Yanis Varoufakis: Italy’s collapse will change the Austerian way in Europe

Yanis Varoufakis, 52, a Greek professor and blogger, currently at the Lyndon B. Johnson Graduate School of Public Affairs of the University of Texas, Austin, US, says in a short interview that “neither Portugal’s nor Ireland’s debt dynamics would allow for an autonomous existence in the money markets; for a genuine return to the markets. All that is happening is that Mr. Draghi is insinuating that these two countries may be shifted from the EFSF-ESM bailouts to the umbrella of the ECB’s OMT, with harsh austerity continuing to squeeze their social economies into the same negative dynamic of debt-deflationary-banking malaise.”

Interview by Jorge Nascimento Rodrigues (c) 2013

Yanis Varoufakis

Born in Athens, 1961, Yanis Varoufakis has read Mathematical Economics (University of Essex) and Mathematical Statistics (University of Birmingham) and completed a Ph.D. in Economics (University of Essex). His academic appointments were at the Universities of Essex East Anglia, Cambridge, Glasgow, the Université Catholique de Louvain and the University of Sydney-before returning to his native Greece to take up an appointment at the University of Athens as Professor of Economic Theory. He is currently a Visiting Professorship at the Lyndon B. Johnson Graduate School of Public Affairs of the University of Texas, Austin. Since the Crash of 2008, Varoufakis has been an active participant in the debates on the global and European crises and has co-authored with Stuart Holland “A Modest Proposal for Resolving the Euro Crisis.” Its 3.0 version was published today (http://www.veblen-institute.org/A-modest-Proposal-for-Resolving ). With James Galbraith he co-authored June 24 an op-ed at the New York Times titled “Only the Left can save Greece.” (http://www.nytimes.com/2013/06/24/opinion/only-syriza-can-save-greece.html ). “Our own title was «Why a Syriza victory is not against the interests of the United States or Europe»,” says Yanis. He can be followed in his website http://yanisvaroufakis.eu. His books include The Global Minotaur: The True Origins of the Financial Crisis and the Future of the World Economy (Zed Books, 2011, 2013); Modern Political Economics: Making sense of the post-2008 world (with J. Halevi and N. Theocarakis; Routledge, 2011); Game Theory: A Critical Text (with S. Hargreaves-Heap, Routllege, 2004); Foundations of Economics: A beginner’s companion (Routledge, 1998); and Rational Conflict (Oxford: Blackwell Publishers, 1991).

INTERVIEW

Greece is heading towards a new debt restructuring?
A third one! First, we had the PSI [private sector involvement concluded in March 2012m where private investors accepted the equivalent to an overall loss of around 75%], then last December the euphemistically called ‘debt buyout’ [the three biggest Greek banks participated in a sovereign debt buyout where the government offered to spend as much as 10 billion euros to buy back 30 billion euros of its bonds] and now we are heading for the so-called OSI [official sector involvement].

The IMF is right about Greece when he says that debt restructuring should have been upfront and fiscal adjustment in its wake?
That has been my position all along. When bankrupt a large loan does not help, as long as the loan is not preceded by a debt write off. And, when the large loan, without an upfront haircut, comes with the condition of reducing your income (for this is what austerity does), then it is a predatory, toxic, ridiculously irrational policy.

Antonis Samaras’ government has survival conditions? What can undo the coalition with the PASOK?
Life. The intensification and deepening of the debt-deflationary-banking crisis. These are the unstoppable ‘processes’ that will kill this government off. Just as it happened with the Papandreou government and then the Papademos one which followed.

A Syriza government as you wrote with James Galbraith in an op-ed to the NYT June 24 is not a threat to Brussels and the IMF?
It is certainly not a threat to the IMF, to the extent that a Syriza government would oppose the policies that the IMF itself has admonished as irrational. Brussels on the other hand, just like Berlin and Frankfurt, will be aghast. But that is a godsend for Europe. It is a major error to assume that Brussels’s interests and views coincide with Europe’s views. Currently, Europe is being pushed off a cliff by Brussels and a Syriza victory would give Europe a shot at surviving; at pulling back from the brink. The fact that this might, at least at first, anger Brussels is fine by me.

The geopolitical implications of a victory of SYRIZA have not been addressed. There would be no disruptive changes in this field taking into account the context of the Balkans and the Middle East?
Greece is caught up in an existentialist crisis caused by its membership of a problematic currency union. Neither the Middle East nor the Balkans present Greece with a clear and present danger to its integrity and long-term survival. Syriza would never wish to be distracted from this survival struggle by opening up fronts in the Middle East or the Balkans.

Ireland and Portugal, although in different macro situations, are able to “return to the markets” in 2014 in a sustained way? Or will have to resort to transitional precautionary programs? Or will have to make debt restructurings?
Absolutely not. Neither Portugal’s nor Ireland’s debt dynamics would allow for an autonomous existence in the money markets; for a genuine return to the markets. All that is happening is that Mr. Draghi is insinuating that these two countries may be shifted from the EFSF-ESM bailouts to the umbrella of the ECB’s OMT, with harsh austerity continuing to squeeze their social economies into the same negative dynamic of debt-deflationary-banking malaise.

The change in the Fed’s QE communication for an exit in 2014 and the eventual rise of the fed funds rate from 2015 will completely change the rules of the game?
It will make it harder to pretend that Ireland and Portugal can re-enter the markets by switching from the current bailouts to the OMT. After all, the OMT depends on a non-credible threat by the ECB against bond dealers. The end of QE will make this threat even less credible.

What should have been the policy pursued by Brussels and the ECB in the face of the debt crisis that began in 2010?
In answer to this question, Stuart Holland, James Galbraith and I are putting forward our “Modest Proposal for Resolving the Euro Crisis”. Three measures can be adopted without Treaty modifications: 1-Etablish a single European banking zone in order to Europeanize super-vision and disconnect national debts and bank losses; 2- Convert the portion of national debts that is compatible with the Maastricht criteria (60% of GDP) through a BCE-driven EFSF-ESM initiative; 3- Launch a European stimulus program financed by the European Investment Bank and the European Investment Fund.

Austerity is mortally wounded or BIS, the IMF and Brussels continue to be its main supporters?
Austerity during a debt-deflation-banking crisis is utterly self-defeating.

What can turn the situation?
Italy’s collapse

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