Fiscal Waterboarding & Ponzi Austerity
Last week I read Yanis Varoufakis’s book, And The Weak Suffer What They Must? Europe’s Crisis and American’s Economic Future. We were expecting Yanis to join us on Slate Money, which he did not end up doing, but I wanted to report on the highlights of the book anyway.
1. “A debt may be a debt but an unpayable debt does not get paid unless it is sensibly restructured.”
Unsurprisingly, Yanis spends a lot of the book talking about debt and debt forgiveness. In particular, he goes into the history of the post-World War II period when Germany’s debt were forgiven, and how critical that was to its growth.
He makes the point that, given that the countries in the Eurozone have no ability to set their currency exchange rates, the deficit countries like Greece, Portugal, Spain, and Italy have very little power to pay back their debts without either debt forgiveness or a “political union,” which is to say something more like the way the U.S. federal government redistributes money from Massachusetts to Mississippi.
Or, as Yanis put it, “Debt was a symptom of Europe’s awful institutional design, not its problem.”
2. “That monetary union is good for Europe’s economy and consistent with European democracy ought to be a theorem. Europe, however, decided to treat it as an axiom”
Yanis spends the bulk of the book talking about the history of modern monetary policy in Continental Europe, staring with the 1971 “Nixon Shock,” when the US kicked the European currencies off their peg to the dollar and kicked the dollar off the gold standard. This is interesting history which I personally had never learned, and after a few sputters and starts it resulted in the creation of the European Union and the Eurozone.
An interesting point that Yanis makes repeatedly (the book could do with some editing) is that the underlying structures of the European Union and the Eurozone are deeply undemocratic. This maybe seems ok when things are going well and economies seem to be humming along, but in moments of crisis, like we’ve had since 2008, the technocrats basically have all the power, and their decisions regularly and efficiently override the will of the people.
Said another way, the Eurozone was an attempt by Europeans – mostly Germans and French – to make money “apolitical” in the name of the unification of Europe. This was never going to work, according to economists, but the romance of the image was irresistible to many countries.
The one European leader who Yanis credits as seeing this basic problem beforehand is Margaret Thatcher, who was unwilling to join in an earlier version of the Eurozone because of the obvious loss of sovereignty and the lack of democratic influence.
3. “the Bundesbank ensured the European Central Bank would be created in its image, that it would be located in Frankfurt and that it would be designed so as to impose periodic, variable austerity upon weaker economies, including France.”
Yanis spends a lot of time talking about the extent to which Germany is actually in charge of everything going on in the Eurozone, and how rigid and self-interested German bankers are. The first 6 times he mentions this it’s convincing, but after 10 references I started wanting to hear what they’d say.
4. “the Troika is the oligarchs’ and the tax evaders’ best friend”
This wasn’t in the book, but Yanis made an effort while he was Greek’s Finance Minister, to datamine Greek tax returns in order to find tax evaders. He claims this effort, which would have allowed Greece to pay back some of its debt to the rest of Europe, was foiled by the Troika itself.
5. Fiscal Waterboarding & Ponzi Austerity
Yanis is a wordsmith, and he comes up, or at least uses, evocative and memorable phrases to explain complicated political situations. Specifically, he talks about the way the Greeks have been repeatedly bailed out at gunpoint as “fiscal waterboarding,” and the way that the imposed austerity is not only not creating the abundance it was supposedly intended to, but is instead sucking up resources and laying waste to communities, as “Ponzi austerity.”
Speaking of bailouts, Yanis convincingly describes most if not all of the bailouts imposed on Greece as a combination of 1) sending money to German and French banks via Greek taxpayers (and for that matter Irish taxpayers) and 2) kicking the can down the road of the inherent flaws of the Eurozone itself.
The question is, what’s going to happen next? The concept of a political union a la the United States is increasingly unlikely, and the Greek economy is in terrible shape, as we might expect after all this crazy and destined-to-fail austerity.
My guess: the debt is eventually going to be defaulted on, and the Eurozone is going to fall apart, or at the very least lose Greece. My time scale is the next 3 years. The thing I’m worried about is how bad it’s going to get, especially if China also goes bust around the same time.