Audio of talk at Columbia Law School on the Causes and Nature of the Euro Crisis, 5th October 2012

While the Columbia University technicians are preparing a proper podcast of my debate with Marshall Auerback  (held last Friday, 5th October) on the Euro Crisis at the Columbia Law School, readers can have a pre-hearing (as opposed to a preview) of my presentation. The audio is reasonable and can be heard here: YV talk Columbia Law School 5 Oct 2012. (During the first two and a haf minutes you can hear the introduction by Professor George Ugeux. The audio gets much clearer when my talk begins.

Also, read on (or click here for the original web page) for written answers provided by Marshall and myself to some questions that were sent to us after the event by members of the audience. 

1. What is the role of speculative attack on Bonds of Eurozone Periphery nations?

M. Auerback: It can be significant, but again blaming speculators for this is akin to criticising the symptoms of the disease rather than the underlying cause. The whole financial architecture of the euro zone lends itself to speculative attacks What changed with the euro, and the ‘divorces’ from the national central banks, was the ability to fund national deficits. The euro nation’s financial dynamics became very much like the US states. They can no longer ‘print the money’, and are instead revenue constrained. However, the difference is that, unlike the US states, the euro members entered the euro with the higher debt levels incurred when they were issuers of their currencies, not constrained by revenues, and acting to offset demand leakages as required to sustain output and employment. Add to that free capital mobility allowed under the Treaty of Maastricht and you’ve created a perfect environment for speculators.

Y. Varoufakis: The same as that of cholera bacteria in a city without sewers: given a rotten human design, the bacteria have a field day. Similarly in the Eurozone: once a currency union was created that was never designed to take the thrust of a full blown global financial crisis, the moment the latter hit it was inevitable that confidence in Eurozone Peripheral bonds would sink and, as a result, money could be made from betting sequentially against the Periphery’ bonds. The rest, as they say, is history.

2. How did unelected technocratic leaders like Mario Monti came to power in countries like Italy?

M. Auerback: A financial coup d’etat. Berlusconi was proving to be uncooperative in implementing the Troika’s agenda and so they got a nice, longstanding EU functionary, Mario Monti, to do their bidding. Of course, what Monti didn’t count on was being double-crossed himself. He basically implemented the “reforms” requested of Italy, but was given no carrots in return for bringing out the sticks. The result is that the disease now afflicting Spain is likely to come to Italy next.

Y. Varoufakis: In every fiscally-stricken member-state of the Eurozone, the government of the day collapsed. First Ireland and Portugal, soon after Spain, then Greece, France and Italy. It is what happens after an economic implosion. In countries where an opposition that the powers that be in Berlin, Brussels and Frankfurt could “do business with” was in place, ready and willing to carry out austerity programs, they just took over (e.g. Portugal, Ireland, Spain). However, in two of these countries, the opposition was either not ‘reliably austerian’ or too feeble politically to be trusted to govern. Italy was a case in point: Berlusconi had managed, in past years, to decimate the left wing opposition. In the absence of a centrist party that could take over, the establishment, in cahoots with Northern European elites, opted for a coalition under a former Euro-crat – Mr Monti. Greece was a similar case. With the rightwing opposition part of Mr Samaras have adopted an anti-austerity narrative (solely as a means to make inroads into the socialists’ electorate base), the Berlin-Brussels-Frankfurt axis could not accept a simple takeover by the official opposition. Thus, another ‘technocrat’, Mr Papademos (formerly a Vice President of the ECB) was recruited to head a temporary administration until Mr Samaras’ rightwing opposition part could be ‘given a chance’ to mend his ways and become another austerian. The moment he passed that test, he was ‘allowed’ to take the reins, some time last June.

3. How long is a debt(private and public) driven AD going to rebound without the pile of toxic derivatives ?

M. Auerback: Well, the dirty little secret is that the (unstated) goal of policy is to revive the value of many of these toxic derivatives as another means of bailing out the banks. We don’t use fiscal policy to help improve incomes and increase employment (the most sustainable form of financial stability in my view), so our central banks become serial bubble blowers to temporarily increase growth, one by-product of which is the revival of toxic derivatives. We’re already setting the stage for the next financial crisis.

Y. Varoufakis: Let’s not be too cynical here. Capitalism has rebounded in the past without another financial bubble. It happened under FDR, with the New Deal, it happened under the War Economy even more successfully, it happened again in the Bretton Woods era (as a result of fixed exchange rates and massive surplus recycling at a global scale by the United States). It could happen again if a way is found to channel idle savings into productive investments. It does not have to be another bubble that gets us out of this mess. That the Fed is trying to extract American capitalism from the hole it found itself (due to the stupendous explosion of toxic derivatives) by refloating the toxic derivatives themselves does not mean that this is the only way it could be done. Tragically, there seems to be no political process in play capable of accomplishing this. Which is why the world finds its self in a state of depressed bewilderment.

M. Auerback: “That the Fed is trying … Tragically, there seems to be no political process in play capable of accomplishing this.”

That’s the key insight. To me that is why my response might have seemed cynical, but it’s based on a pretty objective assessment of the political facts on the ground. Of course, FDR showed us a different way forward, as did you “Modest Proposal”, but we haven’t yet reached the point politically where we can move in this constructive direction.


  • Scary because it makes me think – Can you design a toxic derivative that never dies and keeps wreaking havoc on the Market? One that a group of banks can continuously gorge on to finance themselves indefinitely…

  • Αγαπητέ κε Βαρουφάκη,

    θα ήθελα την βοήθειά σας, για ένα τεχνικό θέμα, αν είναι δυνατόν. Για να μην σας κουράζω θέλω να σας ρωτήσω το εξής : Είμαι δανειολήπτης στεγαστικού δανείου από το 2006. Οντας μηχανικός δημόσιος υπάλληλος, τότε ήμουν “κελεπούρι” για τις τράπεζες, οι οποίες μου πρόσφεραν κυμαινόμενο

    επιτόκιο ΕΚΤ+1,1% (spread). Πριν από λίγο καιρό έμαθα ότι όλα τα στεγαστικά δάνεια εκείνης της περιόδου, στη συγκεκριμένη τράπεζά μου (και μάλιστα τα καλά στεγαστικά, όπως το δικό μου) έγιναν CDO και πουλήθηκαν. Αυτό που θέλω να μάθω είναι αν αυτά τα CDO’s έχουν μία ταυτότητα, ένα όνομα τέλος πάντων, έτσι ώστε να μπορέσω να ανιχνεύσω την σημερινή αξία του δανείου μου (ή των κομματιών του δανείου μου, που μπήκαν σε CDO). Αν πράγματι υπάρχει μία τέτοια ταυτότητα, τότε μπορώ να ζητήσω επίσημα από την τράπεζα να μου γνωστοποιήσει αυτήν την ταυτότητα του ή των CDO’s και να δω μετά εγώ τι μπορώ να κάνω για το στεγαστικό μου. Σας ευχαριστώ εκ των προτέρων για τον χρόνο σας. Περιμένω με αγωνία την απάντησή σας, γιατί όπως καταλαβαίνετε είναι πολύ σημαντικό για εμάς που δεν μπορούμε να εξυπηρετήσουμε ή να κουρέψουμε τα στεγαστικά δάνειά μας να προσπαθήσουμε να βρούμε μία λύση στο πρόβλημά μας. Φιλικά Κατσιμπόκης Μιχάλης Μηχανολόγος Μηχανικός


    • Δυστυχώς δεν μπορείτε να ζητήσετε κάτι τέτοιο. Να μην σας πω ότι ούτε η ίδια η τράπεζα που σας το παρείχε δεν γνωρίζει!

  • The PIigs were always ALWAYS a conduit for the core since day one of the EEC.
    You must begin to understand this – for ireland the European experience started in the 60s although france did not want to play ball as they understood we were a colony of the Brits.
    Very sad , rail tour / demonstration.

    Peloponnese metre-gauge network belonged since its construction to the former SPAP-ΣΠΑΠ (Piraeus-Athens-Peloponnese Railways) until 1962 when they were merged to OSE-ΟΣΕ (Hellenic State Railways). All service on network was suspended in 2011 (expect “Rack Railway” Diakopto-Kalavrita,Suburban railway of Patra and local service of Katakolo-Ancient Olimpia).
    Excursion train 7460 Tripoli-Kalamata-Pirgos.

    People from Greece & Ireland just don’t understand that they are worth more dead then alive under this Euro regime.
    The same thing happened in Ireland in the 60s.
    The once prosperous Protestant west cork town of Bandon was cut off by a FF soldier of destiny(todd andrews) who mindlessly copied the British Beeching cuts of the 60s partially because the rail system defined British rule for his narrow little mind…..ironic and twisted yes ?

    Now this is all that remains

    96,000 thousand 1960s pounds were spent to close the line according to the Cork Dork speaking (not me)

    People are now spending 25,000 euros + on frugal diesel German cars so as to just move around.
    No commons means you spend more on stuff.

    The cores tactics and their dependence on Banks credit which is used to buy the cores products is as clear as day.

    Greece will be a success in their eyes so long as the last remaining resourses are spent on simply vital BMW 3sssssssssssss

    • Dear Dean
      I’ve read that, too. Things are not looking too great, huh?
      How exactly did Germany steal 85 billion Euros – you are referring to the default were Greece’s creditors, many of them foreign, wrote off a big part of Greece’s debt?

  • Dear Yanis,

    Two things. First, it seems that I’m having trouble with the audio file and I want to see if I’m not the only one with this problem.

    Second, in one of your discussions you advised that profitable companies are severely impacted due to the fact that bank financing in Greece is nearly impossible. There was an article announcing that Greek Dairy company Fage was moving their HQ to Luxembourg.

    As far as I know corporate taxes are lower in Greece than they are in Luxembourg so I’m curious if the real reason is financing that’s motivating them to move. If so is it possible to start seeing a series of companies moving their HQ out of Greece?

  • The true role of the PIigs is to buy time for the core.

    It will not be enough time for the core – but thats the plan.

    The French & Germans must keep them holding euros so that they can continue to buy their products and stuff…….not until the very last drop of blood but until the last BMW is bought.

    Its sick but thats the way it works.çon

    Notice the “Spanish” CAF trams are being assembled north of the Pyrennes.ères-de-Bigorre

  • Dear Yanis,

    I am not sure I misunderstood what you said in your talk but you seemed to be somewhat contradicting yourself on one point you made.

    You said that Germany was basically interested in the euro so that it’s corporations could reap the benefits of demand for their exports across euro area countries without having to worry about competitive devaluations from Italy and others. You also said that creating a surplus recycling mechanism in the euro area is key for both the survival of the euro and for allowing demand in the periphery for German exports to be sustainable. However, thereafter you insist that Germany is rationally pursuing it’s interests by refusing to support the creation of precisely such a recycling mechanism thereby dooming both the euro and demand from it’s trade partners?

    Is there something I haven’t understood or is this not a contradiction?

    Congratulations for an otherwise very interesting talk.



    • Your account of my argument is almost accurate – except that I did not say, as you write, “that Germany is rationally pursuing it’s interests by refusing to support the creation of precisely such a recycling mechanism thereby dooming both the euro and demand from it’s trade partners”. What I said was that Germany believes that it is pursuing its interests in this manner. But that it is wrong to think this. And that its error is a result of not having grasped that the USA is no longer there to carry out the recycling; that the time has come for Germany to look at ways it can recycle its own surpluses – just like the US was doing after the second world war.

  • The Euro is ment to colonize Greece! The bankers, Merkel, the international giants and all these neoliberals forced us to borrow the money and bankrupted us! They badmouthed us and now nobody is lending money to us any longer. That is modern slavery, a 4th Reich achieved by financial weapons! The Euro was a German trap! Greece would be much better off if we had never joined the Euro Zone, we would be a more successful country than Germany but instead we are subsidizing the Germans! They owe us because we make their exports cheaper and they got rich by selling to us. And they owe us for the WW II!

  • After Obama received the Peace Nobel Price last year, the European Union did so this year. Do we have to prepare for Hitler & Stalin receiving it next year?

  • Dear Yanni,

    The tone of your recent remarks bears a certain degree of desperation.

    Indeed, I believe that soon you will admit publicly that the best *politically available* option for Greece is, and always has been, to exit the EZ (certainly as the lesser of very big evils), possibly wrecking it in the process. If only your political analyses were as good as your economic ones…

    Still, unless and until you and your colleagues start admitting publicly the harsh truth (which will invite tremendous personal attacks on all of you, at least initially) Greece is doomed to be governed by the current regime of bankruptocrats.

    PS. I apologize for any–certainly unintended–sarcasm in the above.

    PS2. I know that in the past you were reluctant to seriously discuss the issue of GrExit, and I will understand if you still prefer not to do.

  • To Martin,VSS etc.
    This is really interesting.

    It is a Greek TV show

    The interview we are interested in begins around 35:00. The guy talking is the director of the European Council for Foreign Relations. The interview is in English.

    It is what Yannis has explained here many times in economical terms.

    Only that he is talking in political terms.

    [vimeo http://www


  • Headcount Bundesbank = 9500
    Headcount ECB = 1600

    Looks like the ECB is just some admin overhead, that cannot operate by itself. If the NCB did not follow ECB decisions, there is little the ECB can do…