous too, should larger economies or a basket of smaller economies, follow suit.

  12. /L

    Galbraith seems to be a very nice person, intelligent and have sound ideas on economics but I doubt he knows Europe. Did see a discussion where he and Randal Wray participated, they wondered why EU didn’t have a common defense organization, like US, it would be much cheaper. I doubt I Europe’s defense spending on percent of GDP is quite low as it is. But it gives away their superficial knowledge of Europe.
    Every time it comes on the table there are clear signals from No1 that that is not what its European vassals should do, No1 and Nato is the protection they need. And the countries of Europe don’t have the people, political or national integration/assimilation that would make such an arrangement acceptable. Far from it.

  13. /L

    And while the EU/Euro bosses wine and dine and can’t think of any reasonable solution of the self-mutilation in the form of economic disaster this is how poor people of Europe live:



    This is now in the middle of the winter, the EU-migrants are poor people from Romania the now sit and beg plentiful in every Swedish city.

  14. Rob Parenteau

    Yanis moved beyond the Modest Proposal after he realized Greece would be unlikely to get cooperation from the Troika on any of this Modest Proposal. By February 2014 he was advocating a parallel currency approach () in part because he had been exposed to the TAN (tax anticipation note) solution offered at an LEI conference in Athens in November 2013. The Modest Proposal sounds nice on paper (Jorg Bibow has an even better proposal along these lines in a working paper at LEI see ) but is unlikely to ever get off the drawing board – and Yanis realized this over a year ago as well.

    1. financial matters

      I think Varoufakis has the right ideas of using sovereign power to create liquidity and have it tied to taxes. And he definitely explains debt deflation well.

      I think the TANs are a cleaner way to spend liquidity into the system as with a job guarantee program and various other programs to quickly meet the publics needs.

  15. TheCatSaid

    There is an excellent, energetic discussion/debate of YV’s post at The Real News between Leo Panitch and Dimitri Lascaris.

    Panitch makes strong points that if Grexit is seriously proposed by the left wing of Syriza, they should be mobilizing & educating people so they understand and are prepared for the initial increased level of hardships he feels are inevitable. He points out that in the case of Venezuela, Chavez had oil revenues to pay to reduce the social pain while the public was educated, but Greece has no similar source of revenue from his perspective. He says the fact that Syriza has not yet had a chance to start undoing the corruption is another factor that would make a Grexit hard on the people if it has not been well planned.
    Lascaris feels strongly that a Grexit is inevitable given the “institutions”‘ complete lack of give on any point, not even on wording (insisting on continuing to say “troika”).

  16. throwaway

    Dear Yves and NC readers,

    I just watched Yanis Varoufakis interview on German TV with German talkshow host Guenther Jauch. I thought he mostly came across well in the interview, even though I had been somewhat annoyed at him the last few days for his lack of judgement about the photo series in Paris Match. He did, however, commit a __massive__ blunder that in my estimate will probably come back to haunt him very quickly and destroy any bridges to the German public he may have built in the interview.

    When shown a video of him sticking the middle finger to Germany he responded that the video had been edited to discredit him. I strongly suspect this is not true and that this will be used to seriously discredit him. He probably responded like this because he had not expected to be confronted with the video, and had possibly even forgotten about the incident. (The video was a recording from 2013, at which point Yanis must have had had no idea he would one day become Finance Minister of Greece, of him responding to a question about the strategy Greece should pursue to deal with the crisis. Yanis was advocating defaulting within the Euro. He was obviously not sticking the middle finger to Germany as an insult and the gesture was a purely rhetorical device, possibly appropriate for the setting it was made in at a “Subversive Festival” in Zagreb, but certainly one to which an unsympathetic German viewer would react strongly. His denial will be even more damaging to him in the German public’s eyes.)

    The media will jump on this and this will completely undermine any progress in explaining things to the German public. The Greek government is already being painted as being unreliable, disorganized and brash in the German media and is being perceived as such by most of the German public. A recent poll claimed only 10% of Germans think that the current Greek government is “seriös”, which is a German word I have difficulty translating precisely, but whose meanings includes “reliable” and “can be taken seriously”.

    1. German native speaker

      The media are behaving in a most despicable manner. I have watched the video in question, and V. shows the finger while explaining that this is exactly what he does not want to do. Three articles in Spiegel and some in FAZ later, not one single person in these publications corrected their error, instead harping on that ‘finger’ image while always interpreting it the wrong way, as if none of these journalists actually speaks any English. Yes, there was V showing the finger, but he did it in order to explain that this is exactly what he does not want to do.
      When V. says afterwards, the “video was doctored”, he could well mean that the video clip was cut in a manipulative manner – i.e. taking that split second image completely out of context and giving it the exact opposite meaning of what he demonstrated when using that gesture. Of course, the Germans jumped on the word “doctored” and immediately inferred it to mean “photoshopped”, instead of “taken out of context”.

      I am so utterly utterly disgusted with the role of Spiegel especially. I am so utterly utterly infuriated about their catering to the lowest instincts and their volksverdummendem behavior.

        1. German native speaker

          There is no doubt that on the other hand, the current Greek government refuses to address tax evasion, and like all other Greek governments since 2010 refuses to act on the Lagarde list.
          This is what pisses the rest of Europe off, not just in Germany, and I find this reluctance to first find the money in their own rich population equally reprehensible.
          Change needs to come from both sides.

          1. John Jones

            What do you know about the lagarde list ?
            How many people are on the list that are Greek nationals?
            Of those people how much money does each person have?
            Of that how much of it is from tax evasion?
            How big is Greece’s rich population?

        2. Georgie Welchade

          Yes Lambert, it’s the media, and yes it’s Yanis.
          But it’s also millenary differences that can’t be solved with an Excell worksheet as Europeans have tried to do.

          In the 20th century, Europe attempted 5 re-foundational projects: communism, WW1, nazism, WW2, and the euro. All 5 failed.

          Europe should have conformed a Free Trade Agreement.
          At best (hmmm…) a Customs Union.
          Never a Monetary Union.
          Greece is Exhibit “A”.

          1. washunate

            It’s interesting that you separate WW1, nazism, and WW2…and then lump together everything that happened from WW2 to the euro. I agree that Greece never should have been in EMU in the first place, or at least, should have kept their own currency within EMU (like the UK and Denmark) rather than adopting the euro.

            But you’ve overlooked half the history of the 20th century. And perhaps the most exciting half at that as far as regional cooperation goes.


        3. Santi

          Yanis has been answering to this in :


          and

          Shifting perception is a slow process, For what I’ve seen in Spain, from the moment when something like the indignados movement erupted to now, less than four years have happened. The Spanish society has changed a lot, and it looks like substantial portions of local and regional power will be (re)taken, but there are still lots of things to do. Greece is doing very well.

  17. Georgie Welchade

    Europe’s required re-design process (paradigm shift ?) either takes place right now or never.
    I’m afraid that the required European soul-searching spirit is not there, so it’ll be…never.

    The 950-lb gorilla watching the scene while calmly munching away his morning’s bananas is the arch-famous ‘impossible triangle’ that Greeks and their sisters talk oh so much about on every street corner.
    The sooner that Greece grexits, the better for them and (oh surprise…) most probably also for Europe as Syriza will not ever ratify the Trans-Atlantic Trade and Investment Partnership (TTIP) the international trade agreement that both Germany and the United States eagerly want.

    Stop beating around the bush (both Greece and the EU) and face reality.
    It’s way too late in the game to turn Europe into a nation-state project.
    All of these proposals sound like a half-baked ‘Hail Mary” pass in the last minute of the 4th. quarter.
    By extending and pretending they are buying time, but also buying SIZE.

    1. Georgie Welchade

      Capital controls possibly soon in Greece just as they were imposed onto Cyprus (and still in force) according to Dutch Finance Minister Jeroein Dijsselbloem, head of the Eurogroup of Finance Ministers.

      So we have two euros. Great. (Go figure !)
      Euro #1 is the one you and I know and count on existing for many years to come (really ?)
      Euro #2 is the current Cyprus euro + maybe the Greek euro, only good within those two countries, not outside.

      So, the Greek ‘impossible triangle” keeps growing beyond manageable size as it ticks away its remaining shelf-life hours ever faster.

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