In conversation with Rob Johnson (INET Chairman) on the Global Minotaur, the Slump, US and Europe

A few weeks ago, while in New York, Rob Johnson (Chair of the Institute of New Economic Thinking) invited me to their offices where we recorded a conversation on my The Global Minotaur, the true causes of the Crash of 2008, the reasons why the global economy cannot find its poise after that momentous Crash, and of course Europe. You can visit INET’s own page on this conversation or keep reading below:

Director’s Chair: Yanis Varoufakis – The Global Minotaur and The True Origins of the Financial Crisis

In this four-part INET “From the Director’s Chair” interview, INET Executive Director Robert Johnson talks with Greek economist Yanis Varoufakis about Varoufakis’s new book The Global Minotaur: America, The True Origins of the Financial Crisis and the Future of the World Economy.

“The Global Minotaur” is Varoufakis’s metaphor that tells the story about “what went wrong in 2008 and why the world economy is finding it so hard to rediscover its poise after the debacle in 2008.” After refusing a multilateral, more democratic exchange regime post-WW II, the US eventually became the world’s buyer of last resort. But how to finance America’s growing trade deficits? Feed the beast, says Varoufakis, drawing parallels to the story from Greek mythology about the Minotaur who had to be fed human sacrifices as tribute.

This economic approach led to the “Walmart and Wall Street model of economic growth,” he says, and to the rampant financialization that has rightly born much of the blame for the 2008 crisis. With great insight and a sharp wit, Varoufakis gets right to some of the root causes of our current crises. Can we find a way out of the Minotaur’s labyrinth? Or should we revive the beast?

Part 1: The Global Minotaur 

Part 2: Bankruptocracy

Part 3: The Two Faces of the Crisis 

Part 4: Europe by (Mis)Design




  • Proffesor i have a question about the ECB bonds.What happens if the ECB buys the bonds it previously issued as part of its regular open market operations ?

    • Nothing much. They will simply increase in value. Just like when a company buys back its own shares.

    • When a company buys back its own shares,it reduces the stocks outstanding.The shares that are bought disappear.Actually thats why i wanted to ask the question.If the ECB buys back its bonds,wouldnt that reduce the debt outstanding ?It would be the equivalent of a callable bond.
      So it seems that the debt could be further reduced if the ECB conducted its regular monetary policy with its own bonds instead of the other gvt securities.

    • If im not wrong,during QE the FED is simply adding excess reserves to the system in exchange for securities.It actually is an “exaggerated” version of its normal open market ops (exaggerated because of the excess reserves injection whereas regular open market ops aim to maintain the required reserves only (by adding or reducing reserves from the system)).

      But whenever a bond is bought back by the entity that issued it,it just disappears.Even if we assume that the ECB bonds are not retired after repurchase, would there be any reason for governments to service these bonds as long as they are being held by the ECB?

      My point is that from the gvts perspective it looks like there might be further room to at least reduce debt servicing costs (if not the debt outstanding) if the ECB simply conducts its open market operations by purchasing its own bonds instead of other bonds (which is a good thing ! ).

  • Yani, a thought.

    As you very poignantly demonstrate in your book, the 70s oil crises and “subsequent” economic downturn were merely the transition era between the end of the Global Plan and the birth of the Minotaur. Of course this transition was a centrally planned scheme as opposed to the common, pedestrian story of an exogenous shock caused by oil price explosion.

    I am wondering whether our current predicament (2008 onwards) has any of the traits of the 70s situation or is it more like the Great Depression, where things lets say were out of control.

    Can you see any kind of plan behind this crisis?

  • Οn the 4th video you said that you dont believe in automatic stabilizers.Do you doubt their existance or their effectiveness?

  • Yanis

    I agree with you fully that World War 2 played a huge role in ending the 30’s depression. You also mentioned the rebuilding post war as a major engine or growth. Where can the demand come from especially with the demographics not as heavy in favor of growth in the wealthy countries?

    • I saw that on tv and he spoke about the elite that are actually able to avoid taxes.Lagarde defamed the whole population.

      And btw, you make all that fuss for ONE Greek who “agreed” with Lagarde (but i insist,he didnt speak like Lagarde did about all Greeks)…but you dont give a damn about those who dont disagree about the policies Lagarde is proposing….and they are a lot more…

      To sum up he is not saying the same thing with Lagarde at all.
      And let me ask you, did you ever see anyone here NOT wanting the elite to be taxed and even be punished for evading ?
      You seem to be having a hard time understanding why people got crazy about Lagarde’s words…but thats your problem unfortunately…

    • “you make all that fuss for ONE Greek who “agreed” with Lagarde ”

      This is exactly what you guys do if some stupid (OK, most are really stupid) German politician/banker says something.

    • Apart from the fact that i dont think ive seen a lot of ppl doing this here,are you saying that you do it because we do it? what are you 12 ?

      and as ive said hes not saying the same thing with Lagarde at all…

  • In the Global Competitiveness Report 2011-2012 compiled by the World Economic Forum (WEF), Greece ranks poorly among its 27 European Union peers, only ahead of Romania and Bulgaria.

    While Greece gets good marks in several areas (it ranks sixth in its supply of scientists and engineers), the debt-hit state is a laggard in terms of smart growth and socially fair development.

    Greece finds itself in last place in terms of business environment because of anemic competitiveness (26th place), the low rate of entrepreneurship (25th), its poor record in terms of cooperatives (26th) and, of course, the lack of liquidity (23rd).

    Greece also lags in technological progress. The WEF report highlights Greece’s digital shortcomings (25th place) and the disappointing infiltration (26th) of IT and communication technologies both on a personal as well as a professional level. Social integration is limited because of market shortcomings and obstacles to the participation of women and youth.

    For the time being, the survey suggests, Europe appears to be divided into four classes of competitiveness: a) Nordic Europe, made up of Sweden, Finland and Denmark; b) Western Europe, made up of the Netherlands, Ireland but also Estonia; c) Southern and Eastern Europe, made up of Slovenia, Portugal, Spain, the Czech Republic, Cyprus, Malta, Latvia, Lithuania, Slovakia, Poland and Hungary; and finally d) at the bottom, Southeastern Europe, made up of Greece, Romania and Bulgaria.

    Funnily enough, Greeks still think they should earn more than people from Romania and Bulgaria. Europe should finance their fastidious and undeserved lifestyle. Sorry, you spoiled brats, it’s time for INTERNAL DEVALUATION.

    • TMK:

      In case you don’t understand the name of the game, let me give you a pointer.

      The name of the game is to increase the final cost to Germany to the highest possible level and make it as uncomfortable for those amateurs who destroyed our economy with their austerity nonsense so that they never repeat such nonsense again.

      Not only we will not undergo any internal devaluation but our cooperation with Merkel will be subzero starting right now.

      I strongly suggest you get used to it.

      In case you didn’t understand what I just told you let me summarize it for you: You are going to pay us golden. End of story.

  • The crisis in Europe is round 3 of the German question.
    Again, like in WWI, WWII there is a question of what will the status of Germany be in Europe.
    This time around, will they try, again, to impose their wil by force(not with a gun but with a checkbook, crumbling Europe in the proces) or will they become a true hegemon, in Europe, like the US after WWII became in the capitalist world?
    I think the answer will come after the next german parlamentary elections.

  • For all our sakes I hope you are wrong and there is a plan even your trained eye can’t spot.

    In any other case we’re for all intends and purposes screwed.

  • Dear Prof. Varoufakis, It is a common misconception that a company buying back its shares will result in an increase in the value of the remaining shares. It’s been several decades already since M&M proved that a buyback has no impact on share price, but for the marginal tax benefits of leverage. The proof is now included in most textbooks (such as Brealey Myers, which has included it since the late 80’s). Nevertheless, for several (mostly self-serving) reasons, the myth of share buybacks supporting stock prices continues to be circulated by various parties. May one hope that you will not lend support to this legend?

    • Only M&M does not hold except under conditions (e.g. Brownian motion and perfectly symmetric information) that never hold. My recommendation: Look carefully at a theorem’s axioms before you start believing its applications. This does not of course mean that a share buy back will always increase their price. Only that it may do so.

  • ok, so I should probably read your book instead of posing this rather amateurish question here, but anyway here’s the thing.
    I don’t completely get the concept of a SRM. German surpluses were “recycled” in the form of lending to the European periphery…isn’t that a kind of recycling as well? This was of course private lending, not a government program, but still in terms of redistributing the demand it’s somewhat similar or is it not? (as long as the loans can be serviced)
    The other thing I don’t understand is the technicalities of a SRM. The surpluses materialize in the form of revenues of private companies. So like you had/have German companies sitting on huge mountains of surplus money which came from selling their stuff in the European periphery. How would “recycling” work exactly then? This is private money, right? How can governments or international institutions pool it and transfer it to other countries? Basically you would transfer a part (which would be a function of the size of trade imbalances) of German (etc.) tax revenues to the deficit countries in the form of some investment, is that what you mean? I guess this mechanism would have to be automatic somehow (fixed rules on the extent of transfers), otherwise you would have a permanent gridlock.

    Another thing I’m interested in is your opinion of the “Modern Monetary Theory” (or Functional Finance) crowd, who – IIUIC – claim that actually government deficits and debt do not matter at all, as long as a country has monetary sovereignty and the economy in question is operating well below its capacity limits.

    • “Another thing I’m interested in is your opinion of the “Modern Monetary Theory” (or Functional Finance) crowd, who – IIUIC – claim that actually government deficits and debt do not matter at all, as long as a country has monetary sovereignty and the economy in question is operating well below its capacity limits.”

      Since theres Japan with 200+% debt/gdp and still going,since USA gets downgraded (lol) by Credit Rating Agencies and nothing happens to the treasury bonds yield.. and especially since theres not a single country to ever default on debt that was denominated in its domestic free floating fiat currency….then i guess they are right…A country with monetary sovereignty should only worry about inflation…not insolvency…

    • “theres not a single country to ever default on debt that was denominated in its domestic free floating fiat currency”

      What about Russia in the 90s and all those Latin American defaults? or were these all debts denominated in foreign currencies?

    • @kk

      here is what happened in russia,in detail:

      as for Latin America you are correct.They either had foreign currency debt obligations or currency pegs…debts denominated in domestic PEGGED currency are equal to foreign currency debts,as long as the currency keeps being pegged that is…There might be cases where a gvt might decide its better to default than break the peg,for its own reasons.

  • “Spain will become the fourth euro-zone country to ask for aid after Portugal, Ireland and Greece. But it is the first to take advantage of new flexibility in euro-zone bailout funds that allows for targeted aid for banks, with conditions related specifically to banking sector policy. In contrast, previous bailout recipients were required to implement deep budget cuts and wide-ranging economic overhauls that have proved politically unpopular and, critics charged, exacerbated economic problems.

    In a report released late Friday, the International Monetary Fund said it thought Spain’s banks need an additional €37 billion in capital to cover losses in a deteriorating local economy. But it added they might need to raise much more than that—between €60 billion and €80 billion—to shore up investor confidence.

    The conference call among euro-zone finance ministers earlier Saturday discussed a commitment to provide as much as €100 billion in support for Spain’s banking sector, euro-zone officials said. The euro zone agrees that “quick and radical action” is needed targeted at Spain’s banking sector, which is reeling from a real-estate meltdown.”

    Well, guess what? That’s why Greece will renogotiate and a third rescue package will be put together. Its purpose would be to correct Merkel’s amateurism and compounding mistakes which – frankly speaking – are beyond ridiculous.

    • …renegotiate that is. We have had enough being a learner’s case for slow Merkel and it is quite obvious that Greece will get equal terms with all those other countries that have followed in the learning curve.

    • The next country will be Italy and the then France. I am not sure if we will se others after that. The Euro collapse might be earlier.

    • No, unfortunately Hellas will not get equal terms. As usual the term “unique case” (cc Kosovo etc) will allow Europeans morons to force austerity beyond the limits, as they are doing 3 years now.
      At least Tsipras gave a good answer to Merkel few days ago, to her usual threats “Austerity or we will kick you out”. Let’s hope his actions will be equal

  • Yanis,

    Have you come across Ellen Brown’s latest Greece and the Euro: Fifty Ways to Leave Your Lover. Your thoughts would be welcome there.

    The Euro appears to be a marriage of incompatible partners. A June 1st article in the UK Telegraph titled “Why Europe’s Love Affair with the European Project Is Ending” reported that two-thirds of 9,000 respondents thought that having the euro as their single currency was a mistake.

    For Greece, it was a tragic mismatch from the beginning; and like many a breakup, it is really about money. Greece is a vivacious young woman chained to a tyrannical old man. She yearns to be free to dance on her own; but breaking up is hard to do. Defaulting on her debts will force her out of the Eurozone and back to issuing drachmas, and she could get brutally beaten by speculators on foreign exchange markets for her insolence.

    Fortunately, there are alternatives to an ugly divorce. The treaties binding the 17 member nations are just a set of rules, entered into by mutual agreement; and rules can be bent or broken, especially in crises. The ECB (European Central Bank) broke a litany of rules to save the banks, and so did the Federal Reserve to save Wall Street in 2008. Rules that can be bent for banks can be bent for people and nations—not just Greece, but all the other Eurozone countries threatening to file for divorce.

    Paul Simon says there are 50 ways, but here are five creative alternatives.

  • According to this article, Greece is expendable and the Brits have never forgotten that the Bundesbank was the true force against the British pound attack in 1992 and not Soros. Soros was only along for the ride.So, the Britons can’t wait to exact revenge this time around.

    So, this is going to get interesting folks. The battle against the forces of evil is about to intensify.

    One thing is for certain. As long as the Bundesbank plays the role of Merkel’s babysitter this crisis will be magnified instead of subsiding. Place your bets accordingly.

    As far as Greece is concerned, this is the solid evidence we need for the new and final Nuremberg trial which will put Germany out of business for a long, long time to come.

    • …all fine, but what will you do with your life when all your hatred has proved useless, Greece has left the euro-zone and can squander all its money (aehm, which?) by its own wishes? Will you consider yourself the rest of your life with your meager Illussionen or begin to pay taxes?

    • Hi Dean, I suggest you also read the comment of “Katrine” following that article. A good read. It makes not much sense to under-estimate Merkel, the driving force behind the austerity politics up to now (as per usual, she changes a wee bit, mostly rhetorical changes, after events like the Hollande-election).

      And it is not really true that the “Bundesbank” had as much power as the article, exaggerating, suggests. I am sick of all this horrible and highly unjustified ongoing hate against Greece just like you are. A shame, nothing to be forgotten easily. I talk to all kinds of germans nearly daily, and the answers you usually get – people read the bulls$%& of many media – makes me more than sick. About every 5th to 10th person shows some knowledge – and the rest – forget it.
      But let’s try to learn about the facts. (this is why we’re here to read this blog, isn’t it^^?)
      Apart from that I am slightly allergic against “Nuremberg trial”-comparisons – many of my ancestors died because of german Nazis or had terrible lifes after german fascism, and “Nuremberg trial” used in your way is just as horrible as hate-speak against greece people is. It just doesn’t fit. Greece knows what german fascists were!
      Just today I read comments in the “Frankfurter Allgemeine” after an article of neolib Heike Göbel that would make us both more than angry…but those people don’t need some “trial”.
      These germans and other europeans are in desperate need of education, even if they are doctors and whatnot, they lack empathy and at least a basic knowledge about the worldwide crisis since 2008. All the best to you.

    • Klemberer85:

      You are right of course. My use of “irritating terms” is stylistic and it’s meant as a form of warfare which is so clearly lacking on the Greek side.

  • Joe Stiglitz, very correctly, points out:

    “Europe’s single-minded focus on austerity is a result of a misdiagnosis of its problems. Greece overspent, but Spain and Ireland had fiscal surpluses and low debt-to-GDP ratios before the crisis. Giving lectures about fiscal prudence is beside the point. Taking the lectures seriously – even adopting tight budget frameworks – can be counterproductive. Regardless of whether Europe’s problems are temporary or fundamental – the eurozone, for example, is far from an “optimal” currency area, and tax competition in a free-trade and free-migration area can erode a viable state – austerity will make matters worse.

    The consequences of Europe’s rush to austerity will be long-lasting and possibly severe. If the euro survives, it will come at the price of high unemployment and enormous suffering, especially in the crisis countries. And the crisis itself almost surely will spread. Firewalls won’t work, if kerosene is simultaneously thrown on the fire, as Europe seems committed to doing: there is no example of a large economy – and Europe is the world’s largest – recovering as a result of austerity.

    As a result, society’s most valuable asset, its human capital, is being wasted and even destroyed. Young people who are long deprived of a decent job – and youth unemployment in some countries is approaching or exceeding 50%, and has been unacceptably high since 2008 – become alienated. When they eventually find work, it will be at a much lower wage. Normally, youth is a time when skills get built up; now, it is a time when they atrophy.

    So many economies are vulnerable to natural disasters – earthquakes, floods, typhoons, hurricanes, tsunamis – that adding a man-made disaster is all the more tragic. But that is what Europe is doing. Indeed, its leaders’ willful ignorance of the lessons of the past is criminal.”

  • My post is irrelevant as usual.
    Response to Dean

    The documentary you posted is really great. Thanks

    Many of the people coming to Crete, they don’t even know that they are coming to Greece. They think that Crete is a country. Sometimes they don’t even know they are coming to Crete. They only know the name of the hotel.
    They know nothing about Knossos. Sometimes i try to convince some of them to visit the museum of Heraclion or Knossos.
    That’s a shame, and unfortunately we are to blame for that. It’s a disgrace!

    Thanks Dean really nice documentary! Και δύο videos αφιερωμένα σε σένα, σε περίτπωση που δεν τα έχεις δεί.

    και το αγαπημένο μου! Να το δείς υποχρεωτικά!

    • To become more relevant, here is a video connecting Crete with Andalucia!

    • Thanks Demetris

      Crete is not the exception. Similar things happen all over Greece. It only takes someone to look for them.
      Don’t expect to find them in major media or major events.
      Thanks again.


    Our money system is not what we have been led to believe. The creation of money has been “privatized,” or taken over by private money lenders. Thomas Jefferson called them “bold and bankrupt adventurers just pretending to have money.” Except for coins, all of our money is now created as loans advanced by private banking institutions — including the privately-owned Federal Reserve. Banks create the principal but not the interest to service their loans. To find the interest, new loans must continually be taken out, expanding the money supply, inflating prices — and robbing you of the value of your money.

    Not only is virtually the entire money supply created privately by banks, but a mere handful of very big banks is responsible for a massive investment scheme known as “derivatives,” which now tallies in at hundreds of trillions of dollars. The banking system has been contrived so that these big banks always get bailed out by the taxpayers from their risky ventures, but the scheme has reached its mathematical limits. There isn’t enough money in the entire global economy to bail out the banks from a massive derivatives default today.

    Web of Debt unravels the deceptions in our money scheme and presents a crystal clear picture of the financial abyss towards which we are heading. Then it explores a workable alternative, one that was tested in colonial America and is grounded in the best of American economic thought, including the writings of Benjamin Franklin, Thomas Jefferson and Abraham Lincoln. If you care about financial security, your own or the nation’s, you should read this book.

    • Quotes: Warnings throughout History, which fell on deaf ears.

      “I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country. Corporations have enthroned, an era of corruption in high places will follow,and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until the wealth is aggregated in the hands of a few and the Republic is destroyed.” – Abraham Lincoln

      “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” – Henry Ford

      “Under cover, the predatory International Bankers have been stealthily transferring the burden of the Federal debts to the people’s Treasury and to the people themselves. They took the farms and the homes of the United States to pay for their thievery!” – Congressman Louis McFadden

      “The Federal Reserve is a total moneymaking machine” – Congressman Wright Patman

      “In the United States today, we have in effect two governments. We have the duly constituted government, then we have an independent, uncontrolled and uncoordinated government in the Federal Reserve, operating the money powers which are reserved to Congress by the Constitution.” – Congressman Wright Patman, Chmn House Banking Committee 1967

      “The Federal Reserve Act of 1913 was the worst legislative crime of the ages. The Federal Reserve Board can cause the pendulum of a rising and falling market to swing gently back and forth by slight changes in the discount rate, or cause violent fluctuations by greater rate variations, and in either case it will possess inside information as to financial conditions and advance knowledge of the coming charge, either up or down!” – Rep. Charles Lindbergh

      “The financial system has been turned over to … a purely profiteering group. The system is private, conducted for the sole purpose of obtaining the greatest possible profits from the use of other people’s money”. – Rep. Charles Lindbergh

      Introduction:Courageous men have warned us for decades about what the globalist bankershave been doing, but to no avail. Those of you who are currently losing yourhomes, your jobs, your pension, your way of life, your property, your freedom,etc, have you ever asked why this is happening? Are you willing to start listeningnow?

    • Web of Debt – Ellen Brown – 1 of 5
      Search at youtube for the rest.

  • Hi Yanis,

    I am a huge fan of your work and greatly admire your efforts for introducing rational solutions to the largely self inflicted European mess. You and Steve Keen are my favourite economists in this hapless world. That is why it is important to me to conciliate the views of the both of the you. Please help me do this and tell me where I am wrong.

    In your informative interview with Rob Johnson, you say that there is a mountain of savings to match the mountain of debt that has been created in this crisis. To my mind, this seems to contradict Keen’s view that money is endogenously created by the banking system, that is, when a bank makes a loan, it is not transferring spending power (money) from a saver to a consumer/investor, but creating spending power (money) out of nothing, or more exactly, out of the promise to pay that loan (+ interest) in the future. So savings are not created in parallel with debt and the pile of debts can greatly exceed the pile of savings. Even when through financialization, the loan is passed on by the bank to some third party who uses his/her savings to acquire it, these savings preexist the loan and were not created in conjunction with it. That is why Keen’s solution to the crisis involves a debt jubilee, and not just connecting the two piles, as you imply in the interview.

    Keen’s view is that the crisis was caused by too much debt being created for speculation (betting on rising asset prices) instead of for productive investment. Debt created for investment can generate the conditions in the future that will allow to pay the loan back. Debt created for speculation just generates a Ponzi scheme that can only be kept going as long as debt creation accelerates. Since this is unsustainable, the scheme is bound to collapse. Anyway, you know all this much better than I do. Just please tell me whether I have misinterpreted your views and whether your view’s and those of Keen need some reconcialiation.

    With great admiration and gratefulness,

    Satori Joe

  • Καλησπέρα Γιάννη, and all other Hellenic speakers (I apologize from the non-Hellenic).
    Today I read the following:

    “Το «μεγάλο σχέδιο», το οποίο αναμένεται να συζητηθεί στη σύνοδο κορυφής της 28ης και 29ης Ιουνίου, περιγράφεται ως κβαντικό άλμα στον δρόμο προς την ευρωπαϊκή ομοσπονδία. Σύμφωνα με όσα έχουν διαρρεύσει, περιλαμβάνει δύο βασικές οικονομικές καινοτομίες: τη δημιουργία «τραπεζικής ένωσης», που θα εξασφαλίσει κεφάλαια στις πάσχουσες τράπεζες και θα εγγυηθεί τις καταθέσεις, με αντάλλαγμα το πέρασμά τους υπό ευρωπαϊκό έλεγχο. Και την καθιέρωση κάποιας μορφής ευρωομολόγων για εκείνο το τμήμα του χρέους κάθε κράτους–μέλους, που φτάνει μέχρι το 60% του ΑΕΠ, το ανώτατο επιτρεπτό όριο σύμφωνα με το σύμφωνο σταθερότητας. Το αντάλλαγμα γι’ αυτές τις καινοτομίες, που ασφαλώς θα έχουν οικονομικό κόστος για τη Γερμανία, θα είναι η παράδοση της εθνικής κυριαρχίας, αναφορικά με καίρια ζητήματα όπως η εκπόνηση του κρατικού προϋπολογισμού και η δημοσιονομική πολιτική, σε κεντρική, ευρωπαϊκή αρχή. Η Αγκελα Μέρκελ ήταν απολύτως σαφής: «Δεν μπορείς να απαιτείς ευρωομόλογα και να μην είσαι έτοιμος για το επόμενο βήμα στην ευρωπαϊκή ολοκλήρωση».”

    How close is this to your modest proposal? (I think pretty close, but maybe I am mistaken).
    How do you feel that this is presented in the media as the plan of the “4 wise german men” (I do not remember their names…but they are known by this name at least in the Hellenic media)


    • Yes terrific. Everybody should get as much money as he wants at zero interest. This will save the EU!

    • I know it might shock you,but any country with its own currency can control the interest on the bonds….alternatively it can always service its debt at any level and with any interest if left to move around by market forces….Welcome to the real world…About time you realise that eurozone has created self-imposed constrains.