EconoMonitor

Yanis Varoufakis: Greece is Finished

Yves here. Yanis just posted an interview with ABC (Australia’s BBC) which describes how Greece cannot be salvaged. Its fate will be determined at the eurozone level, and its possible outcomes range from bad to awful. You can watch the conversation here. Transcript below:

LEIGH SALES, PRESENTER: Joining us now from Athens is the Greek economist Yanis Varoufakis.

The obvious question is: what happens now?

YANIS VAROUFAKIS, ECONOMICS, ATHENS UNIVERSITY: Well, the derailment of the train that is the eurozone, which started with Greece and then other carriages started leaving the tracks sequentially – Ireland, Portugal, now Spain – is continuing. And yesterday’s vote is not going to change that at all. All exuberance and celebrations are completely and utterly misplaced. I’m afraid that the eurozone and Europe is continuing along the path of the last two years of a cascade of errors, a comedy of errors. Just look at Spain, what is happening there today. Look at what is happening in Italy. Unless the logic or what passes as logic in the European approach to this crisis alters and alters fast, very soon the eurozone will be history.

LEIGH SALES: Well, let’s stick with the big picture for the moment before we drill down into Greece. What do you think could happen then to avert that disaster as you see it?

YANIS VAROUFAKIS: I’m sorry, I didn’t hear you because there’s a lot of noise – could you repeat that question?

LEIGH SALES: I will. What do you think needs to happen to avert the disaster as you see it?

YANIS VAROUFAKIS: Three things, the very simple steps that need to be taken. Look, in Europe, whether it’s Greece or Spain, what we have now is we have insolvent banks that are in a deadly embrace with insolvent states. So, the states get – borrow money from the centre of Europe in order to give to the banks and banks borrow to give to the state and both banks and states are sort of locked into a deadly embrace with another sinking very fast. So what we need to do is we need to break this nexus between insolvent banks and insolvent states. So, the way to do this is to unify the banking system, to Europeanise it in the European Union and have it being funded directly not through national governments. That’s a very simple step, but it’s a step it seems too far for the European Union.

Secondly what you need is a mutualisation, a kind of common debt, like in Australia we have, you know, the Federal Government having its own debt over and above states. And thirdly we need an investment policy which runs throughout the eurozone. Because you have a secondly currency area, you need to have an investment strategy, a recycling mechanism for the whole thing. Unless we have these things, and Germany doesn’t want to have these things, I’m afraid there is absolutely nothing to avert the continuation of this slow motion derailment.

LEIGH SALES: Just to go back to Greece specifically, the politicians in Greece couldn’t even agree on the terms of a televised debate during the election campaign. How are they going to compromise on measures to fix the Greek economy?

YANIS VAROUFAKIS: They cannot fix the Greek economy. The Greek economy is finished. The Greek economy is in a great, great depression. The growing social economy is in its long, long winter of discontent. There is no power, no force within the Greek economy, with Greek society that can avert – it’s like – imagine if we were in Ohio in 1931 and we were to ask: what can Ohio politicians do to get Ohio out of the Great Depression? The answer is nothing.

LEIGH SALES: So what then happens to Greece?

YANIS VAROUFAKIS: It depends on what happens in the eurozone. Just like what happened in Ohio depended of the rise of President Roosevelt and the New Deal, unless we have a new deal for Europe, Greece is not going to get a chance. Now it doesn’t mean that if Europe fix itself, Greece will fix itself. It’s a necessary condition that the eurozone finds a rational plan for itself. It’s not a sufficient condition. Europe may fix itself and Greece, being so flimsy and malignant, may still have huge problems and never recover. But until and unless the eurozone finds a rational plan for stopping this train wreck throughout the European Union, throughout the eurozone, Greece has no chance at all.

LEIGH SALES: I read some statistics today that seven out of 10 Greeks want to emigrate. How would you describe the national mood there?

YANIS VAROUFAKIS: This is a our Great Depression. Not only in an economic sense, but also in a psychological sense. Greeks are in a catatonic state. One moment, in a state of rage, another, this is a typical case of manic depression. There are no prospects. There is no light at the end of the tunnel. There are sacrifices, but nobody gets a feeling that these are sacrifices that take the form of some kind of investment in turning the corner. This is the problem when you are stuck in a eurozone which is really badly designed, which is collapsing and which does not give opportunities to its flimsier parts to escape through some kind of redemptive crisis.

LEIGH SALES: Yanis Varoufakis, we can hear how noisy it is there. Thank you very much for making the time to speak to us tonight.

YANIS VAROUFAKIS: Thank you.

This post originally appeared at naked capitalism and is posted with permission.

58 Responses to “Yanis Varoufakis: Greece is Finished”

EugenRJune 26th, 2012 at 3:53 pm

To try to predict what will be, first we have to ask what really happened and will happen to Greece and Spain as debtor on one side, and what happened and will happen to Germany, France and other creditors from the other side?
As to Greece, since for 10 years it borrowed unlimitedly to increase the level of consumption of its citizens and nothing or very little it borrowed for investment, it not only did not increase the basis of its potential production capacity of merchantable products and services, but in contrary, it decreased it, by creating overpaid jobs in non merchantable service sector. Now when the creditors decided to stop borrowing more money (they give up the hope, they will ever be paid back) Greece has no basis to support these non merchantable services and has no alternative employment for those employed in these services.
As contrary to Greece, Spain is trapped in normal economic downturn, when one of his major industries, the real estate, that used to sell see shore dwellings mostly to foreign citizens, because of external economic crisis lost its customers. Yet Spain did not created nonfunctional economy, that can't create add value, so it still has the capacity to heal.
As to the creditors, their economy is potentially robust, since in the past they had to supply Greece and other debtors within the EU with their merchandise. On the short term they have a problem to cope with enormous quantity of bad debts, they were paid with for their products. This means they or their bank system lost part of their assets and with it the equity, that was or will be restructured that or other way by the central banks. Now learned their lesson, they will try to channel their financial resources to more productive goals, than the Greek consumption or non merchantable services. This can only be for help to the healthy and strong economic entities, who existed before the crisis and still exists and are looking for markets alternative to Greece, that can pay for their products.
Sorry for the Greeks, but their failure is unique and is no precedent for anybody else. The Greek economic bomb was already neutralized for Europe.

NickJune 27th, 2012 at 4:21 am

dear EugenR,

you wrong that Greece borrowed unlimitedly to support consumption. Greeve invested a lot the past years, in many sectors, from infrastructure to anything you can imagine. the Greek crises started as aliquidity problem, that due to the wrong medication, austerity measures with no planning for rebounce, it escalated to the crises we have today. let me remind you of the debt in 2009 that was 115%, much less than 170% today and much less than other EZ countries. the austerity measures brought deprssion and the debt, as part of GDP, grew to todays‘s levels. even the govrnmental expenses, unemployment and amy other rating, prior to 2009, was in very good standing within the EU. Greece is one of the richest EZ asset holding states, but its short term obligations after Lehman and after wrong signaling could not be served, partly due to not enough inflows and partly due to spreads rise that made refinacing too expensive and eventually impossible. If Greece was to divest and attract investors, before the crises, then debt would have been much less than today and crises would have passed without even touching. unfortunatelly this cant be done today, as Greek asets and companies are so undervalued that it would not make any financial sense to do so. in conclusion it was not the fault of a hypperconsuminf society, but of bad management and timming come together.

scubadukeJuly 2nd, 2012 at 9:03 pm

Not looking at Greece borrow to support consumption or invested in infrastructures.

One thing is very "clear". After the first bail out, Greece as a whole did nothing as an austerity measure to curtail their "habits". That was evident for all to see. Their citizen's entitlement is very generous, full pension before 50….and so on.

Now, why should the rest of Europe funding Greek citizen's entitlement: and yet they are not using the bailout fund to help themselves?

It shows that they can not manage their affairs, at lease not until EU pointing that out to them. There are lots question regarding Greece…..

EugenRJuly 12th, 2012 at 3:33 am

Dear Nick

All you have to do is to read the following chart and articles to see that it is not me who is wrong about the Greek over-consumption.
As to the Greek national debt ratio to the GDP before the crisis, it was misleading since the over-consumption, and public deficit is part of the GDP, and could exist only when finance by foreign banks loans and it is the problem and not the solution.
As to the Greek assets, you are right, if the Greeks would be ready to sell part of their assets it could solve the deficit problem, and all this demand about privatization is exactly about this. But yes, if in short term under the threat of liquidation you have to sell a lot of stuff, its price will go down. Sorry, this how it is.

http://blog.securities.com/2011/11/consumption-pa… http://blog.securities.com/wp-content/uploads/201…
https://rodeneugen.wordpress.com/category/menu/ec…

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Greece is one of the richest EZ asset holding states, but its short term obligations after Lehman and after wrong signaling could not be served, partly due to not enough inflows and partly due to spreads rise that made refinacing too expensive and eventually impossible.

Mary G. JonesApril 15th, 2013 at 12:50 am

The eternal optimists in me states that Greece and Cyprus are not bound for Oblivion so long as posterity is undertaken with a new economic model that is still yet unsought of. This is the best time to road map small gains for a sustainable economy.

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There's still that slight chance of a miracle that could get Greece out of its financial troubles. Still, I have to admit that it's definitely not looking too good. I wouldn't be surprised if Greece started liquidating a lot of whatever assets it has left.

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To try to predict what will be, first we have to ask what really happened and will happen to Greece and Spain as debtor on one side, and what happened and will happen to Germany, France and other creditors from the other side?
As to Greece, since for 10 years it borrowed unlimitedly to increase the level of consumption of its citizens and nothing or very little it borrowed for investment, it not only did not increase the basis of its potential production capacity of merchantable products and services, but in contrary, it decreased it, by creating overpaid jobs in non merchantable service sector. Now when the creditors decided to stop borrowing more money (they give up the hope, they will ever be paid back) Greece has no basis to support these non merchantable services and has no alternative employment for those employed in these services. – See more at: http://www.economonitor.com/blog/2012/06/yanis-va…

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