Oh, hear us when we cry to Thee, For those in peril on the sea.
Showing posts with label Greece. Show all posts
Showing posts with label Greece. Show all posts
Saturday, 29 December 2018
Monday, 28 May 2018
In silencing Euroscepticism, Italy’s president has gifted its far right
Yanis Varoufakis in The Guardian
Italy should be doing well. Unlike Britain, it exports considerably more to the rest of the world than it imports, while its government spends less (excluding interest payments) than the taxes it receives. And yet Italy is stagnating, its population in a state of revolt following two lost decades.
Italian president names interim prime minister until fresh elections
While it is true that Italy is in serious need of reforms, those who blame the stagnation on domestic inefficiencies and corruption must explain why Italy grew so fast throughout the postwar period until it entered the eurozone. Was its government and polity more efficient and virtuous in the 1970s and 1980s? Hardly.
The singular reason for Italy’s woes is its membership of a terribly designed monetary union, the eurozone, in which the Italian economy cannot breathe and which consecutive German governments refuse to reform.
In 2015 the Greek people elected a progressive, Europeanist government with a mandate to demand a new deal within the eurozone. In the space of six months, under the guidance of the German government, the European Union and its central bank crushed us. A few months later, I was asked by the Italian daily newspaper Corriere della Sera if I thought European democracy was at risk. I answered: “Greece surrendered but it was Europe’s democracy that was mortally wounded. Unless Europeans realise that their economy is run by unelected and unaccountable pseudo-technocrats, committing one gross error after another, our democracy will remain a figment of our collective imagination.”
Since then, the pro-establishment government of Italy’s Democratic party implemented, one after the other, the policies that the unelected bureaucrats of the EU demanded. The result was more stagnation. And so, in March, a national election delivered an absolute parliamentary majority to two anti-establishment parties which, despite their differences, shared doubts about Italy’s eurozone membership and a hostility to migrants. It was the bitter harvest of absent prospects and withering hope.
After a few weeks of the kind of post-election horse-trading common in countries like Italy and Germany, the Five Star Movement and League leaders Luigi Di Maio and Matteo Salvini struck a deal to form a government. Alas, President Sergio Mattarella used the powers bestowed upon him by the Italian constitution to prevent the formation of that government and, instead, handed the mandate to a technocrat, a former IMF employee who stands no chance of a vote of confidence in parliament.
Italy should be doing well. Unlike Britain, it exports considerably more to the rest of the world than it imports, while its government spends less (excluding interest payments) than the taxes it receives. And yet Italy is stagnating, its population in a state of revolt following two lost decades.
Italian president names interim prime minister until fresh elections
While it is true that Italy is in serious need of reforms, those who blame the stagnation on domestic inefficiencies and corruption must explain why Italy grew so fast throughout the postwar period until it entered the eurozone. Was its government and polity more efficient and virtuous in the 1970s and 1980s? Hardly.
The singular reason for Italy’s woes is its membership of a terribly designed monetary union, the eurozone, in which the Italian economy cannot breathe and which consecutive German governments refuse to reform.
In 2015 the Greek people elected a progressive, Europeanist government with a mandate to demand a new deal within the eurozone. In the space of six months, under the guidance of the German government, the European Union and its central bank crushed us. A few months later, I was asked by the Italian daily newspaper Corriere della Sera if I thought European democracy was at risk. I answered: “Greece surrendered but it was Europe’s democracy that was mortally wounded. Unless Europeans realise that their economy is run by unelected and unaccountable pseudo-technocrats, committing one gross error after another, our democracy will remain a figment of our collective imagination.”
Since then, the pro-establishment government of Italy’s Democratic party implemented, one after the other, the policies that the unelected bureaucrats of the EU demanded. The result was more stagnation. And so, in March, a national election delivered an absolute parliamentary majority to two anti-establishment parties which, despite their differences, shared doubts about Italy’s eurozone membership and a hostility to migrants. It was the bitter harvest of absent prospects and withering hope.
After a few weeks of the kind of post-election horse-trading common in countries like Italy and Germany, the Five Star Movement and League leaders Luigi Di Maio and Matteo Salvini struck a deal to form a government. Alas, President Sergio Mattarella used the powers bestowed upon him by the Italian constitution to prevent the formation of that government and, instead, handed the mandate to a technocrat, a former IMF employee who stands no chance of a vote of confidence in parliament.
Had Mattarella refused Salvini the post of interior minister, outraged by his promise to expel 500,000 migrants from Italy, I would be compelled to support him. But, no, the president had no such qualms. Not even for a moment did he consider vetoing the idea of a European country deploying its security forces to round up hundreds of thousands of people, cage them, and force them into trains, buses and ferries before sending them goodness knows where.
No, Mattarella chose to clash with an absolute majority of lawmakers for another reason: his disapproval of the finance minister designate. Why? Because the said gentleman, while fully qualified for the job, and despite his declaration that he would abide by the EU’s rules, had in the past expressed doubts about the eurozone’s architecture and has favoured a plan of EU exit just in case it was needed. It was as if Mattarella declared that reasonableness from a prospective finance minister constitutes grounds for his or her exclusion from the post.
What is so striking is that there is no thinking economist anywhere in the world who does not share concern about the eurozone’s faulty architecture. No prudent finance minister would neglect to develop a plan for euro exit. Indeed, I have it on good authority that the German finance ministry, the European Central Bank and every major bank and corporation have plans in place for the possible exit from the eurozone of Italy, even of Germany. Is Mattarella telling us that the Italian finance minister is banned from thinking of such a plan?
Beyond his moral failure, the president has made a major tactical blunder
Beyond his moral failure to oppose the League’s industrial-scale misanthropy, the president has made a major tactical blunder: he fell right into Salvini’s trap. The formation of another “technical” government, under a former IMF apparatchik, is a fantastic gift to Salvini’s party.
Salvini is secretly salivating at the thought of another election – one that he will fight not as the misanthropic, divisive populist that he is, but as the defender of democracy against the Deep Establishment. He has already scaled the moral high ground with the stirring words: “Italy is not a colony, we are not slaves of the Germans, the French, the spread or finance.”
If Mattarella takes solace from the fact that previous Italian presidents managed to put in place technical governments that did the establishment’s job (so “successfully” that the country’s political centre imploded), he is very badly mistaken. This time around he, unlike his predecessors, has no parliamentary majority to pass a budget or indeed to lend his chosen government a vote of confidence. Thus, the president is forced to call fresh elections that, courtesy of his moral drift and tactical blunder, will return an even stronger majority for Italy’s xenophobic political forces, possibly in alliance with the enfeebled Forza Italia of Silvio Berlusconi.
No, Mattarella chose to clash with an absolute majority of lawmakers for another reason: his disapproval of the finance minister designate. Why? Because the said gentleman, while fully qualified for the job, and despite his declaration that he would abide by the EU’s rules, had in the past expressed doubts about the eurozone’s architecture and has favoured a plan of EU exit just in case it was needed. It was as if Mattarella declared that reasonableness from a prospective finance minister constitutes grounds for his or her exclusion from the post.
What is so striking is that there is no thinking economist anywhere in the world who does not share concern about the eurozone’s faulty architecture. No prudent finance minister would neglect to develop a plan for euro exit. Indeed, I have it on good authority that the German finance ministry, the European Central Bank and every major bank and corporation have plans in place for the possible exit from the eurozone of Italy, even of Germany. Is Mattarella telling us that the Italian finance minister is banned from thinking of such a plan?
Beyond his moral failure, the president has made a major tactical blunder
Beyond his moral failure to oppose the League’s industrial-scale misanthropy, the president has made a major tactical blunder: he fell right into Salvini’s trap. The formation of another “technical” government, under a former IMF apparatchik, is a fantastic gift to Salvini’s party.
Salvini is secretly salivating at the thought of another election – one that he will fight not as the misanthropic, divisive populist that he is, but as the defender of democracy against the Deep Establishment. He has already scaled the moral high ground with the stirring words: “Italy is not a colony, we are not slaves of the Germans, the French, the spread or finance.”
If Mattarella takes solace from the fact that previous Italian presidents managed to put in place technical governments that did the establishment’s job (so “successfully” that the country’s political centre imploded), he is very badly mistaken. This time around he, unlike his predecessors, has no parliamentary majority to pass a budget or indeed to lend his chosen government a vote of confidence. Thus, the president is forced to call fresh elections that, courtesy of his moral drift and tactical blunder, will return an even stronger majority for Italy’s xenophobic political forces, possibly in alliance with the enfeebled Forza Italia of Silvio Berlusconi.
Thursday, 24 August 2017
No alternative to austerity? That lie has now been nailed
Owen Jones in The Guardian
Ever since the banks plunged the western world into economic chaos, we have been told that only cuts offer economic salvation. When the Conservatives and the Lib Dems formed their austerity coalition in 2010, they told the electorate – in apocalyptic tones – that without George Osborne’s scalpel, Britain would go the way of Greece. The economically illiterate metaphor of a household budget was relentlessly deployed – you shouldn’t spend more if you’re personally in debt, so why should the nation? – to popularise an ideologically driven fallacy.
Greek debt crisis: ‘People can’t see any light at the end of any tunnel’
But now, thanks to Portugal, we know how flawed the austerity experiment enforced across Europe was. Portugal was one of the European nations hardest hit by the economic crisis. After a bailout by a troika including the International Monetary Fund, creditors demanded stringent austerity measures that were enthusiastically implemented by Lisbon’s then conservative government. Utilities were privatised, VAT raised, a surtax imposed on incomes, public sector pay and pensions slashed and benefits cut, and the working day was extended.
In a two-year period, education spending suffered a devastating 23% cut. Health services and social security suffered too. The human consequences were dire. Unemployment peaked at 17.5% in 2013; in 2012, there was a 41% jump in company bankruptcies; and poverty increased. All this was necessary to cure the overspending disease, went the logic.
At the end of 2015, this experiment came to an end. A new socialist government – with the support of more radical leftwing parties – assumed office. The prime minister, António Costa, pledged to “turn the page on austerity”: it had sent the country back three decades, he said. The government’s opponents predicted disaster – “voodoo economics”, they called it. Perhaps another bailout would be triggered, leading to recession and even steeper cuts.
There was a precedent, after all: Syriza had been elected in Greece just months earlier, and eurozone authorities were in no mood to allow this experiment to succeed. How could Portugal possibly avoid its own Greek tragedy?
In 2016 – a year after taking power – the government could boast of a 13% jump in corporate investment
The economic rationale of the new Portuguese government was clear. Cuts suppressed demand: for a genuine recovery, demand had to be boosted. The government pledged to increase the minimum wage, reverse regressive tax increases, return public sector wages and pensions to their pre-crisis levels – the salaries of many had plummeted by 30% – and reintroduce four cancelled public holidays. Social security for poorer families was increased, while a luxury charge was imposed on homes worth over €600,000 (£550,000).
The promised disaster did not materialise. By the autumn of 2016 – a year after taking power – the government could boast of sustained economic growth, and a 13% jump in corporate investment. And this year, figures showed the deficit had more than halved, to 2.1% – lower than at any time since the return of democracy four decades ago. Indeed, this is the first time Portugal has ever met eurozone fiscal rules. Meanwhile, the economy has now grown for 13 successive quarters.
Ever since the banks plunged the western world into economic chaos, we have been told that only cuts offer economic salvation. When the Conservatives and the Lib Dems formed their austerity coalition in 2010, they told the electorate – in apocalyptic tones – that without George Osborne’s scalpel, Britain would go the way of Greece. The economically illiterate metaphor of a household budget was relentlessly deployed – you shouldn’t spend more if you’re personally in debt, so why should the nation? – to popularise an ideologically driven fallacy.
Greek debt crisis: ‘People can’t see any light at the end of any tunnel’
But now, thanks to Portugal, we know how flawed the austerity experiment enforced across Europe was. Portugal was one of the European nations hardest hit by the economic crisis. After a bailout by a troika including the International Monetary Fund, creditors demanded stringent austerity measures that were enthusiastically implemented by Lisbon’s then conservative government. Utilities were privatised, VAT raised, a surtax imposed on incomes, public sector pay and pensions slashed and benefits cut, and the working day was extended.
In a two-year period, education spending suffered a devastating 23% cut. Health services and social security suffered too. The human consequences were dire. Unemployment peaked at 17.5% in 2013; in 2012, there was a 41% jump in company bankruptcies; and poverty increased. All this was necessary to cure the overspending disease, went the logic.
At the end of 2015, this experiment came to an end. A new socialist government – with the support of more radical leftwing parties – assumed office. The prime minister, António Costa, pledged to “turn the page on austerity”: it had sent the country back three decades, he said. The government’s opponents predicted disaster – “voodoo economics”, they called it. Perhaps another bailout would be triggered, leading to recession and even steeper cuts.
There was a precedent, after all: Syriza had been elected in Greece just months earlier, and eurozone authorities were in no mood to allow this experiment to succeed. How could Portugal possibly avoid its own Greek tragedy?
In 2016 – a year after taking power – the government could boast of a 13% jump in corporate investment
The economic rationale of the new Portuguese government was clear. Cuts suppressed demand: for a genuine recovery, demand had to be boosted. The government pledged to increase the minimum wage, reverse regressive tax increases, return public sector wages and pensions to their pre-crisis levels – the salaries of many had plummeted by 30% – and reintroduce four cancelled public holidays. Social security for poorer families was increased, while a luxury charge was imposed on homes worth over €600,000 (£550,000).
The promised disaster did not materialise. By the autumn of 2016 – a year after taking power – the government could boast of sustained economic growth, and a 13% jump in corporate investment. And this year, figures showed the deficit had more than halved, to 2.1% – lower than at any time since the return of democracy four decades ago. Indeed, this is the first time Portugal has ever met eurozone fiscal rules. Meanwhile, the economy has now grown for 13 successive quarters.
During the years of cuts, charities warned of a “social emergency”. Now the Portuguese government can offer itself as a model to the rest of the continent. “Europe chose the line of austerity and had much worse results,” declared the economy minister Manuel Caldeira Cabral. “What we are showing is that with a policy that restitutes income to the people in a moderate way, people get more confidence and investment returns.”
Portugal has increased public investment, reduced the deficit, slashed unemployment and sustained economic growth. We were told this was impossible and, frankly, delusional. And so British workers endured the longest squeeze in wages since the 19th century, while the coalition did not even come close to meeting its commitment to eradicate the deficit by 2015. Why? In part, because low pay means workers paying less tax, receiving more in-work benefits, and spending less money. Portugal is increasing demand; the Tories suppressed it.
Portugal’s success is both inspiring and frustrating. All that human misery in Europe – and for what? What of Greece, where over half of young people languished in unemployment, where health services were decimated, where infant mortality and suicide increased? What of Spain, where hundreds of thousands were evicted from their homes? What of France, where economic insecurity fuelled the rise of the far right?
Portugal and Britain offer lessons for social democracy too. In the aftermath of the bankers’ crash, social democratic parties embraced austerity. The result? Political collapse. In Spain, support for the socialists fell from 44% to the low 20s as the radical left Podemos ate into their vote. In Greece, Pasok almost disappeared as a political force. In France, the Socialists achieved little over 6% in the first round of this year’s presidential elections. And in the Netherlands this year, the Labour party slumped from a quarter of the vote to less than 6%.
By contrast, the two social democratic parties that have broken with austerity – in Portugal and Britain – are now performing better than almost all their sister parties. Indeed, polls show Portugal’s Socialists now 10 points clear of the country’s rightwing party.
Europe’s austerity has been justified with the mantra “there is no alternative”, intended to push the population into submission: we have to be grownups, and live in the real world, after all.
Portugal offers a powerful rebuke. Europe’s left should use the Portuguese experience to reshape the European Union and bring austerity across the eurozone to a halt. In Britain, Labour can feel more emboldened in breaking with the Tories’ economic order.
Throughout Europe’s lost decade, millions of us held that there was indeed an alternative. Now we have the proof.
Portugal has increased public investment, reduced the deficit, slashed unemployment and sustained economic growth. We were told this was impossible and, frankly, delusional. And so British workers endured the longest squeeze in wages since the 19th century, while the coalition did not even come close to meeting its commitment to eradicate the deficit by 2015. Why? In part, because low pay means workers paying less tax, receiving more in-work benefits, and spending less money. Portugal is increasing demand; the Tories suppressed it.
Portugal’s success is both inspiring and frustrating. All that human misery in Europe – and for what? What of Greece, where over half of young people languished in unemployment, where health services were decimated, where infant mortality and suicide increased? What of Spain, where hundreds of thousands were evicted from their homes? What of France, where economic insecurity fuelled the rise of the far right?
Portugal and Britain offer lessons for social democracy too. In the aftermath of the bankers’ crash, social democratic parties embraced austerity. The result? Political collapse. In Spain, support for the socialists fell from 44% to the low 20s as the radical left Podemos ate into their vote. In Greece, Pasok almost disappeared as a political force. In France, the Socialists achieved little over 6% in the first round of this year’s presidential elections. And in the Netherlands this year, the Labour party slumped from a quarter of the vote to less than 6%.
By contrast, the two social democratic parties that have broken with austerity – in Portugal and Britain – are now performing better than almost all their sister parties. Indeed, polls show Portugal’s Socialists now 10 points clear of the country’s rightwing party.
Europe’s austerity has been justified with the mantra “there is no alternative”, intended to push the population into submission: we have to be grownups, and live in the real world, after all.
Portugal offers a powerful rebuke. Europe’s left should use the Portuguese experience to reshape the European Union and bring austerity across the eurozone to a halt. In Britain, Labour can feel more emboldened in breaking with the Tories’ economic order.
Throughout Europe’s lost decade, millions of us held that there was indeed an alternative. Now we have the proof.
Wednesday, 14 June 2017
Yes this really is the end of Tory austerity – because it was never about economics in the first place
Ben Chu in The Independent
“The crisis”, the economist Rudiger Dornbusch once noted, “takes a much longer time coming than you think. And then it happens much faster than you would have thought.” A similar dynamic describes the progress of Conservative austerity politics.
The stunning failure of Theresa May in last week’s general election signalled to Tory MPs that the public have had enough of spending cuts. Though the deficit still stands at £50bn and the national debt is £1,700bn (and rising), austerity is over, we’re now told.
Seven years of Tory lectures that eradicating the deficit for the good of future generations is paramount suddenly fall silent. Politicians who have tarred critics as criminally irresponsible for suggesting an increase in public borrowing have now, in an instant, changed their tune.
People who insisted that if we did not balance the budget at the earliest possible date Britain was destined to become an economic basket case, like Greece, apparently no longer fear such a gruesome outcome. The collapse of the citadel of austerity rhetoric is truly remarkable in its rapidity.
But it was a very long time coming. It became clear within a year of George Osborne’s 2010 “emergency budget”, which forced through huge cuts in capital budgets and an intense squeeze on Whitehall departments and welfare spending, that the austerity medicine was hurting, not helping.
The economy was flatlining, teetering on the verge of recession. Whether this was primarily due to the crisis in the neighbouring eurozone or because the negative knock-on impact of the government’s domestic spending cuts was bigger than initially thought is still debated by economists.
But it doesn’t really matter. Even the conservative estimates of the Office for Budget Responsibility suggest that GDP growth would have been around one per cent higher in both 2010-2011 and 2011-2012, if the Coalition government hadn’t slashed domestic spending on the scale and pace it did.
With interest rates as low as they could go and the Bank of England struggling to support demand through money printing, this was a time for the Government to ramp up capital investment spending to offset the general slowdown – something numerous distinguished academic economists, and even the IMF eventually, urged. It would have made us all better off, putting idle resources to use.
But despite such a capital spending stimulus being permitted under his own fiscal rules, the former Chancellor George Osborne refused to do it. He told us that the international bond markets would lose confidence in the UK’s creditworthiness if we deviated from his original plan – a risible claim given that UK borrowing costs were plumbing new depths as investors around the world ploughed money into government bonds.
The reality was that Mr Osborne didn’t want to do it because it would have meant losing face. He would have had to admit that his previous pigheaded insistence that he didn’t need a fiscal “plan B” was wrong. The credibility risk was not to the UK’s borrowing status but his own political stock.
With the help of a cynically conceived and distorting subsidy to the housing market, the Conservatives managed to eke out a surprise victory in the 2015 general election. Drawing the lesson that austerity had become an electoral asset and useful stick with which to beat Labour, the Chancellor doubled down. He tightened his fiscal rules in a way that virtually the entire economics profession regarded as economically illiterate, making no distinction whatsoever between day-to-day government spending and productive capital spending, and also unveiled a round of large welfare cuts for the working poor.
Hubris set in. And nemesis soon followed. Unexpected parliamentary resistance mounted to Osborne’s welfare cuts, prompting a humiliating reversal on tax credits. At the same time the impact of extensive cuts to policing, schools, social care and the NHS finally became apparent in the form of deteriorating services. It took longer than expected, but it finally arrived.
Yet when Theresa May replaced David Cameron as Prime Minister and Philip Hammond replaced George Osborne as Chancellor last year, they didn’t reverse any of the inherited departmental spending or welfare cuts. And they went into the 2017 election with the same old scare stories about Labour’s reasonable capital investment plans, the same old specious lines like “no magic money tree”. Only now has the dam of Conservative denial crumbled.
Reducing the UK’s deficit, which had ballooned to 10 per cent of GDP in 2010 due to the financial crisis, was a necessity. Cutting it without regard for the state of the overall economy and the feedback effects on aggregate demand was unscientific stupidity and wanton vandalism. Austerity, as practiced by the Conservatives, was a policy driven not by economics, but by politics and ideology. The politics was baiting Labour. And the ideology was the desire to reduce the size of the state.
Who was to blame? The prime culprits were George Osborne and David Cameron of course. But Treasury civil servants were also enthusiastic supporters. It was enabled by two senior Coalition Liberal Democrats, Nick Clegg and Danny Alexander. It was endorsed by economists in the City of London and cheered on by Tory-supporting newspapers. It was abetted by ostensibly neutral political journalists, who unthinkingly succumbed to the fatally misleading idea that a government’s finances can be compared to a household’s budget.
They say victory has a thousand fathers whereas defeat is an orphan. But if we look carefully it’s clear the austerity failure of the past seven years has a sprawling parentage.
“The crisis”, the economist Rudiger Dornbusch once noted, “takes a much longer time coming than you think. And then it happens much faster than you would have thought.” A similar dynamic describes the progress of Conservative austerity politics.
The stunning failure of Theresa May in last week’s general election signalled to Tory MPs that the public have had enough of spending cuts. Though the deficit still stands at £50bn and the national debt is £1,700bn (and rising), austerity is over, we’re now told.
Seven years of Tory lectures that eradicating the deficit for the good of future generations is paramount suddenly fall silent. Politicians who have tarred critics as criminally irresponsible for suggesting an increase in public borrowing have now, in an instant, changed their tune.
People who insisted that if we did not balance the budget at the earliest possible date Britain was destined to become an economic basket case, like Greece, apparently no longer fear such a gruesome outcome. The collapse of the citadel of austerity rhetoric is truly remarkable in its rapidity.
But it was a very long time coming. It became clear within a year of George Osborne’s 2010 “emergency budget”, which forced through huge cuts in capital budgets and an intense squeeze on Whitehall departments and welfare spending, that the austerity medicine was hurting, not helping.
The economy was flatlining, teetering on the verge of recession. Whether this was primarily due to the crisis in the neighbouring eurozone or because the negative knock-on impact of the government’s domestic spending cuts was bigger than initially thought is still debated by economists.
But it doesn’t really matter. Even the conservative estimates of the Office for Budget Responsibility suggest that GDP growth would have been around one per cent higher in both 2010-2011 and 2011-2012, if the Coalition government hadn’t slashed domestic spending on the scale and pace it did.
With interest rates as low as they could go and the Bank of England struggling to support demand through money printing, this was a time for the Government to ramp up capital investment spending to offset the general slowdown – something numerous distinguished academic economists, and even the IMF eventually, urged. It would have made us all better off, putting idle resources to use.
But despite such a capital spending stimulus being permitted under his own fiscal rules, the former Chancellor George Osborne refused to do it. He told us that the international bond markets would lose confidence in the UK’s creditworthiness if we deviated from his original plan – a risible claim given that UK borrowing costs were plumbing new depths as investors around the world ploughed money into government bonds.
The reality was that Mr Osborne didn’t want to do it because it would have meant losing face. He would have had to admit that his previous pigheaded insistence that he didn’t need a fiscal “plan B” was wrong. The credibility risk was not to the UK’s borrowing status but his own political stock.
With the help of a cynically conceived and distorting subsidy to the housing market, the Conservatives managed to eke out a surprise victory in the 2015 general election. Drawing the lesson that austerity had become an electoral asset and useful stick with which to beat Labour, the Chancellor doubled down. He tightened his fiscal rules in a way that virtually the entire economics profession regarded as economically illiterate, making no distinction whatsoever between day-to-day government spending and productive capital spending, and also unveiled a round of large welfare cuts for the working poor.
Hubris set in. And nemesis soon followed. Unexpected parliamentary resistance mounted to Osborne’s welfare cuts, prompting a humiliating reversal on tax credits. At the same time the impact of extensive cuts to policing, schools, social care and the NHS finally became apparent in the form of deteriorating services. It took longer than expected, but it finally arrived.
Yet when Theresa May replaced David Cameron as Prime Minister and Philip Hammond replaced George Osborne as Chancellor last year, they didn’t reverse any of the inherited departmental spending or welfare cuts. And they went into the 2017 election with the same old scare stories about Labour’s reasonable capital investment plans, the same old specious lines like “no magic money tree”. Only now has the dam of Conservative denial crumbled.
Reducing the UK’s deficit, which had ballooned to 10 per cent of GDP in 2010 due to the financial crisis, was a necessity. Cutting it without regard for the state of the overall economy and the feedback effects on aggregate demand was unscientific stupidity and wanton vandalism. Austerity, as practiced by the Conservatives, was a policy driven not by economics, but by politics and ideology. The politics was baiting Labour. And the ideology was the desire to reduce the size of the state.
Who was to blame? The prime culprits were George Osborne and David Cameron of course. But Treasury civil servants were also enthusiastic supporters. It was enabled by two senior Coalition Liberal Democrats, Nick Clegg and Danny Alexander. It was endorsed by economists in the City of London and cheered on by Tory-supporting newspapers. It was abetted by ostensibly neutral political journalists, who unthinkingly succumbed to the fatally misleading idea that a government’s finances can be compared to a household’s budget.
They say victory has a thousand fathers whereas defeat is an orphan. But if we look carefully it’s clear the austerity failure of the past seven years has a sprawling parentage.
Wednesday, 3 May 2017
The six Brexit traps that will defeat Theresa May
Yanis Varoufakis
“It’s yours against mine.” That’s how Wolfgang Schäuble, Germany’s finance minister, put it to me during our first encounter in early 2015 – referring to our respective democratic mandates.
A little more than two years later, Theresa May is trying to arm herself with a clear democratic mandate ostensibly to bolster her negotiating position with European powerbrokers – including Schäuble – and to deliver the optimal Brexit deal.
Already, the Brussels-based commentariat are drawing parallels: “Brits fallen for Greek fallacy that domestic vote gives you stronger position in Brussels. Other countries have voters too,” tweeted Duncan Robinson, Brussels correspondent of the Financial Times. “Yep,” tweeted back Miguel Roig, the Brussels correspondent of Spanish financial daily Expansión. “Varoufakis’ big miscalculation was to think that he was the only one in the Eurogroup with a democratic mandate.”
In truth, Brussels is a democracy-free zone. From the EU’s inception in 1950, Brussels became the seat of a bureaucracy administering a heavy industry cartel, vested with unprecedented law-making capacities. Even though the EU has evolved a great deal since, and acquired many of the trappings of a confederacy, it remains in the nature of the beast to treat the will of electorates as a nuisance that must be, somehow, negated. The whole point of the EU’s inter-governmental organisation was to ensure that only by a rare historical accident would democratic mandates converge and, when they did, never restrain the exercise of power in Brussels.
In June 2016, Britain voted, for better or for worse, for Brexit. May suddenly metamorphosed from a soft remainer to a hard Brexiteer. In so doing she is about to fall prey to an EU that will frustrate and defeat her, pushing her into either a humiliating climb-down or a universally disadvantageous outcome. When the Brussels-based group-thinking commentariat accuse Britain’s prime minister, without a shred of evidence, of overestimating the importance of a strong mandate, we need to take notice, for it reveals the determination of the EU establishment to get its way, as it did when I arrived on its doorstep, equipped with my mandate.
When I first went to Brussels and Berlin, as Greece’s freshly elected finance minister, I brought with me a deep appreciation of the clash of mandates. I said as much in a joint press conference with Schäuble in 2015, pledging that my proposals for an agreement between Greece and the EU would be “aimed not at the interest of the average Greek but at the interest of the average European”. A few days later, in my maiden speech at the Eurogroup of eurozone finance ministers, I argued: “We must respect established treaties and processes without crushing the fragile flower of democracy with the sledgehammer that takes the form of statements such as ‘Elections do not change anything’.” May will, I presume, go to Brussels with a similar appreciation.
When Schäuble welcomed me with his “it is my mandate against yours” doctrine, he was honouring a long EU tradition of neglecting democratic mandates in the name of respecting them. Like all dangerous hypotheses, it is founded on an obvious truth: the voters of one country cannot give their representative a mandate to impose upon other governments conditions that the latter have no mandate, from their own electorate, to accept. But, while this is a truism, its incessant repetition by Brussels functionaries and political powerbrokers, such as Angela Merkel and Schäuble himself, is intended to convert it surreptitiously into a very different notion: no voters in any country can empower their government to oppose Brussels.
There is a long EU tradition of neglecting democratic mandates in the name of respecting them
For all their concerns with rules, treaties, processes, competitiveness, freedom of movement, terrorism etc, only one prospect truly terrifies the EU’s deep establishment: democracy. They speak in its name to exorcise it, and suppress it by six innovative tactics, as May is about to discover.
Time to listen in, Theresa. Photograph: Russell Cheyne/Reuters
The EU runaround
Henry Kissinger famously quipped that when he wanted to consult Europe, he did not know whom to call. In my case it was worse. Any attempt to enter into a meaningful discussion with Schäuble was blocked by his insistence that I “go to Brussels” instead. Once in Brussels, I soon discovered that the commission was so divided as to make discussions futile. In private talks, Commissioner Moscovici would agree readily and with considerable enthusiasm with my proposals. But then his deputy in the so-called Eurogroup Working Group, Declan Costello, would reject all these ideas out of hand.
The uninitiated may be excused for thinking that this EU runaround is the result of incompetence. While there is an element of truth in this, it would be the wrong diagnosis. The runaround is a systemic means of control over uppity governments. A prime minister, or a finance minister, who wants to table proposals that the deep establishment of the EU dislike is simply denied the name of the person to speak to or the definitive telephone number to call. As for its apparatchiks, the EU runaround is essential to their personal status and power.
The Penelope ruse
Delaying tactics are always used by the side that considers the ticking clock its ally. In Homer, Odysseus’ faithful wife, Penelope, fends off aggressive suitors in her husband’s absence by telling them that she will announce whom among them she will marry only after she has completed weaving a burial shroud for Laertes, Odysseus’ father. During the day she would weave incessantly but at night she would undo her work by pulling on a loose string.
In my negotiations in Brussels, the EU’s Penelope ruse consisted, primarily, of endless requests for data, for fact-finding missions to Athens, for information about every bank account held by every public organisation or company. And when they got the data, like the good Penelope, they would spend all night undoing the spreadsheets that they had put together during the day.
Truth reversal
While practising the Swedish national anthem and Penelope ruse tactics, the Brussels establishment utilised tweets, leaks and a campaign of disinformation involving key nodes in the Brussels media network to spread the word that I was the one wasting time, arriving at meetings empty-handed; either with no proposals at all or with proposals that lacked quantification, consisting only of empty ideological rhetoric.
Sequencing
The prerequisite for Greece’s recovery was, and remains, meaningful debt relief. No debt relief meant no future for us. My mandate was to negotiate, therefore, a sensible debt restructure. If the EU was prepared to do this, so as to get as much of their money back as possible, I was also prepared for major compromises. But this would require a comprehensive deal. But, no, Brussels and Berlin insisted that, first, I commit to the compromises they wanted and then, much later, we could begin negotiations on debt relief. The point-blank refusal to negotiate on both at once is, I am sure, a colossal frustration awaiting May when she seeks to compromise on the terms of the divorce in exchange for longer-term free trade arrangements.
So what can Theresa May do?
The only way May could secure a good deal for the UK would be by diffusing the EU’s spoiling tactics, while still respecting the Burkean Brexiteers’ strongest argument, the imperative of restoring sovereignty to the House of Commons. And the only way of doing this would be to avoid all negotiations by requesting from Brussels a Norway-style, off-the-shelf arrangement for a period of, say, seven years.
The benefits from such a request would be twofold: first, Eurocrats and Europhiles would have no basis for denying Britain such an arrangement. (Moreover, Schäuble, Merkel and sundry would be relieved that the ball is thrown into their successors’ court seven years down the track.) Second, it would make the House of Commons sovereign again by empowering it to debate and decide upon in the fullness of time, and without the stress of a ticking clock, Britain’s long-tem relationship with Europe.
The fact that May has opted for a Brexit negotiation that will immediately activate the EU’s worst instincts and tactics, for petty party-political reasons that ultimately have everything to do with her own power and nothing to do with Britain’s optimal agreement with the EU, means only one thing: she does not deserve the mandate that Brussels is keen to neutralise.
“It’s yours against mine.” That’s how Wolfgang Schäuble, Germany’s finance minister, put it to me during our first encounter in early 2015 – referring to our respective democratic mandates.
A little more than two years later, Theresa May is trying to arm herself with a clear democratic mandate ostensibly to bolster her negotiating position with European powerbrokers – including Schäuble – and to deliver the optimal Brexit deal.
Already, the Brussels-based commentariat are drawing parallels: “Brits fallen for Greek fallacy that domestic vote gives you stronger position in Brussels. Other countries have voters too,” tweeted Duncan Robinson, Brussels correspondent of the Financial Times. “Yep,” tweeted back Miguel Roig, the Brussels correspondent of Spanish financial daily Expansión. “Varoufakis’ big miscalculation was to think that he was the only one in the Eurogroup with a democratic mandate.”
In truth, Brussels is a democracy-free zone. From the EU’s inception in 1950, Brussels became the seat of a bureaucracy administering a heavy industry cartel, vested with unprecedented law-making capacities. Even though the EU has evolved a great deal since, and acquired many of the trappings of a confederacy, it remains in the nature of the beast to treat the will of electorates as a nuisance that must be, somehow, negated. The whole point of the EU’s inter-governmental organisation was to ensure that only by a rare historical accident would democratic mandates converge and, when they did, never restrain the exercise of power in Brussels.
In June 2016, Britain voted, for better or for worse, for Brexit. May suddenly metamorphosed from a soft remainer to a hard Brexiteer. In so doing she is about to fall prey to an EU that will frustrate and defeat her, pushing her into either a humiliating climb-down or a universally disadvantageous outcome. When the Brussels-based group-thinking commentariat accuse Britain’s prime minister, without a shred of evidence, of overestimating the importance of a strong mandate, we need to take notice, for it reveals the determination of the EU establishment to get its way, as it did when I arrived on its doorstep, equipped with my mandate.
When I first went to Brussels and Berlin, as Greece’s freshly elected finance minister, I brought with me a deep appreciation of the clash of mandates. I said as much in a joint press conference with Schäuble in 2015, pledging that my proposals for an agreement between Greece and the EU would be “aimed not at the interest of the average Greek but at the interest of the average European”. A few days later, in my maiden speech at the Eurogroup of eurozone finance ministers, I argued: “We must respect established treaties and processes without crushing the fragile flower of democracy with the sledgehammer that takes the form of statements such as ‘Elections do not change anything’.” May will, I presume, go to Brussels with a similar appreciation.
When Schäuble welcomed me with his “it is my mandate against yours” doctrine, he was honouring a long EU tradition of neglecting democratic mandates in the name of respecting them. Like all dangerous hypotheses, it is founded on an obvious truth: the voters of one country cannot give their representative a mandate to impose upon other governments conditions that the latter have no mandate, from their own electorate, to accept. But, while this is a truism, its incessant repetition by Brussels functionaries and political powerbrokers, such as Angela Merkel and Schäuble himself, is intended to convert it surreptitiously into a very different notion: no voters in any country can empower their government to oppose Brussels.
There is a long EU tradition of neglecting democratic mandates in the name of respecting them
For all their concerns with rules, treaties, processes, competitiveness, freedom of movement, terrorism etc, only one prospect truly terrifies the EU’s deep establishment: democracy. They speak in its name to exorcise it, and suppress it by six innovative tactics, as May is about to discover.
Time to listen in, Theresa. Photograph: Russell Cheyne/Reuters
The EU runaround
Henry Kissinger famously quipped that when he wanted to consult Europe, he did not know whom to call. In my case it was worse. Any attempt to enter into a meaningful discussion with Schäuble was blocked by his insistence that I “go to Brussels” instead. Once in Brussels, I soon discovered that the commission was so divided as to make discussions futile. In private talks, Commissioner Moscovici would agree readily and with considerable enthusiasm with my proposals. But then his deputy in the so-called Eurogroup Working Group, Declan Costello, would reject all these ideas out of hand.
The uninitiated may be excused for thinking that this EU runaround is the result of incompetence. While there is an element of truth in this, it would be the wrong diagnosis. The runaround is a systemic means of control over uppity governments. A prime minister, or a finance minister, who wants to table proposals that the deep establishment of the EU dislike is simply denied the name of the person to speak to or the definitive telephone number to call. As for its apparatchiks, the EU runaround is essential to their personal status and power.
Picking opponents
From my first Eurogroup, its president, Jeroen Dijsselbloem, the Dutch finance minister, began an intensive campaign to bypass me altogether. He would phone Alexis Tsipras, my prime minister, directly – even visiting him in his hotel room in Brussels. By hinting at a softer stance if Tsipras agreed to spare him from having to deal with me, Dijsselbloem succeeded in weakening my position in the Eurogroup – to the detriment, primarily, of Tsipras.
From my first Eurogroup, its president, Jeroen Dijsselbloem, the Dutch finance minister, began an intensive campaign to bypass me altogether. He would phone Alexis Tsipras, my prime minister, directly – even visiting him in his hotel room in Brussels. By hinting at a softer stance if Tsipras agreed to spare him from having to deal with me, Dijsselbloem succeeded in weakening my position in the Eurogroup – to the detriment, primarily, of Tsipras.
The Swedish national anthem routine
On the assumption that good ideas encourage fruitful dialogue and can be the solvents of impasse, my team and I worked hard to put forward proposals based on serious econometric work and sound economic analysis. Once these had been tested on some of the highest authorities in their fields, from Wall Street and the City to top-notch academics, I would take them to Greece’s creditors in Brussels, Berlin and Frankfurt. Then I would sit back and observe a symphony of blank stares. It was as if I had not spoken, as if there was no document in front of them. It would be evident from their body language that they denied the very existence of the pieces of paper I had placed before them. Their responses, when they came, would be perfectly independent of anything I had said. I might as well have been singing the Swedish national anthem. It would have made no difference.
On the assumption that good ideas encourage fruitful dialogue and can be the solvents of impasse, my team and I worked hard to put forward proposals based on serious econometric work and sound economic analysis. Once these had been tested on some of the highest authorities in their fields, from Wall Street and the City to top-notch academics, I would take them to Greece’s creditors in Brussels, Berlin and Frankfurt. Then I would sit back and observe a symphony of blank stares. It was as if I had not spoken, as if there was no document in front of them. It would be evident from their body language that they denied the very existence of the pieces of paper I had placed before them. Their responses, when they came, would be perfectly independent of anything I had said. I might as well have been singing the Swedish national anthem. It would have made no difference.
The Penelope ruse
Delaying tactics are always used by the side that considers the ticking clock its ally. In Homer, Odysseus’ faithful wife, Penelope, fends off aggressive suitors in her husband’s absence by telling them that she will announce whom among them she will marry only after she has completed weaving a burial shroud for Laertes, Odysseus’ father. During the day she would weave incessantly but at night she would undo her work by pulling on a loose string.
In my negotiations in Brussels, the EU’s Penelope ruse consisted, primarily, of endless requests for data, for fact-finding missions to Athens, for information about every bank account held by every public organisation or company. And when they got the data, like the good Penelope, they would spend all night undoing the spreadsheets that they had put together during the day.
Truth reversal
While practising the Swedish national anthem and Penelope ruse tactics, the Brussels establishment utilised tweets, leaks and a campaign of disinformation involving key nodes in the Brussels media network to spread the word that I was the one wasting time, arriving at meetings empty-handed; either with no proposals at all or with proposals that lacked quantification, consisting only of empty ideological rhetoric.
Sequencing
The prerequisite for Greece’s recovery was, and remains, meaningful debt relief. No debt relief meant no future for us. My mandate was to negotiate, therefore, a sensible debt restructure. If the EU was prepared to do this, so as to get as much of their money back as possible, I was also prepared for major compromises. But this would require a comprehensive deal. But, no, Brussels and Berlin insisted that, first, I commit to the compromises they wanted and then, much later, we could begin negotiations on debt relief. The point-blank refusal to negotiate on both at once is, I am sure, a colossal frustration awaiting May when she seeks to compromise on the terms of the divorce in exchange for longer-term free trade arrangements.
So what can Theresa May do?
The only way May could secure a good deal for the UK would be by diffusing the EU’s spoiling tactics, while still respecting the Burkean Brexiteers’ strongest argument, the imperative of restoring sovereignty to the House of Commons. And the only way of doing this would be to avoid all negotiations by requesting from Brussels a Norway-style, off-the-shelf arrangement for a period of, say, seven years.
The benefits from such a request would be twofold: first, Eurocrats and Europhiles would have no basis for denying Britain such an arrangement. (Moreover, Schäuble, Merkel and sundry would be relieved that the ball is thrown into their successors’ court seven years down the track.) Second, it would make the House of Commons sovereign again by empowering it to debate and decide upon in the fullness of time, and without the stress of a ticking clock, Britain’s long-tem relationship with Europe.
The fact that May has opted for a Brexit negotiation that will immediately activate the EU’s worst instincts and tactics, for petty party-political reasons that ultimately have everything to do with her own power and nothing to do with Britain’s optimal agreement with the EU, means only one thing: she does not deserve the mandate that Brussels is keen to neutralise.
Sunday, 19 February 2017
‘From bad to worse’: Greece hurtles towards a final reckoning
Helena Smith in The Guardian
Dimitris Costopoulos stood, worry beads in hand, under brilliant blue skies in front of the Greek parliament. Wearing freshly pressed trousers, polished shoes and a smart winter jacket – “my Sunday best” – he had risen at 5am to get on the bus that would take him to Athens 200 miles away and to the great sandstone edifice on Syntagma Square. By his own admission, protests were not his thing.
At 71, the farmer rarely ventures from Proastio, his village on the fertile plains of Thessaly. “But everything is going wrong,” he lamented on Tuesday, his voice hoarse after hours of chanting anti-government slogans.
---For Background Knowledge read:
“Before there was an order to things, you could build a house, educate your children, spoil your grandchildren. Now the cost of everything has gone up and with taxes you can barely afford to survive. Once I’ve paid for fuel, fertilisers and grains, there is really nothing left.”
Costopoulos is Greece’s Everyman; the human voice in a debt crisis that refuses to go away. Eight years after it first erupted, the drama shows every sign of reigniting, only this time in a new dark age of Trumpian politics, post-Brexit Europe, terror attacks and rise of the populist far right.
“I grow wheat,” said Costopoulos, holding out his wizened hands. “I am not in the building behind me. I don’t make decisions. Honestly, I can’t understand why things are going from bad to worse, why this just can’t be solved.”
As Greece hurtles towards another full-blown confrontation with the creditors keeping it afloat, and as tensions over stalled bailout negotiations mount, it is a question many are asking.
The country’s epic struggle to avert bankruptcy should have been settled when Athens received €110bn in aid – the biggest financial rescue programme in global history – from the EU and International Monetary Fund in May 2010. Instead, three bailouts later, it is still wrangling over the terms of the latest €86bn emergency loan package, with lenders also at loggerheads and diplomats no longer talking of a can, but rather a bomb, being kicked down the road. Default looms if a €7.4bn debt repayment – money owed mostly to the European Central Bank – is not honoured in July.
Farmer Dimitris Costopoulos in front of the Greek parliament in Athens. Photograph: Helena Smith for the Observer
Amid the uncertainty, volatility has returned to the markets. So, too, has fear, with an estimated €2.2bn being withdrawn from banks by panic-stricken depositors since the beginning of the year. With talk of Greece’s exit from the euro being heard again, farmers, trade unions and other sectors enraged by the eviscerating effects of austerity have once more come out in protest.
From his seventh-floor office on Mitropoleos, Makis Balaouras, an MP with the governing Syriza party, has a good view of the goings-on in Syntagma. Demonstrations – what the former trade unionist calls “the movement” – are a fine thing. “I wish people were out there mobilising more,” he sighed. “Protests are in our ideological and political DNA. They are important, they send a message.”
This is the irony of Syriza, the leftwing party catapulted to power on a ticket to “tear up” the hated bailout accords widely blamed for extraordinary levels of Greek unemployment, poverty and emigration. Two years into office it has instead overseen the most punishing austerity measures to date, slashing public-sector salaries and pensions, cutting services, agreeing to the biggest privatisation programme in European history and raising taxes on everything from cars to beer – all of which has been the price of the loans that have kept default at bay and Greece in the euro.
In the maelstrom the economy has improved, with Athens achieving a noticeable primary surplus last year, but the social crisis has intensified.
For men like Balaouras, who suffered appalling torture for his leftwing beliefs at the hands of the 1967-74 colonels’ regime, the policies have been galling. With the IMF and EU arguing over the country’s ability to reach tough fiscal targets when the current bailout expires in August next year, the demand for €3.6bn of more measures has left many in Syriza reeling. Without upfront legislation on the reforms, creditors say, they cannot conclude a compliance review on which the next tranche of bailout aid hangs.
“We had an agreement,” insisted Balaouras, looking despondently down at his desert boots. “We kept to our side of the deal, but the lenders haven’t kept to their side because now they are asking for more. We want the review to end. We want to go forward. This situation is in the interests of no one. But to get there we have to have an honourable compromise. Without that there will be a clash.”
It had been hoped that an agreement would be struck on Monday at what had been billed as a high-stakes meeting of euro area finance ministers. On Friday, EU officials announced that the deadline had been all but missed because there had been little convergence between the two sides.
With the Netherlands holding general elections next month, and France and Germany also heading to the polls in May and September, fears of the dispute becoming increasingly politicised have added to its complexity. Highlighting those concerns, the German chancellor, Angela Merkel, attempted to end the rift that has emerged between eurozone lenders and the IMF over the fund’s insistence that Greece can only begin to recover if its €320bn debt pile is reduced substantially.
In talks with Christine Lagarde, the Washington-based IMF’s managing director, Merkel agreed to discuss the issue during a further meeting between the two women to be held on Wednesday. The IMF has steadfastly refused to sign up to the latest bailout, arguing that Greek debt is not only unmanageable but on a trajectory to become explosive by 2030. Berlin, the biggest contributor of the €250bn Greece has so far received, says it will be unable to disburse further funds without the IMF on board.
The assumption is that the prime minister, Alexis Tsipras, will cave in, just as he did when the country came closest yet to leaving the euro at the height of the crisis in the summer of 2015. But the 41-year-old leader, like Syriza, has been pummelled in the polls. Persuading disaffected backbenchers to support more measures, and then selling them to a populace exhausted by repeated rounds of austerity, will be extremely difficult. Disappointment has increasingly given way to the death of hope – a sentiment reinforced by the realisation that Cyprus and other bailed-out countries, by contrast, are no longer under international supervision.
In his city centre office, the former finance minister Evangelos Venizelos pondered where Greece’s predicament was now. “[We are] at the same point we were several years ago,” he joked. “The only difference is that anti-European sentiment is growing. What was once a very friendly country towards Europe is becoming increasingly less so, and with that comes a lot of danger, a lot of risk.”
When historians look back they, too, may conclude that Greece has expended a great deal of energy not moving forward at all.
The arc of crisis that has swept the country – coursing like a cancer through its body politic, devastating its public health system, shattering lives – has been an exercise in the absurd. The feat of pulling off the greatest fiscal adjustment in modern times has spawned a slump longer and deeper than the Great Depression, with the Greek economy shrinking more than 25% since the crisis began.
Even if the latest impasse is broken and a deal is reached with creditors soon, few believe that in a country of weak governance and institutions it will be easy to enforce. Political turbulence will almost certainly beckon; the prospect of “Grexit” will grow.
“Grexit is the last thing we want, but we may arrive at a point of serious dilemmas,” said Venizelos. “Whatever deal is reached will be very difficult to implement, but that notwithstanding, it is not the memoranda [the bailout accords] that caused the crisis. The crisis was born in Greece long before.”
Like every crisis government before it, Tsipras’s administration is acutely aware that salvation will come only when Greece can return to the markets and raise funds. What happens in the weeks ahead could determine if that is likely to happen at all.
Back in Syntagma, Costopoulos the good-natured farmer ponders what lies ahead. Like every Greek, he stands to be deeply affected. “All I know is that we are all being pushed,” he said, searching for the right words. “Pushed in the direction of somewhere very explosive, somewhere we do not want to be.”
Dimitris Costopoulos stood, worry beads in hand, under brilliant blue skies in front of the Greek parliament. Wearing freshly pressed trousers, polished shoes and a smart winter jacket – “my Sunday best” – he had risen at 5am to get on the bus that would take him to Athens 200 miles away and to the great sandstone edifice on Syntagma Square. By his own admission, protests were not his thing.
At 71, the farmer rarely ventures from Proastio, his village on the fertile plains of Thessaly. “But everything is going wrong,” he lamented on Tuesday, his voice hoarse after hours of chanting anti-government slogans.
---For Background Knowledge read:
Yanis Varoufakis and the Greek Tragedy
----
“Before there was an order to things, you could build a house, educate your children, spoil your grandchildren. Now the cost of everything has gone up and with taxes you can barely afford to survive. Once I’ve paid for fuel, fertilisers and grains, there is really nothing left.”
Costopoulos is Greece’s Everyman; the human voice in a debt crisis that refuses to go away. Eight years after it first erupted, the drama shows every sign of reigniting, only this time in a new dark age of Trumpian politics, post-Brexit Europe, terror attacks and rise of the populist far right.
“I grow wheat,” said Costopoulos, holding out his wizened hands. “I am not in the building behind me. I don’t make decisions. Honestly, I can’t understand why things are going from bad to worse, why this just can’t be solved.”
As Greece hurtles towards another full-blown confrontation with the creditors keeping it afloat, and as tensions over stalled bailout negotiations mount, it is a question many are asking.
The country’s epic struggle to avert bankruptcy should have been settled when Athens received €110bn in aid – the biggest financial rescue programme in global history – from the EU and International Monetary Fund in May 2010. Instead, three bailouts later, it is still wrangling over the terms of the latest €86bn emergency loan package, with lenders also at loggerheads and diplomats no longer talking of a can, but rather a bomb, being kicked down the road. Default looms if a €7.4bn debt repayment – money owed mostly to the European Central Bank – is not honoured in July.
Farmer Dimitris Costopoulos in front of the Greek parliament in Athens. Photograph: Helena Smith for the Observer
Amid the uncertainty, volatility has returned to the markets. So, too, has fear, with an estimated €2.2bn being withdrawn from banks by panic-stricken depositors since the beginning of the year. With talk of Greece’s exit from the euro being heard again, farmers, trade unions and other sectors enraged by the eviscerating effects of austerity have once more come out in protest.
From his seventh-floor office on Mitropoleos, Makis Balaouras, an MP with the governing Syriza party, has a good view of the goings-on in Syntagma. Demonstrations – what the former trade unionist calls “the movement” – are a fine thing. “I wish people were out there mobilising more,” he sighed. “Protests are in our ideological and political DNA. They are important, they send a message.”
This is the irony of Syriza, the leftwing party catapulted to power on a ticket to “tear up” the hated bailout accords widely blamed for extraordinary levels of Greek unemployment, poverty and emigration. Two years into office it has instead overseen the most punishing austerity measures to date, slashing public-sector salaries and pensions, cutting services, agreeing to the biggest privatisation programme in European history and raising taxes on everything from cars to beer – all of which has been the price of the loans that have kept default at bay and Greece in the euro.
In the maelstrom the economy has improved, with Athens achieving a noticeable primary surplus last year, but the social crisis has intensified.
For men like Balaouras, who suffered appalling torture for his leftwing beliefs at the hands of the 1967-74 colonels’ regime, the policies have been galling. With the IMF and EU arguing over the country’s ability to reach tough fiscal targets when the current bailout expires in August next year, the demand for €3.6bn of more measures has left many in Syriza reeling. Without upfront legislation on the reforms, creditors say, they cannot conclude a compliance review on which the next tranche of bailout aid hangs.
“We had an agreement,” insisted Balaouras, looking despondently down at his desert boots. “We kept to our side of the deal, but the lenders haven’t kept to their side because now they are asking for more. We want the review to end. We want to go forward. This situation is in the interests of no one. But to get there we have to have an honourable compromise. Without that there will be a clash.”
It had been hoped that an agreement would be struck on Monday at what had been billed as a high-stakes meeting of euro area finance ministers. On Friday, EU officials announced that the deadline had been all but missed because there had been little convergence between the two sides.
With the Netherlands holding general elections next month, and France and Germany also heading to the polls in May and September, fears of the dispute becoming increasingly politicised have added to its complexity. Highlighting those concerns, the German chancellor, Angela Merkel, attempted to end the rift that has emerged between eurozone lenders and the IMF over the fund’s insistence that Greece can only begin to recover if its €320bn debt pile is reduced substantially.
In talks with Christine Lagarde, the Washington-based IMF’s managing director, Merkel agreed to discuss the issue during a further meeting between the two women to be held on Wednesday. The IMF has steadfastly refused to sign up to the latest bailout, arguing that Greek debt is not only unmanageable but on a trajectory to become explosive by 2030. Berlin, the biggest contributor of the €250bn Greece has so far received, says it will be unable to disburse further funds without the IMF on board.
The assumption is that the prime minister, Alexis Tsipras, will cave in, just as he did when the country came closest yet to leaving the euro at the height of the crisis in the summer of 2015. But the 41-year-old leader, like Syriza, has been pummelled in the polls. Persuading disaffected backbenchers to support more measures, and then selling them to a populace exhausted by repeated rounds of austerity, will be extremely difficult. Disappointment has increasingly given way to the death of hope – a sentiment reinforced by the realisation that Cyprus and other bailed-out countries, by contrast, are no longer under international supervision.
In his city centre office, the former finance minister Evangelos Venizelos pondered where Greece’s predicament was now. “[We are] at the same point we were several years ago,” he joked. “The only difference is that anti-European sentiment is growing. What was once a very friendly country towards Europe is becoming increasingly less so, and with that comes a lot of danger, a lot of risk.”
When historians look back they, too, may conclude that Greece has expended a great deal of energy not moving forward at all.
The arc of crisis that has swept the country – coursing like a cancer through its body politic, devastating its public health system, shattering lives – has been an exercise in the absurd. The feat of pulling off the greatest fiscal adjustment in modern times has spawned a slump longer and deeper than the Great Depression, with the Greek economy shrinking more than 25% since the crisis began.
Even if the latest impasse is broken and a deal is reached with creditors soon, few believe that in a country of weak governance and institutions it will be easy to enforce. Political turbulence will almost certainly beckon; the prospect of “Grexit” will grow.
“Grexit is the last thing we want, but we may arrive at a point of serious dilemmas,” said Venizelos. “Whatever deal is reached will be very difficult to implement, but that notwithstanding, it is not the memoranda [the bailout accords] that caused the crisis. The crisis was born in Greece long before.”
Like every crisis government before it, Tsipras’s administration is acutely aware that salvation will come only when Greece can return to the markets and raise funds. What happens in the weeks ahead could determine if that is likely to happen at all.
Back in Syntagma, Costopoulos the good-natured farmer ponders what lies ahead. Like every Greek, he stands to be deeply affected. “All I know is that we are all being pushed,” he said, searching for the right words. “Pushed in the direction of somewhere very explosive, somewhere we do not want to be.”
Tuesday, 14 February 2017
Sunday, 26 June 2016
The EU will treat Britain like Greece
Matthew Holehouse The Telegraph
I arrived in Brussels as the Daily Telegraph’s correspondent in early June, 2015. A fortnight later, Alexis Tsipras snubbed Brussels, and called a referendum on the third bailout that was designed to save the Eurozone from collapse.
The terms he was later given - €50bn of assets sold and a de facto control of economic policy surrendered - were so harsh they were later denounced as a "coup".
It taught me two things: that in the cause of its salvation the European Union can be profoundly flexible and exceptionally brutal, and that events can swiftly take a momentum that is hard to control.
Nothing of that experience gives me hope for the years that now await our country.
Britain is almost certainly out the European Union
As far as Brussels is concerned, Britain has left.
At home on Friday morning, Britons were dumbstruck, agog at the result, or chuffed at having taught Brussels a lesson.
We now see street protests to overturn the result, internet petitions, suggestions that the UK or Scottish Parliament could revoke it or somehow make it go away. Westminster is occupied by Labour coups and Tory successions. Few seem to believe we are going.
In Brussels, they have been ready to say goodbye for a long time. Britain had been half-way out the door for forty years. David Cameron had announced this referendum in January 2013. He had won an election on the back of it, and many expected him to lose it. He, and they, repeated many times that it was final and binding. Patience is exhausted.
On Friday there was grave sadness, but no panic. The timetable for the talks was announced days before the vote. Martin Schulz, the president of the Parliament, spoke at dawn; Donald Tusk, the president of the Council, delivered a statement at 07.40 GMT. The founding members' foreign ministers met on Saturday; sherpas for the 27 remaining states will meet today to sketch out the months ahead.
Leaders have demanded Article 50 is activated immediately, to create certainty. Realistically, Mr Cameron has until Christmas.
Scotland is ready to quit, and diplomats are quite open to welcoming them into the EU club.
The treaties say that all Britain’s rights and obligations must remain for two years once Article 50 is activated. But Lord Hill, Britain’s commissioner, quit yesterday, and Downing Street said it had no plans to replace him, and Jean-Claude Juncker told Ukip MEPs to pack their bags. Is the legal order fragmenting? What other clauses in the treaties - which protect British expats on the continent, among other things - will now be ignored without consequence?
Can it be halted?
The European Council has offered a narrow window, saying that Britain has not left until Article 50 is activated formally by the Prime Minister, “if it is indeed the intention of the British government.”
Mr Cameron has left it to his successor to activate it. Mrs Merkel is in no hurry. Senior EU sources say they can wait until Christmas, but prevarication would trash Britain's credit-worthiness.
There are two problems. Firstly, to not activate Article 50 would be a rejection of democracy on a scale that could only be described as a coup, and would poison British public life for generations.
Secondly, a wave of movements demanding referendums on the terms of membership, given a huge boost by Mr Cameron, is tearing across Europe – in France, Denmark, the Netherlands, Slovakia, Italy, Hungary. Marine Le Pen could well run rampant in French elections in the spring.
Leaders anticipated that Boris Johnson would pursue a 'vote leave for a better deal' strategy, and ruled it out from February, precisely to prevent this scenario.
Jean-Claude Juncker said on Friday: “The repercussions of the British referendum could quickly put a stop to such crass rabble-rousing, as it should soon become clear that the UK was better off inside the EU.” Britain simply has to go, on bad terms, pour encourager les autres.
Britain has very few friends
In European eyes, David Cameron has had a remarkably generous lot: already out the euro, ever closer union, justice and home affairs obligations and Schengen, he was offered an enhanced deal that confirmed the perks of membership with scant obligations.
Yet he attacked Brussels for years for domestic advantage. Mr Cameron campaigned hard against his appointment. Stories about Mr Juncker's alleged drinking and the war record of his father, a conscript in the Wehrmacht, emerged. Yet Juncker offered an olive branch by giving Jonathan Hill the financial services portfolio Mr Cameron craved, in order to preserve the City. He is profoundly angry.
In his brutal negotiation, Alexis Tsipras had a number of cards to play. There was the “solidarity” that EU states are obliged to show each other, the pity and guilt at the plight of the Greek people who had been punished through no fault of their own, and the €83 billion of German taxpayer cash in Greek banks that risked going up in smoke. Their referendum had been hasty, the question unclear, Mr Juncker said; Greeks made plain they wanted to remain Europeans.
No such goodwill exists for Britain, now an ex-member. Mr Johnson, the possible next prime minister, caused genuine and grave offence by likening the European project to the ambitions of Hitler. His declarations that Brexit will trigger events that unravel the entire project is, in effect, a declaration of war that must be met.
Recall how inflexible European leaders were during Mr Cameron’s attempted renegotiation, when he put a gun to their heads and threatened to leave unless they submitted to his demands. He has fired that gun in the air, and locked himself out the room. Britain’s only leverage is how much damage a messy Brexit would inflict on European economies.
Time is not on our side
Once Article 50 is activated, events will move frighteningly fast. It took Mr Cameron seven full months to secure his meagre renegotiation. He will have just two years to get an exit deal covering every facet of British life, and a trade deal that will do the least harm to the fragile, debt-laden economy.
The government is in disarray, the Labour party in meltdown, and the imminent exit of Scotland means it will be unclear with who or what, exactly, the EU is negotiating with. The French foreign minister yesterday implored Cameron to find a successor to take charge.
A ban issued from Downing Street on Brexit preparations – lest it boost the leave campaign – meant Britain’s most senior officials were permitted to “think” about a Brexit, but not allowed to write anything down.
Several take their guide from Flexcit, a book by a blogger Richard North that advocates a Norway-style deal as a half-way house under a “soft” exit. The crucial weeks ahead of polling day were spent in purdah, tending the garden.
The UK has next to no trade negotiators, and will need hundreds, to replicate the market access it currently has with 50 states around the world .
But the EU is ready. Talks in Jean-Claude Juncker’s in house think-tank began months ago. Foreign ministries have been preparing position papers. Lawyers are busy: Brussels has had 70 years of practice in writing treaties, signing trade talks, fixing accessions and bailouts, making and breaking nations.
We don't get to be Norway
The Leavers’ best hope – a Norway deal that means EEA status, retained rights for the City and immigration - is almost certainly off the table.
Britain has made clear it doesn’t want free movement – and so any deal on those grounds would be so impossibly fragile as to be a waste of time. Frankfurt and Paris would certainly like our banks. Mr Juncker is determined to undo Britain's attempt to create a multi-currency union, meaning clearing houses that trade in Euros and generate billions for the Exchequer will have to be domiciled in the Eurozone.
Leaders have made clear, before and after the vote, that Britain is not getting access to the single market.
“Out is out,” said Wolfgang Schaeuble, the German finance minister, some weeks ago.
“There will certainly be no cherry picking,” confirmed Mr Juncker, saying it will be a "clean" divorce.
More likely is a Canadian-style trade deal, that will set tariffs on imports and exports. That may be fine for German manufacturers. But Britain’s service economy will be cut up like an old car. British graduates are about to learn what it's like to use an Australian-style points system.
We do not control this process
Article 50 is designed so that it leaves any state that activates it is a supplicant.
The remaining EU states will negotiate between themselves and deal with the UK as one, just as they would for Albania or Turkey.
If a deal covering trade arrangements isn’t struck once the two-year period expires, Britain is simply released from the EU treaties and left on crippling WTO terms - something the Treasury terms a "severe shock scenario" and which it envisages would likely result in a cut in GDP of six per cent and increase unemployment by 800,000, not including the risks presented by emergency spending cuts, or the "tipping points" presented by the crystallisation of financial stability risks.
It means the government will effectively be forced to take any fait accompli presented at the last minute, or face ruin.
Even then, any further trade deal will require ratification by EU parliaments, meaning Belgian MPs, amongst others, can veto it.
The Leave campaign is fond of a quote attributed to Churchill: “Each time we have to choose between Europe and the open sea, we shall always choose the open sea.”
Oh, hear us when we cry to Thee, For those in peril on the sea.
Friday, 20 May 2016
Brexit may be the best answer to a dying eurozone
Larry Elliott in The Guardian
Staying in the EU means hitching ourselves to an undemocratic project run by and for a remote elite
The elephant in the room. Everybody knew what Mark Carney meant when he paused halfway through his regular three-monthly update on the state of the economy: the implications of Brexit.
The governor of the Bank of England did not pull any punches. He warned of a potential run on the pound and of possible problems financing the UK’s whopping balance of payments deficit. He said the Bank expected growth to be materially lower and inflation to be notably higher. Voters trust the Bank of England. They sat up and took notice. The opinion polls started to move in favour of remain. When the history of the referendum campaign is written, Carney’s may be seen as the decisive intervention.
In truth, there was more than one elephant in the room. Carney was right when he said there was a risk that the upheaval caused by Brexit could tip an already weakening economy into recession. But as elephants in the room go, this was the smaller, Indian version. The equivalent of the bigger, African elephant was the shocking state of the eurozone after the failure of the single currency experiment. This went unremarked by Carney, although it is relevant to the debate aboutEurope.
Why? Because, although Britain is likely to stay in the EU, Brexit will remain a live issue unless the eurozone can sort itself out. That means either admitting that the euro has been a terrible mistake, or going the whole hog and integrating further, with a single banking system, a Europe-wide treasury, and a democratically elected finance minister with the power to raise money in Germany and spend it in Greece. This is not going to happen any time soon, and perhaps never. Countries that joined the eurozone gave up a considerable amount of economic power when they adopted the euro, but they retained the right to raise their own taxes and make their own spending decisions.
Britain is not in the euro, for which we should all be thankful. But let’s be clear: staying in the EU means hitching the wagon to a currency zone unable to go forwards or backwards, and which will continue to struggle as a result.
The euro brought to fruition the idea of ever-closer union, a plan that dates back to the early 1950s. Lots of things considered good ideas back then are no longer considered quite so clever: system-built high-rise flats as the answer to slum housing; nuclear power to meet energy needs. Put ever-closer union in the same category as the Birmingham inner-city ring road: it seemed a good idea at the time.
Dan Atkinson and I spent the winter working on a book about the single currencycommissioned in the wake of last summer’s Greek crisis. The brief was to look at what had gone wrong from a left-of-centre perspective; to explore the widespread disquiet about the way in which a country that voted in January 2015 for an end to austerity ended up seven months later being forced to accept even deeper cuts in wages and spending.
The eurozone crisis is about more than Greece. It is about Italy, where the economy is barely any bigger now than it was when the single currency was introduced. And France, where unemployment is double the level of the UK or the US. And Finland, one of the most tech-savvy countries in Europe, where the economy is 7% smaller than it was before the start of the financial crisis. And even Germany, where an export boom and high corporate profits have been paid for by workers in the form of below-inflation pay increases.
Our investigations took us back to the last time Britain held a referendum on EU membership, when during the cabinet discussions Tony Benn warned that Britain was signing up for something that was undemocratic, deflationary and run in the interests of big business. “I can think of no body of men outside the Kremlin who have so much power without a shred of accountability for what they do,” Benn said.
Benn’s dystopian vision proved entirely accurate. When the architects of the new Europe looked to the future, they envisaged a new and better version of the United States of America. Europe would have all the good bits about the US – such as the economic dynamism, a large barrier-free market and a single currency – without any of the bad bits: the inequality, the high levels of incarceration, the poverty and the inadequate welfare safety net.
This dream lives on. Yanis Varoufakis, the deposed finance minister of Greece, thinks the eurozone could be recast along Keynesian lines, with the rich and strong countries obliged to provide financial help to the poor and weak. Good luck with getting Germany to agree to that.
Economic policy has been relentlessly deflationary. The interests of bankers have been given a higher priority than workers’. Greece, Ireland, Portugal, Cyprus and Spain have been the laboratory mice in a continent-wide neoliberal experiment of a sort Tea Party Republicans in the US can only fantasise about.
Given the obscene level of long-term unemployment, the idea of Europe as the guardian of labour rights is laughable. The gap between the US and Europe has widened, not narrowed, since the launch of the single currency. Populist parties of both left and right are gaining in support. One left-of-centre argument against Brexit is that it would result in the breakup of the euro and by doing so set off a chain reaction that would lead to the next global crisis: a perfectly fair point. Those who fear that another recession and even higher levels of joblessness would threaten a return to the totalitarian politics of the 1930s are right to highlight the risks. Some on the left who want Brexit say that the time is not yet ripe.
The left-of-centre case for divorce is that Europe doesn’t work, is not remotely progressive and is heading for an existential crisis anyway. Last year’s threat was Grexit. This year’s threat is Brexit. Next year’s threat will be something else: Italy leaving the single currency, perhaps, or Marine Le Pen’s tilt for the French presidency.
This presents an opportunity for those who believe that the way ahead still involves closer integration. Jean Monnet, the godfather of the EU, always said that ever-closer union would be forged through crises, which is what Brexit would undoubtedly trigger.
If the polls are right, Britain seems unready to trigger this act of creative destruction and it will be left to Varoufakis to do out of office what he could not do in power: prove a different Europe is possible.
A different Europe is needed, but it is stretching credibility to imagine that the Europe of Greece and the Transatlantic Trade and Investment Partnership can easily morph into America with the nice people in charge. The eurozone is economically moribund, persists with policies that have demonstrably failed, is indifferent to democracy, is run by and for a small, self-perpetuating elite, and is slowing dying. The wrong comparison is being made. This is not the US without the electric chair; it is the USSR without the gulag.
Staying in the EU means hitching ourselves to an undemocratic project run by and for a remote elite
Illustration by Ellie Foreman-Peck
The elephant in the room. Everybody knew what Mark Carney meant when he paused halfway through his regular three-monthly update on the state of the economy: the implications of Brexit.
The governor of the Bank of England did not pull any punches. He warned of a potential run on the pound and of possible problems financing the UK’s whopping balance of payments deficit. He said the Bank expected growth to be materially lower and inflation to be notably higher. Voters trust the Bank of England. They sat up and took notice. The opinion polls started to move in favour of remain. When the history of the referendum campaign is written, Carney’s may be seen as the decisive intervention.
In truth, there was more than one elephant in the room. Carney was right when he said there was a risk that the upheaval caused by Brexit could tip an already weakening economy into recession. But as elephants in the room go, this was the smaller, Indian version. The equivalent of the bigger, African elephant was the shocking state of the eurozone after the failure of the single currency experiment. This went unremarked by Carney, although it is relevant to the debate aboutEurope.
Why? Because, although Britain is likely to stay in the EU, Brexit will remain a live issue unless the eurozone can sort itself out. That means either admitting that the euro has been a terrible mistake, or going the whole hog and integrating further, with a single banking system, a Europe-wide treasury, and a democratically elected finance minister with the power to raise money in Germany and spend it in Greece. This is not going to happen any time soon, and perhaps never. Countries that joined the eurozone gave up a considerable amount of economic power when they adopted the euro, but they retained the right to raise their own taxes and make their own spending decisions.
Britain is not in the euro, for which we should all be thankful. But let’s be clear: staying in the EU means hitching the wagon to a currency zone unable to go forwards or backwards, and which will continue to struggle as a result.
The euro brought to fruition the idea of ever-closer union, a plan that dates back to the early 1950s. Lots of things considered good ideas back then are no longer considered quite so clever: system-built high-rise flats as the answer to slum housing; nuclear power to meet energy needs. Put ever-closer union in the same category as the Birmingham inner-city ring road: it seemed a good idea at the time.
Dan Atkinson and I spent the winter working on a book about the single currencycommissioned in the wake of last summer’s Greek crisis. The brief was to look at what had gone wrong from a left-of-centre perspective; to explore the widespread disquiet about the way in which a country that voted in January 2015 for an end to austerity ended up seven months later being forced to accept even deeper cuts in wages and spending.
The eurozone crisis is about more than Greece. It is about Italy, where the economy is barely any bigger now than it was when the single currency was introduced. And France, where unemployment is double the level of the UK or the US. And Finland, one of the most tech-savvy countries in Europe, where the economy is 7% smaller than it was before the start of the financial crisis. And even Germany, where an export boom and high corporate profits have been paid for by workers in the form of below-inflation pay increases.
Our investigations took us back to the last time Britain held a referendum on EU membership, when during the cabinet discussions Tony Benn warned that Britain was signing up for something that was undemocratic, deflationary and run in the interests of big business. “I can think of no body of men outside the Kremlin who have so much power without a shred of accountability for what they do,” Benn said.
Benn’s dystopian vision proved entirely accurate. When the architects of the new Europe looked to the future, they envisaged a new and better version of the United States of America. Europe would have all the good bits about the US – such as the economic dynamism, a large barrier-free market and a single currency – without any of the bad bits: the inequality, the high levels of incarceration, the poverty and the inadequate welfare safety net.
This dream lives on. Yanis Varoufakis, the deposed finance minister of Greece, thinks the eurozone could be recast along Keynesian lines, with the rich and strong countries obliged to provide financial help to the poor and weak. Good luck with getting Germany to agree to that.
Economic policy has been relentlessly deflationary. The interests of bankers have been given a higher priority than workers’. Greece, Ireland, Portugal, Cyprus and Spain have been the laboratory mice in a continent-wide neoliberal experiment of a sort Tea Party Republicans in the US can only fantasise about.
Given the obscene level of long-term unemployment, the idea of Europe as the guardian of labour rights is laughable. The gap between the US and Europe has widened, not narrowed, since the launch of the single currency. Populist parties of both left and right are gaining in support. One left-of-centre argument against Brexit is that it would result in the breakup of the euro and by doing so set off a chain reaction that would lead to the next global crisis: a perfectly fair point. Those who fear that another recession and even higher levels of joblessness would threaten a return to the totalitarian politics of the 1930s are right to highlight the risks. Some on the left who want Brexit say that the time is not yet ripe.
The left-of-centre case for divorce is that Europe doesn’t work, is not remotely progressive and is heading for an existential crisis anyway. Last year’s threat was Grexit. This year’s threat is Brexit. Next year’s threat will be something else: Italy leaving the single currency, perhaps, or Marine Le Pen’s tilt for the French presidency.
This presents an opportunity for those who believe that the way ahead still involves closer integration. Jean Monnet, the godfather of the EU, always said that ever-closer union would be forged through crises, which is what Brexit would undoubtedly trigger.
If the polls are right, Britain seems unready to trigger this act of creative destruction and it will be left to Varoufakis to do out of office what he could not do in power: prove a different Europe is possible.
A different Europe is needed, but it is stretching credibility to imagine that the Europe of Greece and the Transatlantic Trade and Investment Partnership can easily morph into America with the nice people in charge. The eurozone is economically moribund, persists with policies that have demonstrably failed, is indifferent to democracy, is run by and for a small, self-perpetuating elite, and is slowing dying. The wrong comparison is being made. This is not the US without the electric chair; it is the USSR without the gulag.
Sunday, 10 April 2016
Interview with Yanis Varoufakis
Courtesy The Economist
Greece’s former finance minister talks Greece, Europe, the Labour Party and the future of social democracy
YANIS VAROUFAKIS is a Greek economist who served as finance minister in his country's Syriza government from January to September last year. After this approved the third bailout package, which he described as a surrender, he declined to stand in fresh elections and set about founding DiEM25, an international "movement" committed to overhauling the European Union's institutions and agenda. Recently he gave a wide-ranging interview to The Economist at his flat in Athens. This concentrated primarily on the poor state of social democratic parties across the continent (the subject of a briefing in this week’s issue) but also ranged across events in Greece last year, DiEM25 and politics in Spain, Germany and Britain, where it was recently revealed that he is advising Jeremy Corbyn, the Labour Party leader.
The Economist: We’ve gone through a crisis in which the limitations of untrammelled capitalism were made clear. Back in 2008-09 the social democrats thought they were living through a social democratic moment. But here we are a few years later and they have tanked. What’s your explanation for that?
Yanis Varoufakis: A few years ago I was invited to Vienna to address the Kreisky Forum [a social democratic Austrian think-tank]. That’s where I first articulated what I am going to tell you now. Social democracy is the result of the split of the Second International, between the traditional Marxist-Communist line that capitalism could not be civilised and the social democratic path of proposing change through the ballot box and some accommodation—the mixed economy. When I was a young man the dominant theme was pretty social democratic (even the Tories had accepted it). It was the idea of a mixed economy, i.e. that certain areas of the economy need to be left to the market and others that have to be dominated by the state. Behind that was this notion that started in Germany with Kautsky and the social democratic tradition that began in the 1910s, -20s, -30s with the SPD, which spread out and influenced the Labour Party and so forth. The main idea was that yes, there is class conflict, there is a tug of war between profit and the wage bill, but the role of the state is to regulate this, to forge a social contract, to press capital to deliver part of its return to the state so the state can provide the welfare net and some redistribution of profits towards wages. That was the social democratic project. During the Bretton Woods era, the post-1950 period, it was put in practice. It was dominant. You had the government mediating between trades unions and employers (primarily the industrial sector) to effect this transfer, and to convince industrialists to give up a percentage of their profits to the state to fund welfare institutions. Harold Wilson did it in Britain. Willy Brandt did it in Germany. Bruno Kreisky did it in Austria.
That was the electoral high point as well. That is what social democracy was about. But then Bretton Woods died in the 1970s and all hell broke loose. My next book will be about that (it’s out in April). And we entered the era of financialisation. How it came about is a long story. It has to do with American global dominance. But for the purposes of our conversation what matters is financialisation. The most potent moment in this phenomenon was the shift from options to sell to options to buy. This transition was critical. You have an option to sell as an insurance when you are buying. If you buy shares, you buy an option to sell at a minimum price; you’re hedging in case the share you purchased tanks.
But an option to buy is speculation?
Yes. So by moving from one to the other we licensed the financial sector to print its own money. And to make a great deal of profit on the upside. It was at that point that various social democratic parties cottoned on to this. Put simply, being the prime minister in Britain—Callaghan, or Blair later, or Schröder in Germany—and constantly having to fight with industrialists to keep taxing them more, being badmouthed by them, by the press they influence, is not pleasant. Much easier to say: “OK, stuff that. I’m going to have a Faustian bargain with the bankers, with the financial sector. I will turn a blind eye to your shenanigans and you will give me a cut.”
That bargain was struck out of electoral necessity.
No. It was the path of least resistance. It was much easier to do that than to continue mediating between industrial capital and labour… OK, you are right in a sense: the industrial sector was suffering in places like Britain. So there was not much you could squeeze out of it. In Germany it wasn’t declining but it was still easier to turn a blind eye to what Deutsche Bank does and fund, through its super-profits (paper profits but nonetheless profits) part of the expansion of the social welfare system in Germany, than to keep pressing Siemens for greater transfers to the state and to wages.
Well the Third Way was all about redistribution instead of fiddling with wage levels and profit levels.
Redistribution on the basis of what? On the basis of taxing the City. If you depend on tax from the City you cannot at the same time regulate the City. This is why I call it a Faustian bargain. You turn a blind eye to everything they were doing and then finance the NHS from a cut of this pyramidic pseudo-value production. The moment social democrats stopped playing the role of mediators between capital and labour, the moment they turned their back on the class struggle (which social democracy always accepted but tried to regulate) it was the end for social democracy. Because all it took was the 2008 implosion and suddenly, the same people that they were in bed with had all gone bankrupt.
So you’re saying the Third Way sowed the seeds of the current crisis of social democracy.
The Third Way everywhere, not just Labour. And when those same bankers that (instead of industrial profits) were bankrolling the welfare state picked up the phone and said to Schröder, or to Blair or to Brown or whoever, “we need a few hundred billion or there will be no functioning ATMs tomorrow”, at that point the social democrats in power lacked both the analytical power to understand what was going on and the moral courage to oppose their bid to be bailed out along with their institutions. Their analytical power was “blown” the moment they bought all the rubbish about riskless risk and all that. Thus, when 2008 happened, they had no idea how that had happened. They had believed the rhetoric about boom and bust having been ended. And they lacked the moral authority to say to the bankers: “Sorry, you’re out. We’re salvaging the banks but not you.”
When you study the decline in support for social democrats across Europe, you notice the remarkable uniformity of that trend in a continent that still contains myriad sorts of capitalism ranging from the Nordic model to southern Europe. Why is that the case?
That’s financialisation for you.
It transcended borders?
It penetrated everything. It was like a colony of termites that had eaten the foundations from within.
So it undermined that social democratic formula.
Yes, for example the social democratic model in Sweden was severely bruised after the banks there had gone crazy as well.
1994.
Yes. In 1992-93 the Swedes, the Finns, dealt very well with the banking collapse. But then once they privatised them again, they set them free of proper regulation. And the wall of money that was coming from Wall Street, which was all being manufactured in the financialisation machine, was so large that these people had no resistance. The bankers themselves didn’t even know what was going on.
At the time of the crisis?
No, before the crisis. Between 1993 and 2007. They had no idea. They just knew that all the other bankers around the world were making all this dough. And if they couldn’t show similar returns they were goners, their shareholders would have got rid of them. So they started mimicking. And I don’t believe they even knew what they were buying.
The Swedes?
The Swedes, Deutsche Bank, Societé Générale… I don’t think they understood what they were doing. Because they were not creating the stuff, they were just buying it. The people at Goldman Sachs always knew what they were doing, because they were manufacturing it. Their European “clients” did not have a clue.
Weren’t the ratings agencies the ones that were really in the dark?
It’s one thing to be in the dark. It’s another to have your salary depend on you being in the dark.
Let me play devil’s advocate. The case for Blair, Schröder, even Persson in Sweden was: the right is in power in a way it has not been before (in Britain and Germany it had been almost hegemonic), we are in despair, the working class is fragmenting and the electorate is evolving in a more consumerist, more market-liberal direction. The party has to move with that. Notwithstanding what has happened since, is there any part of you that sympathises with that impetus in the 1990s to make what you call this “Faustian pact”?
Look, I sympathise with Faust when I read Goethe, or even Marlowe for that matter. I completely sympathise with Faust. Don’t you? It’s a very compelling story. You can see things from his perspective. You can see why he was lured. So yes, I do. But this does not change anything: Faust erred badly.
I can see you there, in Auerbach’s Cellar, cheering Faust on.
[Laughs] Look, take the Labour Party in Britain. And that’s self-criticism too because I was part of the demonstrations from 1978 to 1988. We were defending a model that was finished. We were defending coal-powered electricity generation. That wasn’t going to end well. Of course, that is not to say it was right to jettison hundreds of thousands of people—whole communities—without any period of transition to some other model. But we were fighting a losing battle. You have a point. People like Blair saw this. In that sense: yes, to that extent I’m sympathetic. Where I’m not sympathetic is where they lost sight of capitalism. The Left is supposed to be critical of capitalism. If it isn’t critical of capitalism it has no reason to exist. Why not be a Tory, a compassionate one-nation Tory, if you have no problem with capitalism? So they lost the capacity to be critical of capitalism. And being critical of capitalism does not mean saying that capitalism is a bad thing. Being critical of capitalism means being critical in the Marxist sense of looking at it as a system that produces crises and knowing that the greater the growth rate, the harder the fall around the corner. They had a duty to maintain this critical attitude towards capitalism while at the same time doing as you said: trying to find ways of escaping the defeatism of the Left, of embracing what Thatcher offered people. It’s against my aesthetic, but Thatcher offered them a vision of new vistas of pleasure and commercial endeavour. That we should take account of. You can’t say to people: it’s wrong to aspire to buying a new car, a new television set, a new computer or whatever. So yes, you should go along with this. But not lose sight of the fact that growth cannot be consistently fuelled by the proliferation of these financial products. It cannot be consistently fuelled by selling off council houses, by selling British Gas shares for a pittance to ensure that those who take the shares experience a 100% return the next day. At some point you “run out of other people’s money.”
Indeed… [Laughs]
[Laughs] Well, that’s also a criticism of liberalism, of neoliberalism.
To return to your point about that traditional social democratic demeanour towards capitalism, towards profit. Is it possible for that basic principle, in whatever evolved form, to coexist with globalisation?
That’s the trillion dollar question, isn’t it? Globalisation is not an exogenous force. It is not something that comes from Mars. It is what we allowed to happen on planet Earth. And in the same way that social democratic forces shaped the global financial system under Bretton Woods, they had a historic duty to shape what followed Bretton Woods, once Bretton Woods collapsed. But they didn't do that. They simply lost sight, firstly of the global financial system. They were far more interested in: “What can we do today to win the next election here?” Whereas the forces of neoliberalism had a global, almost Marxist perspective, an internationalist perspective which used to be typical of the Left.
A dialectical one!
A dialectical one. So no, I am not letting us off the hook by saying: “Oh, this was inevitable."
When you say “us”, you mean the Left?
The Left, broadly defined. From Blair to anarchists. Syriza and Greece
Turning to the Greek situation, to what extent can we say that Syriza has moved into that space vacated by the collapse of Pasok?
Completely.
Really?
Of course. [Laughs]
Were you surprised by that?
No. I wasn’t surprised. I was impressed but not surprised.
Impressed in what sense?
Impressed that what I was predicting happened. Often what I predict doesn’t happen. [Both laugh] What I find interesting, from the Greek perspective was not so much the January [2015] election that brought us to power. That was expected. PASOK had been so totally delegitimised. I joined PASOK as a very young person in 1974-5, when it was first inaugurated by Andreas Papandreou. It was a very radical party. Papandreou’s thinking back then was very impressive.
Really? You helped put his party out of business.
You’ve got to remember that Papandreou [senior] was an excellent mathematical economist. He was head of the department at Berkeley University (not to be scoffed at). He mathematised economics with Kenneth Arrow and others in the 1950s. He wasn’t radical back then. He became radical because of the Greek experience here, seeing how the CIA was manipulating politics here. Now, in the early 1970s he brought to Greece a very interesting mixture of good quality economic thinking—Nobel-prize winning levels of economic thinking—with an anti-colonial mentality. A kind of Gandhi narrative against Empire, where Greece was also part of the colonial periphery of the Empire.
A forerunner of the Latin American “pink wave” in some respects.
Yes, indeed. So many of us had joined PASOK back then, on that basis. It was a clean party, because it was new and it wasn’t corrupt. And then it became exactly the opposite. It became completely “establishment”, dirty, and subservient to the colonial logic of the Troika. So it was only a matter of time before the people who had joined it—people like my parents, for example, who joined it with enthusiasm—would abandon it for something like Syriza which was reclaiming the ground that PASOK had forfeited.
You’re talking about the post-crisis period.
Between 2011 and 2015. When the party went from 4% to 40%. A magnificent rise. And now it’s going to go back down to 4%, the way it’s going.
You think?
Oh yes. There’s no doubt about that.
It’s behind New Democracy, but…
It will collapse. It’s a new PASOK. And it’s going down that way. I don’t know what will replace it but it has no future. The referendum [on the EU bailout offer in July 2015] was unique in Greek history, and in European history. Why? I’m not going to go into the issues, but will only refer to the social-class composition of the vote. Usually the working class is divided between conservatives, social democrats, communists and so on. So you have working-class Tories, social-democratic working class people and you have the Left. The 62% No vote at the referendum consisted of the under-privileged Greeks across party lines. Poor Greeks that may normally vote for New Democracy voted No. And a considerable number of bourgeois leftists, with money in the closed banks, voted Yes. This is something impossible to fathom if you don’t live here. I noticed that some of my MPs who were quite well to do voted Yes. And New Democracy supporters who have nothing to lose voted No. The working-class New Democracy voters did not go with their leadership. And well to-do, bourgeois Syriza voters voted Yes.
Is that so unexpected? Those who have less to lose are more radical.
Sure, it all boils down to: do you have money in the bank? If you have a lot and you think that No means you will never get it out, you vote for Yes. But I wasn’t expecting such an alignment around self-interest. Because it doesn’t happen nowadays.
It’s Thatcherism in reverse. Thatcher’s priority was to give people capital—the “property owning democracy”—to give them a stake in the status quo.
Maybe it’s exactly the same. But it wasn’t capital, it was bank deposits. I was just struck by that: that there were Syriza supporters who live near here, in very nice penthouses, who voted Yes.
But presumably in Piraeus the Syriza supporters backed No.
Absolutely. Actually the No side won every constituency in Greece; the first time that there was such uniformity.
That begs the question: isn’t Syriza’s fate the fate of every party that tries to bend the rules of globalisation?
Oh no, that’s not why Syriza is collapsing. The reason why Syriza is collapsing is because it has been co-opted to an unworkable fiscal policy. Greece went bankrupt in 2010 and we have had a “pretend and extend” programme since then. So it is just like a company that has totally failed and is given another loan by a banker who feels that if he declares the bankruptcy his books will be in trouble, so keeps extending loans and pretends that the loan is performing. That’s Greece, with our creditors (the infamous Troika) in the role of rogue banker. Any government that adopts this stance and is co-opted in this project fails and disappears from the political map. And this is what it is. It has nothing to do with globalisation. It is Europe remaining in denial about the bankruptcy of the Greek state and the inability of the Eurozone to function according to rules that were not up to standard.
What would a different path have looked like?
Well, what we tried to do. To say this: we’re not playing games, this is what we are proposing. It’s very moderate and we are open to discussing the details. The basis of our position is that we will not have any more fiscal deficits but our primary surplus will be modest, at around 1%. Forget the surplus targets of 3.5% and 4.5% of GDP. These are simply impossible. And if you declare that this is your target nobody will invest in this country because they interpret such targets as a signal that you’re going to tax them through the nose. The problem in Greece is investment. The only way to recover is investment and everything beyond a 1% primary surplus target is inconsistent with recovery. So we’re not going to sign on the dotted line any agreement which involves 3-3.5% primary surpluses. It’s very simple. And in order to make our debt sustainable with only 1% we want a debt restructure that is based on simple financial engineering, no haircuts or anything like that are necessary. We even told them what needs to be done in a way which Wall Street functionaries understand and with which they agree. And then let’s come to an agreement on the question of reforms. Instead of hitting small-time pharmacists and pensioners, let’s hit the oligarchy, where we really need reform. So that is what I went to Brussels with: “This is it. Take it or leave it. If you want to crush us, crush us.”
But you are saying it wasn’t Brussels, it was choices made by legislators and leaders in Athens.
No, that was 2010. We were elected in 2015. We could have changed all that. We could have gone—and I did go—to the Eurogroup and said just that: “Help us reform Greece, but to reform Greece we need to stop the debt-deflationary cycle. And to stop that we need targets which are reachable, credible and which do not deter investment. Within that everything is negotiable.” But they didn’t want that. They didn’t even want to consider this possibility. Because, for them, the recovery of Greece was not the issue. The issue was not to give a signal to the Spanish, the Irish, the Portuguese that a government can be elected which goes to them with ideas of its own. My idea was to stand our ground and make it public that we were flexible and reasonable. (This is not a left-wing agenda, this is what any sensible policy-maker would recommend and was not far from what the IMF was saying; there were moments when the IMF was saying things more radical than me, but then for political reasons [Christine] Lagarde, to maintain her relations with Schäuble, went back on it.) You want to throw us out of the euro zone? Do it. I’m not leaving the euro zone. You throw me out. You have no way of doing it, except by violating the rules of the EU. Good. Be my guest. That was what I was elected to say. That was why I was so desperately disliked in Brussels. But if we had done that and stood our ground, that would have had a €1 trillion cost. I don’t believe Draghi would have been able to keep things calm; not only because €1 trillion is a lot of money but because his QE would have been wrecked. Because if we had restructured the €27 billion that we owed the ECB, Jens Weidmann [the President of the Bundesbank] would have attacked him on the basis of: “See, you purchase government paper? A chunk of it defaulted or was restructured. And therefore you have violated the charter of the ECB which prohibits any public debt financing.” This is why I stand convinced that Draghi would have never done this, if we remained resolute.
Because they would have had to pull QE?
Yes, and the Euro would be finished. So I think we had good leverage. But I was not allowed to use it.
That brings me back to my point: that the fault lies with those in your former party, in Athens.
Not even my party. Just three or four people in the inner cabinet.
What motives possessed them?
Really, I don’t know. I dislike interpreting other people’s motives. I had not seen it coming. If I had I would not have entered government. I watched it happen in front of me. The banal explanation is fear and a relative ignorance of basic economics. There were some people there who thought, like the previous government: “we can go to a 3.5% primary surplus; it’s not going to kill us if we grant this, that and the other.” If this was their genuine thinking, they were badly mistaken. You announce that silly surplus target, investment doesn’t happen and then you’re dead in the water. As we are now.
On Spain
You have links with Podemos in Spain. They are saying no to government options with PSOE and Ciudadanos. Do you think that’s the right move?
Yes. Look, government is a chore. And all good people should see office as a chore. If you crave to be in office, you are dangerous. We should all be reluctant ministers. So why should you do it? You should do it only if you think you can change something for the better. If, even before you enter the ministry, you have to accept policies you know don’t work, what is the point? And also, it is a terrible thing for democracy. Imagine if Pablo Iglesias [the leader of Podemos] entered office tomorrow and implemented the same policies as before. Why was there a change of government? Why did the people make the courageous choice of jettisoning the previous government? If people change governments but policy remains the same, and is equally ineffective, this undermines the democratic process.
On Germany
Is that a problem more broadly? Is it the case that the SPD in Germany is just too indistinguishable from the CDU?
The SPD, under its current leadership, is much worse than the CDU. Much worse. I’d much rather deal with Merkel and Schäuble than the SPD’s leaders.
They have been quite obstructive on the migrant question.
They have been appalling. I grew up in awe of the SPD, because we lived in a dictatorship here in Greece and Willy Brandt was a great supporter of Greek democrats. The SPD showed immense leadership. For me, the SPD is part of my milieu. When I saw them and I met the dearth of honesty, the lack of ideas, the 19th century shenanigans that they were engaged in…
19th century in what way?
(19th century as in power relations rather than political relations.) …their manipulation, their twisting of what you said. Whereas with Schäuble, compared with my dealings with the SPD, I knew what I was dealing with. And I also had interesting conversations with him. I could not have had an interesting conversation with [Sigmar] Gabriel. So you can see the decrepitude of the social democratic tradition. They are the least interesting, the least innovative, the least sincere of the whole political spectrum.
Why?
They sold themselves to Mephisto, and then at some point even he didn’t care for them.
It seems astonishing that a political family with such an heritage, with so many clever people on board, could accept its defeat.
Yes. But there is something else which went along with that. The same process of financialisation that depleted the analytical and moral authority of the social democrats was precisely the process that diminished the value of political goods more generally and turned talented people away from politics.
Because you could achieve less from a position of power.
Yes. If Harold Wilson was an 18-year-old today, he probably wouldn’t want to go into politics. If Willy Brandt was an 18-year-old today, he wouldn’t want to go into politics. And this is why politicians aren’t what they used to be. It’s not because our DNA is degenerating. It’s that there is a natural Darwinian process, a natural selection process. Politics attracts the least well-meaning and least talented people because the political sphere has been devalued.
On the Labour Party
It has been in the news that you are helping the Labour Party. What can you say about what you are working on with them? Or is it under the hat?
It isn’t under the hat. I believe in full transparency! I have had a number of conversations with them and I think it is fair to say my engagement with the Labour Party concentrates on two issues. Firstly investment. And secondly Brexit. Now, my view—not just about Britain but about the whole of Europe—is that investment is the key. We have a major discrepancy between savings and investment.
Especially in Britain.
Even in Germany. Germany has the lowest level of investment since 1945. This is absurd, given that they have negative interest rates. It actually reveals the depth of the deflationary spiral in which we are. Same in Britain, France, Spain. Here [in Greece] we have negative investment, and we don’t have negative savings so the excess of savings over investment is proportionately huge. So my advice to the Labour Party is: don’t focus on austerity. Austerity is the symptom. What matters is the low level of investment. And if the Labour Party is going to push ahead and escape this constant bickering between Blairites and Corbynistas, escape the trap set up for it by the toxic right-wing press, escape the attempt by the BBC to play on the divisions within the Labour Party, my message to them is: you have to do what Harold Wilson did in the 1960s, which is to recast the Labour Party as the political force behind renewal through investment in modern technologies. Back then it was the “white head of technology”. Now it should be the “cool breeze of sustainable technology”. And this should be the mantra. Because if that investment happens, the whole austerity debate becomes secondary. At the moment Osborne is caught in a trap of his own making. With every week that goes by the rising PSBR [public sector borrowing requirement] is a problem because the tax take is always lower due to greater cuts. And he has nothing to say about that. Labour should say something about that. And it shouldn’t simply say to the Brits: we will tax and spend more. Because this doesn’t wash. You’ve got to talk about how to crowd in private investment through a public investment bank which operates like the European Investment Bank, like the World Bank; that is, at arm’s length from government and whose purpose is not to tax in order to spend, but to issue bonds that are assisted through QE (I had a piece in The Economist about this some time ago, about how QE could be utilised to keep the yields of a public investment bank low) in order to mop up savings and hand them over to private sector firms; to start ups, this that and the other. So this is one thing I’m discussing with Labour: investment. No-one can accuse me of being an austerian. But I say: “austerity is a boring issue, don’t keep telling people you are anti-austerity”.
On Brexit
It really killed them in the last parliament, even though they weren’t that anti-austerity.
The first one [happened] on March 21st to 23rd in Rome, on transparency. The second one will be in Barcelona on the EU constitution and the process we are proposing. There will be an event in London on sovereignty. But primarily we will stage six large “assemblies”, beginning with transparency, then moving onto investment, migration, currency, monetary policies and so on. It will take 18-24 months for all six to convene. These are our markers in the calendar and before each Assembly —this is our ambition—there will be hundreds of small town hall meetings in the run-up to each. The purpose is to produce a white paper for each one of these six pivotal issues. If that works, and we have this sequence of town hall meetings culminating in large Assemblies where a substantial policy paper is approved, then within 18-24 months we will have a fully fledged Programme for Europe, a European Agenda. This is the conversation we want to have and the consensus we want to come up with. And if we do that, and if this consensus is interesting, then this consensus will find a way of expressing itself.
Will you be working with political parties?
We are already doing so. But we do not co-opt political parties. We do not say: the Labour Party is part of DiEM25. Anybody from the Labour Party who wants to be part of this process can come and have this conversation, without co-opting the whole party. Because there are people in the Labour Party that are not even Europeanists. Same with Die Linke. Die Linke is split between those who are with us and those who want return to the Deutschmark, for instance.
And the idea is that this programme will provide a touchstone for campaigners and politicians?
We don’t know yet. My hope is that this consensus is powerful enough and revitalises the conversation in Europe, then it could even find electoral expression and could even stand for European Parliament or local government elections or in association with parties that adopt this programme, this consensus. But this is completely open-ended. As Brian Eno said in Berlin: “Start cooking, recipe to follow!”
You have some big names on board. Zizek?
Zizek is a great supporter, indeed an active DiEM25 member. In Berlin we had a video message from Zizek rather than Zizek himself. As Eno said, it was the shortest speech he had ever heard Slavoj give!
On the future of social democracy
Returning to where we started, do you think social democracy has a future? Has it run its course? Or is it just that “social democrats” by name have run their course.
The truth is, I don’t know. “Social democracy” as a label is finished, because it has been tainted. Just like “communist”. Communism died in 1991 because it was associated with a particular manifestation which killed off an original idea, from back in 1848, that I think was good. Similarly “social democracy” has been too tainted as a term. But I also do believe that social democracy is very 20th century. Now, what we are facing is a major technological upheaval within global capitalism, in which the old-fashioned way of thinking about capital and labour and their tussle - which is central to social democracy, or ought to be if it is to be revived - is becoming disrupted, as they say, by the third or fourth machine age. Very soon we are going to have to be thinking in different terms. And as Gramsci used to say, “the old is dying but the new is struggling to be born.”
We’re in an “interregnum”, then?
Yes. Which is always a very dangerous period.
Of course we do not know exactly what the impetus for government and politicians will be in the coming years but what do you think this shift means for how the compassionate state should look in 50 to 100 years?
Look, it’s not a question so much of “compassionate” as one of a state capable of regulating social conflicts. Because that is what the state always did, beginning with Magna Carta. It was all about regulating conflicts between the barons and the King and the merchants and the trades unions and so forth. Today we are facing a serious danger of large masses of people who have low economic value. This is a powder keg in the foundations of society. Making sure that the great wealth-creation which capital is capable of does not light this dynamite—the basic income approach—is absolutely essential, but it is not part of the social democratic tradition. Think about it. The post-war consensus was all about national insurance, it was not about basic income. Now, either we are going to have a basic income that regulates this new society of ours, or we are going to have very substantial social conflicts that get far worse with xenophobia and refugees and migration and so forth. But I do not think that social democracy has the analytical skills to come to terms with this. Even Keynes…
He was a liberal.
The working class was one lump for him, and consumption was one thing. Now we have gradations, different qualities, lots of conflicts and possibilities that emanate from this multi-layered, multi-dimensional evolution of the old categories. And I don’t think social democracy is up to this. I don’t know what is.
It used to be a lot easier to pull together a sufficiently large coalition of voters to win an election, when you had clear class distinctions. You could add one to one and make two quite easily, whereas now the arithmetic has got a lot more complicated. The question is: what sort of political force has the right “glue” to build a coalition on the scale needed?
I am still under the influence of last year, when we had a 75% approval rating. So I cannot agree it is impossible. We didn’t put out a very radical package. Hope is what is in deficit. Britain, the British public, has no hope. When they voted for Cameron last year it was not hopefully. It was reluctantly and because they did not like Ed [Miliband] and they did not trust the Labour Party. Now they will vote to stay in Europe out of fear, not out of hope. So what do we need to do to capture hope? That is the issue. In the 50s and 60s the dream of shared prosperity was that which gave hope. Even the Tories latched onto it: Ted Heath, the one nation Tories and so on. So I think the basic income approach is capable of doing this as long as (and this is what I emphasise when I talk to the Corbynistas) you can explain to them where the money will come from, that it will not be simply debt, that we are going to generate a lot more income and a chunk of it is going to fund this. But we, the Left, must not be fearful. I gave a talk some time ago in the United States and said: yes, surfers in California must be fed by the rest of us. We may not like that, we may feel they are bums, but they deserve a basic income too.
[Laughs]
OK, they don’t “deserve”, but they should have a basic income, because this is the way to stabilise society. But you need politicians that are capable of going out there and saying: “You see that lazy bum over there that you hate? We should feed him. And we should make sure he has a house. Because if he does not have a house and he gets sick and so on, he is a greater burden for all of us. And if there are lots of them and technological innovation produces a lot more of them, that would be macro-economically unsustainable. Those of us who want to work—because we enjoy it and have the opportunity—have the technology to produce so much wealth that we can feed the surfers.” But who says that?
That can be your slogan: “feed the surfers”. Yanis Varoufakis, thank you.
Thank you.
YANIS VAROUFAKIS is a Greek economist who served as finance minister in his country's Syriza government from January to September last year. After this approved the third bailout package, which he described as a surrender, he declined to stand in fresh elections and set about founding DiEM25, an international "movement" committed to overhauling the European Union's institutions and agenda. Recently he gave a wide-ranging interview to The Economist at his flat in Athens. This concentrated primarily on the poor state of social democratic parties across the continent (the subject of a briefing in this week’s issue) but also ranged across events in Greece last year, DiEM25 and politics in Spain, Germany and Britain, where it was recently revealed that he is advising Jeremy Corbyn, the Labour Party leader.
The Economist: We’ve gone through a crisis in which the limitations of untrammelled capitalism were made clear. Back in 2008-09 the social democrats thought they were living through a social democratic moment. But here we are a few years later and they have tanked. What’s your explanation for that?
Yanis Varoufakis: A few years ago I was invited to Vienna to address the Kreisky Forum [a social democratic Austrian think-tank]. That’s where I first articulated what I am going to tell you now. Social democracy is the result of the split of the Second International, between the traditional Marxist-Communist line that capitalism could not be civilised and the social democratic path of proposing change through the ballot box and some accommodation—the mixed economy. When I was a young man the dominant theme was pretty social democratic (even the Tories had accepted it). It was the idea of a mixed economy, i.e. that certain areas of the economy need to be left to the market and others that have to be dominated by the state. Behind that was this notion that started in Germany with Kautsky and the social democratic tradition that began in the 1910s, -20s, -30s with the SPD, which spread out and influenced the Labour Party and so forth. The main idea was that yes, there is class conflict, there is a tug of war between profit and the wage bill, but the role of the state is to regulate this, to forge a social contract, to press capital to deliver part of its return to the state so the state can provide the welfare net and some redistribution of profits towards wages. That was the social democratic project. During the Bretton Woods era, the post-1950 period, it was put in practice. It was dominant. You had the government mediating between trades unions and employers (primarily the industrial sector) to effect this transfer, and to convince industrialists to give up a percentage of their profits to the state to fund welfare institutions. Harold Wilson did it in Britain. Willy Brandt did it in Germany. Bruno Kreisky did it in Austria.
That was the electoral high point as well. That is what social democracy was about. But then Bretton Woods died in the 1970s and all hell broke loose. My next book will be about that (it’s out in April). And we entered the era of financialisation. How it came about is a long story. It has to do with American global dominance. But for the purposes of our conversation what matters is financialisation. The most potent moment in this phenomenon was the shift from options to sell to options to buy. This transition was critical. You have an option to sell as an insurance when you are buying. If you buy shares, you buy an option to sell at a minimum price; you’re hedging in case the share you purchased tanks.
But an option to buy is speculation?
Yes. So by moving from one to the other we licensed the financial sector to print its own money. And to make a great deal of profit on the upside. It was at that point that various social democratic parties cottoned on to this. Put simply, being the prime minister in Britain—Callaghan, or Blair later, or Schröder in Germany—and constantly having to fight with industrialists to keep taxing them more, being badmouthed by them, by the press they influence, is not pleasant. Much easier to say: “OK, stuff that. I’m going to have a Faustian bargain with the bankers, with the financial sector. I will turn a blind eye to your shenanigans and you will give me a cut.”
That bargain was struck out of electoral necessity.
No. It was the path of least resistance. It was much easier to do that than to continue mediating between industrial capital and labour… OK, you are right in a sense: the industrial sector was suffering in places like Britain. So there was not much you could squeeze out of it. In Germany it wasn’t declining but it was still easier to turn a blind eye to what Deutsche Bank does and fund, through its super-profits (paper profits but nonetheless profits) part of the expansion of the social welfare system in Germany, than to keep pressing Siemens for greater transfers to the state and to wages.
Well the Third Way was all about redistribution instead of fiddling with wage levels and profit levels.
Redistribution on the basis of what? On the basis of taxing the City. If you depend on tax from the City you cannot at the same time regulate the City. This is why I call it a Faustian bargain. You turn a blind eye to everything they were doing and then finance the NHS from a cut of this pyramidic pseudo-value production. The moment social democrats stopped playing the role of mediators between capital and labour, the moment they turned their back on the class struggle (which social democracy always accepted but tried to regulate) it was the end for social democracy. Because all it took was the 2008 implosion and suddenly, the same people that they were in bed with had all gone bankrupt.
So you’re saying the Third Way sowed the seeds of the current crisis of social democracy.
The Third Way everywhere, not just Labour. And when those same bankers that (instead of industrial profits) were bankrolling the welfare state picked up the phone and said to Schröder, or to Blair or to Brown or whoever, “we need a few hundred billion or there will be no functioning ATMs tomorrow”, at that point the social democrats in power lacked both the analytical power to understand what was going on and the moral courage to oppose their bid to be bailed out along with their institutions. Their analytical power was “blown” the moment they bought all the rubbish about riskless risk and all that. Thus, when 2008 happened, they had no idea how that had happened. They had believed the rhetoric about boom and bust having been ended. And they lacked the moral authority to say to the bankers: “Sorry, you’re out. We’re salvaging the banks but not you.”
When you study the decline in support for social democrats across Europe, you notice the remarkable uniformity of that trend in a continent that still contains myriad sorts of capitalism ranging from the Nordic model to southern Europe. Why is that the case?
That’s financialisation for you.
It transcended borders?
It penetrated everything. It was like a colony of termites that had eaten the foundations from within.
So it undermined that social democratic formula.
Yes, for example the social democratic model in Sweden was severely bruised after the banks there had gone crazy as well.
1994.
Yes. In 1992-93 the Swedes, the Finns, dealt very well with the banking collapse. But then once they privatised them again, they set them free of proper regulation. And the wall of money that was coming from Wall Street, which was all being manufactured in the financialisation machine, was so large that these people had no resistance. The bankers themselves didn’t even know what was going on.
At the time of the crisis?
No, before the crisis. Between 1993 and 2007. They had no idea. They just knew that all the other bankers around the world were making all this dough. And if they couldn’t show similar returns they were goners, their shareholders would have got rid of them. So they started mimicking. And I don’t believe they even knew what they were buying.
The Swedes?
The Swedes, Deutsche Bank, Societé Générale… I don’t think they understood what they were doing. Because they were not creating the stuff, they were just buying it. The people at Goldman Sachs always knew what they were doing, because they were manufacturing it. Their European “clients” did not have a clue.
Weren’t the ratings agencies the ones that were really in the dark?
It’s one thing to be in the dark. It’s another to have your salary depend on you being in the dark.
Let me play devil’s advocate. The case for Blair, Schröder, even Persson in Sweden was: the right is in power in a way it has not been before (in Britain and Germany it had been almost hegemonic), we are in despair, the working class is fragmenting and the electorate is evolving in a more consumerist, more market-liberal direction. The party has to move with that. Notwithstanding what has happened since, is there any part of you that sympathises with that impetus in the 1990s to make what you call this “Faustian pact”?
Look, I sympathise with Faust when I read Goethe, or even Marlowe for that matter. I completely sympathise with Faust. Don’t you? It’s a very compelling story. You can see things from his perspective. You can see why he was lured. So yes, I do. But this does not change anything: Faust erred badly.
I can see you there, in Auerbach’s Cellar, cheering Faust on.
[Laughs] Look, take the Labour Party in Britain. And that’s self-criticism too because I was part of the demonstrations from 1978 to 1988. We were defending a model that was finished. We were defending coal-powered electricity generation. That wasn’t going to end well. Of course, that is not to say it was right to jettison hundreds of thousands of people—whole communities—without any period of transition to some other model. But we were fighting a losing battle. You have a point. People like Blair saw this. In that sense: yes, to that extent I’m sympathetic. Where I’m not sympathetic is where they lost sight of capitalism. The Left is supposed to be critical of capitalism. If it isn’t critical of capitalism it has no reason to exist. Why not be a Tory, a compassionate one-nation Tory, if you have no problem with capitalism? So they lost the capacity to be critical of capitalism. And being critical of capitalism does not mean saying that capitalism is a bad thing. Being critical of capitalism means being critical in the Marxist sense of looking at it as a system that produces crises and knowing that the greater the growth rate, the harder the fall around the corner. They had a duty to maintain this critical attitude towards capitalism while at the same time doing as you said: trying to find ways of escaping the defeatism of the Left, of embracing what Thatcher offered people. It’s against my aesthetic, but Thatcher offered them a vision of new vistas of pleasure and commercial endeavour. That we should take account of. You can’t say to people: it’s wrong to aspire to buying a new car, a new television set, a new computer or whatever. So yes, you should go along with this. But not lose sight of the fact that growth cannot be consistently fuelled by the proliferation of these financial products. It cannot be consistently fuelled by selling off council houses, by selling British Gas shares for a pittance to ensure that those who take the shares experience a 100% return the next day. At some point you “run out of other people’s money.”
Indeed… [Laughs]
[Laughs] Well, that’s also a criticism of liberalism, of neoliberalism.
To return to your point about that traditional social democratic demeanour towards capitalism, towards profit. Is it possible for that basic principle, in whatever evolved form, to coexist with globalisation?
That’s the trillion dollar question, isn’t it? Globalisation is not an exogenous force. It is not something that comes from Mars. It is what we allowed to happen on planet Earth. And in the same way that social democratic forces shaped the global financial system under Bretton Woods, they had a historic duty to shape what followed Bretton Woods, once Bretton Woods collapsed. But they didn't do that. They simply lost sight, firstly of the global financial system. They were far more interested in: “What can we do today to win the next election here?” Whereas the forces of neoliberalism had a global, almost Marxist perspective, an internationalist perspective which used to be typical of the Left.
A dialectical one!
A dialectical one. So no, I am not letting us off the hook by saying: “Oh, this was inevitable."
When you say “us”, you mean the Left?
The Left, broadly defined. From Blair to anarchists. Syriza and Greece
Turning to the Greek situation, to what extent can we say that Syriza has moved into that space vacated by the collapse of Pasok?
Completely.
Really?
Of course. [Laughs]
Were you surprised by that?
No. I wasn’t surprised. I was impressed but not surprised.
Impressed in what sense?
Impressed that what I was predicting happened. Often what I predict doesn’t happen. [Both laugh] What I find interesting, from the Greek perspective was not so much the January [2015] election that brought us to power. That was expected. PASOK had been so totally delegitimised. I joined PASOK as a very young person in 1974-5, when it was first inaugurated by Andreas Papandreou. It was a very radical party. Papandreou’s thinking back then was very impressive.
Really? You helped put his party out of business.
You’ve got to remember that Papandreou [senior] was an excellent mathematical economist. He was head of the department at Berkeley University (not to be scoffed at). He mathematised economics with Kenneth Arrow and others in the 1950s. He wasn’t radical back then. He became radical because of the Greek experience here, seeing how the CIA was manipulating politics here. Now, in the early 1970s he brought to Greece a very interesting mixture of good quality economic thinking—Nobel-prize winning levels of economic thinking—with an anti-colonial mentality. A kind of Gandhi narrative against Empire, where Greece was also part of the colonial periphery of the Empire.
A forerunner of the Latin American “pink wave” in some respects.
Yes, indeed. So many of us had joined PASOK back then, on that basis. It was a clean party, because it was new and it wasn’t corrupt. And then it became exactly the opposite. It became completely “establishment”, dirty, and subservient to the colonial logic of the Troika. So it was only a matter of time before the people who had joined it—people like my parents, for example, who joined it with enthusiasm—would abandon it for something like Syriza which was reclaiming the ground that PASOK had forfeited.
You’re talking about the post-crisis period.
Between 2011 and 2015. When the party went from 4% to 40%. A magnificent rise. And now it’s going to go back down to 4%, the way it’s going.
You think?
Oh yes. There’s no doubt about that.
It’s behind New Democracy, but…
It will collapse. It’s a new PASOK. And it’s going down that way. I don’t know what will replace it but it has no future. The referendum [on the EU bailout offer in July 2015] was unique in Greek history, and in European history. Why? I’m not going to go into the issues, but will only refer to the social-class composition of the vote. Usually the working class is divided between conservatives, social democrats, communists and so on. So you have working-class Tories, social-democratic working class people and you have the Left. The 62% No vote at the referendum consisted of the under-privileged Greeks across party lines. Poor Greeks that may normally vote for New Democracy voted No. And a considerable number of bourgeois leftists, with money in the closed banks, voted Yes. This is something impossible to fathom if you don’t live here. I noticed that some of my MPs who were quite well to do voted Yes. And New Democracy supporters who have nothing to lose voted No. The working-class New Democracy voters did not go with their leadership. And well to-do, bourgeois Syriza voters voted Yes.
Is that so unexpected? Those who have less to lose are more radical.
Sure, it all boils down to: do you have money in the bank? If you have a lot and you think that No means you will never get it out, you vote for Yes. But I wasn’t expecting such an alignment around self-interest. Because it doesn’t happen nowadays.
It’s Thatcherism in reverse. Thatcher’s priority was to give people capital—the “property owning democracy”—to give them a stake in the status quo.
Maybe it’s exactly the same. But it wasn’t capital, it was bank deposits. I was just struck by that: that there were Syriza supporters who live near here, in very nice penthouses, who voted Yes.
But presumably in Piraeus the Syriza supporters backed No.
Absolutely. Actually the No side won every constituency in Greece; the first time that there was such uniformity.
That begs the question: isn’t Syriza’s fate the fate of every party that tries to bend the rules of globalisation?
Oh no, that’s not why Syriza is collapsing. The reason why Syriza is collapsing is because it has been co-opted to an unworkable fiscal policy. Greece went bankrupt in 2010 and we have had a “pretend and extend” programme since then. So it is just like a company that has totally failed and is given another loan by a banker who feels that if he declares the bankruptcy his books will be in trouble, so keeps extending loans and pretends that the loan is performing. That’s Greece, with our creditors (the infamous Troika) in the role of rogue banker. Any government that adopts this stance and is co-opted in this project fails and disappears from the political map. And this is what it is. It has nothing to do with globalisation. It is Europe remaining in denial about the bankruptcy of the Greek state and the inability of the Eurozone to function according to rules that were not up to standard.
What would a different path have looked like?
Well, what we tried to do. To say this: we’re not playing games, this is what we are proposing. It’s very moderate and we are open to discussing the details. The basis of our position is that we will not have any more fiscal deficits but our primary surplus will be modest, at around 1%. Forget the surplus targets of 3.5% and 4.5% of GDP. These are simply impossible. And if you declare that this is your target nobody will invest in this country because they interpret such targets as a signal that you’re going to tax them through the nose. The problem in Greece is investment. The only way to recover is investment and everything beyond a 1% primary surplus target is inconsistent with recovery. So we’re not going to sign on the dotted line any agreement which involves 3-3.5% primary surpluses. It’s very simple. And in order to make our debt sustainable with only 1% we want a debt restructure that is based on simple financial engineering, no haircuts or anything like that are necessary. We even told them what needs to be done in a way which Wall Street functionaries understand and with which they agree. And then let’s come to an agreement on the question of reforms. Instead of hitting small-time pharmacists and pensioners, let’s hit the oligarchy, where we really need reform. So that is what I went to Brussels with: “This is it. Take it or leave it. If you want to crush us, crush us.”
But you are saying it wasn’t Brussels, it was choices made by legislators and leaders in Athens.
No, that was 2010. We were elected in 2015. We could have changed all that. We could have gone—and I did go—to the Eurogroup and said just that: “Help us reform Greece, but to reform Greece we need to stop the debt-deflationary cycle. And to stop that we need targets which are reachable, credible and which do not deter investment. Within that everything is negotiable.” But they didn’t want that. They didn’t even want to consider this possibility. Because, for them, the recovery of Greece was not the issue. The issue was not to give a signal to the Spanish, the Irish, the Portuguese that a government can be elected which goes to them with ideas of its own. My idea was to stand our ground and make it public that we were flexible and reasonable. (This is not a left-wing agenda, this is what any sensible policy-maker would recommend and was not far from what the IMF was saying; there were moments when the IMF was saying things more radical than me, but then for political reasons [Christine] Lagarde, to maintain her relations with Schäuble, went back on it.) You want to throw us out of the euro zone? Do it. I’m not leaving the euro zone. You throw me out. You have no way of doing it, except by violating the rules of the EU. Good. Be my guest. That was what I was elected to say. That was why I was so desperately disliked in Brussels. But if we had done that and stood our ground, that would have had a €1 trillion cost. I don’t believe Draghi would have been able to keep things calm; not only because €1 trillion is a lot of money but because his QE would have been wrecked. Because if we had restructured the €27 billion that we owed the ECB, Jens Weidmann [the President of the Bundesbank] would have attacked him on the basis of: “See, you purchase government paper? A chunk of it defaulted or was restructured. And therefore you have violated the charter of the ECB which prohibits any public debt financing.” This is why I stand convinced that Draghi would have never done this, if we remained resolute.
Because they would have had to pull QE?
Yes, and the Euro would be finished. So I think we had good leverage. But I was not allowed to use it.
That brings me back to my point: that the fault lies with those in your former party, in Athens.
Not even my party. Just three or four people in the inner cabinet.
What motives possessed them?
Really, I don’t know. I dislike interpreting other people’s motives. I had not seen it coming. If I had I would not have entered government. I watched it happen in front of me. The banal explanation is fear and a relative ignorance of basic economics. There were some people there who thought, like the previous government: “we can go to a 3.5% primary surplus; it’s not going to kill us if we grant this, that and the other.” If this was their genuine thinking, they were badly mistaken. You announce that silly surplus target, investment doesn’t happen and then you’re dead in the water. As we are now.
On Spain
You have links with Podemos in Spain. They are saying no to government options with PSOE and Ciudadanos. Do you think that’s the right move?
Yes. Look, government is a chore. And all good people should see office as a chore. If you crave to be in office, you are dangerous. We should all be reluctant ministers. So why should you do it? You should do it only if you think you can change something for the better. If, even before you enter the ministry, you have to accept policies you know don’t work, what is the point? And also, it is a terrible thing for democracy. Imagine if Pablo Iglesias [the leader of Podemos] entered office tomorrow and implemented the same policies as before. Why was there a change of government? Why did the people make the courageous choice of jettisoning the previous government? If people change governments but policy remains the same, and is equally ineffective, this undermines the democratic process.
On Germany
Is that a problem more broadly? Is it the case that the SPD in Germany is just too indistinguishable from the CDU?
The SPD, under its current leadership, is much worse than the CDU. Much worse. I’d much rather deal with Merkel and Schäuble than the SPD’s leaders.
They have been quite obstructive on the migrant question.
They have been appalling. I grew up in awe of the SPD, because we lived in a dictatorship here in Greece and Willy Brandt was a great supporter of Greek democrats. The SPD showed immense leadership. For me, the SPD is part of my milieu. When I saw them and I met the dearth of honesty, the lack of ideas, the 19th century shenanigans that they were engaged in…
19th century in what way?
(19th century as in power relations rather than political relations.) …their manipulation, their twisting of what you said. Whereas with Schäuble, compared with my dealings with the SPD, I knew what I was dealing with. And I also had interesting conversations with him. I could not have had an interesting conversation with [Sigmar] Gabriel. So you can see the decrepitude of the social democratic tradition. They are the least interesting, the least innovative, the least sincere of the whole political spectrum.
Why?
They sold themselves to Mephisto, and then at some point even he didn’t care for them.
It seems astonishing that a political family with such an heritage, with so many clever people on board, could accept its defeat.
Yes. But there is something else which went along with that. The same process of financialisation that depleted the analytical and moral authority of the social democrats was precisely the process that diminished the value of political goods more generally and turned talented people away from politics.
Because you could achieve less from a position of power.
Yes. If Harold Wilson was an 18-year-old today, he probably wouldn’t want to go into politics. If Willy Brandt was an 18-year-old today, he wouldn’t want to go into politics. And this is why politicians aren’t what they used to be. It’s not because our DNA is degenerating. It’s that there is a natural Darwinian process, a natural selection process. Politics attracts the least well-meaning and least talented people because the political sphere has been devalued.
On the Labour Party
It has been in the news that you are helping the Labour Party. What can you say about what you are working on with them? Or is it under the hat?
It isn’t under the hat. I believe in full transparency! I have had a number of conversations with them and I think it is fair to say my engagement with the Labour Party concentrates on two issues. Firstly investment. And secondly Brexit. Now, my view—not just about Britain but about the whole of Europe—is that investment is the key. We have a major discrepancy between savings and investment.
Especially in Britain.
Even in Germany. Germany has the lowest level of investment since 1945. This is absurd, given that they have negative interest rates. It actually reveals the depth of the deflationary spiral in which we are. Same in Britain, France, Spain. Here [in Greece] we have negative investment, and we don’t have negative savings so the excess of savings over investment is proportionately huge. So my advice to the Labour Party is: don’t focus on austerity. Austerity is the symptom. What matters is the low level of investment. And if the Labour Party is going to push ahead and escape this constant bickering between Blairites and Corbynistas, escape the trap set up for it by the toxic right-wing press, escape the attempt by the BBC to play on the divisions within the Labour Party, my message to them is: you have to do what Harold Wilson did in the 1960s, which is to recast the Labour Party as the political force behind renewal through investment in modern technologies. Back then it was the “white head of technology”. Now it should be the “cool breeze of sustainable technology”. And this should be the mantra. Because if that investment happens, the whole austerity debate becomes secondary. At the moment Osborne is caught in a trap of his own making. With every week that goes by the rising PSBR [public sector borrowing requirement] is a problem because the tax take is always lower due to greater cuts. And he has nothing to say about that. Labour should say something about that. And it shouldn’t simply say to the Brits: we will tax and spend more. Because this doesn’t wash. You’ve got to talk about how to crowd in private investment through a public investment bank which operates like the European Investment Bank, like the World Bank; that is, at arm’s length from government and whose purpose is not to tax in order to spend, but to issue bonds that are assisted through QE (I had a piece in The Economist about this some time ago, about how QE could be utilised to keep the yields of a public investment bank low) in order to mop up savings and hand them over to private sector firms; to start ups, this that and the other. So this is one thing I’m discussing with Labour: investment. No-one can accuse me of being an austerian. But I say: “austerity is a boring issue, don’t keep telling people you are anti-austerity”.
On Brexit
It really killed them in the last parliament, even though they weren’t that anti-austerity.
Yes. Talk about something positive. Investment. On Brexit, I lament the fact that the Labour Party is not leading the debate. It has been cornered. The main debate now is between different factions of the Tory Party (and they are both wrong). For me the great calamity is that the more intellectually interesting and solid view comes out of the Brexiters. They have a Burkean argument about sovereignty (with which I disagree, but nevertheless is philosophically interesting). Cameron has nothing to say of any interest whatsoever. He brought the worst kind of fudge back from Brussels and is simply banking on fear and small-c conservatism: no change because change is dangerous. This is not a reason to be in the European Union. We at DiEM25, the Democracy in Europe Movement, are planning an event in May, a month before the election in Britain, to bring together people who would not otherwise come together; from the Labour Party, Caroline Lucas and the Green Party, the Scottish National Party, people who are not party-aligned, to argue the radical case for staying, which is: Britain needs to reclaim its democracy and to do this it must stay in Brussels and fight for the democratisation of Europe. Because you can’t say you’re going to stay in the Single Market and opt out of the European Union. That way you are effectively forfeiting even what you have left in terms of sovereignty to an alien power. So we are going to be working on this. And what DiEM25 can offer the Labour Party, the Greens and other progressives in Britain is an answer to a pressing question. I was in the House of Commons recently and I heard MPs tell me: “Our constituents are writing to us that they hate the EU, that they want to get out. They asked us: Why are you recommending that we stay?” And: “Look at what happened to the Greeks—shouldn’t we get out?” Now, no one can accuse me of being an austerian or being pro-EU. So when it comes from me that Britain should stay and join forces with us within the European Union, that carries some weight among a certain section of the British political scene.
On DiEM25
Nixon goes to China. That brings me on to what you call the “movement”. I have read the manifesto. What does the practical plan for the next year look like? You’ve set yourself these milestones; how do you get there?
On DiEM25
Nixon goes to China. That brings me on to what you call the “movement”. I have read the manifesto. What does the practical plan for the next year look like? You’ve set yourself these milestones; how do you get there?
The first one [happened] on March 21st to 23rd in Rome, on transparency. The second one will be in Barcelona on the EU constitution and the process we are proposing. There will be an event in London on sovereignty. But primarily we will stage six large “assemblies”, beginning with transparency, then moving onto investment, migration, currency, monetary policies and so on. It will take 18-24 months for all six to convene. These are our markers in the calendar and before each Assembly —this is our ambition—there will be hundreds of small town hall meetings in the run-up to each. The purpose is to produce a white paper for each one of these six pivotal issues. If that works, and we have this sequence of town hall meetings culminating in large Assemblies where a substantial policy paper is approved, then within 18-24 months we will have a fully fledged Programme for Europe, a European Agenda. This is the conversation we want to have and the consensus we want to come up with. And if we do that, and if this consensus is interesting, then this consensus will find a way of expressing itself.
Will you be working with political parties?
We are already doing so. But we do not co-opt political parties. We do not say: the Labour Party is part of DiEM25. Anybody from the Labour Party who wants to be part of this process can come and have this conversation, without co-opting the whole party. Because there are people in the Labour Party that are not even Europeanists. Same with Die Linke. Die Linke is split between those who are with us and those who want return to the Deutschmark, for instance.
And the idea is that this programme will provide a touchstone for campaigners and politicians?
We don’t know yet. My hope is that this consensus is powerful enough and revitalises the conversation in Europe, then it could even find electoral expression and could even stand for European Parliament or local government elections or in association with parties that adopt this programme, this consensus. But this is completely open-ended. As Brian Eno said in Berlin: “Start cooking, recipe to follow!”
You have some big names on board. Zizek?
Zizek is a great supporter, indeed an active DiEM25 member. In Berlin we had a video message from Zizek rather than Zizek himself. As Eno said, it was the shortest speech he had ever heard Slavoj give!
On the future of social democracy
Returning to where we started, do you think social democracy has a future? Has it run its course? Or is it just that “social democrats” by name have run their course.
The truth is, I don’t know. “Social democracy” as a label is finished, because it has been tainted. Just like “communist”. Communism died in 1991 because it was associated with a particular manifestation which killed off an original idea, from back in 1848, that I think was good. Similarly “social democracy” has been too tainted as a term. But I also do believe that social democracy is very 20th century. Now, what we are facing is a major technological upheaval within global capitalism, in which the old-fashioned way of thinking about capital and labour and their tussle - which is central to social democracy, or ought to be if it is to be revived - is becoming disrupted, as they say, by the third or fourth machine age. Very soon we are going to have to be thinking in different terms. And as Gramsci used to say, “the old is dying but the new is struggling to be born.”
We’re in an “interregnum”, then?
Yes. Which is always a very dangerous period.
Of course we do not know exactly what the impetus for government and politicians will be in the coming years but what do you think this shift means for how the compassionate state should look in 50 to 100 years?
Look, it’s not a question so much of “compassionate” as one of a state capable of regulating social conflicts. Because that is what the state always did, beginning with Magna Carta. It was all about regulating conflicts between the barons and the King and the merchants and the trades unions and so forth. Today we are facing a serious danger of large masses of people who have low economic value. This is a powder keg in the foundations of society. Making sure that the great wealth-creation which capital is capable of does not light this dynamite—the basic income approach—is absolutely essential, but it is not part of the social democratic tradition. Think about it. The post-war consensus was all about national insurance, it was not about basic income. Now, either we are going to have a basic income that regulates this new society of ours, or we are going to have very substantial social conflicts that get far worse with xenophobia and refugees and migration and so forth. But I do not think that social democracy has the analytical skills to come to terms with this. Even Keynes…
He was a liberal.
The working class was one lump for him, and consumption was one thing. Now we have gradations, different qualities, lots of conflicts and possibilities that emanate from this multi-layered, multi-dimensional evolution of the old categories. And I don’t think social democracy is up to this. I don’t know what is.
It used to be a lot easier to pull together a sufficiently large coalition of voters to win an election, when you had clear class distinctions. You could add one to one and make two quite easily, whereas now the arithmetic has got a lot more complicated. The question is: what sort of political force has the right “glue” to build a coalition on the scale needed?
That’s right. Mind you, it was large minorities that ruled.
But 20 years ago it was parties like Labour, the SPD getting 40% where now they get 20%. It changes the character of the political family.
But 20 years ago it was parties like Labour, the SPD getting 40% where now they get 20%. It changes the character of the political family.
I am still under the influence of last year, when we had a 75% approval rating. So I cannot agree it is impossible. We didn’t put out a very radical package. Hope is what is in deficit. Britain, the British public, has no hope. When they voted for Cameron last year it was not hopefully. It was reluctantly and because they did not like Ed [Miliband] and they did not trust the Labour Party. Now they will vote to stay in Europe out of fear, not out of hope. So what do we need to do to capture hope? That is the issue. In the 50s and 60s the dream of shared prosperity was that which gave hope. Even the Tories latched onto it: Ted Heath, the one nation Tories and so on. So I think the basic income approach is capable of doing this as long as (and this is what I emphasise when I talk to the Corbynistas) you can explain to them where the money will come from, that it will not be simply debt, that we are going to generate a lot more income and a chunk of it is going to fund this. But we, the Left, must not be fearful. I gave a talk some time ago in the United States and said: yes, surfers in California must be fed by the rest of us. We may not like that, we may feel they are bums, but they deserve a basic income too.
[Laughs]
OK, they don’t “deserve”, but they should have a basic income, because this is the way to stabilise society. But you need politicians that are capable of going out there and saying: “You see that lazy bum over there that you hate? We should feed him. And we should make sure he has a house. Because if he does not have a house and he gets sick and so on, he is a greater burden for all of us. And if there are lots of them and technological innovation produces a lot more of them, that would be macro-economically unsustainable. Those of us who want to work—because we enjoy it and have the opportunity—have the technology to produce so much wealth that we can feed the surfers.” But who says that?
That can be your slogan: “feed the surfers”. Yanis Varoufakis, thank you.
Thank you.
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