With the debt clock ticking, Greece is fast running out of money. The country has ordered all state bodies to place their cash reserves in the nation’s central bank, the Bank of Greece, as it struggles to stay afloat. Greece is supposed to receive the last installment of its bailout funds from European creditors, but the country’s new leftist, anti-austerity Syriza party has expressed concerns about its terms. The creditors are reportedly pressuring the country to restructure its labor market and curtail its pension system; Syriza has instead done the opposite by increasing pension payments to lower-wage workers. Speaking in Washington, D.C., last week, the head of the International Monetary Fund, Christine Lagarde, urged Greece to restore stability.
Yanis Varoufakis talking:
Greece has been in the clasps of a major crisis for the last five years. We had a very serious recession that led to a depression. So the question is: How can we put an end to this never-ending downward spiral so as to stabilize our economy, create conditions for the return of a degree of social justice, and also repay our debts to our creditors?
And there are two narratives here, two competing narratives. The official version, until we got elected, was that Greece was on the mend, that austerity was working. Our proposition to the Greek people—on which basis we were elected, were given a mandate—was the opposite, that the medicine wasn’t working. It wasn’t just that it was bitter and we didn’t want to take it; it was that it was toxic and it was making a bad thing worse. It was worse than the disease. So, this is what’s at stake here. You asked me, “How high are the stakes?” It’s a question of establishing what needs to be done in order to return Greece to a sustainable path.
the design failures of the European Union is an open secret, it’s a common secret, that the eurozone was never designed in order to sustain the shockwaves of the major financial markets earthquake of 2008. So it was like all monetary unions that lack a shock-absorbing mechanism, a mechanism for recycling surpluses.
Let me give you an example in the American context. Remember what happened in 1929? There was a global currency of sorts, the gold standard, that created very sharp, very quick flows of capital, even back then, even though the Internet was not available at the time and there were no computers. And that created bubbles that eventually burst, beginning of course with Wall Street. And the result was that the burden of adjustment went onto the devastated nations and the devastated parts within the United States. So, what did FDR do? What did the Roosevelt administration do with the New Deal? It created mechanisms for recycling deficits and surpluses within the United States of America through Social Security, through the Fed, the FDIC, so that when the next crisis happened in 2008, which was of course monumental, even in the United States—the next 1929 in 2008 happened, the state of Nevada did not have to bail out the banks domiciled in Nevada, and the state of Nevada did not have to worry about paying for the unemployment benefits. You had these shock-absorbing mechanisms. You had the FDIC looking after the banks of Nevada, and you had Social Security at the federal level paying, through surplus recycling, by—automatically, without even a political decision. Taxes from New York state and California were diverted to pay for the unemployment benefits in Nevada. These are the kinds of mechanisms that you need in order to render a monetary union stable, and Europe never had those.
If it were true that the Greek economy was on the mend prior to our election and that it was on a sustainable path, then my colleague would be right. Unfortunately, it isn’t true. The debt deflationary crisis was continuing, inexorably. Nominal incomes continued to fall. Private and public debt continued to rise. The banks could not function as credit-providing institutions. Investment was negative. And generally speaking, the Greek economy was like a drug addict that relied on the next dose of loans from its international and European creditors.
And what we tried to do was to say to our international and European creditors, to our partners in Europe and to the whole world that this recipe was simply not working. And we took a very considered view and a very principled position. We said that, look, if we sign on the dotted line of this existing program, IMF-inspired program, then, of course, we will secure another $5-7 billion—this is a new dose, if you want—and our addiction will continue, but at least we will have our dose for a few more months. We didn’t take that dose. We didn’t sign on the dotted line, because we want to get rid of the addiction. We want to stabilize the Greek economy.
And if this means that there’s going to be a standoff for a few months between us and our creditors, who don’t like to hear that the program they have been enforcing and implementing in Greece for the last five years was a failure—nobody likes to be told that whatever you’ve been doing for five years is a failure—well, this is the price, however, we had to pay in order to reboot Greece and to reboot our relationship with our creditors. The only way you could be heard was to say, “We are not interested in getting this loan tranche until and unless we have a rethink of the whole program, so that Greece stops going down the path of the downward spiral of debt deflation.” And if, in the meantime, this means that our bonds have been downgraded, well, from what? From minus a million to minus one million and one, right? Then, so be it. We were not elected to lie. We were elected to say to our own people and to the people around the world that this medicine has not been working, we need a new treatment.
Secretary Lew is absolutely spot-on, quite right. This is a crisis we don’t have to have. It’s a standoff that we should have ended some time ago. It is completely correct to say that if this negotiation fails to achieve a mutually advantageous outcome, then the repercussions will be dire, not just, of course, for the Greek people, but for the international economy. We are completely in agreement with that. And what I believe that Jack Lew has been doing over the last few days and weeks is he’s been applying pressure to both the Greek government, of course, but, on the other hand, the institutions—the IMF, the European Central Bank, the European Commission, European partners—to get to an agreement.
On the question of proposals to settle this agreement, I can assure you now, for quite a few weeks—actually, months—the Greek government has very clear proposals on how to settle this. It is a matter of convincing the institutions, the three institutions—the ECB, the European Central Bank; the International Monetary Fund; the European Commission—that the ways of the last five years, were not solving the problem, that we need deeper reforms. We need to get rid of the idea that austerity is going to end the debt crisis. We need an investment package for Greece. And we need, together with our partners and institutions, to agree on a reform mechanism, a reform package, that attacks here in Greece the worst cases of rent-seeking, the oligarchy, the various cartels, instead of targeting the little people, the pensioners who are living on $600 a month, as if that is a reform that would work.
Europe is not going to expel us from the euro. I refuse to believe that Europe would ever operate that way. Remember that since the end of the Second World War, European peoples and their governments have been working tirelessly to bring closer integration together. Nobody in Europe wants to begin the process of disintegration, over what is, after all, a very small philosophical difference of opinion regarding how to stabilize a small economy like Greece.
Our position is that, folks, the last five years offered decisive proof that this program that you had agreed with previous governments was not working, and now we need to reboot it, we need another one. And we need one that makes perfect sense, that is completely undogmatic, and which does two major things: Firstly, it removes the austerity-driven logic from the scene, because it’s self-defeating and it’s pushing debt up rather than down by attacking incomes from which the debts will have to be repaid; and secondly, deep reforms that attack the malignancies of the Greek social economy, and in particular, the oligarchy and the very gross level of inequality, which is adding to the crisis. When you are turning a society like Greece into less equal, into a more unequal society, and you reduce the tax base by allowing the rich to get away without paying their taxes, to have tax immunity, and constantly to be looking at small-scale parasitic behavior while neglecting the grand-scale parasitic behavior, then you’re simply making a bad thing worse.
And believe you me, our proposals are eminently sensible. We are bombarding the other side with reasonableness. We want to come to a conclusion very quickly. We were prepared months ago to come to an agreement. We’re working tirelessly to forge this agreement, for the benefits of Greeks, of Europeans and the global community.
— source democracynow.org
Yanis Varoufakis, finance minister of Greece and member of the ruling Syriza party. Varoufakis is also a political economist, professor and the author of some 15 books, including The Global Minotaur: America, the True Origins of the Financial Crisis and the Future of the World Economy and A Modest Proposal for Resolving the Euro Crisis.