Europe’s Greek Moment: Interview with Yanis Varoufakis

Yanis Varoufakis

Yanis Varoufakis is a prestigious economist who heads the Department of Economic Policy at the University of Athens. From 2004 to 2007 Varoufakis served as economic adviser to George Papandreou. Author of several books on Game Theory, Varoufakis is also a recognized speaker and often appears as guest analyst for news media such as the BBC, Sky News, Russia Today and Bloomberg TV among others. In November 2010 he and Stuart Holland, a former Labour Party MP and economics professor at the University of Coimbra (Portugal), published “A Modest Proposal,” a set of economic policies aimed at overcoming the Euro crisis. Since September 2011, Truman Factor features select articles by Varoufakis in English and in Spanish.

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Since the Greek Parliament approved the austerity measures and privatization program imposed by the troika back in June, we have witnessed how the government has been told over and over again that it is not moving fast enough in implementing such measures. In addition, Greece has been asked to carry out even more severe cuts in order to receive the bailout funds. Do you find the troika criticisms fair? What is your assessment of the sacrifices that are being asked of Greece and their effects on its economy?

Fairness is besides the point. The troika has two simple aims: (a) To ensure that Greece’s creditors get as much of their money back as possible and (b) that the governments of the surplus countries of Europe are given a chance to pass through their Parliaments the measures which they think will buy them as much time as possible so as to make up their minds on what to do with the eurozone.

The first task motivates the troika to supervise the Greek government’s efforts to collect more taxes and to reduce domestic expenditure. In this context, the troika is indifferent on how the Greek state does this. For example, it was quite happy to agree with the Greek government that the rich Greeks (who have for decades enjoyed a large degree of tax ‘immunity’) should be made to cough up an additional billion euros in taxes. When the government failed to extract this sum from the well-to-do Greeks, the troika said: “OK, in that case, reduce pensions and cut into the low paid workers’ wages.” The troika’s ‘class indifference,’ combined with the Greek government’s inability to corner the rich Greeks, meant that the poor Greeks are being bludgeoned by a barrage of tax hikes and income cuts unprecedented in peacetime.

It is an important part of the troika’s remit to exact pain amongst the average Greek citizen in order pacify Berlin’s increasingly recalcitrant politicians

The troika’s second task is more complex. Every time Mrs. Merkel needs to summon enough support at her Federal Parliament (e.g., currently she needs to pass the changes to the European Financial Stability Fund, the EFSF, against substantial opposition from the own coalition’s MPs), it helps to be able to demonstrate to Parliamentarians that the Greeks have been made to bleed; that through acute pain they have been somewhat purified; that they have been, at least partly, transformed from undeserving to deserving beggars. Thus, it is an important part of the troika’s remit to exact pain amongst the average Greek citizen in order pacify Berlin’s increasingly recalcitrant politicians. In this sense, the immense pain of the poorer Greeks is the fuel that keeps Mrs. Merkel’s procrastination machine running, buying her more time during which to decide if Germany is prepared to tackle the Crisis’ true causes (the failing Franco-German banks plus the euro’s faulty underpinnings) or if it prefers to let it run into the ground before bailing itself out by recreating a new Mark.

I began answering your question by suggesting that fairness is not the issue. The deeper issue is whether the combination of austerity and loans, which started in Greece and has spread to the rest of Europe, stands a chance of arresting the Crisis: It does not. Greater austerity deepens the debt crisis, does nothing to help cleanse the ailing banking sector, and pushes the whole eurozone into the trap of negative growth.

Are Greek citizens aware of the fact that these bailouts are mainly used to pay back debt to (a seemingly insolvent) European banking system?

Yes, I think that most Greeks are quite familiar with this sad truth. But they feel powerless to react meaningfully, a feeling that is magnified by the narrative which portrays them as spendthrift, corrupt, over-reachers. A narrative that emanates both from outside of Greece but also from establishment media here in Greece, of the sort that are attached to business interests keen to exploit the wave of privatisations and wage reductions.