Yanis Varoufakis: Nations need to get together and reboot the world economy

Yanis Varoufakis: Nations need to get together and reboot the world economy


DAVID DE JONG: Now, we’re at a hedge fund conference…you have argued a lot about the tension between neoliberalism and democracy. Is there anything that you want to…what is the message that you would like to give to these people about the dangers of modern-day finance?

YANIS VAROUFAKIS: Well, you may have noticed that I had a pretty good reception, which is also indicative of the problems of Europe. Because when somebody as left wing as I am says the same things to left-wingers and to hedge fund managers and gets applause from both, it means that we’re in serious trouble.


What it means is that we have now reached a situation where both capital and labour are suffering the consequences of a depression and a deflationary moment in history and during that moment the old class conflict of capital versus labour goes away because both capital and labour suffer. The impression I get…I think it is a very strong one, and quite an objective one is one of helplessness so it’s not that you have…

DAVID DE JONG: Globally?

YANIS VAROUFAKIS: Globally. One of complete helplessness. Everyone, including the powerful – hedge fund managers, even Mario Draghi – they feel that they are playthings of forces beyond their control. Because humanity has lost control of its destiny as a result of the lack of democracy and the fact that we have this mutual reinforcement mechanism between authoritarianism and bad outcomes.

What makes Europe’s democratic crisis so urgent?

YANIS VAROUFAKIS: Look, there are crises that are redemptive like forest fires that are light and they simply regenerate the forest they get rid of built up fuel which is important. You can have recessions that are redemptive, recessions that simply correct the excesses of the past and create…the creative destruction, Schumpeter, idea.

But then, there are some forest fires that are so catastrophic that destroy even the seeds, and therefore prevent the regeneration of the forest. This is the kind of crisis we are in. This is called a depression.

A deflationary moment. So think: 1980s and early 1990s? Crisis. Early 1990s? Crisis. Early 2000s with the dot-com bubble bursting? Crisis. These were not catastrophic crises – there was a quick pick-up afterwards. They were of the area redemptive type, even though there were a lot of victims in each case.

1929 and 2008? Not so – deep ones. This is why we’re at such a critical juncture of the moment.

Think about it – for six years now, seven years, eight years, we have not managed to recover. No one has recovered really. China has created a huge bubble in order to keep going in the knowledge that the crisis was so deep that they needed to create a bubble to give the West an opportunity to get its act together so that the west would rebalance and then China would deflate its bubble slowly.

But the West has not got its act together, and this is the reason why helplessness is the dominant sentiment these days.

What can politics do to fix the low growth, low confidence global economic malaise?

YANIS VAROUFAKIS: As I said, technically all these things are easily solvable problems: politically is the problem.

DAVID DE JONG: You gave the example of the European Investment Bank for instance but that is only in the context of Europe…

YANIS VAROUFAKIS:  But we have the G20. The G20 could convene a new Bretton Woods.

What was Bretton Woods? It was an attempt by our nations to get together and reboot the world economy after a major catastrophe. We need something like that.

It won’t be the same as Bretton Woods in 1944. We’re not going to have constant fixed exchange rates, but we can have something that resembles a global coordination, between our investment banks, sovereign wealth funds and central banks. Why don’t we have that? Why don’t we?

With lagging investment everywhere, how can we regain confidence in the global economy?

YANIS VAROUFAKIS: It’s not a free rider problem! I insist! It’s not that some have an incentive to let others do it, when we are not doing it. This is like, you know, recycling or garbage. If everybody recycles, you don’t need to, it’s OK. So no one recycles and everybody is worse off. That’s a free rider problem when you want to cheat, you have an incentive to cheat it’s like polluting.

But in this case, in the case of the global capitalist crisis. This is not a free rider problem because it is not in my interest not to invest if you invest. But I will not invest if you invest. So what we need to is coordinate so that we all invest.

Does alternative investment need a dose of democracy?

YANIS VAROUFAKIS: I doubt it because they their business model is predicated on taking advantage of a disequilibrium. I don’t really believe hedge funds would be a problem if politicians in Europe do the right thing and create sustainable growth. Keynes had a beautiful, beautiful expression once and I’m not sure I remember it verbatim, but he said something like: bubbles of speculation on a steady stream of investment are fine. But you have a huge bubble and no steady stream of investment underneath that is a problem.


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