An Interview with Yanis Varoufakis

The UK television station Channel 4 interviewed Greek ex-finance minister Yanis Varoufakis on the referendum one day before the vote tool place, giving him an opportunity to clarify the Greek government’s position. The interview can be seen below and is well worth checking out, not least because the reporter isn’t soft-balling, but is confronting Varoufakis with his opposition’s talking points.

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So essentially it boils down to: even though the offer of the creditors and that presented by Alexis Tsipras two days earlier were only a smidgen apart, the negotiations were scuppered because no agreement could be struck regarding a debt restructuring. Varoufakis says he believes that the surge in payments the Greek government would face in 2022 represents a hindrance to investment. He’s no longer insisting on a haircut (knowing it is politically impossible), but wants the repayments stretched out even further.

Yanis Varoufakis – biking out of there.

Photo credit: Pantelis Saitas / EPA

One certainly has to agree with Varoufakis that smothering the Greek economy with ever higher taxes actually lowers the probability that the creditors will ever see any of their money again. It is also true that nothing good can come of Greece’s citizens seeing no sign that things might get better one day. The beginning recovery in the latter stages of the rule of the Antonis Samaras-led government came too late and was too weak to make a difference to most people.

Hence the “no” vote: Greece’s citizens have been told time and again that things would get much worse if the troika’s demands were refused, but then things got worse anyway. People who have lost hope and feel they have nothing to lose anymore cannot be expected to give in to such threats forever. Moreover, given the well-known fact that the Greek government’s debt is unsustainable, the approach to dealing with the debtberg simply must change. Obviously, the earlier this happens, the better.

Steve Bell on Greece and the EU

As usual, one can actually agree with a lot of what Varoufakis is saying. However, we don’t believe that the main obstacle to investment in Greece is the surge in debt repayments in 2022. Rather, if a positive environment for investment is to be created, the economy and the administrative apparatus have to be fundamentally reformed, and this has nothing to do with money or the government’s debt repayment schedule.

Syriza Apologias

Greece’s chief debt negotiator Euclid Tsakalotos (and new finance minister) inter alia said the following to London’s Telegraph:

“To those who complain that his government refuses to reform, he called this a canard. Syriza are the outsiders shaking up a fossilized system.

“Even if they forgave all the debt and gave us €300bn we would still be in deep trouble, if we didn’t push through deep reform. No-one in Syriza thinks that everything was hunky-dory in 2008 and we all can go back to that,” he said.”

Fair enough, and given the failure of previous governments to “push through deep reform” it is difficult to see who’s going to do it, if not the new government. However, the above are just words, i.e., declarations of intent. Where are the deeds? It is amazing that the new government to this day hasn’t even bothered with following up on the infamous “Lagarde list” of Greece’s 2,000 largest tax evaders. In fact, the only plans the implementation of which was on the agenda were rollbacks (or at least announcements of rollbacks) of previous reforms. To this day, Greece doesn’t even have a functional land registry.

Greece’s new finance minister Euclid Tsakalotos

Photo credit: Charles Platiau / Reuters

A friend pointed us to a 2012 blog post by Yanis Varoufakis, in which Varoufakis essentially presents his anti-austerity argument, in the process condemning Ireland’s acceptance of the euro-group’s demands. It should be pointed out here that contrary to Greece, Ireland has seen a return to fairly good economic growth, and its government has quite some time ago become able to access  capital markets again. Irish bond yields have come down considerably, although this admittedly doesn’t necessarily mean much.

Varoufakis also asserted (contrary to his colleague Yanis Milios) that Syriza is not a collection of Marxists. The acronym Syriza by the way stands for “Coalition of the Radical Left”. He also insisted on this occasion that one should simply ignore the party’s manifesto and election promises:

Should we be afraid of Syriza’s ‘ultra-leftism’? My answer is a resounding No. I recommend that (even those who have Greek amongst their languages) you do not read their manifesto.It is not worth the paper it is written on. While replete with good intentions, it is short on detail, full of promises that cannot, and will not be fulfilled (the greatest one is that austerity will be cancelled), a hotchpotch of  policies that are neither here nor there. Just ignore it. Syriza is a party that had to progress, within weeks, from a fringe political agglomeration struggling to get into Parliament (at around the 4% mark) to a major party that may have to form government in a few short weeks. It is, in important ways, a ‘work in progress’; and so is its unappetizing Manifesto. No, the reason it is safe to take a gamble on Syriza is threefold:

First, because it is probably the only party that ‘gets it’; that understands (a) that Greece must stay in the Eurozone (despite the latter’s obvious failures), and (b) that the Eurozone will not survive unless someone forces Europe to put an immediate halt on this “march off the cliff of competitive austerity”.

Secondly, because the small team of political economists that will negotiate on Syriza’s behalf are good. moderate people with a decent grasp of the grim reality that Greece and the Eurozone are facing (and, no, I am not part of that team – but I know the ones I am referring to).

Thirdly, because, in any case, a vote for Syriza is not going to establish a purely Syriza government. No party, including Syriza, will be in a position to form a government outright. So, the question is whether Europe is better off with a government in Athens which includes Syriza as a pivot or one which is supported by discredited pro-bailout parties, with Syriza leading from the opposition benches. I have no doubt whatsoever that Europe’s interests are best served by the first option.”

(emphasis added)

In order to avoid misunderstandings, we are certainly no fans of euro area type austerity. However, not every aspect of the reform demands made by the EU is worthy of condemnation. For instance, labor market reforms are surely necessary in a great many EU countries. What we dislike most about these programs is their heavy focus on squeezing every last drop of blood out of the private sector via tax hikes, while government spending is only reduced with the greatest reluctance, if at all. Ultimately this amounts to the utterly absurd idea that a bloated State can be better supported by a shrinking private sector.

Italy under the government of Mario Monti was a prime example. As the Italian taxpayer association remarked near the end of Monti’s reign: “Monti’s reform has consisted of introducing new taxes and nothing else”. There actually was something else: The introduction of financial repression in grand style – mainly pressuring small business with Gestapo-like tactics (see this article – scroll down to the “Financial Repression in Italy” section). Not surprisingly, it has failed to work. The performance of Italy’s economy has been so weak that in spite of the government managing to produce a primary surplus, its overall debt load has continued to grow year after year.

Relative to economic output, Italy’s public debt has continued to grow and is well beyond anything that could be termed even remotely “sustainable” – via TradingEconomics.

EU-approved “technocrat” Mario Monti – squeezing the private sector to within an inch of its life.

Photo credit: Alessia Pierdomenico / Bloomberg

Syriza’s Economic Program – In the Dilemma Prison

Let us get back to Yanis Varoufakis’ old post though. While he rightly criticizes the policies that have been imposed by the EU, he doesn’t make clear what precisely he doesn’t like about them (except for mentioning that it makes no sense to keep unsound debt on the books, a point with which we agree). It is a blanket condemnation of austerity and he doesn’t tell us what exactly should be done differently. Most mainstream critics of austerity policies believe governments should go even deeper into debt, as they are hoping that the Keynesian “multiplier” fairy tale will somehow “kick-start” the economy, resp. imbue it with “escape velocity”. These people apparently all believe the economy is a machine, or a spaceship. This is not the case.

Even if one were to agree with the notion that deficit spending magically works (never mind economic logic, as every cent the State spends is a cent the private sector can no longer spend,  or the utter failure of Japan to get its economy going with massive deficit spending for 26 years running), surely this is a policy that cannot possibly be applied to Greece. Its government is insolvent and an insolvent government can no longer engage in deficit spending  (unless it has its own printing press and doesn’t mind destroying its currency).

And what about Syriza’s manifesto? As of early 2015, it had still not changed. Should it still be ignored? Admittedly, it includes a number of points we actually agree with (especially its anti-war related policy statements, the abolition of privileges for politicians and the decriminalization of drugs), but it is brimfull with truly appalling economic nonsense.

This includes:

1. Introduction of a 75% marginal tax rate (which has worked wonders in France…)

2. The demand that “the European Union to change the role of the European Central Bank so that it finances States and programs of public investment”

3. Tax increases on companies

4. A complete prohibition of financial derivatives (an idea copied straight from Adolf Hitler)

5. A tax on financial transactions

6. Yet another tax on “luxury goods” (the definition of luxury goods would presumably be undertaken by the bureaucracy – could be anything, really)

7. Combating banking secrecy (i.e., dismantling of financial privacy)

8. Combating “capital flight abroad” (no mention how this is to be done)

9. Nationalization of the banking industry

10. All sorts of subsidies and all sorts of free goodies to be provided

11. Nationalization of “strategic sectors” of the economy

12. Introduction of even more labor market restrictions

13. Nationalization of private hospitals. Elimination of private participation in the national health system.

Not a single economic policy that can be described as even remotely sensible can be found anywhere in the manifesto, except the demand that military spending should be drastically cut (funny enough, the Tsipras government has to date refused to do that). On the contrary, the above is a typical extreme far-left statist program, the implementation of which would practically eliminate most vestiges of economic freedom. If this program was to be ignored in 2012 because Syriza wasn’t yet ready for prime time, why hasn’t it been altered?

Greece is really facing a big problem if the above is representative of what Syriza really wants in terms of economic policy, considering it is the only major party in Greece that is not yet utterly disgraced. Perhaps one can take Varoufakis’ word on this and it really doesn’t reflect the actual economic thinking of the party’s most important movers and shakers. However, there is clearly a lack of evidence in this respect. While we understand that Greece cannot possibly be reformed in half a year, this should have been enough time to at least take some positive steps. So one one still cannot be sure whether the party’s manifesto is truly indicative of its economic principles, or whether one can rely on its ex-finance minister who urged us three years ago to ignore it – without clearing up what it actually stands for instead.

Conclusion

It’s probably no coincidence that “dilemma” is actually a Greek term.