It’s about telling it forward

Yanis Varoufakis, interview

by Kristina Bozic

The interview was done during the Subversive Forum in Zagreb in May 2013 and first published in Slovenian on 18th May 2013 in Objektiv, Dnevnik.

EU economy grew in the first quarter of 2013 even less than predicted, France is officially in recession and German growth is almost gone. You are not surprised?

Not the slightest. I am surprised that people are still surprised by such news.

Why so?

What happened in 2008 was the collapse of a banking sector. It happened after a period of exponential growth of financial capital, which was effectively toxic private money, based on derivatives, lots of shady deals and loans not unlike ponzi schemes. In 2008 it all collapsed and the taxpayers were made to make banks whole again. That subsequently significantly increased the public debt and our European leaders, in their infinite wisdom decided that debt is now The Problem.

So at the time of a recession, when the private sector was already desperately trying to reduce its debts and was therefore cutting down on investments, the public sector started to shrink its own expenditure as well.

Now, if an individual has problems with debt and cannot make ends meet, reducing expenditure is an obvious choice, since an individual’s income is not dependent of expenditure. If we skip coffee at a cafe today, we save money. Our income will remain the same but our expenditure will be reduced, which will help reduce our deficit. This however, does not happen in a macro-economy, where, if you reduce public sector expenditure, when private expenditure is reduced, the sum of the two, constituting national income, comes down. This translates into a recession.

The state deficit is not contained, because even though public consumption has been reduced, the tax take has shrunk. This starts what Irving Fischer in 1930s described as debt deflationary cycle. This is one of the very few things we economists know or opt to know are inescapable. Added to the situation is a central bank that is very rigid in its monetary policy, unlike the banks of Japan, Sweden, Switzerland, England or FED today. In the euro zone we have a central bank that does not answer to any government and governments that do not have their central bank behind them. When monetary policy is rigid and fiscal policy pro-cyclical, demanding austerity in the times of a recession, there is no power on this planet that can prevent the recession from getting worse. So why be surprised?

In your book The Global Minotaur you write that Germany opposed any kind of surplus recycling mechanism being put into the Maastricht treaty. Had the crisis just made obvious the pillars of a system that has been there long since and works against the interests of the majority of people?

Design of the euro zone was created to achieve two things: first, to remove all shock absorbers on the level of the national economies, and second, to ensure that when the shock comes, it will be the greatest. Remove the shock absorbers and make sure the shock is large. It might not have been done on purpose but it is as if it was. Their reasons were different, though. Mostly they just wanted the benefits of the common currency without the obligations of a fiscal union or a surplus recycling mechanism. This works brilliantly in the period of growth, financialization and toxic money generation. But we are on a riverboat, splendid and beautiful and we sail out on the ocean. Until the ocean is calm, boat sails beautifully. During the first storm it sinks. It was not designed for a storm on the ocean and this is precisely what happened.

Having said that however, there was a possibility, even within the problematic Maastricht framework, for the crisis to be far less than what it is. If the surplus countries increased their public investments, while the deficit countries pursued austerity, situation could be stabilized to an extent. It would not solve the major structural problems of the bad design of the euro zone, but crisis would be ameliorated. On the contrary, we have Germany and Greece deleveraging, both in public and in private sector. This is a recipe for a catastrophe, for a new depression.

You write in you book that in 2008 we lost a global surplus recycling mechanism, which was Wall Street. The impression however, was that the problem had been the lack of banking regulation. Is it enough to just get a new global surplus recycling mechanism or is greater control and regulation to avoid crisis also necessary?

Capitalism is a crisis-prone-beast and it is impossible to avoid crisis per se. What is possible is to avoid monumental crises that threaten civilizations.

And we are in such a one?

We are at the moment in such a crisis, yes. 2008 was our generation’s 1929. We are still in horror watching its effects and we have a long way to go. It can get a lot worse before it gets any better.

But if we return to regulation; when the crisis hit in 2008 the Europeans felt superior to the Americans and the British. It seemed the Anglo-Saxon model has collapsed, financialization, the banking system of Wall Street and of the City of London reached their limits. But very soon Europeans realized that their banks had operated even worse. The Deutsche Bank and Bank BNP Paribas were allowed a leverage ratio of 60 or 55 to 1. They were allowed to accumulate huge quantities of toxic derivatives and to gamble with their depositors’ money. The regulators had no idea what was going on. And they continue not to know. Yet, the most terrible thing has not been the crisis and the realization that financial sector had run riot, becoming a major squid on the face of the social economy of Europe. No, the most horrible aspect of what had happened is that they did not even respond afterwards to start to regulate the financial sector.

As we speak the banks are making the same kinds of bets they were making. Just now, they are using the liquidity provided to them by the states and the ECB. We have learned nothing.

The behavior of the financial sector reminds me of a driver who gets caught driving well above the speed limit. For the first ten kilometers he slows down but with no policeman on the horizon he soon speeds up again. After they got burned and saved by the taxpayers the bankers were a bit more cautious for two or three years but now they are back to their old, pre-2008-era ways. The tragedy is that before 2008 the financialization at least managed to pump energy into the industry. We had a lot of growth in the real economy as well as financialization. Now we have financialization without growth. It is the worst combination possible.

A question, can there be anything done, seems almost too simple.

I can answer it. There are very simple things we can do. First, we need to decouple the public debt crisis from the banking sector crisis. Effectively we need to do what the Americans did. We need serious stress tests in the banks. Not the ones we had, that only prevented the public to learn what has been happening in the banks. The tests we need have to throw light on the darkness that lies within the banking sector. They will show that the banks are heavily undercapitalized and with the very little capital they have, they operate like black holes. No matter how much liquidity ECB provides and how much money comes from the peripheral countries to the bank accounts of the Deutsche Bank in Frankfurt, it is never enough. At least not for them to start lending properly to small and medium sized businesses. In Europe, we effectively lack a properly functioning banking system.

What did the Americans do differently?

Well, if we did what the Americans had done, we would take a bright shining light into the guts of the banking system and force them to accept capital from the European Stability Mechanism (ESM). In exchange European taxpayers would get equity through ESM and ECB. This would mean cleansing the banks, in addition to which a Glass-Steagall-like legislation should also be enacted, forcing the banks to separate the casino banking from the bread-and-butter banking.

The next step should be ECB’s servicing of a significant proportion of the public debt of each member state, not just of the ones, which have fallen under the bus, like Greece and Portugal, but of each and every one. It would not entail ECB printing money but borrowing on behalf of the member states at the very low interest rates that it would be able to fetch on the international money markets. This would reduce The Interest Mountain, euro zone as a whole will be paying off in the next 20 years and the debt crisis would go away.

Next, we need a serious investment-led, New Deal-like recovery program for Europe. It should do what Franklin D. Roosevelt’s New Deal did, that is to inject into economy between 8 to 10 % of the GDP in new investment. It should come from the European Investment Bank (EIB) that can be the agent of the recovery program. EIB has been for 25 years issuing bonds and borrowing on the money markets. Remaining investments can come from the bonds issued or backed by the ECB for development projects. These should be designed and supervised by the EIB and not by the discredited national governments.

Finally, there is an additional policy we could do and which I find important given how the crisis has progressed, eating into the heart of our society. We need a Basic Solidarity Fund. As people are finding it very hard, in the middle of Europe to put food on the table for their children it could offer a food-stamps program for the dispossessed. TARGET2 system within the ECB system of central banks, where the deficit nations’ central banks pay interest to surplus nations’ central banks could be changed. Instead of interest payments going to the surplus countries they could go to the Basic Solidarity Fund providing for basic human needs. This would create genuine solidarity in Europe, ameliorating the effects of the recession and stopping neo-Nazis from rising to power.

And all these things could be done in a week.

You have written about them in The Modest Proposal For Saving The Euro Crisis. Nothing changed. Today distrust among people towards European institutions and measures is on the rise. Many on the Left, with Marxists origins are not inclined to save the capitalist system, while the Right opposes all public investment a priori. It seems there are enemies to your proposal anywhere you look.

But also potential allies everywhere I look. Yes, with Stuart Holland we have put together a proposal, calling it modest, not radical. The idea is to save European capitalism from itself. Why? Experiences from the 1930s and my personal experiences in Margaret Thatcher’s Britain show that a period of a free-fall, of downward spiral of capitalism with exponentially increasing unemployment and dispossession is not a revolutionary period. It does not benefit the Left, it does not create alternatives and it does not open spaces for socialist ideas and humanism. It is the greatest ally of the Nazis, racists and misanthropes. It was so in the 1930s, in the early 1980s in Britain and it is so today in Greece.

As a Leftist I believe capitalism has to be stabilized until the Left has an alternative. We need to be honest. We do not have it. We still nurse our wounds from the major defeat in the 1989, 1991 and have not created a coherent alternative program for shared prosperity. With the institutions of capitalism collapsing all around us the alternative will not emerge now. Even the working class is going to be lured by the easy solutions of the Golden Dawn-like Nazis rather than our great inspiring ideals. We lack a program.

So I try very hard to convince my left wing comrades that we need something like our Modest proposal to give us breathing space in order to discuss how to inject humanism into the world we live in.

When it comes to other vested interests, we have the Right that cannot stand even just hearing the words public investment or investment lead recovery program. All I can say to them is that they are not very good at being selfish or looking after their interests. This crisis resembles the Titanic and they behave like First Class passengers, who insist everything is fine because it is only the Third Class passengers, who are getting drowned under them. Yet, the water level is going to rise.

Some, the cleverer ones recognize this and can be convinced. After all, F.D.R. was not a left-winger and John Maynard Keynes did not want to replace but save capitalism, understanding that it is its own worst enemy. Therefore it is possible to form a program-alliance with some intelligent right-wingers about the necessary steps to stop this juggernaut of human suffering.

The worst and the most difficult to convince are the eurocrats. They are the last bastions of the Soviet Union. They follow the party line and do not really care about the values behind. They are simply apparatchiks, who follow. In Hannah Arendt’s terms the banality of evil propagates itself not through a conscious, ideological commitment to evil but simply through expectations of other apparatchiks about what one should do. They are completely impervious and oblivious to rational arguments and can be reached only through popular pressure or alliances with intelligent bourgeois right-wingers.

You teach at the University of Texas at Austin. Closer to the contradictory Republican ideas of ‘killing the beast that is the state’ and at the same time granting generous public money for different industries, is hard to get. From that standpoint where do you see the differences between the Right in the US and in Europe?

It is difficult to generalize. Even within Texas there is variety of opinions. Firstly, Austin is not Texas. It is like an oasis and Austinites are highly despised by the Republican Texans outside of Austin. When Barack Obama won his second presidential term there was a petition started to split from the USA. Immediately, Austinites started their own petition to partition from Texas.

LBJ Graduate School of Public Affairs, where I teach, is very progressive and liberal. And these are the wonderful contradictions of capitalism. In Europe, or at least in Britain the university that developed the most left-wing critic of right-wing economics, was Cambridge. The bastion of the elites and aristocracy became a hotbed of left-wing economic activities, with Joan Robinson and Richard Goodwin.

Now, the fundamental difference between Europe and America, besides the rhetoric, is that America experienced the crisis Europe is going through now, much, much earlier, in the early 20th Century and especially after 1929. By 1932 the USA was facing the prospect of fragmentation. Roosevelt’s New Deal consolidated the United States and created the institutions that stabilized it. Therefore, even if America goes through periods of misanthropy and massive shifts in the distribution of income from the have-nots to the haves, as it happened in the 1980s, nothing creates centrifugal forces that could break it up. You never hear New Yorkers say, they want to get rid of Missouri because it is in deficit and they have to transfer their wealth there. They managed to consolidate and to create a national identity and solidarity that can be seen through the federal government, the Federal Deposit Insurance Corporation, the Federal Reserve System (the FED) or the banking system. When a Missouri bank collapses it is not the residents of the Missouri, who are asked to take haircuts as it happened in Cyprus. When unemployment goes up in Nevada there is a transfer of funds through the social security system with the surplus states increasingly and disproportionately funding the unemployment benefits in Nevada.

In Europe we lack any such systems. It should also be remembered that the greatest supporters of the social security system are the Republicans. Their rhetoric is against it but the Republican Party will never touch the Social Security. The beneficiaries of the system, the older people are their main voters. There are perverse paradoxes and it is necessary to look behind the rhetoric. In Europe the greatest supporters of the state in Germany are the banks of Frankfurt. Without it they would be dead. The greatest supporters of the German labor laws and social model are the German industrialists.


Because they are doing pretty well thanks to the capacity of the German trade union movement to deliver to them labor at a relatively low cost. In exchange they agree to some labor hoarding during the bad times. The idea, that the state is the capital’s enemy and that the right-wingers are the enemies of the state beyond their rhetoric, is simply false. The Right-wingers just hate to see the state spend money for causes that are not theirs. However, they are very happy to see state spend lots of money on weapons, on saving banks and on all sorts of industrial policies that benefit industrialists.

So the difference between America and Europe is the likelihood of fragmentation. At the moment there is a consensus in Germany that German money should not be spend on Greece and Portugal. This creates anti-German feelings, which are then reciprocated by racist attitudes in Germany towards the Portuguese and Greek. As a consequence, we have peoples of one European country hating the peoples of other European countries. And this is unsustainable. If the fragmentation is allowed to reach the level where the euro zone breaks up, we will have civil wars across Europe. America is under no such threat, because after 1929 they consolidated. Something we are not doing. Their crisis led to F.D.R.. Our crisis is leading us towards regimes with idiotic leaders, who are putting their very narrow, parochial self interest above even the interests of their nation’s own ruling classes.

But civil wars in Europe, the biggest market, in a globalized world would not benefit anyone, America the least?

The Americans are pulling their hair at what is happening in Europe! They cannot believe that Europeans are doing what they are doing. But they are powerless. After 2008 collapse of Wall Street, even though there has been some stabilization of American economy, American hegemony is finished. They cannot influence affairs in Europe anymore. Timothy Geithner has come a number of times to Europe, trying to advise European finance ministers on what to do. They have sent him packing. It is unprecedented and would never have happened before 2008. Today in Europe it just does not really matter what America thinks.

The living standard in Greece has been drastically falling due to Troika (IMF, ECB, European Commission) demands, nearing the 30 percent. Is it possible that the growth returns, just like it did in the Baltic countries, in Latvia, for example?

At some point it will happen. But I call it a dead cat bounce. Even if you have a dead cat and you drop it, it will bounce a little. That are the limits of the growth we are going to have. Meanwhile, we should know that Latvia today is a catastrophe. The country has been destroyed. Celebrating Latvia and propping it up as a model to be emulated is anti-humanist. A very significant part of the population has left the country, it has stabilized and the only reason why it is growing is because it has effectively become a money laundering operation for the Russian oligarchs. They use the Latvian banks as they have used the Cypriot banks. Latvian society has been completely crippled.

Could something similar happen in Greece? I suspect so. But there is one profound difference: the banking system. Latvian banking system is not Latvian. It has been bought out completely and it is no longer a problem. The Greek banking system on the other hand is completely decrepit. It requires ever more capital from an already bankrupt Greek state that takes it from the bankrupt Greek taxpayers. Greek financial system has always been bigger and more integrated with the problematic Greek state. This creates a dynamic that is even more negative than what is happening in Latvia or Estonia.

The latest and horribly obstinate fashion in Europe is the fiscal rule that needs to be enshrined in all euro member states’ legislations until January 2014. If shrinking government does not benefit anyone who benefits from the Fiscal Pact?

No one. The Fiscal Pact will go down in history as the, the most, idiotic document. It is the most toxic suicide note a large economic power can leave behind. It is utterly senseless for a number of reasons. Firstly, you cannot legislate against deficits. You cannot introduce into constitutions restrictions on endogenous variables. You can legislate that the government should not spend more than a certain amount but you cannot legislate deficit because it is dependant also on the tax take. If the economy collapses what will be the tax take? It is impossible to control.

The Fiscal Pact effectively constitutes an attempt to introduce legal requirements for a Herbert Hoover-like pro-cyclical polices that exacerbate recessions. Just like the Maastricht treaty it will be completely disregarded. Because when Germany finds itself in a recession and needs to have a deficit, it will have a deficit. What the Fiscal Pact says will not matter. Germany was the first EU member state that violated Maastricht. France was the second. They create rules to impose on the periphery and which they think they themselves will easily respect. If the latter changes, they will disregard these rules as easily as they had before. National fiscal acts are therefore just symbolic acts of stupidity. And this stupidity symbolizes a commitment to economic policies that go against the grain of logic.

Yet, they or we are heading somewhere. You said that solidarity measures ordinary Greeks are taking show the incredible human ability to adapt.

Humans are amazing at adapting. A comrade I talked to spent 15 years in solitary confinement. People adapt and survive. But we are going through unnecessary suffering and there are unnecessary human sacrifices.

We also face fast robotizing that is further decreasing the need for human work. Inequality is rising and benefits of robotizing and inventions do not seem to be spread evenly through the society. Towards what kind of society are we heading?

Technological innovations are creating multiple labor markets. With the dominance of brands, software and intellectual capital over manual labor we have extreme inequality not just between capital and labor but also between different labors. On one side there is intellectual labor with software designers and game designers, who easily make millions. On the other side there are blue-collar laborers, who find it impossible to be reintegrated into the society.

However, if we take the broader perspective, it is actually wonderful that we are robotizing our industries. Why should we be doing chores the machines can do for us? And we do have sectors of economy that are essential in providing good life and cannot be robotized; from giving care to patients and older people to teaching. In these sectors we should move in the opposite direction.

I do not want an efficient health care system. Nor do I want an efficient educational system. With efficient I mean maximization of labor productivity. In these sectors I want low output per person. I want school children to be educated at a ratio of one teacher per four kids. When the bourgeoisie send their kids to Oxford or Cambridge, where I have taught, their children enjoy one to one tutorials. If bourgeoisie want this for their kids we should surely want it for all our children. Therefore, we can have labor-intensive sectors when it comes to education, care giving, health care, social programs, creating social entrepreneurial networks… and machines can build the gadgets we need.

The question is how do we organize a society like that; and the answer is not going to come from the market. The answer will come from a democratic reassertion over the means of production. And this is why the Left remains absolutely essential for the future of humanity.

Throughout history it was organized labor that exerted pressure to ensure fairer distribution of wealth. How can this be achieved in the times of raising precariat?

I will be honest. I do not have an answer, though this is the key question. Historically we know that trade unions merged in confined spaces where lots of workers worked together and were bound by the joint practice of their productive labor. Already when diesel replaced coal in power generation the union solidarity broke down. You need much less concerted labor when pumping oil out of the oil well than when mining coal. With solar technologies and software engineering the workplace itself becomes fragmented. And at least geographically it becomes difficult to create circumstances, where solidarity could emerge. The great hope is that Internet and social networks can begin to provide these alternative spaces of solidarity.

The only hope I have is that all these crises do prove capitalism to be its own worst enemy and that there is going to be an objective need for this solidarity to be build. Hopefully, the technological innovations after having destroyed it will at some point create the circumstances and spaces, where solidarity can be reconstituted.


You are launching a project Vital Spaces, together with Danae Stratou, gathering one-minute videos about common, endangered spaces. Does this connect to what you have just said as well?

In the project we use Internet just to communicate. What we want though, is to use an artistic viewpoint to throw light on our common predicaments and experiences. Sometimes a short video, an installation or a poem can break through the barriers imposed upon peoples’ minds by corrupt capitalistic media or simply by the mundane everydayness and banality of life more efficiently than a book or a speech. Hopefully that can create an impetus for dialogue and debates, leading also to solidarity.

Among Slovenian economist you rarely find any who would see in art values of greater efficiency. How does an economist come to have such a view and respect for art?

Look, from the moment we started acquiring conscience and consciousness as human spices we have tried to understand what is happening around us. The search for truth. This quest has taken two forms from the beginning onwards. One has been through imagination and the other has been empirical, through experimentation. The latter lead to physics and sciences. The path through imagination took us to art. Without art we miss on one of the two pillars that give us access to the plateau of truth. Consequently, art is not a luxury or epiphenomenon. Art is not something that is nice to have but inessential, like good manners in the military academy. Without art we loose autonomy, we loose individuality and we loose our sense for purpose. Without purpose what is economics? Even in bourgeoisie view economics constitutes science how to achieve objectives more efficiently. Yet, if we lack any conception of our objectives, who we are as individuals and human beings, if our imagination has failed us to determine in our minds our own self-image, then everything is pointless. Art is an essential passage to truth about what we are all about. And therefore in it lies also a revolutionary potential.

You mentioned the lack of program on the Left. Yet do you see models, and I am thinking of workers’ takeovers of factories and union-cooperatives in Cleveland, that offer possibilities how a different system could look like in the future?

These examples are all elements of our future. I have no doubt about that. I remember how moved I was, when after the miners’ strike in Britain destroyed the mining industry and the miner’s union and with it the labor movement, a group of miners demanded that the mine, which was to be abandoned in their village, instead of flooding and destroying it, is given to them. For 18 years they managed very profitably to extract the coal on the basis of their workers’ cooperative. I find such examples highly inspirational.

Similarly amazing is open source software. What an idea… You have thousands of software developers, who are working very hard on software they could sell for profit, yet they decide to share it away for free and ask others to collaborate on improving it. In the end it is common property. There are countless such examples.

When I say Left is not ready, I mean they are not ready to join into a sustainable economic system these oases of collective action, production and exchange. Not yet. And I hope that logic of technological innovation itself will give rise to the possibility of binding these oases together into a system.

But is it not more likely that the capitalist system will envelop and submerge them into itself? Is this not happening?

These oases are constantly under threat. They can be threatened by a number of things. Firstly, a state can nationalize them in order to privatize them. This is what Thatcher did with Trustee Savings Bank, a cooperative bank, belonging to its depositors. Even a worse threat is demutualization; a capitalist making an offer, that the workers of a successful cooperative cannot refuse. The third threat is that workers, when they want to expand their production, decide to hire other workers, treating them as proletarians.

Such oases have always existed inside capitalism, from the 19th century and Robert Owen on. It is also why we are not yet ready to convert them into a system, as they are like bright lights that can die out at any time as other similar bright lights come up. Only when fused together into a self-sustaining, cooperative, socialist market system will they be safe. So far they are not.

Is this what you have in mind when you talk about global solidarity movement or network, and if so, what or who is its enemy?

Well, enemy is always within us to the extent that success can be a challenge as in the case described above. There is always the temptation to sell out, one way or another. But what is turning this into a potentially international movement or system is the Internet. It knows no borders. Today we have 3D printing, which means that two individuals from different parts of the world can collaborate to create something new and then 3D-print it someplace else, where their customers are. These are great opportunities for socialist enterprises, for cooperatives to internationalize without having to ask anybody’s permission.

But they have no power and will be used to capitalists’ ends, no?

Not necessarily. But they will be susceptible to that until we through democratic processes get state powers that will be interested to utilize these capacities and networks in order to fuse democratically elected political institutions with these oases of cooperative activity.

But is democracy today still an independent ideal, separated from the financial interests?

Democracy has always been about preventing the masses from influencing the economic sphere. But democratic political processes, elections, constitutions and parliaments are essential instruments and institutions to expand democratic power onto the economic sphere. The fact that capitalism manages to confine politics to the political sphere does not mean that democratic process is not a necessary instrument to expand democratic control over the economic sphere. It cannot be done any other way.

You have traveled to do a project with Danae Stratou that touches upon the (spread of) walls from Kashmir past Palestine to Mexico. How do these walls connect to free industrial zones and gated communities?

After the collapse of communism everybody everywhere spoke about the global village, about globalization and how the walls will fall, barriers will be destructed and borders removed. Yet, the opposite was happening. While money was being globalizing, walls were being built. And that is the reason, why I call the walls the nasty underbelly of the global village. We should know that the moment we get used to the idea of erecting new walls between the Palestinians and the Israelis, between the Eritreans and the Ethiopians the idea of building a wall separating the Shias from the Sunnis in Baghdad or the poor from the rich in Cairo suddenly seems a lot more natural. It infects social imaginary. Walls divide and multiply and become, what I call, a globalizing wall. Effectively, the other side of the same coin that is financialization and globalization.

Can you explain this?

The increasing borderlessness of capital is reflected in the increasing need for walls that separate people. One feeds onto the other. The more the walls and the taller they become the greater the freedom of finance. The greater the freedom of finance, more confined the human beings become.

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