German journal Die Zeit interviewed Yanis Varoufakis

German journal "Die Zeit" published today an interesting interview with Yanis Varoufakis:

"I'm the finance minister of a bankrupt country"

The Germans need not trust the Greeks, but should listen to them, says Yanis Varoufakis. In an interview with ZEIT and ZEIT ONLINE he promises a big reform programme. Interview: Marcus Gatzke und Mark Schieritz

4. Februar 2015  08:56 Uhr

Yanis Varoufakis  |  © Simela Pantzartzki/EPA/dpa

ZEIT ONLINE: Mr. Varoufakis, in just a few days, you’ve antagonized half of Europe. Was that your plan?
Yanis Varoufakis: I think that’s normal. It will take some time before it’s been understood everywhere that a very fundamental change has taken place in the EU.
ZEIT ONLINE: Which change?
Varoufakis: Europe wasn’t prepared for the crisis in Greece and made decisions that just made everything worse. Now the EU resembles a gambling addict throwing good money after bad. We can’t say: "Stop! Did we do something wrong? Did we perhaps understand this crisis wrong?"
ZEIT ONLINE: Did we? After all, the Greek economy has recently been back on a growth course.
Varoufakis: Perhaps if you look at things in purely statistical terms. But, in reality, incomes and prices are falling. The existing crisis policies have strengthened political forces on the far right all over Europe – in Greece, in France, in Italy. We need a change of course.
ZEIT ONLINE: Many Germans fear this is an excuse to dial back reforms.
Varoufakis: Germans have to understand that it doesn’t mean we’re turning away from the reform path if we give an additional €300 a year to a pensioner living on €300 a month. When we talk about reforms, we should talk about cartels, about rich Greeks who hardly pay any taxes. Why does a kilometer of freeway cost three times as much where we are as it does in Germany?
ZEIT ONLINE: Why?
Varoufakis: Because we’re dealing with a system of cronyism and corruption. That’s what we have to tackle. But, instead, we’re debating pharmacy opening times.
ZEIT ONLINE: Many governments have promised to do something to counter these problems. But little has happened. So why should people trust you?
Varoufakis: You need not trust us. But you should listen to us. Listen to what we have to say, and let us then discuss it with an open mind.
ZEIT ONLINE: You are new to your office, and most cabinet members do not have any experience in government. How do you intend to accomplish everything?
Varoufakis: We may be inexperienced, but we aren’t part of the system. And we will get some expert advice. We’ve approached José Ángel Gurría, the secretary-general of the OECD, the organization of industrialized countries. He is supposed to help us put together a reform programme.
ZEIT ONLINE: Your government has rehired thousands of civil servants. Is that the new Greece?
Varoufakis: We haven’t hired anyone at all yet. We have announced that we want to have a look at a series of public-sector dismissals that were pronounced under questionable circumstances. If we rehire these people, it will be because the justification for their dismissal was unconvincing.
ZEIT ONLINE: The justification was lack of money.
Varoufakis: That doesn’t convince me. For example, our schools were plundered because the security people lost their jobs. Is that a sensible cost-cutting measure? We fire the security staff, and the school’s computers are stolen at night.
ZEIT ONLINE: Can these problems not be solved without bloating the state apparatus?
Varoufakis: We aren’t bloating it. If we notice that we have too many people, we will change course and no longer fill positions when they become empty, for example. When I was still working at the University of Athens, there was a cleaning lady there named Anthoula. We often had to work until midnight. Although her workday had ended much earlier, Anthoula cleaned up after us and unlocked the rooms for us the next morning. Guess who was let go first as part of the austerity program? Anthoula.
ZEIT ONLINE: Can politics let such individual fates determine its direction?
Varoufakis: No. But the example of Anthoula is emblematic of the situation in Greece. The reforms have been inefficient and unfair. That is why I’ve also ordered that the cleaning ladies in my ministry be rehired.
ZEIT ONLINE: In other words, those women who have been protesting their dismissals in Athens for months and have become a symbol of the crisis?
Varoufakis: Exactly. In my ministry, the representatives of the troika...
ZEIT ONLINE: … the EU inspectors...
Varoufakis: … have been devising the so-called reforms. These people haven’t dismissed highly paid consultants, for example, but rather cleaning ladies who cleaned the rooms and toilets at night. Women over 50 who went home with €500 a month. This decision is morally reprehensible. And before you ask about it: We will save money in other places – by not extending the consultants’ contracts.
ZEIT ONLINE: During the campaign, Syriza announced a spending programme worth billions. Can it be implemented without new debts?

Varoufakis: It has to. I can promise you: Excluding interest payments, Greece will never present a budget deficit again. Never, never, never!
ZEIT ONLINE: Why did you have to throw the EU troika out of your country?
Varoufakis: What’s the troika? A group of technocrats who monitor the implementation of the reform programme. We were elected because we no longer accept the logic of their programmes. They have ruined our country. The troika doesn’t have a mandate to negotiate another policy with us. But that does not mean we will no longer work together with our partners.
ZEIT ONLINE: Greece has accepted the conditions of its lenders. The attitude in Berlin is that deals must be kept.
Varoufakis: When I hear something like that, I sometimes think that Europe hasn’t learned anything from history. After World War I, Germany signed the Treaty of Versailles. But this was a bad treaty. Europe could have spared itself a lot of suffering if it had been broken. John Maynard Keynes...
ZEIT ONLINE: … the famous British economist...
Varoufakis: ...already warned at that time that driving a country into ruin wasn’t a sustainable strategy. If we believe that the bailout policies have been a mistake, we have to change them.
ZEIT ONLINE: Have they been a mistake?
Varoufakis: A huge mistake. Greece collapsed under its debts. How did we deal with that? We gave even more loans to an over-indebted state. Imagine one of your friends loses his job and can no longer pay his mortgage. Would you give him another loan so he can make payments on his house? That cannot work. I’m the finance minister of a bankrupt country!
ZEIT ONLINE: So, where does that lead us?
Varoufakis: We should approach the problems with the eyes of an insolvency administrator. And what does an insolvency administrator do? He tries to reduce the debts.
ZEIT ONLINE: Germany’s federal government has ruled out a debt haircut.
Varoufakis: I understand there are terms that have been discredited in certain countries. But we can also lower the debt burden without touching the amount of money owed itself. My proposal is to peg the amount of interest payments to economic growth.
ZEIT ONLINE: So, if the Greek economy didn’t grow, creditors would have to waive the interest. You’ve been quoted in German newspapers as having said: "No matter what happens, Germany will still pay."
Varoufakis: The quotation has been ripped from its context. I did not say that the Germans will pay and that this is a good thing. I said that they have already paid far too much. And that they will pay even more if we do not solve the debt problem. Only then can we refund the money that people have loaned us in the first place.
ZEIT ONLINE: Do you believe you’ve been deliberately misunderstood?
Varoufakis: I hope it’s only a misunderstanding.
ZEIT ONLINE: Immediately after the election, Alexis Tsipras visited a memorial to those who resisted Nazi Germany. That has also been understood as a provocation. Is that a misunderstanding, as well?
Varoufakis: The Golden Dawn party has risen to become the third-strongest force in our parliament. They aren’t neo-Nazis; they are Nazis. We must fight them, always and everywhere. Laying down roses on the monument was a message to the Nazis in my country. It was not a signal directed toward Germany.
ZEIT ONLINE: In your view, has Germany become too powerful in Europe?
Varoufakis: Germany is the most powerful country in Europe. I believe the EU would benefit if Germany conceived of itself as a hegemon. But a hegemon must shoulder responsibility for others. That was the approach of the United States after World War II.
ZEIT ONLINE: What could Germany do?
Varoufakis: I imagine a Merkel Plan based on the model of the Marshall Plan. Germany would use its power to unite Europe. That would be a wonderful legacy for Germany’s federal chancellor.
ZEIT ONLINE: Merkel would say she has a plan.
Varoufakis: What kind of plan is that? A Europe in which we get even more loans that we will never be able to pay back? Back then, the United States forgave the lion’s share of Germany’s debts. From the ongoing EU aid programme, there are now €7 billion lying on the table that I can take just like that. All I have to do is quickly sign a document. But I wouldn’t be able to sleep well if I did because it wouldn’t solve the problem.
ZEIT ONLINE: As a result, you have another problem: Your money could run out in a few weeks.
Varoufakis: That’s why we need a bridging loan. The European Central Bank should support our banks so that we can keep ourselves above water by issuing short-term government bonds.
ZEIT ONLINE: In doing so, the ECB would be acting on the fringes of legality.
Varoufakis: But it wouldn’t be the first time that it took up such a task. And it’s also not about a long-term solution. We will have our plan ready at the beginning of June.
ZEIT ONLINE: Will you ask Russia for help?
Varoufakis: I can give a clear answer to that: That is not up for debate. We will never ask for financial assistance in Moscow.
This interview has been edited and condensed for length and clarity. This is the English translation of the original German version.

New Greek finance minister Yanis Varoufakis is a new hope for Europe

Greece has a new government giving new hopes for Europe (what a nonsense to say that it is a threat to "Europe"). Greece also has a new finance minister, Yanis Varoufakis, who has refreshing views on Europe and the world economy. You can read his views in in a blog that he has kept for many years and intends to continue: "Yanis Varoufakis thoughts for the post-2008 world".

It is great to have in Europe a new, thoughtful minister of finance. I hope he will receive support from colleagues in other European countries and from within the European Commission and the European Central Bank. Economic dogmas should stop reigning, rational reasoning should become the norm again.

A few weeks ago Yanis Varoufakis explained on his blog why he had decided to accept the invitation of the now new prime minister of Greece, Alexis Tsipras, to be a candidate for Syriza in the elections.
This is what he said:

Why I am running for a parliamentary seat on SYRIZA’s ticket

Posted on January 9, 2015 by yanisv

Critical engagement is a form of praxis. But there comes a time when, to retain its relevance, critical thinking must transform itself into direct political action.
It was never my intention to enter the electoral game. Ever since the crisis began, I entertained hopes of maintaining an open dialogue with reasonable politicians from different political parties. Alas, the ‘bailouts’ made such an open dialogue impossible.
As the Eurozone’s inevitable crisis was addressed by a cynical transfer of banking losses onto the shoulders of the weakest taxpayers, politicians and commentators who tied their colours onto the so-called bailouts’ mast demonstrated precisely no interest in rational debate.
Instead of discussing, in the European Union’s fora, the nature of our systemic crisis, the powers-that-be were busy fiscally waterboarding proud nations, letting them take a few short breaths before submerging them again into the waters of illiquidity. Thus Europe began to lose its integrity and its soul, turning from a realm of shared prosperity to an iron cage, a debt prison, a form of Victorian workhouse.
At the economic front, this crisis-denial led to contagion in the sovereign bond markets, beginning with Greece where the combination of savage austerity and huge loans was tried and tested, before being exported to the rest of the Eurozone. Predictably (as this blog was illustrating day in day out) the contagion was only made worse, reaching Italy with extreme prejudice and forcing the ECB to step in in the summer of 2012 with Mr Draghi’s famous “whatever it takes” moment. Only the crisis never went away but, rather, it was transferred from the bond markets to the real economy, yielding vicious deflationary forces that have now rendered Spain, Italy and France fiscally unsustainable.
At the social front, crisis-denial and the logic of the bailouts gave rise to a humanitarian crisis that Europe should be deeply ashamed of. Again predictably, the result was the fanning of the flames of misanthropy, of racist nationalism, of all those sinister forces that are demolishing European democracy and replacing it with self-propagating authoritarianism. The results of the last European Parliament elections confirmed that sad truth but did nothing to sway the powers-that-be away from the policies of deconstruction that are behind the emergent bigotry.
Greece is where all this started. It must be where a reversal of Europe’s fragmentation begins too. Regular readers of this blog are familiar with my efforts to come up with a sensible, modest proposal for resolving the euro crisis. Such proposals have no chance, I have now understood, until and unless they are tabled at the Eurogroup, in Econfin at the EU summit.
This is the reason that when Alexis Tsipras honoured me with the offer to run for an Athens parliamentary seat, and with a view to play a role in Greece’s negotiation with Berlin, Frankfurt and Brussels, I could not but accept.
My greatest fear, now that I have tossed my hat in the ring, is that I may turn into a politician. As an antidote to that virus I intend to write my resignation letter and keep it in my inside pocket, ready to submit it the moment I sense signs of losing the commitment to speak truth to power.

Am I naive? (2)

Notwithstanding my observation or belief that we are all small capitalists or want to become small capitalists, or rather, just because I think we all are, or almost all, I believe that we need to look beyond our own small interest and think about the fate of the others, of the larger community, the local and the world community, and about the fate of nature.

Only then we will be able to understand how change can be brought about and how, in the past, change has been brought about. Because that is exactly what our parents, grandparents,  greatgrandparents, and we have done: creating public utilities, creating a social welfare system, adopting measures to preserve nature, adopting measures to reduce CO2...

And rather than privatising public utilities and reducing the role of the state, we have to maintain or increase the role of the state.

If the world would only consist of small capitalists, or even worse, if it were dominated by big capitalist corporations, there is little hope that we can maintain or create a just and responsible world in which equality and the conservation of nature prevails.

Am I naive? (1)

A friend of mine, an economist working at one of the international financial institutions and commenting on a previous post, asked me how I could be so naive to think that social scientists would do their work "regardless of the interests of individuals and institutions"???
The three questionmarks were his.

He then continued (refering to my earlier proposal to form a G24 or G25 to change the world) saying that most parliamentarians know exactly what needs to be done to improve the world and that, if problems are not solved in the direction we want, it is not because of a lack of ideas of how to improve the global economic system but because a few own the economic wealth, a few more share in the distribution of income and both defend tooth and nail (vigorously) that wealth and income.

I am less naive than my friend thinks, because in my view it is not only the so-called 1 percent who defends their interests and the global economic system, opposite to the other 99 percent of the population, but it is a majority who defends it!!! In my view, the system is maintained by a large group (a majority?) of what I would call 'small capitalists' and those who would like to become small capitalists. 

Yes, I am one of those small capitalists and I suppose you are too. And even though we may wish to change the system, reality is that we support it and benefit from it, in various ways (even though we may also suffer from it.)

Do you disagree?

My economist friend said something else worth quoting, "The distribution of world income is much worse than the distribution of income in the most unequal country of the world and, in its turn, wealth is much worse distributed than income."

Finally, my friend said that the message in my previous post that we, the experts, should be nice and explain to people how to improve the world seems to underestimate their capacity.

The power of the 'experts' - El poder de los 'expertos'

Pretenden que la política económica, y sobre todo la política financiera y monetaria, es una cosa para expertos. Pretenden también que el manejo del sistema financiero y monetario global es una cosa para expertos. Los que dicen y piensan eso son pretensiosos.

Sin embargo, el experto que no intenta explicar las posibles opciones en el manejo de la política económica y del sistema financiero global a 'un niño curioso,' no es un experto a quien podemos confiar el rumbo de la política económica. El verdadero experto entiende que debe buscar y explicar las opciones, porque no puede ser que el o ella determina la política económica. Es el pueblo, por medio de un proceso verdaderamente democrático, que debe determinarla. 

Una de las maneras en que un grupo (una casta?) de expertos, trabajando en las instituciones económicas nacionales e internacionalse, mantiene su poder es pretender que 'los que no saben' no deben interferir en el diseño y la aplicación de 'sound economic policies'.

Hasta cuando les damos ese poder?

Ahora digo lo mismo en inglés:

They claim that economic policy, especially financial and monetary policy, is a thing for experts. Also they claim that the management of the global financial and monetary system is a thing for experts. Those who say and think this are pretentious.

However, the expert who does not attempt to explain the options in the management of economic policy and the global financial system to 'a curious child,' is not an expert whom we can trust the direction of economic policy. The true expert understands that he or she should look for and explain the options, because it can not be that he or she determines economic policy. It is the people, through a truly democratic process, that should determine.

One of the ways in which a group (caste?) of experts working in national and internacional economic institutions maintains its power is by claiming that 'those who do not know' should not interfere in the design and implementation of 'sound economic policies'.

Until when do we give them that power?

How to achieve truly international cooperation?

Too many social scientists are busy with maintaining or improving their position and/or of that of the organisation they are working for. This prevents truly international cooperation and stimulates work that is geared towards defending certain 'scientific' positions or postures or stances and often results in analyses that come close to propaganda or whitewashing existing policies -- without making explicit that they serve that interest.

Maybe this unfortunate state of affairs is in particular present in economic policy analyses and is less present in fundamental economic research that makes explicit the assumptions of the research.

To apply my thought on the need for a better world economic system: how could we stimulate social scientists to work jointly -- regardless of the interests of individuals and institutions -- on a plan that suggests how the world economic system could be improved?

Obviously, such a plan needs to be discussed democratically, by all nations. And obviously, this should be done in a truly democratic way and not in the current way in which people are degradated and used as a flock of animals who, by voting in elections, serve to legitimise current unequality, poverty and economic and social injustice.

Cornel Ban on doctrine shift in the IMF

Is There More Room to Negotiate with the IMF on Fiscal Policy?

  

In a new Working Paper, GEGI's co-director Cornel Ban discusses recent shifts in IMF doctrinal policy as a result of the financial crisis. He argues that well-informed countries now have more ability to negotiate their fiscal policies and dictate their own terms while utilizing IMF funding. 

These policy shifts are of critical importance to emerging economies that seek to maintain their autonomy while engaging with international 

institutes of finance.

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Executive Summary

During the 1980s the IMF emerged as a global "bad cop," demanding harsh austerity measures in countries faced with debt problems. Has the Great Recession changed all that? Is there more room to negotiate with the Fund on fiscal policy?

The answer is yes. If we take a close look at what the IMF researchers say and what its most influential official reports proclaim, then we can see that there has been a more "Keynesian" turn at the Fund. This means that today one can find arguments for less austerity, more growth measures and a fairer social distribution of the burden of fiscal sustainability. The IMF has experienced a major thaw of its fiscal policy doctrine and well-informed member states can use this to their advantage.

These changes do not amount to a paradigm shift, a la Paul Krugman's ideas. Yet crisis-ridden countries that are keen to avoid punishing austerity packages can exploit this doctrinal shift by exploring the policy implications of the IMF's own official fiscal doctrine and staff research.  They can cut less spending, shelter the most disadvantaged, tax more at the top of income distribution and think twice before rushing into a fast austerity package.

This much is clear in all of the Fund's World Economic Outlooks and Global Fiscal Monitors published between 2009 and 2013 with regard to four themes: the main goals of fiscal policy, the basic options for countries with fiscal/without fiscal space, the pace of fiscal consolidation, and the composition of fiscal stimulus and consolidation.

 

 Download the Working Paper

      Follow GEGI's work on Financial Reform and Global Economic Institutions