Greece’s Yanis Varoufakis: The Medicine of Austerity Is Not Working, We Need a New Treatment

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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 suppose 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.

On Friday, eurozone finance ministers will decide whether to release emergency funds to Greece. Without the funds, Greece may default on its debt payments in coming weeks and put its membership in the eurozone at risk. We go to Athens to speak with Greek Finance Minister Yanis Varoufakis.

Posted April 23, 2015

JUAN GONZÁLEZ: 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.

CHRISTINE LAGARDE: What needs to happen now is that the political views need to actually deliver the measures, the tools, the reforms that will actually reach the objectives that have been set between the international community and Greece: restore stability, improve the economy, make sure that one of these days Greece re-accesses the financial market on its own and without support. So that’s what needs to happen. And we are completely available to work with the Greek authorities on those objectives.

AMY GOODMAN: On Friday, eurozone finance ministers will decide whether to release emergency funds to Greece. Without the funds, Greece may default on its debt payments in coming weeks and put its membership in the eurozone at risk.

For more, we go directly to Athens, Greece, where we’re joined by Greece’s finance minister, Yanis Varoufakis. He’s not only a political economist, but also something of a global celebrity. Prospect magazine lists him as number two on its list of the world’s leading thinkers, right after French economist Thomas Piketty and before Canadian author Naomi Klein.

Yanis Varoufakis, welcome back to Democracy Now! Can you tell us what you are calling for right now? How high are the stakes?

YANIS VAROUFAKIS: I would like to phrase my answer in terms that do not resemble a Hollywood movie and a kind of conflictual confrontation. The way I see it is this. 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.

JUAN GONZÁLEZ: Now, Yanis Varoufakis, you’ve talked, in your speech that you gave at the Brookings Institution, of the design failures of the European Union. Could you talk about that?

YANIS VAROUFAKIS: Look, this 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.

AMY GOODMAN: I want to turn to the opposition lawmaker, Kyriakos Mitsotakis of the New Democracy party, which is the former governing party of Greece. He criticized your party, the governing party, Syriza’s party’s approach to Greece’s financial troubles.

KYRIAKOS MITSOTAKIS: [What the government is doing] is devastating for economic activity in Greece, all this uncertainty, the downgradings, the fact that the government is using all the available cash, paying no one, the fact that the banks are funneling all their liquidity to support the government. It’s completely catastrophic for the real economy. So, inaction has a real cost.

AMY GOODMAN: Yanis Varoufakis, your response?

YANIS VAROUFAKIS: Well, look, 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.

JUAN GONZÁLEZ: Well, but meanwhile, many world leaders keep putting pressure on Greece. U.S. Treasury Secretary Jack Lew warned that a full-blown crisis in your country would impact the wider European and global economy. This is what he said.

TREASURY SECRETARY JACK LEW: If there is a crisis, it will first hit Greece, and it will hit the Greek people very hard, but it is something that the European and global economy do not need, to have another crisis. So, it’s in everyone’s interest to find that space, but the Greek government needs to come forward with the kinds of details that the institutions and they can work through to find the kind of program that can have that kind of confidence.

JUAN GONZÁLEZ: Your response to Treasury Secretary Lew?

YANIS VAROUFAKIS: Well, 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 yesteryear, 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.

AMY GOODMAN: Again, Yanis Varoufakis, what will you do if Europe expels you from the euro?

YANIS VAROUFAKIS: 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.

AMY GOODMAN: Yanis Varoufakis, we want to thank you for being with us, the finance minister of Greece. In the January 2015 general election—

YANIS VAROUFAKIS: Thank you.

AMY GOODMAN: —he was elected to the Greek Parliament, representing Syriza, and took office in the new government of Alexis Tsipras soon afterwards. He’s a political economist, professor and author of some 15 books, including The Global Minotaur: America, the True Origins of the Financial Crisis and the Future of the World Economy, as well as the book, A Modest Proposal for Resolving the Euro Crisis.

On the Eurozone Crisis