Archive for January, 2018

Greek Spring: My 160 Days as Finance Minister

Tuesday, January 30th, 2018

Adults in the Room; My Battle with the European and American Deep Establishment, Yanis Varoufakis 2017.

This political memoir is best read as a companion to Varoufakis’ 2016 And the Weak Suffer What they Must? Europe’s Crisis and America’s Economic Future. Both were written after Varoufakis’ short term as the Greek Syriza government’s Finance Minister in 2015.

The 2016 book is a macroeconomic primer describing how we got from the 1920 gold standard to Bretton Woods to financialization and the Great Moderation to the worldwide economic and banking collapse of 2006. It explains how the European Union was set up without a political union, with a currency like the 1920’s gold standard and without a central bank like the US Federal Reserve capable of recycling surpluses. What can possibly go wrong? The 2008 global financial meltdown. Yanis estimates a Greek bankrupsy in 2010 would have required a European wide bailout costing each European citizen €10,000. A similar market turn against Wall Street would have cost U.S. taxpayers an estimated $258. That is why the 2010 Greek bailout was so important to the EU.

Finance Minister Limousine Yanis limo2

The 2017 book is a page turner describing Varoufakis’ attempts to deal with the European troika made up of the European Commission the European Central Bank and the IMF to restructure Greece’s debts and to put the Greek economy on a path to recovery. The troika were only interested in a third bailout with even harsher austerity to punish Greece for having elected a left leaning government and to serve as an example to other weak EU members not to defy the troika.

Yanis describes an early meeting with the formidable Larry Summers who Yanis had previously called “the prince of darkness”. Summers:

There are two kinds of politicians, he said, insiders and outsiders. The outsiders prioritize their freedom to speak their version of the truth. The price of their freedom is that they are ignored by the insiders, who make the important decisions. The insiders, for their part, follow a sacrosanct rule: never turn against other insiders and never talk to outsiders about what insiders say or do. Their reward? Access to inside information and a chance though not a guarantee, of influencing powerful people and outcomes… So, Yanis, he said, which of the two are you?

In 2009 Germany’s Angela Merkel had requested a €406 Billion bank bailout from her Bundestag. It was barely enough to cover losses from German bank investments in US toxic derivatives. By 2010, losses from German bank loans to the governments of Italy, Spain, Ireland, Portugal and Greece totaled €477 Billion of which €102 Billion had gone to Greece. Merkel knew it would be suicide to return to the Bundestag to request a second bailout. This was the birth of “Bailoutistan”; a complex and deceptive way to get the banks their bailout without the voters knowing how it was done. Corrupt Greek politicians and tax dodging oligarchs were complicit in the deception which pretended to put weak European countries on the road to recovery via extreme austerity measures.

Strauss-Kahn and wife at his NY Trial Strauss-Kahn

The EU charter prohibits financing of government debt. To get around this the EU persuaded the notorious Dominic Strauss-Kahn, who was desperate to save the French banks, to have the IMF make the loans. The beauty for Germany and France was that more than half the loans were guaranteed by the citizens of other poorer countries, many of whom are not in the EU. The other countries all believed they were lending money to the troubled countries. They were unaware the money went directly to the German and French banks. Bailoutistan ultimately became a more than €1 Trillion scam.

James Galbraith James Galbraith

In 2012, James Galbraith arranged for Yanis to teach at the University of Texas LBJ School of Public Affairs in Austin Texas where he taught courses, including one on the European financial crisis. Yanis was able to organize lectures by Syriza’s leaders that he hoped would reassure Washington, should Syriza became the government of Greece. When Syriza came to power in 2015, Jamie joined Yanis in the finance ministry where he worked tirelessly on plans to restructure the EU debt and economy of Greece. Jamie was nearby during most of Yanis’ meetings with troika leaders, continually revising plans for reform and writing presentations.

Economist William Black who exposed the frauds at the heart of the US Savings and Loan scandal and wrote the book The Best Way to Rob a Bank is to Own One, wrote in support of Yanis after a BBC profile labeled Yanis Greece’s Cassandra:

So why does the BBC treat Varoufakis as a sexy leftist and Dijsselbloem (president of the Eurogroup) as the respected spokeperson for the troika even though Dijsselbloem is a fanatic ideologue who has caused massive human misery because of the intersection of his inflexible ideology and economic incompetence? Varoufakis’ views on the self destructive nature of austerity as a response to the Great Recession are mainstream economic views. He certainly is a leftist, but his policy view arise from different ideological traditions most people would find antagonistic (to left wing thinking). That makes him a non ideologue as the term is defined. The troika, by contrast, is led entirely by ideologues. The primary difference is that they are exceptionally bad economists and exceptionally indifferent to the human misery they inflict on the workers of the periphery that they despise and ridicule. The BBC, the New York Times, and the Wall Street Journal will never write a profile of the troika’s leadership that makes any of these points. The BBC profile is another of what I and call revealed biases. Journalists and media organs routinely reveal and betray their biases — biases that they hotly deny but rarely escape.

Jeffrey Sachs jeffrey Sachs

Among Yanis’ strongest supporters was American Jeffrey Sachs who was involved in the attempts to restructure the economies of Eastern Europe after the breakup of the Soviet Union in the 1990s and who came to understand the destruction caused by austerity. Sachs accompanied Yanis at many meetings and worked behind the scenes on developing plans:

Yanis and Christine Laguarde IMF headChristine Yanis“We need adults in the room”

At the end of a busy but arid day punctuated only by Wolfgang Schauble’s (German Finance Minister) statement that Grexit (Greece leaving the EU) was inevitable, Jeff (Sachs) rewarded me with what I took to be a massive compliment. “Having sat in your meetings with Thomasen (European IMF Director), Draghi (ECU president), Schauble, and Regling (head of the ESM), I must tell you that I have never seem anything like this in my decades of experience with meetings between debtor governments and creditors such as the IMF the US government, the World Bank…In every meeting you were positive, bristling with ideas regarding practical solutions. And they kept knocking your ideas down, even though they were good ideas, without proposing a single one of their own. Unbelievable.”

Daniel Ellsberg (Pentagon Strategist, Whistleblower, and economist) emailed Yanis:

Keep in mind that the ruling class can be self-destructively mad, not just pretending:

Yanis and Alexis Yanis Alexis Merkel and Alexis Merkel Alexis

On June 26, after the troika issued an ultimatum, Alexis Tsipras, Greece’s Prime Minister, called a cabinet meeting to announce a referendum on the third bailout to take place in one month. During the wait, the troika closed all Greek banks. The Greek oligarchs, the Greek media, previous political leaders and even Syriza leaders all advocated voting yes to a third bailout. Vanis attended a huge rally for “no” where he was cheered for standing up to the troika. It was one of the happiest moments of his time as finance minister. The Greek people voted 61.3% no to the troika. When Yanis went to get his government’s instructions to proceed with plans for a counter offensive he realized that Alexis was capitulating to troika demands. He commented to Danae that evening: “Tonight we had the curious phenomenon of a government overthrowing its people.” Because Yanis would never sign a third bailout he was replaced as finance minister.