On Friday 27th April, Christian Amanpour interviewed me on CNN International on the theme of Europe’s slow suicide by inane austerity. The transcript of our conversation follows (thanks to CNN for making it available to me).
CHRISTIANE AMANPOUR, CNN HOST: Good evening, everybody. I’m Christiane Amanpour, and welcome to the program.
Just when it looked like Europe might have weathered the worst of the economic storm, some very distressing news this week. After a brief period of progress, Britain has gone back into a recession now. And of course much of Europe never left the recession. It’s a long and grim list: Greece, Spain, Italy, Belgium, the Netherlands, the Czech Republic,Ireland, Portugal, Denmark – and it goes on.
Many of these countries have adopted austerity programs to try and lighten their staggering debt loads. So in my brief tonight, is that medicine killing the patient? In other words, is all that austerity too much too soon?
Look at this graph that we’re putting now in our graphics table. So you have very strong economic growth from the beginning of the 2000s all the way up to the financial crisis of ’08. Then it plunges quite significantly. Then it starts to try to climb and struggle back up the hill until, in Britain, with the conservative Cameron government and their austerity measures, growth simply petered out, simply flattened.
And the human cost of Europe’s recession is clear. There’s violence in Athens and Madrid and other cities across the continent. But the tragedy may best be summed up in a note that was left pinned to a tree in a public square in Athens.
It read, “Austerity kills.” It referred to 77-year-old Dimitris Christoulas, a retiree who shot himself outside the Greek parliament earlier this month. His suicide note said that he couldn’t face the prospect of, quote, “scavenging through garbage bins for food and becoming a burden to my child.”
This phenomenon is spiking in Greece, in Ireland and in Italy these days, and indeed European newspapers have coined a new phrase: Suicide by Economic Crisis.
My guest tonight is Greek and he’s also an economist. Yanis Varoufakis has been living through this crisis, even as he tries to work to find a solution. Welcome to our program.
YANIS VAROUFAKIS, PROFESSOR OF ECONOMICS, UNIVERSITY OF ATHENS: Thank you.
AMANPOUR: So first and foremost, this austerity, this much-ballyhooed program, is it really killing the golden goose?
VAROUFAKIS: It is what you get when you begin with a diagnostic failure and you end up with the wrong cure.
AMANPOUR: So the diagnosis was what?
VAROUFAKIS: That the problem of Europe is debt. And that austerity is the solution.
The problem of Europe is not debt. The problem of Europe is a badly designed monetary system. Debt is one of the symptoms.
AMANPOUR: But you agree that debt is a problem?
VAROUFAKIS: Of course it is, but it is not the problem.
AMANPOUR: So how does one get out of a significant problem, which is debt, without this terrible austerity, which apparently has a really bad negative effect on growth?
VAROUFAKIS: If I’m right that this is an architectural design failure, the thing to do is to create new foundations for the edifice, which has not managed to sustain the shock waves of the great financial disaster of 2008.
AMANPOUR: So what would be that new edifice?
VAROUFAKIS: Very simple steps. Europe needs to unify its banking sectors. It is preposterous that we have a French banking sector, a German, a Greek banking sector when we are one currency. Imagine if, in the United States, in 2008, the State of New York had to salvage Wall Street and the State of Nevada had to salvage the banks in Nevada.
Then those states, all states and all banks, would have gone under. This is what we’re doing. So that’s one thing we need to do. So we need to unify the banking system. A part of the debt (inaudible) member country has to be unified. And we need an investment policy throughout Europe.
AMANPOUR: We talked about the human costs, and it truly is tragic. People simply falling off a cliff and being unable to meet what’s being imposed on them right now. Unemployment across Europe is staggering. I mean, in Spain, with young people apparently, it’s over 50 percent. More Spanish young people are out of work today than are working.
And this is going to be a phenomenon, surely, that’s going to confront all our leaders. What is the structural cure for that at a time when you need a structural cure for the whole economic system?
VAROUFAKIS: Well, we must stop this continuous march off the cliff of competitive austerity, which sequentially throws one country after the next into the abyss. And the way to do that is to understand that what Europe needs is a New Deal. What Roosevelt did in 1932 we need in Europe now.
And that does not mean a kind of Keynesian spending spree. It means mobilizing idle savings and putting them into productive investments. And that can be done.
We have the institutions in Europe. For instance the European investment bank, which is at least twice the size of the World Bank. We can put it to work. We need to use the other institutions we have rationally to manage the systematic crisis systematically and to stop treating this as a debt crisis alone, ignoring the systematic nature of it.
AMANPOUR: Well, certainly France and Germany, certainly under Sarkozy and Angela Merkel, have been talking about the debt aspect of this. And now look at the Economist today, talking about Francois Hollande, who might become the next president of France, saying the rather dangerous M. Hollande, he’s been talking about whole renegotiation, hasn’t he?
VAROUFAKIS: I think that the Economist is meaning this in a nice way: that we need some ‘dangerous’ ideas, ‘dangerous’ in the sense that they can shake us out of this complacency.
AMANPOUR: What could he do? What could his programs do? Is it sort of end austerity and have more stimulus and try to spark more growth?
VAROUFAKIS: I think that the idea is not to tax and spend. We don’t need to do that in Europe. Europe is rich enough. And we have the institutions to mobilize savings as investments. The problem is we have idle savings in Europe. And we cannot mobilize these savings simply by cutting, because when you cut you create an environment of pessimism, and therefore nobody wants to invest.
AMANPOUR: So right now you’re talking about pessimism — and actually quite a lot of concern, certainly in the British government, they’ve seen this phenomenon that we’re talking about, not work and they’re quite worries. So do you think now leaders will start reexamining their focus on austerity?
VAROUFAKIS: I very much hope so, but they have covered themselves in permanent disgrace over the last three years by refusing steadfastly to stop blaming the symptoms in order to keep quiet on the causes. Our European leaders have not had the courage simply to accept that the edifice they created, the Eurozone was structurally faulty.
AMANPOUR: Tell me about the Greek relationship with Germany. Obviously, Angela Merkel has been the one really pushing this idea of no more debt, or at least manageable debt and austerity. The Greeks don’t like this. They remember occupation during the Second World War.They remember the real hardships. What is happening now between Greece and Germany on this issue?
VAROUFAKIS: I very much fear we’ll have a repeat of the 1930s. If you recall, in 1929, we had a Wall Street collapse. Soon after that, the common currency of the era, which was the Gold Standard, went, and then next thing that happened was everybody started turning against everybody else.
Similarly, in Europe now, the common currency is fragmenting and the Greeks are turning against the Germans, the Germans against the Greeks. Soon, the Germans will turn against the Germans and the Greeks against the Greeks. So Greece is the post-modern 1930s, which is the result of a spectacular political failure. You know, we didn’t have to have this economic crisis in the last three years in Europe. This is a political crisis. It’s a failure of political coordination of rational management of what is a manageable problem.
AMANPOUR: When you mention the 1930s, obviously everybody gets really scared, nationalism and the worst kind of fascism. Do you see that possibility?
VAROUFAKIS: I see it everywhere I look. In Holland, in Denmark, in my own country, neo-Nazis are going to be in Parliament for the first time. We have already had neo-fascists there. Now we’re going to have neo-Nazis as well, from what the opinion polls are telling us. It is happening because when there is a political vacuum and a political failure, the result is that people are — just lose hope, this is the worst thing.
Sacrifice is not a bad thing, to try and tighten your belt in bad times. But when people are experiencing sacrifices which they cannot conceptualize, they cannot see, as an investment into a better future, then xenophobes, anti-Semites, neo-Nazis are the only ones who win out of that situation.
AMANPOUR: It’s a very ugly picture. What about the relative strength of the United States? Is the United States rising? Falling? What is the issue here that faces the U.S. with the European economy?
VAROUFAKIS: In my estimation, the United States is clinging on through the actions of the Fed. The United States is managing to maintain some poise and to keep preventing, for the time being, the double dip. China is a very big question mark. China is doing its best, given its own constraints. Europe is the sick man of the global economy. We’ve managed in the past to drag down with us the rest of the world. We can do it again.
AMANPOUR: Yanis Varoufakis, thank you very much indeed for joining me.