Dominating the headlines from the moment they were elected, the new Greek government has stirred up the status quo with a bang. The Greek government is using all its leverage to deliver on one of its key promises: getting rid of some of their debt and the associated sanctions. A key player in this process is the new minister of finance Yanis Varoufakis. Varoufakis is a professor of economics at the University of Athens. On top of that he has been writing extensively about the economic crisis on his blog. Who is this man and why is he causing Europe’s elite so much trouble? To find out, let’s have a look at his point of view.
The Global Minotaur
Shortly after Varoufakis hit the stage he published a free e-book elaborating on vision. This e-book is actually part of a book he released four years earlier called The Global Minotaur. In it he takes you on a journey through the last century of economic developments ending with the Big Bang in 2008. This publication proves to be essential for understanding him and the foundation of his ideas.
The missing piece: a surplus recycling system.
In the 1920s the Great Depression roared across America leaving behind social and economic malaise. During this period, the economy slowed down and the money stopped flowing; a crisis very similar to the one we face today. With this in mind, Washington started thinking about a new global economic system. To avoid a future depression they added what they believed was the missing piece of the equation: a surplus recycling system. In a capitalist system there will always be surplus countries and deficit countries. After the Second World War the United States of America (USA) happened to be a surplus country. As a result, the USA started to recycle their own surplus through investing and lending money to, among others, Germany and Japan. The Marshall plan is just one example of this policy. This mechanism functioned rather well and became one of the reasons for the relative prosperity during the 1950s and 1960s.
However, it did not all go according to plan. Starting in the 1970s, the USA no longer had a surplus to recycle. Once again Washington thought about their future role in the world economy and how to sustain their hegemonic position. They decided to turn things around: the USA now became a deficit country. Through Wall Street they recycled the surpluses of the rest of the world. In order for this to work, the debt of the United States had to keep growing. And it did. Wall Street took massive amounts of debt upon itself until it all came crashing down in 2008.
This is where the Minotaur comes into play. For the Minotaur is a mythical Greek creature that was hidden under the palace of the king of Crete. According to the myth, the wealth of Crete could only be sustained as long as the Minotaur was fed young men and women from Athens. Now picture Crete as the USA and the Minotaur as Wall Street. In 2008 the Minotaur was deeply wounded and unable to continue its role as a surplus recycling mechanism. This gave birth to the current debt crisis or, as Varoufakis calls it, the savings crisis. Because for the huge amount of debt that exists, there is also a huge mountain of savings with nowhere to go.
While the USA is slowly recovering from the shock of 2008, the European Union (EU) seems to be stuck in something of a more structural nature. The EU has not been able to escape the problems of its debt. Furthermore, the EU also suffers from a lack of trust of both its citizens and among its member states. Varoufakis has a go at analysing these problems with the complications of the surplus mechanism in mind.
“European Union is facing uncontrollable disintegration”
Varoufakis argues that the EU is facing “uncontrollable disintegration”. Furthermore, he claims that the solutions that are on the table aren’t desirable and will eventually lead to even more disintegration. Firstly, there is the possibility of treating this debt crisis with even more loans. This sounds a little absurd, since it attempts to fix the problems with their cause. The brand-new Greek minister of finance compared this to tying together two stones and then expect them to float. Secondly, there is the possibility of a federalized Europe, much like the United States of America. This, he argued, is both “unworkable and undesirable”. It is unworkable because the crisis would simply outpace the federation. The process of establishing this federation would be too slow. Moreover, it is undesirable because it would be based on the wrong values. Even if we were to accept that this federation is a good idea, one could argue that it is not desirable to establish the foundation and fundamentals of this organisation during a time of crisis. So, in the end, both more loans and the formation of a federation during times of crisis would only lead to more uncontrollable disintegration.
In what professor Varoufakis himself calls a “modest proposal” for solving the crisis, he offers an alternative solution. His aims are to strengthen sovereignty of member states, end what he describes as “pseudo-solidarity” and install a surplus recycling mechanism to solve the savings crisis.
Ending the EU’s “pseudo-solidarity”
His plan revolves around four policies which in turn involve four existing EU institutions. Implemented, his first policy would see the European Stability Mechanism (ESM) taking on the duty of managing the banks in Europe instead of national governments. Eventually this would become a European banking union, but he believes that the ESM should start the recapitalisation immediately. Furthermore, his second policy is about the management of existing public debt using the European Central Bank (ECB). This basically means that he wants to take some of the debt of member states and transform this into European debt or at least offer the opportunity to do so. In addition, his third policy aims to create a surplus recycling mechanism within the EU. Both the European Investment Bank (EIB) and European Investment Fund (EIF) would play a role in a process of recovery through investment. Finally, his last policy would involve creating a basis for solidarity. This policy would guarantee basic nutrition and basic energy for all EU countries in case of an emergency. Varoufakis claims that all these policies are allowed within current legislation. Moreover, they would be significant steps on the road to recovery.
Armed with his ideas and vision, Yanis Varoufakis is going to battle with Europe’s most notorious bureaucrats. Metaphorically speaking, you could say that he is swimming upstream and pissing in the wind at the same time. It is refreshing to see a politician who has controversial, daring and at the same time sensible ideas about the EU. His vision is based on the world’s broken surplus system and from that view he tries to create a possible solution to the problems facing the EU. It could also be that he’s just a smart, charismatic guy who is trying to talk his way out of debt. Nevertheless, it is going to be an interesting battle.
The Global Minotaur, 2011, Yanis Varoufakis