On ABC Radio National, PM program: 'Stupendously idiotic' policies for Greece can't work.

For the audio of the interview click. For the transcript (courtesy of ABC), continue reading…

MARK COLVIN: EU finance ministers are due to meet in Brussels later tonight to discuss the Greek crisis. But they don’t have much room to manoeuvre, because Greece has no effective government and no prospect of getting one.

The Greek president has called on the four main parties, including the centre-right New Democracy and the socialist Pasok, to try to form an emergency government to avoid new elections. But that call seems doomed after repeated coalition attempts foundered on the rock of economic reform.

The second biggest party, the left wing, Syriza, says it couldn’t back any coalition which supported austerity. It’s now near inevitable there’ll be fresh elections in June.

Yanis Varoufakis is professor of economic theory at the University of Athens. He’s currently in Seattle and he spoke to me on Skype from there.

YANIS VAROUFAKIS: There is no doubt that there is a great deal to worry about, given the, the last election result, particularly, as you mentioned, the rise of the neo-Nazis. However, I would caution anyone who reads too much into the titles of parties like the Radical Left. The Radical Left Party is not that radical. If anything, it is, more or less, where the socialist party used to be 10 years ago. So it’s a centre-left party in reality, with some radical elements that are, more or less, marginalised within it.

MARK COLVIN: But surely, the relevant point, at the moment, is that it is a party which is not really prepared to deal on the question of austerity and is really calling the eurozone’s bluff on the drachma.

YANIS VAROUFAKIS: Well, let me give you my personal take on this. I consider the last two years to have presented us with the ultimate proof that the kind of austerity, the whole package that has been imposed upon Greece by the powers that be in Europe, simply cannot work. So, if I’m right, then the worst enemy of the eurozone is itself and this particular mix of policies which is, it is imposing on the periphery of Europe.

So it is my considered opinion that a reasonable and rational opposition to the austerity and bailout package presented upon countries like Spain, Italy, Greece, Ireland, Portugal and so on and so forth, is actually not a hindrance to the survival of the eurozone, but it is a help.

MARK COLVIN: But, a lot of people believe, that whether you agree with the austerity package or not, Greek people have to stop regarding paying tax as an optional extra and have to wean themselves off their addiction to sinecures and early retirement. You don’t agree.

YANIS VAROUFAKIS: Oh of course I agree. That is not the issue. I actually don’t even disagree that, with the proposition that Greece requires a dose of austerity. 

The problem, however, is that the policies that are being imposed upon Greece now are not just a rational degree of belt-tightening, it’s a catastrophic mix of gigantic new loans coupled with swinging austerity measures, the outcome of which is to reduce the national income from which these huge loans are being paid. 

So anyone who believes in the rationalisation and increasing the efficiency of the Greek public sector and of the tax office, their worst enemy now is this stupendously idiotic mix of policies which is being imposed upon Greece, giving a terrible name to sensible economics.

MARK COLVIN: Well it’s being imposed effectively from Germany, isn’t it? What are the chances that Germany is going to have any patience with a Greece which has failed to form a coalition, which is going into uncharted territories, as you say, with a new election?

YANIS VAROUFAKIS: It’s like asking the question, what kind of patience am I going to have with gravity? It doesn’t matter.

(sound of Mark Colvin laughing)

Gravity is a law of nature and I cannot do anything about it. Similarly, Germany at some point, and I think that that point has already come, Germany will realise that it is absolutely impossible to, for a country like Greece, or for Spain for the matter, to exit this debt deflationary spiral, through cutting. This cannot be done even if every single Greek and Spaniard and Italian wants to do it. 

Even if God, his angels and, you know, every good man and woman on this planet wanted to implement this German prescription on the European periphery, it cannot be done for the same reasons why I can’t fly without an aeroplane.

MARK COLVIN: So what’s the alternative? Where’s the money going to come from for pump priming?

YANIS VAROUFAKIS: Well, I don’t think we should have pump priming. What I think we should have in Europe is a little modicum, tiny whiff of rationality. 

Imagine what would have happened in Australia in 2008 if the state of Tasmania had to salvage the Tasmanian banks following the credit crunch and the state of Victoria had to salvage the banks in Victoria. Both the states and the banks would have gone under, so what we need in Europe is a rationalisation of the banking system. We have to unify our banks. 

There should be no such thing as a Spanish bank or a Greek bank when we all operate under the same currency. So that’s not a question of pump priming or Keynesian economics, it’s a question of a bit of sense.

Secondly, we need to unify part of the public debt. It’s ridiculous to have a common currency with perfectly separable debts. This is like inviting a crisis to start a domino effect. 

And thirdly, we need a mechanism for mobilising a lot of idle savings and putting them into productive investments. And that can only be done when Europe accepts that the crisis it is facing is not just a debt crisis of some profligate states, but it’s a crisis which is systemic and it’s due to the fact that the eurozone was badly conceived of.

MARK COLVIN: How far away, though, is Europe from accepting any of your three planks there?

YANIS VAROUFAKIS: I have no idea. But what I can tell you for sure is that the choice is between accepting these very simple principles or seeing the eurozone collapse.

MARK COLVIN: And is the eurozone likely to collapse before people, as you would see it, see reason?

YANIS VAROUFAKIS: At the moment, the path on which we find ourselves, is leading off a cliff. There is now question of that. However, that’s what my head is telling me. My heart is boisterously trying to convince me, without much success at the moment, that Europe will turn back, at the very last moment, from the brink. 

Because there is so much at stake and, let’s face it, Europe has managed in the past to give rise to horrible crisis that have dragged down with us the rest of the globe, we can do it again, and we shouldn’t.

MARK COLVIN: Professor Yanis Varoufakis from the University of Athens, speaking to me from Seattle.


  • True that SIRIZA is not that radical but it lately behaves as such ,being too absolute these days.

    Also if Europe turns at the last moment ,admitting the mistakes ,i would like to see European leaders apologizing to the Greeks and the rest of Europe for all this negative propaganda that surpasses by far the bad truth of the Greeks.

    This is too much damage and not to be taken lightly and forgotten as other events in the past.

  • From ForexLive:

    ECB slowly preparing markets for a Greek exit

    MNI (http://www.forexlive.com/blog/2012/05/14/ecb-update-council-members-cast-off-taboo-on-greek-exit-talk/) has a great story detailing recent ECB comments about Greece leaving the eurozone.
    It underlines a subtle shift in rhetoric — instead of denying the possibility of a Greek exit, officials are attempting to sooth fears.

    What the ECB had dismissed as “an absurd scenario” has suddenly become a very real possibility for Eurozone central bankers, who now say the consequences would be “manageable,” not catastrophic.

    The ECB should be lauded for this approach. We all know that from a purely economic perspective, the loss of Greece would be next-to-nothing. The greater risk is from contagion — bank and bond market runs elsewhere — which is primarily an emotional response.

    If the situation is lost, the aim for officials should be a slow, managed Greek exit with frequent assurances. The trick will be convincing the market that Greece is different from the rest of the periphery.

    • “The trick will be convincing the market that Greece is different from the rest of the periphery.”

      Who is not convinced of that??

    • All the traders and investors and businessmen and and and who think of contagion as a near certain event.

    • And Greece is no different at all. It is a European problem first of all ,that happened to have beginnings in Greece because of its inner weaknesses and big time sold out politicians. A good opportunity to convince the world that the elite had nothing to do with it and its all the fault of irresponsible immature lazy Greek people. How nice.

      A lot of people believe in a planned attack and i can’t say that it definitely is not. Where there is capital opportunity ,there is inhumane agenda.

  • Yet another “technocrat” government in Europe is to be installed in Greece?
    We have seen enough of the “independent” technocrats. Why don’t they just do, what the greek people have voted for?


    What about Prof.Varoufakis as a technocrat government leader!!!

    Sorry Yanis, I just mean to point out how “neutral” the technocrat solution is…

  • “Secondly, we need to unify part of the public debt.”

    I disagree. Those who piled up debt are the ones who have to pay it back. May it be individuals, companies, municipalities, provinces or nations.

    To socialise debt even further than it is already the case would even further than it is already the case reward nations who on their own accord opted for unsustainable and irresponsible politics, and penalize the others.

    • I disagree. Those who piled up debt are the ones who have to pay it back.

      Btw, who exactly were the reckless fools who lent the money?

      It wouldn’t be German banksters chasing high yields without any regard for the risks involved, would it?

    • How about it was everybody’s fault in many very different ways we can not mention again?

      When will this attacking mode by all sides stop?

    • Ah, the predatory loan spin again.

      No, the capitalist spin 😉 In capitalism, bad debts are discharged in bankruptcy.

      It was mostly french banks. get your facts straight!

      French banksters, too!

      How about it was everybody’s fault in many very different ways we can not mention again?

      Indeed. The banksters, the government, the citizens — they were all complicit.

    • Ah, the predatory loan spin again.

      No, the capitalist spin;-) In capitalism, bad debts are discharged in bankruptcy.

      It was mostly french banks. get your facts straight!

      French banksters, too!

      How about it was everybody’s fault in many very different ways we can not mention again?

      Indeed. The banksters, the government, the citizens — they were all complicit.

  • First, all this scaremongering about Greece exit from the Euro by the neo-liberal bankers and press of Europe is an attempt to prop up the two Memorandum parties, ND and Pasok, for the upcoming election.
    Second, as Wolfgang Munchau points out: “The European treaties have no provision for euro members to leave the single currency and certainly no provision to kick somebody out.”
    Third , back to first (from Eurointelligence blog: “The European reaction is predictable. The EU has now reverted to threats. Various central bankers yesterday raised the prospect for the first time that Greece might have to exit the euro. Patrick Honohan, the Irish central bank governor, said in a speech that the eurozone would withstand a Greek exit, calling it “not necessarily fatal”. The FT has an interview with Luc Coene, the Belgian central bank governor, who spoke of an “amicable divorce”. Jens Weidmann of the Bundesbank said the consequences would be worse for Greece than for the eurozone.

    The idea is to scare the Greeks into following the agreed line. Politically, this is not working well.”

  • Well we have Germany that is leading us off the cliff.

    We have two suggested solutions to the problem:

    1st) We depart from Greece with our savings if we can
    2nd) We accept our role as a protectorate state and we expect the mercy of our rulers.

    No plan B, no worries to react in any other way! Why do we pay professors, technocrats, and MBA owners in this little protectorate for? The paradigm of genious M. Christoforakos stands before us crystal clear!!

  • Please, people, read again this post from Fotis on yesterday’s thread:
    Fotis May 13, 2012 at 14:14
    The Big Lie called LTRO – Long Term Refinancing Operation (or the striking similarities between the Federal Reserve and the European Central Bank)

    The brain child of the ECB’s new President Mario Draghi, the LTRO allows banks to borrow directly from the European Central Bank which is a major departure for the ECB.

    The banks ask for loans that the ECB grants at a nominal 1%.

    To keep Europe’s in business, banks in Italy, Spain, Portugal, Ireland and Greece between them borrowed:

    €489 billion on Dec. 21 2011 & €530 billion on Feb. 29. 2012.

    €1 trillion – so far – because there is every reason to suppose the ECB will decide the only way to avoid a collapse in the banks, they seem determined to keep from their maker, is to pump yet more money into them (LTRO3).

    The banks take the money then use it to do several things:

    1.First and foremost to buy sovereign debt as is the plan.

    According to data from the Spanish Treasury, in just December 2011 and January 2012 alone, Spanish banks and other domestic lenders increased their holdings of Spanish debt by 26% to €220 billion. That’s a whopping additional debt of over €40 billion.

    So exactly how “successful” were those Spanish debt auctions since the auctioned debt was NOT bought by the bond market-at-large i.e. non-resident holders but by domestic holders i.e. Spanish banks?

    Similarly Italian debt has been bought by Italian banks increasing their holdings by 31% to a massive €267 billion in the three months ending in Feb. 2012.

    It starkly clear that neither Spain nor Italy has had any truly successful bond auctions in some time. What they have had is a suicide pact with their own insolvent banks.

    That way the sovereigns claim all was well with them. After all they show surprisingly ‘buoyant demand’ for their debt/bond auctions, while marvelously keeping down the interest they had to offer.

    The result is that private banks are in possession of sovereign debt that would have paid them between 5-6%. So, money they borrowed at 1%, bought bonds that paid them 5%.

    That is a straight bailout from the sovereign’s tax-payer of 4%.

    2. At the same time the largely insolvent private banks desperately needed cash and capital. Cash for day-to-day running & capital to meet minimum capital adequacy rules. Which just means the base of capital against which their massive book of loans sit upon.

    Just think about it:

    The sovereigns could have gone to the ECB themselves and borrowed money for 1%. Instead the sovereigns let the private banks borrow from the ECB at 1% and then the sovereigns borrow from the private banks – when a sovereign sells bonds/debt the buyers of that debt are lending to the sovereign – at 5%~6%.

    Why? – So they could say: ‘We are not having to get bailed out by the ECB. No, we are selling our debt successfully to the market, who love us.’

    It’s a lie but it makes it sound as if the ‘recovery plan’ and the unpopular austerity policies must be working. And at the same time allow the sovereigns to bail-out the private banks without having to tell the people they were doing so. Two lies for the price of one.

    If we now take a look of who ended up with what, the picture becomes rather ugly:

    The insolvent private banks pretend to be solvent but in fact what they have is a vault full of IOUs/bonds from their Nations which in turn claim to be selling their debt but have in fact sold it only as far as down the road to their domestic banks that are only alive at all because they are being bailed out!

    And what of the ECB? In the words of former ECB board member Juergen Stark who recently admitted in an interview with the German newspaper Frankfurter Allgemeine that “…the balance sheet of the euro system, isn’t only gigantic in size but also shocking in quality”.

    The ‘shocking’ quality of the assets are the bad loans that Europe’s private banks couldn’t get anyone else in the whole wide world to accept as collateral. Every time the ECB bails the banks out, each time it ‘extends loans’, it has to accept in exchange as collateral whatever the banks have left in their books, meaning the ‘assets’ that the ECB wouldn’t accept last time.

    What is actually truly happening is that an elaborate debt-laundering two-step has been put in place so that banks can be bailed out by nations who can be bailed out by the ECB.

    But it is done in such a duplicitous way that the banks appear to be merely getting a loan, the Nations appear to be selling their debt as per normal and the Tax Payer, who is actually footing the bill for both, is completely in the dark about the whole thing. THAT is the ECB and our European rulers in action. Feel shafted and lied to? You should.

    If it all seems head-spinningly circular, that is because it is. It is a cycle of lies and debt re-branding. As long as the momentum of the lie and of public belief is in the ‘forward’ direction then all seems to be well. Everyone is selling their debt, no one is being bailed-out and no-one is aware of who is paying. But if the lie and the momentum of belief goes into reverse then all the players start to look more not less vulnerable and at risk.

    What has happened in the last week with the election in Greece and the unravelling of the lies and hidden bank insolvency in Spain is that the momentum of the grand lie has started to reverse. If that reversal is not halted and the truth not quarantined then there will be another clamour raised by Europe’s insolvent banks for the ECB to announce yet another emergency funding programme.

    The fog of burning acidic financial lies that have been rained down on us for four solid years is finally meeting political reality and opposition. Suffering can be ignored and met with the police baton but it cannot be erased forever. We have yet to see what if anything Hollande will do in France and what will happen in Greece and Spain. But the momentum of their lies is, for now at least, running against our oppressors.


    • Understand? There’s nothing going on in the “bailout” schemes but to prop up Europe’s (and 4 US) biggest banks, and make ordinary citizens pay for it. The 99% of Europe are being rolled in a bankers’ coup! The attempted coup in US was not quite as successful – but almost. Greed rules.

  • If SYRIZA is “absolute” for refusing to hand its votes to the same incompetent & corrupt circus we suffered so far,
    and “absolute” for refusing to betray its voters/constituency,
    and “absolute” for daring to state that austerity – see above – is not working and has to be re-thought, then we in the eurozone need more Absolution.
    This is democracy in action!

    Tsipras also pointed out that between ND, PASOK and Dim.ar they have 168/300 seats and didn’t need him. So what stops them from forming a government? a small matter of legitimacy?

    I didn’t vote Tsipras but I have been very impressed by him this week.

    • I do not want PASOK and ND. I do want change. I want to see smaller parties gaining power. SIRIZA ,Dim. Ar. ,Ecogreens. A coalition of them would be more preferable. Maybe next time we vote.

      I am willing to accept pain ,if we are to exit the EZ ,but if we have a chance to renegotiate and be more flexible i accept that too.
      This is not giving in to corruption. This is adaptation to the situations at hand.

      Tsipras could have used to his advantage the experience of the old dinosaurs.

    • Also it’s not that reforms do not work ,but the way of implementation that doesn’t work. Don’t we need structural reform in Greece or we want the old structure to gain power again?
      Or do we want the old gone and the new cometh with the same rules of the past? We must evolve. I do not dismiss SIRIZA. Not at all.

      What i say is ,we want reform and Tsipras has a chance to use what already has been done ,but forcing for a broader european plan of growth as Prof. Varoufakis suggests.

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