The Euro, Greece, the World Economy: Part B, a debate with Colin Bradford and Mattias Matthijs. (Canadian Public TV)

Here comes the second part of my hour long interview-debate on the Crisis. Not only did Steve Paikin prove an excellent, well read, internviewer but, to boot, I had the pleasure and honour of debating, in the program’s second part, with Colin Bradford (Brookings Institute and Project Leader of Brookings-CIGI Global Governance Reform Project) and Mattias Matthijs (American University). My heartfelt thanks to all involved. Sandra Gionas, the show’s producer, in particular.

27 Comments

  • I saw today that you will give a lecture at LSE beginning of December. I wonder though if there will a euro, worth mentioning the name at least, until then. The other thing I was wondering was: LSE,and escecially the Observatory ha?
    But then again, it will do good to them to at least get a hint of something different than policy making a la political science and econometrics.
    Anyway I hope the lecture will go as planned and hear you here in London..

  • oh hell, no, the man who ruined the world (the US) will now ruin Europe, for Alan Greenspan is an idiot (which of course he is not, this cunning former Fed-chairman is one of the most famous Dollar wispererers ever, being co-author of Atlas Shrugged…) running amok with his bla bla bla about cultural differerences being to blame for the inevitable faillure of the Euro, as to be seen in this wonderful interview with Collin, Mattias and Yanis on Canedian Television.

    Hear him out, go look this interview!

    Let us save

  • I thoroughly enjoyed this interview-debate last night. Very interesting point on the expected value of the DM vis a vis the EUR. I am concerned, however, that once this crisis fully unfolds itself, Europeans will pay for it with blood. It’s too bad that there is such a lack of strong political leadership, not just in Europe, but also globally. I’m afraid this opens the way for someone with extremist views who sells hope to gain a lot of traction. When people are hungry and see no future for their children, they do not care about much else. When there is such fluidity and instability in European politics, things become dangerous. History has proven, that is how you end up with a Papadopoulo, a Mussolini, a Franco, a Hitler.

    Specifically on Greece, it may not matter that Petsalnikos is (?) the leader of this new temporary governing arrangement. What will be important and interesting, are the results in the next elections in Greece. If the Greek electorate rewards those who brought their country to this condition, there is little hope for Greece to emerge from this mess and never repeat it again. As you rightly mentioned Yani, it’s time for a change, with bright, dynamic and decisive politicians to take the helm. I really hope you are wrong about your prediction on the slim chances of such politicians taking charge in Greece. I realize that some of them are part of the status quo, but hope they can find the strength to run as independents, or that there is some major reshuffling in the Greek political sphere.

    • … “bright, dynamic, decisive politicians”
      a contradiction in terms as far as Greece is concerned, I’m afraid …
      just look at them – they are more realistic dinosaurs than the special effects of Jurassic Park could ever dream of manufacturing.

      and “taking the helm” ? what helm ???

  • Great, somebody said it.

    Since WWII governments only used 50% of Keynesianism. They did not build up surpluses when times were good, they always used Keynesianism as an excuse to build up deficits. So now things are falling apart and they want to blame Keynes.

    Euro-nomics is built on lies. Keynes died in 1946. What did he ever say about palnned obsolescence. What happened to the depreciation of all of the junk designed to become obsolete in the last 60 years? We have been listening to economists who can’t do algebra. They don’t talk about the NET Domestic Product and they have that equation WRONG!

    http://www.toxicdrums.com/economic-wargames-by-dal-timgar.html

  • Quite one of the very best TV interviews I have seen; very well presented by Steve Paikin who had really done his homework.

    Again, Yanis shows us that he too has a complete grasp of the desperate situation the banking system is in. In almost every way The Modest Proposal is a brilliant solution to the problems faced by the Euro zone.

    However, I will keep returning to my strong belief that the European Investment Bank, (EIB), is not the solution to the underlying problem of the failure to promote growth.

    Earlier today I made this comment against a story in The Times, London, reporting that Christine Lagarde was now saying we face a lost decade.

    “Christine Lagarde is correct, but her proposed solutions will not prevent the “Lost Decade”.

    The Western economies are all, to one degree or another; failing. The same effects are caused by the same problem, no matter where on the planet they occur.

    The present economic model has done two things; skimmed off almost all of what one might describe as the hidden prosperity of the citizens and taken all of that skimmed prosperity on into a financial services system that does not have any recognised mechanism to replace that prosperity with new equity capital investment; particularly, right back at the grass roots of society; the traditional foundation for a prosperous, free nation.

    In the past, much of that required investment was driven by a local community cash float that was traditionally re-invested into equity capital which in turn; was used to create a basic business from which millions of entrepreneurs struck out into commerce; to create the products and processes every nation needs a supply of; to survive.

    Almost all of that essentially free enterprise based private enterprise; has been swept away by the follow on effect, globalisation. A good example being a Pennsylvania banker told me a couple of years ago that they had lost more than 700 local steel mills over the previous decade.

    Here in the UK, we no longer have ANY capacity to create Wrought Iron; the base material produced by a Blast Furness; which is in turn the base material for a vast number of small local manufacturing businesses. We once had a huge economy built upon wrought iron; but not any more.

    The Western economies need a program to rapidly replace all those small free enterprise businesses. Not in a decade; not in the next few years or so; BUT NOW!

    We have to set about creating millions of very small free enterprise businesses …. NOW!

    So; WHY NOT try some new thinking – Mme Lagarde?”

    http://www.thetimes.co.uk/tto/news/world/europe/article3221049.ece

    The EIB is not set up to create millions of small businesses; it is set up to create vast corporate/government inspired investments.
    You need a quite different structure to enable all those tens of millions of new jobs to be created by millions of new private sector businesses.

    That is the underlying challenge; the EIB will not, indeed cannot; address that challenge..

    • Almost all of that essentially free enterprise based private enterprise; has been swept away by the follow on effect, globalisation. A good example being a Pennsylvania banker told me a couple of years ago that they had lost more than 700 local steel mills over the previous decade.

      I’ve read that in the last ten years more than 40,000 factories have closed in the United States, roughly 4,000,000 lost manufacturing jobs.

      Envrironmental and labour arbitrage can be nasty, eh?

      The Western economies need a program to rapidly replace all those small free enterprise businesses. Not in a decade; not in the next few years or so; BUT NOW!

      The Western governments can start by repudiating free trade … and call it what it is — a sham!

      We have to set about creating millions of very small free enterprise businesses …. NOW!

      With ZIRP as standard policy? How can you have capital formation when the savers are punished?

      So; WHY NOT try some new thinking – Mme Lagarde?”

      Let’s not hold our collective breaths, Chris. Lagarde is a banskter.

    • I think you have put your finger on a main part of the problem : globalization.

      Its effect is not limited in emasculating the industrial capacities of enormous regions of the globe. It also makes the globe open to huge economic crisis not easily possible when there were the checks and balances of the frontiers.

      As an non economist what I observe with the world markets, as the internet allows a round the clock observatory, is that the whole globe has become a large casino .

      As a physicist I have the analogue of water. The smaller the lake, the smaller the waves, the larger the boundaries of the seas, the larger the waves induced, by the same winds. If one wants small waves, one makes a lot of compartments, elementary. Having the whole world as a casino is not the same as having 1000 small non communicating casinos. A run on the bank of one of them cannot spread to the 999 within a day.

      There are no global checks to balance the global craziness and greed.

    • Thank you Lastgreek, then add that for every manufacturing job there is a …. l – o – n – g ….. tail of all the businesses supplying the manufacturers; plus all the businesses that sell the product of the manufacturers…. and then add all the phoney replacement jobs created by all forms of “Public” works to try and cover up the deficiencies and you will come to a figure of something in the region of 30 million jobs in the US alone.

      Then add the lost tax income from all these employees and you start to get at the core reasons for the ongoing failure of their economy.

      anna v, again, your point is excellent; if you have millions of tiny free enterprise businesses, then a problem is always confined to the one, but if you build the economy on the backs of giant corporations and even worse; giant government owned or controlled feudal quasi corporations, (for that is what any such organisation is), then any problem is magnified accordingly. The icing on the cake being that the governments themselves became so enamoured with the idea of getting in on the act that they too started to borrow; as though they themselves were also a giant corporation and the banksters whooped for joy and fed the giant monster all the money they could gorge on.

      You say you are a physicist; then you might be interested in that I have written a book about gravity that no one will review, (but with a Foreword written by Prof. Donald L. Birx, who remains my main mentor), and that I also intend to establish a completely independent Gravity and Energy research institute here in the UK that would fit very nicely as an adjunct to a similar exercise in Greece. (I keep hearing how many well educated young people you have in Greece, so the two might come together very well). The book; The Universe is a Cloud of Surplus Proton Energy, was set up as an e-book, but with no reviews and almost no sales, (only three last year), I have taken if off the internet completely while I work at my strategy to get support for The Capital Spillway Trust.

      The underlying problem being I have not only destroyed Big Bang theory, but also completely re-written Ideal Gas Law and set out how to unify physics. So am seen as a quite mad heretic. If you can stand a little heresy, email me on talktochris at chriscoles dot com and I will send you a copy.

      Yanis; I did not offer you a copy as it is quite a large text, (not as large as your most recent), and you have enough to work on with your Modest Proposal. But again, if you wish …..

  • Interesting dynamic…kind of like herding cats.

    All outsiders expect Greece to do something first and we Greeks believe (and rightly so) that the Euro-players need to offer a winnable plan first.

    I like Matthias and what he had to say. I think he is right on the ball.

  • I saw your brilliant talk at the Brecht Forum last night. Nobody asked the question, “What did Greece spend all the money that resulted in the country’s current debt situation on?” You told us that Greece entered the Euro without a lot of public or private debt…so please share your observations on where it all went…

    • I am very glad you want this question answered. I’m sure Yanis would take this opportunity to give us his opinion.

    • Dear Koren
      Regarding the long-term govenment debt situation of Greece, this link may be interesting:
      http://www.indexmundi.com/greece/public_debt.html

      According to that document, Greek debt climbed from 18% of GDP in1980 to 78% of GDP in 1992.
      From 1992 to 1993, it jumped to 100% of GDP.
      Then, between 1993 and 2005, it fluctuated around 100-105% GDP.

      So already before the EURO was in existence, Greek government debt was high.

      From 2005 onwards, debt skyrocketed: To about 112% in 2008, 128% in 2009, 143% in 2010. Currently, the debt is around 160% of GDP.

      So although the debt / GDP ratio has increased dramatically over the last few years, it had reached 100% of GDP as early as in 1993.

  • Dear Yanis,

    I really believe you are right in most if not all of your sayings!
    Thanks for showing that in Hellas there are still people that can speak their minds in a productive way and lets hope that somehow your ideas will be followed by Europe.

    My question is this. You correctly say that the current expensive loans that are been given to Hellas are not good and we (Greeks) should tell the Europeans that we do not need them and should be stopped immediately.
    Even though I agree with you, I think and fear that this would eventually mean that we have to go bankrupt, thus losing the current standards of living, as we cannot finance them in any other way.
    Again I tend to think that this is the only way out of this mess, but should we do that, don’t we run a grave danger of practically plunging the country in anarchy and dispair for a decade or more?

    Please do not missunderstnd me, if we (Greeks) agree that we have and need to do it, lets do it, but we need to be prepared for the worse!

  • Yanis, I whole-heartedly agree with the fundamentals of your statements, particularly that Greece should have said to the EU from the start “we will not allow you to use Greece’s balance sheet for the recycling of funds to bail-out your banks”. No new loans at all would have been too harsh because Greece needed to stay in business but the purpose of the loans should have been restricted to the financing of a budget deficit in agreed-upon amounts. No new loans for the repayment of existing loans! Instead, an orderly rescheduling. As the Chief Economist of Citibank said recently, EU-elites regrettably did
    not know that “outside of Western Europe, defaults (and reschedulings) have been a dime a dozen, even in the past few decades.’’

    Sadly, I listened for approximately 50 minutes to a most interesting discussion but, with the exception of your brief reference to the EIB, there was no talk at all about how the Greek economy could be revived. I respectfully disagree with you when you say that presently there is nothing Greeks can do on their own; sort of “it all depends on Europe”.

    Greece could tomorrow announce to radically tighten the 2 holes through which funds flow out of the economy: capital controls to slam a brake on the ridiculous official capital flight and import taxes on imports which Greece doesn’t desperately need. Parallel to this, Greece could announce to cut primarily those imports which can be substituted with domestic production and set in motion steps to attract foreign investment for such production (not debt!) and create jobs and income taxes. Obviously, the EU would cry “foul play” about violating the EU-freedoms of movement of goods and capital, but so be it. The surplus countries can either continue to export freely to Greece and send Greece the money for paying for those imports or – if they no longer want to send money – accept to export less and allow Greece to produce more on her own. To me, that is algebra and not economics.

    One of the best comments in the discussion, which was probably meant as a joke, was the one about all Germans spending their tourism-Euros in Greece. That is not a joke! If the surplus countries had spent 199 billion EUR as tourists in Greece from 2001-10, Greece would have no problems today because that was the accumulated current account deficit during this time.

    Whether it is individuals, companies, regions or states, I don’t have great sympathy for people throwing up their arms and crying “there is nothing we can do”. Greece could and can do a lot for her own good and most of the Greeks whom I know, particularly the younger generation, would be thrilled to hear what they could do for themselves and for the future of the country (to start with: “buy Greek products at supermarkets!”).

    The absence of such initiatives, of course, points to Greece’s leadership as the source of all problems but here, again, the only people who can change that are the Greeks themselves (short of returning to colonial days).

    So, I think – respectfully – that you are making it a bit easy for yourself when you say that here is a European problem and Greece can do nothing on her own to solve that. Greece doesn’t need to solve any European problems and if she waits until European problems are resolved, she will probably waste a lot of time which could be better used by taking initiatives to improve her future on her own.

    • Klaus,
      I agree with you that we Greeks should not just sit back and wait for our fellow Europeans come and rescue us or own us. Yanis has also hinted at some measures that Greece can take, in an interview on a greek TV channel back in October (see my comment in http://yanisvaroufakis.eu/2011/10/18/los-angeles-review-of-books-on-yanis-varoufakis%e2%80%99s-new-theory-of-the-global-financial-crisis-by-brian-collins/#comments, where I also gave a description of what he proposes for the benefit of english speaking followers of this blog). Of course, he only gave headlines and I would really like to see a more detailed explanation which could lead to something like a smaller “Modest Proposal” for Greece.

      On the other hand, I understand that many people (especially outside Greece) still think of this as a Greek crisis and it is important for Yani to emphasize more on the European level. And if Europe doesn’t act rationally there will be no way out, no matter what we Greeks do.

    • pkars,

      I have looked up the link which you indicated but couldn’t find what you referred to.

      The only suggestion I have seen in this blog regarding growth initiatives for the economy is the EIB. While I think a lot of the EIB (I have worked on projects with them for several years), their mindset really isn’t “small to middle-market businesses”. Yes, they could do some good for Greece with a few large infrastructure projects (provided that one waives the co-financing requirement) but such infrastructure projects typically do not provide the masses of new jobs. Also, when large sums of public or semi-public money allocations are involved, I always fear in Greece that much of that money may end up in the wrong pockets.

      Let me give you an example: my wife comes from a town of about 2.000 people. After Greece’s joining the EU, an entrepreneur built a plant there employing, I believe, around 200 people from the area. Shortly after the Euro, the plant closed (I don’t remember what they produced). I think that if you had a new plant like this in every Greek town of about 2.000 people, wonders would happen to the Greek economy. Greece to me is an economy of small-/medium-size businesses. It seems to me that Greeks have tremendous improvisation skills which is exactly the talent needed in such small (or a bit larger) businesses.

      So who should start these plants and what should these plants produce under which regulatory framework? That is exactly the question which I would love to see being discussed. And I see virtually no discussion about this anywhere.

    • Klaus,
      on the link I cited I had made a comment regarding an appearance of Yani in a Greek TV channel where he talked (very briefly) about what Greece can do in order to be able to still go on without getting the 6th tranche from the troika; here is a copy-paste of a part of my comment:

      “Specifically in the second part he discusses the hypothetical scenario that the latest bill is voted against in the parliament and as a consequence we do not get the 6th tranche of the troika loan. He then gives examples of how the Greek state could immediately reduce expenditure in order to be able to get through the months before the European solution can have its positive effects in our economy: Squeeze salaries from the top (e.g. highest salary becomes second highest, second highest becomes third highest etc.), close down embassies in smaller far-away countries and reduce army expenditures. Of course, TV time is very condensed and he did not have the time to elaborate on these examples or add some more, so I think it would be interesting to have him write something about it in this blog.”

      Of course, you are right that the growth issue was not addressed, so I don’t know if he has any other ideas apart from the EIB.

    • Greece could tomorrow announce to radically tighten the 2 holes through which funds flow out of the economy: capital controls to slam a brake on the ridiculous official capital flight and import taxes on imports which Greece doesn’t desperately need. Parallel to this, Greece could announce to cut primarily those imports which can be substituted with domestic production and set in motion steps to attract foreign investment for such production (not debt!) and create jobs and income taxes. Obviously, the EU would cry “foul play” about violating the EU-freedoms of movement of goods and capital, but so be it. The surplus countries can either continue to export freely to Greece and send Greece the money for paying for those imports or – if they no longer want to send money – accept to export less and allow Greece to produce more on her own. To me, that is algebra and not economics.

      You are basically saying that Greece should leave the EU altogether because restricting imports from fellow EU countries is tantamount to declaring secession.

      I would think less than 5% of the Greek population would want this outcome.

    • Robert Dudek
      “You are basically saying that Greece should leave the EU altogether because restricting imports from fellow EU countries is tantamount to declaring secession.

      I would think less than 5% of the Greek population would want this outcome”.

      I am saying that this would be no more “‘foul play” than when Germany/France first violated the Maastricht rules. Incedentally, one doesn’t have to violate EU-treaties. The more reasonable way would be to amend them for Greece (at least temporarily). If such an amendment helps Greece to become stronger and be in a better position to service her debt, the others should be happy about that.

    • Chris Coles

      What you propose is essentially the Raiffeisen-concept in Germany and Austria. Having worked for Raiffeisen for 10 years out of my career, I can confirm to you that this is a rather brilliant system (and it is the closest to bringing banks back to the role they were initially intended to play).

    • Klaus Kastner,

      The origins of my thinking, in 1992/94 when I wrote down the fundamentals for The Capital Spillway Trust; was finding that I could not raise any form of funding to pay for the examination fees for my patent applications with the EPO; who had abandoned my applications simply because of lack of funds, (let alone to pay for the ongoing development of what is now, in large part, the 3G and 4G telecoms systems). It seemed the best way forward was to propose a system within which everyone could work that would provide a solution that all sides would find acceptable. As such, until today, I had never heard about Raiffeisen, I will do some research.

      But who will listen?

      I suspect that “Not Invented Here” is the dominant influence today, (as it always is).

      Can you propose anyone within Raiffeisen that might make for a useful collaborator?

  • I found Prof. Matthijs made a satement, which was new to me and sounded a very logical thing to expect in the future.
    He said, we all are Keynesians, when the economy is in a recession and agree, that in a recession public debt is not a bad idea, but that governments should be made/forced to produce surpluses in good times too. This is Keynes too but neglected all to often. Even in good times, our governments have always been increasing debt.
    So, while the German idea of a debt ceiling seems to be inappropriate, a regulation which considers the present global economy should be a reasonable thing to have. This is something, even German politics would – or at least some of them – could accept, I believe.

    But on the other hand: would it be possible at all, to define hard criteria for deciding, when is the time to create surpluses?

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