Yanis Varoufakis negotiated with the EU elite over the Greek bailout, witnessed firsthand the callous mathematics used to keep the union together. Today — after OXI, after Brexit, and after Trump — he and his comrades in DiEM25 are calling for a New Deal for Europe: a plan that can stabilize the European Union and return democracy to the people.
He sat down with Doug Henwood on Behind the News to discuss this new venture, the international far right, and Europe’s recovery. This transcript has been edited. You can listen to the original interview here, and subscribe to Jacobin Radio to hear Behind the News and other Jacobin-hosted podcasts at iTunes, Stitcher, or Blubrry.
The last time we talked was in November 2014. The European growth rates were, I don’t know, 1 to 1.5 percent. The Greek economy was happy if it had a 0 percent quarter. We seem to be pretty much in the same place we were over two years ago, aren’t we?
How can we possibly expect something different when we’re doing exactly the same thing in Europe?
They did promise us things would work out, but they’re not working out.
Yes, but those promises were underpinned by a commitment to continue doing exactly the same thing. Whatever it is that they have done, it was always behind the bend, always in response to the continuation of the crisis for which they were responsible, never an attempt to stem it, to get ahead of the curve, and to do something about the causes rather than the symptoms.
Are there any signs of recovery?
There is a cyclical recovery of sorts. It’s a very tepid one, a very weak one. The business cycle at this very moment should be registering significant recovery, but it is the architectural design codes and the procrastination and the commitment to failed policies which is holding it back. If you look at countries like Spain, for instance, there is modest growth. There is even a little bit of inflation.
Even in Germany, we shifted away from the deflationary mode of last year, but nevertheless, it is all very tentative. It is based in Spain, for instance, on credit expansion in the country that suffered the credit bubble, and therefore is still laboring under the legacy of that bubble’s bursting.
Investment in things that society needs remains ridiculously low. We are wasting the upturn of the business cycle due to the political failure of the eurozone.
Is there any bifurcation between the core of the European Union and the periphery, or are they both stuck in the mud?
They’re both stuck in the mud in different ways. The manifestation of the crisis in Italy is evident for all to see. We have a completely broken-down banking system, a public debt which is unsustainable, even though the European Central Bank is buying tens of billions of it all the time.
In places like Germany, you have pension funds that have been crushed by the deflationary forces unleashed by the same process. The fact of the matter is that while the monetary authorities, particularly the European Central Bank, have managed to inject sufficient cortisone into the European patient to make it look stable, under the skin, within the foundations of the real economy, Europe is becoming increasingly imbalanced. The centrifugal forces are doing their catastrophic deed.
What about the European version of quantitative easing? Has it had any positive effect at all?
This is the cortisone I was talking about. There would have been no eurozone to speak of now if it was not for quantitative easing (QE), but it is quite interesting to compare and contrast QE in Europe to that in the United States or in Japan, or even in Britain. In Europe, quantitative easing is inconsistent with the charter of the European Central Bank. The central bank is not allowed to be the lender of last resort. It’s not allowed to do the things that the Fed is allowed to do.
Mario Draghi, the president of the ECB, had to go through the ringer in order to be permitted to implement quantitative easing. He had to promise to buy a lot more German debt than Italian debt or Spanish debt. He had to buy debt, in other words, in proportion to the size of each member state’s economy, which is absurd.
For every one euro of Italian debt that he buys, he has to buy two euros of German debt, which of course he shouldn’t, because Germany is not in the deflationary state Italy is. In order to stabilize Italy, he has to crush the pension funds and the smaller banks in Germany.
That of course creates a great deal of a backlash in Germany for the ECB actions, which are essentially designed to keep Italy in the eurozone.
What about the German banks? Are they still holding up?
They’re only holding up because of the implicit guarantee of the German state. As you well know, Deutsche Bank is deeply insolvent. The asset books of Deutsche Bank are replete with non-performing, zero-marke-price assets. The recent decision of the United States regarding fines on Deutsche Bank reduced its equity to the level of a small company, even though it is the largest bank in Europe.
It has many times the size of the German economy buried in its asset books, in the form of liabilities, not assets, and therefore the only thing that keeps it going is the confidence of the marketplace that the German taxpayer is behind Deutsche Bank.
Does the German taxpayer have the means to support Deutsche Bank?
The German taxpayer is not capable of backstopping Deutsche Bank if Deutsche Bank were to be called to task by the regulators. What the German taxpayer can do is guarantee the short-term refinancing of these bad assets. As long as the regulators do not impose upon Deutsche Bank a proper audit, the German taxpayer is capable of extending and pretending Deutsche Bank’s insolvency into the future by allowing it to carry on trading.
Regulators effectively control the game, and they can allow Deutsche Bank to continue trading as it does for a very, very long time.
Of course, this is a political bombshell buried in the foundations of Europe. While this is happening with Deutsche Bank in Germany, similarly insolvent banks in Italy are being exposed, and the pressure is being placed on Rome to transfer their losses onto the shoulders of the weakest taxpayers.
Therefore, you have a populist backlash against the European Union and the eurozone. We have a situation in Italy where only one party supports Italy’s membership of the eurozone, and that party has just split.
This approach to the banking problem sounds very much like the savings and loan crisis of the 1980s, though on a much, much larger scale. Is anybody looking at precedents, or are they just trying to get through one day to the next?
This is the savings and loan scandal at a larger scale and with a great difference between the United States and Europe. The first difference is that the United States had a federal government by which to affect a federal bailout.
You have a Federal Reserve Bank which has the capacity to effectively transfer all the bad losses onto its balance sheet. The European Central Bank is not allowed to this. To allow the Deutsche mark to be extended to the rest of Europe — to effectively become the euro — the German Central Bank imposed this condition: the new central bank, the Bundesbank writ large, would not be used as a dumping ground for the bad debts and the bad assets of the riffraff — the Italian banks, Greek banks, Italian government, Greek government, and so on.
It turns out that this was a problem for them, because now the central bank that they created cannot come to the rescue of Deutsche Bank. At the same time, we don’t have a federal government to do what happened in the United States after the savings and loan scandal.
Is there anyone at this point gaining materially from this arrangement? What’s keeping it going? Ideology? Just inertia?
Ideology plays a part, but it’s mainly vested interests. The moment the bubble burst in 2008, 2009, 2010, it was a case of ensuring, from the establishment’s point of view, that the cost of the crisis would be pushed onto the shoulders of the weakest of Europeans. That’s what the Greek bailout was. That’s what the Irish bailout was, the Portuguese bailout, the Spanish bailout, and of course the austerity policies that came along. This was pure, naked self-interest on the behalf of the powers that be.
Now, of course, because they hadn’t thought this through — or because they were so panicked when they resorted to that massive, cynical redistribution — they didn’t realize what would happen, which is that this austerity drive and the toxic bailouts yielded a deflationary environment, which had other unintended effects. Then they tried to deal with those effects. Just like firefighters not aiming their water cannons at the heart of the fire but instead aiming it at the flames, the crisis simply transformed into something different.
They were never attacking the systemic part. There is a combination of vested interest, panic, the lack of a systematic and coordinated approach to the problem, and in the end, incredible callousness in the way they wanted to blame the victims of the crisis.
In your brief tenure as finance minister of Greece, you got to sit in on meetings and talk with people of the sorts that economics professors don’t normally rub shoulders with. What did that experience teach you about thinking at the highest levels of the financial establishment?
Many, many, many things. For the benefits of brevity, let me point out two lessons. The first one has something to do with what Hannah Arendt once told us about the banality of evil. How banal these people can be, especially the technocrats, especially the second-rate cheerleaders of the great and powerful — figures like Wolfgang Schauble.
The second thing is that the more powerful people know what’s going on. For them, the game resembles a nineteenth-century gunboat diplomacy game. There’s very little room for having any sensible economic arguments in there.
I often referred to what I defined as the Swedish national anthem experience. I’d try to put to them a reasonable economic argument about what should happen. Then I’d look at their faces and think, “My goodness, whether I said what I just said or sang the Swedish national anthem would produce exactly the same thing, the same bland expression.”
A discussion I had with Christine Lagarde was particularly insightful. It was at our first meeting, after a long discussion on the Greek crisis. After I had explained to her what I thought should be done — what the problem was, what the mistakes had been — she was very open to my line of reasoning.
At the very end, when it was just the two of us, she said, “Look, Yanis, of course you are right. This program cannot work.” She was referring to the fiscal consolidation and reform program that the IMF and the rest of the credit group were pushing on us. She didn’t say it’s difficult for it to work; she said it can’t work.
Then she hastened to add, “But look, you’ve got to understand we’ve put so much political capital into this program that we cannot go back, and your credibility depends on you accepting it.”
I think that tells the story, doesn’t it?
Some say the International Monetary Fund (IMF) had been somewhat more sensible and more humane than, say, Frankfurt or Brussels, and the others who say not. What’s your evaluation of the Fund’s role?
The IMF knows its arithmetic better than the Europeans do, there’s no doubt about that. At least the staff at the IMF are reasonably good. They’ve made huge mistakes in the past in prognosticating the impact of their austerity, but at least now they’ve learned their lesson. They decided that Greece needs debt relief and fiscal targets that are manageable, unlike the ones that Berlin and Frankfurt and Brussels are demanding.
At the same time, the IMF is callous in its determination to target cuts on the poor.
They have a Tacitus kind of approach. They believe that we should liquidate millions of small businesses and people who can’t pay their mortgages. Just discard them. Of course, this means that Greece is going to be turned into desert. Then of course you’ve got to cut down the debt, because you cannot pay the debt. In that sense, the IMF gets its math right on the basis of an antisocial, hyper-austerity reform package.
In contrast, Germany, for instance, is happy to go a little softer on the poor as long as debt relief is off the table, because Merkel simply does not want to go to the federal parliament and admit that when she was promising them that the Greek debt will be repaid in full and with interest, she was fibbing.
Greek society now is the collateral damage in a war of attrition between a reasonably numerate villain — that’s the IMF — and a chronic procrastinator that simply does not want to discuss debt, and that’s Germany.
The spirit of Andrew Mellon to liquidate, liquidate, liquidate lives on.
It’s quite fascinating to see that spirit in practice.
They were very keen on what they call guaranteed minimum income, a basic benefit for the poor, while at the same time they were keen to remove all the protections for labor and for small business that keeps them employed. That’s exactly the liquidate, liquidate, liquidate mindset, and then give them three hundred euros so that they can buy some bread from the shops.
The neoliberal era, for all its faults, had a certain internal coherence to it. Now, since 2008, we’ve been living in this world with no internal coherence at all. We have nothing that resembles a regime of accumulation or anything like that. It was all revealed as an unstable fraud, and yet nothing coherent has taken its place. How do you read the politics of this moment?
The astonishing thing is these people are not even neoliberal anymore. There I was, the finance minister of a government, of a party whose name was the Coalition of the Radical Left, and what was I asking for? I was asking for debt swaps of the kind that Wall Street does every day.
It’s pretty much like what the United States did with the Brady plan and Latin American debt, right?
It was even less radical than that, what I was proposing. Instead of having a huge surplus — in other words huge austerity — have a smaller one. That was the radicality of what I was proposing. A bad bank, to deal with non-performing loans. That’s standard practice in neoliberal circles. A development bank, to use public assets as collateral for borrowing in order to have some investment. Some reforms in order to reduce monopoly power in the supermarket sector, that kind of thing. And reductions in taxes. I wanted to reduce corporate tax rates. I wanted to reduce VAT. I wanted to reduce income tax rates.
Why? Because we had a broken economy with high tax rates, and people were either incapable of or unwilling to pay them.
In a sense, I was putting forward a Reaganite argument. It took a hard-left finance minister to propose Reaganite policies. This is the extent of the crisis. There were the creditors on the other side, the IMF and the European Central Bank, saying, “No, you’ve got to increase tax rates.”
We don’t live in a neoliberal era anymore. What we have is punitive neoliberalism, which is not even economic neoliberalism. It places the maintenance of institutional power against anyone who has different ideas.
It was clear to me that their worst nightmare was any agreement with me that would be mutually advantageous. I had often this crushing feeling that I was negotiating with creditors that didn’t want their money back.
They wanted to make the political point of grinding Greece’s nose in the dirt.
Absolutely. What mattered was to signal to the people of Spain or Portugal that if they dare elect riffraff like us, they would be crushed. Any agreement with us, with me in particular, would have sent the wrong signal to the people of Spain or Portugal, in the sense that there was any agreement at all with a party that had run a campaign and received a democratic mandate to oppose the creditors and to put forward a different set of objections.
It’s exactly like the 1920s and ’30s. There was an irrational exuberance based on a faulty monetary design, then that created financialization. Financialization broke down on Wall Street in 1929 and 2008. After that, you had a clueless establishment trying to impose its authority, first by pushing all the legacy costs of the crisis onto the weak, and then doing anything in its power to retain power, however idiotic politically and economically.
We’re seeing something in the form of a political rebellion against this stuff, but it’s taking a right-wing, nationalist form. What are your thoughts on Brexit?
We’ve seen this all before in the 1930s. Isn’t it exactly what happened after the inane handling of that crisis? The Nazis rose to government as a result of the austerity that Herr Bruning imposed in very, very similar circumstances. Brexit, the Five Star movement in Italy, Le Pen in France, the Alternative für Deutschland in Germany, Trump in the United States — these are all manifestations of the wrong kind of passion returning to politics during a period of deflation and lost hope.
Looking at Brexit, it’s hard to point out just what the European Union did to Britain that did it any harm. Most of Britain’s economic policies were homegrown — they imposed Thatcher and Cameron on themselves. Why does it take this form against the European Union?
It’s got nothing to do with the European Union. It was a rebellion against the establishment. They saw people like David Cameron, the Bank of England, the Treasury, the whole of the City of London, all the bankers, the OECD, the IMF, the World Bank, President Obama, Wolfgang Schäuble, Angela Merkel, President François Allande, descending upon them and pointing the finger at them and saying, “If you dare vote in favor of Brexit, Armageddon is going to hit you.”
They thought, “Right, these are all these people together, the establishment, who have been treating us like discarded souls and discarded communities. What can we do to piss them off?” The answer is, vote for Brexit.
What do you think the results of the exit will be?
What concerns me is not the primary effects but the secondary effects.
I was saying to my audiences before Brexit, “Look, if you vote for Brexit, nothing is going to change much in the next six or twelve months. There will be maybe a little bit more inflation, which is not necessarily a bad thing if you are in a deflationary trap. You are not going to suffer from the primary effects of Brexit, but you will suffer from the secondary effects of Brexit, because Brexit is going to speed up the disintegration of the European Union and the eurozone.”
Just look at Italy. This disintegration is going to unleash huge deflationary forces from within the continent that are going to sweep across the British Channel. They’re going to hit you, and they’re going to bite you when you don’t expect it. By simply voting to get out of the European Union, you are not going to be shielded from those forces.
People thought that Brexit would open up possibilities for the Left. What do you think of the Lexit position?
I disagree profoundly with it. Before the referendum, I had a public debate with Tariq Ali, a leading Lexiteer. The most potent argument was that Brexit would split the Tories. My counterargument was: “The Tories never split, because the Tories know about class conflict, and their dedication to the class war in favor of the bourgeoisie is beyond doubt.” It’s the Left that will be split up. It’s the Labour Party that’s going to be split up by Brexit, which happened.
More generally speaking, my comrades ask me, “How can you possibly be against the dissolution of the European Union? It’s a neoliberal construct. It’s got nothing to do with genuine solidarity. It’s all about solidarity between heavy industry and capital,” which is of course all absolutely true. But why I’m against Lexit has to do with the neoliberal faction of the European Union.
If it now disintegrates, if we all pick up our stumps and leave, developments at the economic level will only benefit the extreme right. The deflationary forces will be unleashed from the collapse of the euro, and they will only benefit forces like Marine Le Pen. It will not benefit the Left, just like Brexit did not benefit the Left. From a consequentialist point of view, I believe Lexit is profoundly wrong.
As leftists, we have always protested our government when our government was wrong, which is most of the time. That does not mean, with the exception of a few anarchists in our midst, that we were against having a government. Similarly, as a Europeanist, it is my duty to protest and to disobey the edicts of Brussels and Frankfurt and so on, but at the same time I do not see why I should be proposing the disintegration of the European Union, even though I am extremely critical of its spirit and architecture.
There’s been some hatred coming towards Brexit voters, towards Trump voters, mostly from left neoliberals but even from people further to the left of them, who see the thrust behind Brexit, Trump, and all the continental movements as racist, backwards, xenophobic. Is this the right way to think about it?
We are politically and morally bankrupt if we set our sights against those people who decided to try to punish the establishment by voting for Trump and voting for Brexit and voting for Le Pen.
Our obligation is to talk to them, to find out what keeps them up at night, and to have a discussion with them, which results in a reconfiguration of their own thinking.
Let me give you an example. I was in Doncaster, a northern English city, during the Brexit campaign, and there was this lovely old lady who approached me and said, “Look, I like you very much, and I like what you’ve done in the eurozone and so forth, but I can’t take your recommendation that I should vote against Brexit. Let me tell you why,” she said. “I’m not racist. Next door to me there are these four Romanian boys. They’re lovely boys. They share a flat. They pay the rent. They do all sorts of jobs. They struggle. They’re lovely, and they save as much money as they can to send back to their home to keep their parents alive in Romania.
“But do you realize,” she said, “that by working together like this and living together, they can afford to outbid Doncaster local families that cannot afford the same amount of rent as they can, since they are poor boys working?”
I said to her, “Let me ask you this. This building of yours, is it publicly owned or is this privately owned?” She said, “Well, it used to be a council estate, a publicly owned housing estate, and then it was privatized, and now we have a private landlord.”
I said, “So you see where the problem is? The problem is not the Romanian boys. The problem is that your public housing was privatized, and then the privateer decided to utilize this new property right in order to maximize his rents. The problem is not the Romanian boys; the problem is the destruction of the council housing program by the Tories. Do you really want to vote for Brexit, and therefore enable the Tory government to destroy whatever labor right protection there is from the European Union?”
That is the way to do it. Not treat her as a racist bigot, but engage in what really keeps these people up at night. If we can’t do it, we are huge failures.
You’re devoting a lot of your time a progressive reinvention of the European Union. Nation states were formed on the basis of a common language, a common state, psychologically through fantasies of solidarity and the nation’s singularity in the world. The European Union is a long way from that.
I’ve always been struck by the euro notes, the generic nature of the monuments that are on the bills. There’s no real common history. Back when the euro was being created, Timothy Garton Ash said the continent was embarking on political union through money. That really hasn’t worked out, but what could? Is there some European identity that such a thing could build on?
The answer comes in one word: movement. I am dedicating all my life, all my energies and all my activities, on what we call DiEM25, the Democracy Europe movement.
After my resignation from government, I couldn’t bring myself to create a political party just in Greece because the problem is pan-European. Some of us got together in Berlin and created the Democracy Europe Movement about a year ago. Now we have tens of thousands of members everywhere, especially in Germany, Greece, Portugal, Belfast, in all sorts of different, disparate places.
The answer to your question comes from the energy and solidarity and common purpose that I see everywhere I go, whether it’s Poland, Portugal, or anywhere else. The movement approaches the basic problems we have at a pan-European level, in exactly the same way that the green movement approaches climate change.
Climate change cannot be sorted out by Luxembourg, by Greece, by even the United States on their own. It’s something that either we do together or we are defeated by it together. The same thing applies to the big problems we have in Europe, like public debt, like very low investment, like poverty, like the refugee crisis. Either we’re going to deal with these at the pan-European level or we’re going to be defeated by them.
We need to Europeanize the solutions to these in order to maximize the sovereignty at the level of municipality, of regional governments, and of course national governments. This is what we’re working for with DiEM, and we hope to make this movement capable of confronting both the establishment of Europe and the insurgency from the nationalist international, because they are accomplices.
The establishment and the nationalists feed off each other. We need a movement to oppose them throughout Europe. That is what is going to create the glue, and that goes hand in hand with a generational European identity.
What would the governance structures look like?
Let’s separate the principle from the structure. The principle should be to end involuntary underemployment and involuntary migration.
At the moment, these two phenomena are destroying Europe. Involuntary underemployment, due to very, very low investment, and to the concentration of investment in very, very small areas around London, around certain parts of Germany and Holland. Involuntary migration, because millions of Europeans simply cannot survive within their communities. They have to move. They don’t go to London or to Berlin because of the weather or because of the food. They go because they have no alternative.
How do we deal with this? This is DiEM25. We are putting together what we call the European New Deal document and presenting it on March 25.
These are policies can be applied tomorrow, without federation, without any fundamental change in institutions, just redeploying existing institutions in a sensible and progressive way, so that once we stabilize Europe, we can then have the discussion about the question that you asked.
What will the architecture of Europe look like in the future? This should be an open-ended debate. I don’t believe in borders. I would like to see a federal structure, which is democratic — fundamentally democratic in a way that the United States is not, in a way that Europe is not.
But if a different view prevails, that we need to go back to loosely associated nation states, as long as our common problems are Europeanized, we’re open to that discussion, too. What is of the utmost importance is to arrest this inexorable slide into a postmodern 1930s.
How much of this can be accomplished without fundamentally altering the structures of capitalism?
It can’t, but there is much that we can do. This is something that the United States is perfectly familiar with. When you are in a Great Depression, a New Deal can stabilize it. A New Deal channels idle wealth into productive investments with caps on the power of the financiers and with a reinforcement of the weakest.
A New Deal can stabilize capital sufficiently so that we can have a conversation about post-capitalism. If we don’t stabilize capitalism, it is a gross error.
This is something that I disagree with many left-wing comrades of mine about. I don’t believe that the free fall of capitalism is conducive to progressive change.
I think the history of the last several years has been pretty conclusive on that one.
I think so, too.
I saw an interview with you where you said we had the means for all of us to live rich, civilized lives without destroying the Earth. You’re not a techno-pessimist who thinks we’ll have to shrink the population, go back to being hunter-gatherers.
Of course not. We didn’t come this far in order to return to the idiocy of rural life, as Marx said. We have the technology, and very soon we will be able to take it a bit further, to stop us from either being in need of things that we can have or from interminable chores.
Of course, this technology, how we use it, is a political question. We’re at a juncture. There are two possible directions we can take. One is something like Star Trek, which is absolute communism. You have a whole world that produces everything, and nobody needs to work. There’s no money. People can sit around the table and discuss the meaning of life and explore the universe. Alternatively, The Matrix, where we’re all slaves of the machines that we created.
The choice is ours, and we’d better make it democratically.