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.