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

21/05/2012 by

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. 


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.

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