On ABC Radio National's 'The World Today', interviewed by Eleanor Hall

This morning I visited the ABC’s Ultimo studio for three interviews on (what else?) Greece and the eurozone. Here is one of them (the other two were for ABC TV). For the ABC’s website page, which includes the audio and the transcript, click here. The full interview (too long to broadcast on live radio) can be found here(I have also pasted the transcript below.) 

ELEANOR HALL: Over the weekend, the European Commission president José Manuel Barroso made what only a few months ago would have been regarded as an extraordinary statement to fellow world leaders. 

He told G8 leaders meeting in the US that it was plan A for Greece to stay in the euro. Six months ago it would have been unthinkable for EU officials to publicly countenance even the possibility of a Greek exit from the eurozone.

But with panic gripping global financial markets and Greeks pulling their money out of banks at an increasing rate, the fear of a full-scale eurozone collapse is no longer so far-fetched.

Overnight, the G8 leaders issued a communiqué saying they backed the new French president’s emphasis on growth over the German chancellor Angela Merkel’s austerity focus, and supported Greece staying in the eurozone. 

At the meeting EU leaders also affirmed that they were determined to “guarantee the stability of the eurozone”. But can they make such a guarantee or is this now beyond their control? 

Dr Yanis Varoufakis is a Professor of Economics at Athens University. He told me today that he’s just left his home country because the austerity cuts have eroded his hopes and forced his hand.

He is in Australia this week and joined me earlier in the World Today studio.

Professor Varoufakis, how damaging could a Greek exit, particularly a disorderly one, be for the eurozone?

YANIS VAROUFAKIS: Well there are differing opinions on this, but my considered opinion is that it will be devastating, that the eurozone will not survive the departure of any of its constituent members. It was never designed for departures to take place and with good reason, because once that kind of jigsaw puzzle begins to frazzle and unravel, there is no stopping to it. 

ELEANOR HALL: So how worrying is it to hear someone like the European president say that its plan A for Greece to stay in the euro but that certainly leaves room for a plan B?

YANIS VAROUFAKIS: Every time a European leader – Mr Barroso, Mrs Merkel, whoever – speaks over the last two years we have a case study of irrationality at work. Think about it, what has been happening over the last years – let me just give you a little brief example if I may. 

A week ago, the Greek state, the bankrupt Greek state borrowed $4.2 billion from one branch of Europe, from the bailout fund in order to repay another branch of the European Central Bank, which made a profit and its profit is 20 per cent from that. 

And the condition for Greece to take this loan was huge cuts in public spending and health and education in an economy which is in freefall. 

ELEANOR HALL: You say that the withdrawal of Greece would be destructive for the whole eurozone. Could it be as bad for the global economy as the shock of the Lehman Brothers collapse?

YANIS VAROUFAKIS: It could be worse, because the eurozone, let’s not forget, is the largest economy in the world. At the time when the global economy is just managing despite healthy Chinese and Brazilian growth to avoid the second dip of a double dip recession. 

We are highly integrated. A collapse of the eurozone would mean a very serious recession in the engine of Europe, in Germany, and serious inflation in the rest of Europe. That does not auger well for the global economy.

ELEANOR HALL: Well certainly the way that the Greeks are withdrawing their money from the banks suggest they think that an exit from the euro is highly likely. How close is this to a full scale run on the Greek banks?

YANIS VAROUFAKIS: There will be no run on the Greek banks as long as the European Central Bank keeps providing them with liquidity to keep the ATMs going. Mind you, this is precisely what’s happening in Spain, in Italy, even in France. 

Most of Europe’s banks are bankrupt. 

ELEANOR HALL: Can you rely on the European Central Bank?

YANIS VAROUFAKIS: Absolutely, but this is a political matter. The ECB, the European Central Bank, will never cut loose any member state until and unless it gets a green light from the political leaders in the centre of Europe. 

ELEANOR HALL: A lot of people are saying that withdrawal of money from the Greek banks could trigger and expulsion from the EU even before this election which is due next month on the 17th.

YANIS VAROUFAKIS: No I think they are quite wrong, because as I said, as long as the ECB keeps pumping liquidity into the ATMs in Greece and Spain and so on and so forth, there will be no bank runs like you had in Northern Rock in Britain or in the 1920s and 30s in the United States. 

The question is, is this chicken game between the Greek government and the core nations of Europe going to result, by accident I think, in the worst of all possible scenarios, which is a disorderly exit, which will then trigger catastrophic changes in Spain and Portugal. 

At some point Germany will simply not be in a position to sustain what’s remaining of the eurozone and I think that what will probably happen is that Germany will simply exit. 

ELEANOR HALL: Who do you blame?

YANIS VAROUFAKIS: The European leadership. Europe’s leadership is going to go down in history over the next hundred years as a case study in the great universities around the world of how not to deal with a crisis. 

ELEANOR HALL: You said that the austerity program is irrational for countries like Greece. How bad is it living under austerity? I mean is the economy contracting by around 5 per cent as the European Central Bank predicted or as one economist put it, is this an economy in freefall?

YANIS VAROUFAKIS: Our listeners must grasp something very, very simple. This is not a recession, it’s not just the recession we had to have as Keating said once here in Australia. This is a calamity. 

It’s one thing to have a recession, it’s quite another to have a complete and utter breakdown in the circuits of credit. No one trusts anyone with their money anymore. We are talking about wholesale implosion and this is what Greece is going through now. 

ELEANOR HALL: Well you’re living in the Greek capital, you have a respectable professional job, how is it affecting you?

YANIS VAROUFAKIS: Well I’m no longer living in the Greek capital. In the last month I bailed out myself, I’m now in the United States. 

ELEANOR HALL: You’ve actually left Athens? You’re a professor of economics…

YANIS VAROUFAKIS: I’ve taken leave, long term leave from my university. My salary has been cut by 50 per cent, but it’s not just that, it’s the fact that everything I worked for in the last 12 years at Athens University has crumbled and vanished. 

All the programs that we put up, PhD programs and so on, due to lack of funding are in a state of let’s say suspended animation. 

ELEANOR HALL: So you’ve abandoned your country?

YANIS VAROUFAKIS: I have left hopefully temporarily, but you know as we say in Greece, sometimes the temporary is the most permanent of permanences. Greece is almost finished. Greece is in a state that – it’s very hard to imagine how we can actually escape that mire in the next few years with any modicum of respectability and hope. 

But my great worry is that if we bring down with us the rest of Europe, then the chances of Greece ever climbing out of its hole diminishes substantially. 

ELEANOR HALL: Would it be more painful though than the current situation?

YANIS VAROUFAKIS: Yes it would. When things get bad, people forget that they can get worse. Things can get worse in Greece at the moment, things can get far, far worse. People are still not starving on the streets. 

That’s perfectly possible. Remember the 1930s. 

ELEANOR HALL: So is there a solution?

YANIS VAROUFAKIS: Yes of course there are solutions. This crisis could be made to go away within the next month – within Europe, not for Greece itself. Greece cannot save itself by itself. It’s like asking whether Ohio in 1931 could exit the Great Depression, the answer is of course not.

But the European crisis can be dealt with very, very simply. 

ELEANOR HALL: Okay. 

YANIS VAROUFAKIS: Three things we need. Firstly, we need to unify the banking system. It’s ridiculous now for the Spanish banks, like Bankia, to be borrowing from the insolvent Spanish state, and both of them, you know, like two weak swimmers are clinging onto each other, sinking. 

So what we need to do is just stop treating Spanish banks as Spanish. They should be recapitalised from the bailout fund directly, all the banks, they should get shares in those banks and we should have a unified banking system like Australia does. Can you imagine Tasmanian banks being saved by the Tasmanian state after 2008?

The second thing we need is a degree of harmonisation and unification of public debt, just like in a federal state like Australia you have the federal debt. 

And the third thing you need is an investment strategy for the whole of Europe. Now these things we can do in a week – the lack of political will is what prevents us. Technically, it’s utterly feasible. 

ELEANOR HALL: That’s Dr Yanis Varoufakis, Economics Professor at the University of Athens, who as we heard has just moved to the United States. And you can hear more from him later today on our website, where we post the full interview.

26 Comments

  • I am in complete agreement with your comments, Yani. I am also in despair at the stupidities that some here in Athens continue to utter; I am trying to prepare my own exit strategy (sadly).

    • Well then you could be saying:

      veni ,vidi ,vomit : i came ,i saw ,i regurgitated

      hehe 🙂

    • I already prepared mine. And that is coming from someone who lives in Germany. Europe is screwed. We have the following scenarios’:

      Euro survives:

      Short term:
      Good for periphery: Default prolonged
      Bad for Germany: Transfer of debt & risks

      Long term:
      Bad for periphery: High inflation environment causes low investments (outflow of capital), high taxes cause brain drain & exodus of corporates
      Bad for Germany: High inflation environment causes low investments (outflow of capital) high taxes cause brain drain & exodus of corporates

    • Εnough people need to understand what is going on:

      The real issue is the derivatives market which – according to the Bank of International Settlements was notionally $648 trillion USD year end 2011.

      They now believe this is over $1000 trillion USD in gambled debt.

      This is threatening our insolvent banks in UK, US and Europe and is the sole cause of the Greek problem.

      Global banks appear to be at war with each other, using the derivatives market to bet and short sell each other and we as taxpayers are the ones suffering for this.

      Many now believe the G8 summit was primarily to discuss this, JP Morgan for example have bet and hedged against their own position so if the global financial system collapses they could actually profit (and presumably expect taxpayers across the globe to pay for it) so it’s quite possibly in their interest to make it happen.

      Expect to see JP Morgan losses escalate. They are the largest investor in derivatives, their bets are estimated at $70 trillion USD more than Global GDP

      …and that’s only over the counter trade, being unregulated, god knows what the real figures are.

      They are not even trying to hide it anymore.

      All this information is publicly available.

    • The only derivative of utmost importance and respect i use ,thinking of these people ,is traded for only about 5 – 10 min. when i go to the toilet.
      I call it crapmoney.

  • The structure of the Global Derivatives Market, as recently exposed in the sudden loss by JP Morgan of a still elusive amount, 3 Billion USD and counting, on derivative exposure gone sour at the Bank’s Chief Investment Office in London – essentially the Bank’s Core – was probably The No.1 topic on the Camp David agenda.

    It has “suddenly” dawned upon the UK, the USA and the rest of the G8 leaders that the biggest US banks including JP Morgan may go bankrupt immediately should just 1% of their exposure to Sovereign Debt (of which Greek Debt is part of) go under water, as these banks are the underwriters of 97% of the Total Global Derivatives Market, of which the CDS (Credit Default Swaps) constitute the Lion Share and amount to over 200 trillion USD.

    But in order to understand how the Global Derivatives Market operates, one must first understand what a derivative actually is:

    Short Story – Pick something of value, make bets on the future value of “something”, add contract & you have a derivative.

    Banks make massive profits on derivatives, and when the bubble bursts chances are the tax payer will end up with the bill.

    This visualizes the total coverage for derivatives (notional). Similar to insurance company’s total coverage for all cars.

    Long Story – A derivative is a legal bet (contract) that derives its value from another asset such as the future or current value of oil, government bonds or anything else.

    Example – A derivative buys you the option (but not obligation) to buy oil in 6 months for today’s price/any agreed price, hoping that oil will cost more in future. (I’ll bet you it’ll cost more in 6 months).

    Derivative can also be used as insurance, betting that a loan will or won’t default before a given date. So its a big betting system, like a Casino, but instead of betting on cards and roulette, you bet on future values and performance of practically anything that holds value.

    The system is not regulated what-so-ever, and you can buy a derivative on an existing derivative.

    Most large banks try to prevent smaller investors from gaining access to the derivative market on the basis of there being “too much risk”. Derivative market has blown a galactic bubble, just like the real estate bubble or stock market bubble (that’s going on right now).

    Since there is literally no economist in the world that knows exactly how the
    derivative money flows or how the system works, while derivatives are traded in microseconds by computers, we really don’t know what will trigger the crash or when it will happen, but considering the global financial crisis, this system is in for tough times that will be catastrophic for the world financial system.

    The combined derivative exposure of the 9 largest US banks, listed below in descending order, adds to a total of $228.72 trillion – approximately 3 times the entire world economy:

    1. Bank of New York Mellon – $1,375 Trillion dollars.
    2. State Street Financial – $1,390 Trillion dollars.
    3. Morgan Stanley – $1.722 Trillion dollars.
    4. Wells Fargo – $3,332 Trillion dollars.
    5. HSBC – $4,321 Trillion dollars.
    6. Goldman Sachs – $44,192 Trillion dollars.
    7. Bank of America – $50,135 Trillion dollars.
    8. Citibank – $52.102 Trillion dollars.
    9. JP Morgan Chase – $70.151 Trillion dollars.

    $70 Trillion is roughly the size of the entire world’s economy.

    No government in world has money for this bailout.

    Derivative Data Source: ZeroHedge.

    • Tell you what:

      i bet you that the bet of the bet is null and void.

      Now what you don’t know is that i am the owner of the original bet.

      People bet on my bet that my bet will work out and now i bet you that the bet of other people on my bet won’t work out or in other words that my original bet is wrong.

      And i get money anyhow.
      Am i the smart one?

      My name is Sachs. Goldman Sachs.
      And i go by the code name 000 (loo(t)).

    • “vanilla”-ish interest rate swaps which are by far the bulk of the derivatives market the actual exposures may be a few percent of notional. But for other derivatives exposures can plausibly be of the order of 100% of notional.

      However, given a world GDP of 60 trillion and a money velocity of twelve (monthly turnover of the money stock) you can assume that circulating cash is about 5 trillion, globally. Even 1% of derivative notional is more than all the world’s circulating cash put together.

    • ο πιτσιρικας ειναι πολυ πονηρος:

      δημιουργησε υστερια αγοραζοντας το instagram για ενα δις δολλαρια πριν κανα διμηνο δημουργωντας πραγματικο οργασμο στα μμε παντου ενοψει της πρωτης δημοσιας εγγραφης του φβ στο χρηματιστηριο nasdaq της νεας υορκης, προκειμενου να δικαιολογηθει η στρατοσφαιρικη τιμη της μετοχης καθως και η συνολικη κεφαλαιοποιηση στα 100 δις δολλαρια συνολικα – πραγμα που τον εκανε αυτοματα δισεκατομυριουχο στο επομενο δευτερολεπτο της πωλησης των μετοχων κατα ± 19 δις δολλαρια

      προκειται για αλλη μια φουσκα αφου χτες διαβασα οτι την επομενη μολις ημερα, η μετοχη κατακρυμνιστηκε 10% μειωνοντας ετσι την συνολικη κεφαλαιοποιηση κατα 10 δις δολλαρια!

      η πτωση αυτη συνεχίζει εως και σημερα

      η επενδυτικη τραπεζα morgan stanley που λειτουργησε ως συμβουλος του φβ στη δημοσια εγγραφη τσεπωσε 170 εκατομμυρια δολλαρια

      δεν ιδρωσε το αυτι του μικρου φυσικα αφου αντι για 19 δις – τωρα αξιζει 17 δις, τι ειναι δυο δις δολλαρια χασουρα σε μια μερα? ψιχουλα

      αυτοι που πληγηκαν ως συνηθως ηταν οι μικρο-επενδυτες που ειδαν τη μικρη τους επενδυση λογου χαρη απο 1.000 εως 10.000 δολλαρια να χανει την αξια κατα 10% σε μολις μια μερα

      μηπως τελικα εχει δικιο η ταινια?

    • The Facebook IPO: Shareholders Weren’t Invited to the Real Party

      A suit has been filed by Facebook shareholders against Mark Zuckerberg, Facebook, Morgan Stanley and others.

      It’s based on a very simple concept: when internal analysts learned that Facebook’s numbers were going to be worse than expected, the company and its bankers didn’t tell everyone, but just “selectively disclosed” information to a small group of “preferred investors.”

      Henry Blodget, who unfortunately should know about these things, gave a good summary of it all on CBS This Morning:

      I was on the phone last night with a former hedge fund CEO who was talking about this. “Facebook,” he said, “is a colossal example of a complete clusterfuck where everybody wins except the ordinary investor.”

      His point was that virtually every week now we see stories like this that hint at a kind of two-tiered market system – in which most of the real action takes place inside an unregulated black-box network of connected insiders who don’t disclose their relationships or their interests, while everyone else, i.e. the regular suckers, live in the more tightly-policed world of prospectuses and quarterly reporting and so on.

      All of these stories suggest that Wall Street is increasingly turning into a giant favor-and-front-running factory, where the big banks and broker-dealers that channel vast streams of crucial non-public information (about the markets generally and their clients specifically) are also trading for their own accounts, and sharing information with a select group of “preferred investors,” who in turn help the TBTF banks move markets in this or that desired direction by jumping on or off various pigpiles at the right times.

      Sooner or later, people are going to clue into the fact that one or two big banks, acting in concert with a choice assortment of unscrupulous “preferred investors,” can at least temporarily prop up or topple just about anything they want, from Greece to Bear Stearns to Lehman Brothers.

      And if you can move markets and bet on them at the same time, it’s impossible to not make tons of money, which incidentally is made at everyone else’s expense. So we should always be on the lookout for any evidence that that sort of coordinated, non-disclosed activity is taking place.

      This Facebook thing is a perfect example. It’s like that scene in Brain Candy where the evil pharma CEO Don Roritor takes his star scientist, Chris, on a walk in the middle of a party at his house: after they walk around Don’s rocking indoor pool, they open a set of doors and there’s a completely different party going on there.

      “What’s this?” Chris asks. “Oh, this is the real party,” says Roritor.

      Read more: http://www.rollingstone.com/politics/blogs/taibblog/the-facebook-ipo-shareholders-werent-invited-to-the-real-party-20120523#ixzz1vktwWu3h

    • The so called illegal trading ring.

      There is no way they can find all of the trading rings. Especially when the investors being part ,are located at different places of the world and invest through different channels and using different instruments.
      The parts do not have to use a big amount of money. Only the total sum matters. And so the markets move and manipulation thrives. In every market. I dare say even forex.

      It is my opinion that some point in the future ,markets will no longer operate as we know them. They will be extremely limited and people will once more get used to the fact of small ,longterm steps.

      Otherwise everything will be relived.

    • Algo (rithmic) funds and HFT trading.
      The modern tech. plague.

      How about reforming these first?
      But no ,these they like.
      Greece ,they don’t.

  • La compétitivité et la croissance seraient rapidement rétablies par un retour à la monnaie nationale.[..] Une ” drachmatisation ” des dettes euro pourrait bien être nécessaire et inévitable.[..] Ceux qui prétendent que la sortie de la Grèce contaminera les autres pays sont aussi en déni. (e.q.)

    Whew! That was really..”deep”! Yanis..seems that (according to “Dr. Doom” ) we’re in Complete Denial.

    http://www.lecho.be/actualite/debats_project_syndicate/Nouriel_Roubini_La_Grece_doit_quitter.9196434-2631.art?itm_campaign=floorteaser

  • ..and btw, playing “Devil’s Advocate”:

    Austria Joins Germany In Opposing Euro Bonds

    While the euro bond song and dance is all too familiar, being a carbon copy replay of last year, we feel obliged to remind who the key actors are, but more importantly who the key decision makers are. In short: while last year, at least in the first half, it was everyone against Merkozy, demanding that the two AAA rated countries backstop Europe at their own expense, following the French downgrade, France no longer cared if there are Eurobonds and joined the peripheral push to convince Merkel to shoulder the cost of preserving the Eurozone on its own. Germany politely declined. Fast forward to this year, when we get the same, only Hollande is now more vocal than ever knowing full well that he alone will be unable to deliver the “growth”, read incremental leverage, needed to back up his campaign promises. This is, or rather was, the whole point of today’s and tomorrow’s latest European summit which, just like this weekend’s useless G-8 photosession for the world’s leaders to express their support for either Chelsea or Arsenal, will achieve absolutely nothing. Importantly, we now can add at least one more country to the list of those opposed to a AAA-backstopped rescue of the rest of the Eurozone.

    From Bloomberg :

    Austria’s Finance Minister Maria Fekter said she opposes joint euro-area bonds as they would cost the Alpine republic more interest.

    “Like my colleague Schaeuble I am against euro bonds,” Fekter told reporters in Vienna today. “I’m not willing that Austria should potentially pay twice as high interest as we currently do. As long as fiscal discipline of the euro nations isn’t completely complied with, as long as stability isn’t really really reached, as long as there is no direct influence on how the states run their finances and which fiscal measures they set, I won’t sacrifice the Austrian credit rating.”

    European Union leaders meet tomorrow in Brussels where German Chancellor Angela Merkel faces growing pressure to ease up on austerity measures after three years of the debt crisis crimps expansion. Newly elected French President Francois Hollande has said he plans to discuss common euro-area bonds at the meeting, while Merkel has rejected issuing such bonds, saying that eliminating the gaps in bond yields would remove the incentive for weaker countries to overhaul their economies.
    In summary: the AAA-rated countries refuse to bail out the non AAA-rated countries, as it is them that will increasingly suffer the burden of preserving the Eurozone. We should add for now, because just like France, as more and more countries (and Holland appears to be next) leave the European AAA-club, the incentive to demand a bailout as opposed to grant it, becomes greater and greater. As a result, the only question is how long until Germany is all alone against 16 European countries, all demanding some tat for the German tit of having reaped the benefits of over a decade of quasi-mercantilist policies, even if, granted, nobody had a gun to the head of the PIIGS to import German “stuff.”

    At the end of the day, the simple math was captured perfectly by Citi over the weekend: nothing will change until, like last year, the market is on the edge of imploding, and everyone has to join the fray with some last-second hairbrained idea that delays the inevitable by a month or two.

    Until said crash happens, nothing else will.

    source: Zero Hedge

  • Meanwhile, check out the German sewer which is a non-stop spewing source of negativity and panic; of course pretending to be( masked) as “observation” and “advice”.

    At the rate the duplicitous German propaganda machine is going, even the dead will be voting for Tsipras; just to show them and just because the German Taliban are doing everything in the power to terrorize Greeks from doing so.

    What a disgusting presence do these people have! Utterly disgusting!

    http://www.spiegel.de/international/topic/greece/

    • Dean: as u don’t live in Greece, you probably do not know that recently the two Greek digital channels were turned over to relaying of… BBC and Deutsche Welle (international).

      Well, the BBC is bad enough (less awful than CNN, but still…); however, I chanced to see one news broadcast on the day that two things happened. One was Obama receiving Hollande, and making some important reference to the need for Greece to stay in the euro; the other was the news that Merkel had dared to suggest to Papoulias that along with the election, there should be a referendum on staying in the euro.

      The first event was ignored entirely (but covered on all major international news programmes across the world); the second was dismissed as invention by the Greeks, because it was “patently ridiculous”. They went on to claim that because Merkel had rejected the idea of a referendum when it was proposed by Papandreou, it is obvious that she would not propose one now.

      I have never seen such blatantly biased news coverage about Europe within Europe. It beats even the worst Greek tv. What makes it worse, is that we have this crap beamed into our homes by Papademos (who of course, is collecting his millions from the Germans). Pure treason; in the UK this crime is still a hanging offence…

    • In Greece if we are to hang them ,it will be by the balls and with weights.

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