“[…] The European Union genes were geared from the outset – from 1950 – towards the depoliticization of political decisions. Europe’s elites wanted a mega-bureaucracy in cahoots with large, oligopolistic business without the vagaries of federal democratic politics” (And The Week Suffer What They Must, Yanis Varoufakis, p. 101).
Now, I try to stay off politics in this blog. It is, however, not possible to brush the political aspect entirely under the carpet when considering such a book as this, because it is all about political money. Or rather, as Varoufakis points out, the attempt to take politics out of national and European money policies (yes, I know, seems oxymoronic, doesn’t it?). Secondly it is about how the attempt to implement this within the Eurozone when things started going wrong in 2008, made things go wronger still, and thirdly it is about the consequences of and possible remedies for this. Fourthly it is about what it is not about: all the facts whose name he dare not speak – but more on that later.
First a trigger warning: I am an old fashion liberal (what in the US is sometimes called “libertarian”). This means I will be wary of anyone who is in favour of large government and ‘socialism’ (however defined), and Varoufakis is of course in favour of both of these. Nevertheless, I shall try to be as objective as I can.
Apolitical money. A central point for Varoufakis is that the Euro is the gold standard by another name. It is also the Deutsche Mark by another name. But whereas a nation whose currency was pegged to gold could unpeg it, should it be deemed necessary, a country currently in the Eurozone cannot realistically extricate itself from the Euro. There is no political process by which the peoples within the Eurozone, who suffer from the monetary policy of the Euro, can influence that policy, nor can their politicians divorce their countries’ economies from it. Like Hotel California they can attempt to check out, but they can never leave.
The Euro is not a currency with a demos (a nation – people) behind it, the European central bank is not under the scrutiny of democratic institutions, something he, to his credit, acknowledges Margaret Thatcher warned about in 1990, when he quotes her talking about a European central bank, “[…] under that kind of central bank there will be no democracy, [and the central bank will be] taking powers away from every single parliament and be able to have a single currency and a monetary policy and an interest rate policy that takes away from us all political power.” National sovereignty is nothing if not sovereignty over the nation’s money.
In place of democratic accountability a number of rules were designed, so as to take politics out of political money. Of course, this is not possible, but it is also inevitable, precisely because there is no such country as “Europe”; there is no unified entity that “Europe” is the political expression of, and so the Euro cannot be administered with overt political intentions; there is no direct democratic accountability nor authority for it. Thus necessary political judgement is precluded and a reliance on inflexible rules replaces it.
The Euro’s lack of rootedness in a demos is beautifully expressed in a lovely passage on the Euro banknotes:
“Forget the mind boggling economics of it all. A glance at the euro’s aesthetics speaks volumes. Take a look at any euro banknote. What do you see? Pleasing arches and bridges. But these are fictitious arches and bridges. A continent replete with cultural treasures has unbelievably chosen to adorn its freshly minted common currency with none of them. Why? Because bureaucrats wanted nothing contentious on their new money. They wanted to remove culture from our currency in the same way they craved the depoliticization of politics and the technocratization of money.” (Varoufakis, page 196).
Alienation and Extremism. And this leads to the second point; how the implantation of the dead hand of rules to govern the Eurozone made a bad situation worse. In a slight misquote of Shakespeare Varoufakis points out that the rules were always honoured more in their breach than their observance. The reason is the implicit paradox of the Euro itself:
“The common currency was equipped with a European central bank lacking a state to support its decisions and comprising states lacking central banks to support them in difficult times.”
To mitigate this, he goes on to explain, “…the Maastricht Treaty and its successor treaties created a panoply of non-credible rules to constrain states. Of course non-credible rules end up as violated rules.” (Both from page 136).
He goes on to point out that fixing the exchange rate (through the mechanisms that preceded the Euro, and then with the Euro itself remove exchange rates) whilst allowing the free movement of money, had the dangerous consequence of directing money to the countries where the highest interest rates are paid. That just happens to be the countries with the biggest deficits (the interest rates – the price of borrowing money – is higher here precisely because the risk of non-repayment is higher). The Euro therefore caused a rush of lending to those countries with the least ability to sustain the debt. The money was largely spent on buying stuff from the Germans, who make stuff, and the surplus cash the Germans built up was then sluiced back into the credit market to be lent to where the interest rate is highest, and so forth and so on in perpetuum. Only not in perpetuum. This process created a bubble that would burst at the first sign of credit trouble. That came in the wake of 2008.
Instead of being able to respond in a flexible way to a country like Greece’s inability to pay their debt, with new political decisions made in the interest of the people, the EU (mainly the Germans) enforced The Rules with a Bismarckian iron hand, and forced Greece to take up new government loans, not to ‘stimulate the economy’ as Keynsians (of which Varoufakis enthusiastically is one) like to say, but to repay the old loans whilst cutting public spending. So at a time when credit is cut off to businesses, government is also cutting spending whilst getting deeper into debt to repay the debt. To me, it makes the administration of the Eurozone seem like a very expensive version of the Mad Hatter’s tea party.
And the price for this tea party was paid by ordinary people. Unemployment among the young rose to around 50% (!) in Greece and other countries such as Spain and Italy. Pensions and salaries were cut; poverty was again riding Europe. Varoufakis argues that this has directly led to the rise of national socialist parties such as New Dawn (incidentally the socialist Varoufakis consistently avoids calling them national socialists, using instead the German slang word “nazi”); the anger and frustration at an elitist system, that seems designed for the elites with democratic institutions and processes left impotent to respond to the needs of the people, direct people’s attention towards those parties that reject democracy altogether.
More of the same? As an economist Varoufakis has a very good grasp of what is wrong with the Eurozone and the mechanisms that made it all go belly up post 2008. But as a socialist his reading of events, and his understanding of the way forward, is heavily coloured by his ideology.
The weakness in Varoufakis’ argument is two-fold:
Firstly: His view of history is that Roosevelt and the New-Dealers saved the world, but that the liberalisation of credit and financial markets in the 1980s created a merry-go-round of financialization that created the credit bubble that burst in -08. He seems very willing to forget the fact that we have not had a free market laissez-faire free-for-all, even in the years after Thatcher and Reagan. We have had a very Keynsian mixed economy. The credit crunch in America had as its root cause, many argue, the government policy to subsidise house loans for people who in the free market would never have been given a loan, as part of a wider social policy. It was these people’s inability to pay, in their millions, that started pulling out the thread of the jumper that was modern finance. These social policies are pure New Dealism, not laissez-faire capitalism. It is furthermore a little known fact that under Roosevelt’s New Deal the economy lingered in the doldrums:
“The plain fact is the economy recuperated far more slowly under FDR than it did in any other slump, before or since, in American history“. (The Great Depression and the New Deal, 2009, Robert P. Murphy, Ph.D).
In 1931 US unemployment was 15.9%, and in Canada it was 11.6. Seven years later in Canada it was down to 9.1, same as in 1930; but 14.3 in the US. By -41 it was 4.4 in Canada, but still 9.9 in the USA. (Bureau of Labor Statistics, Statistics Canada).
The parallels to the Eurozone are actually quite easy to draw, with current unemployment figures in Greece of 20.9%, Spain 16.3%; and amongst youth in Greece 43.7%, Spain 36%, and Italy 31.5%.
Varoufakis’ unwillingness to face the fact that it is his preferred economic model, the Keynsian one, that has failed, harms his credibility when discussing future solutions.
Secondly: The Euro was from the conception by de Gaulle in 1964 an attempt by the French to screw the Germans, and through the various stages of the ERM and finally the Eurozone an attempt by Germany to screw down the French with a Protestant fiscal screw. Wearing the fish net stockings of Eurozone constraint our German überfrau wants nothing more than to whip the French naughty boys into submission. The Euro is a Sado-Masochistic relationship writ large. Varoufakis seems to say that we need more of this, not less. If, he argues, Europe really was a federation – a bit like the USA – where the central bank really was an institution under the scrutiny of a real democratically elected executive, with a properly elected law making body that had the power to actually propose laws (which the wrongly named “European Parliament” does not), voted in by European citizens all over Europe, then everything would be fine, he thinks. I have my doubts.
Varoufakis fails to see the problem with the European Union as a project, as explained by the British philosopher Roger Scruton two years before Varoufakis’ book:
“Treaties are dead hands, which should be laid upon a country only for specific and essential purposes, and never as a way of governing them.”
In the previous paragraph he also points out: “There is no first-person plural of which the European institutions are the political expression.” (How to Be A Conservative, Scruton, 2014, page 35).
To effectively abolish the nation state and institute A Federal Europe with genuinely democratic institutions, would perhaps remedy some of the democratic deficit mentioned earlier, but it would not change the nature of the beast, as identified by Scruton, and it would make the national parliaments even more impotent, and give still greater rise to those forces who wish to reject democracy altogether.
He writes about the current state of the European Union: “At some point Europeans will shake this monstrosity off their backs and escape from the iron cage under construction around them.” (Page 231).
Strong and poetic words – and evocative of the iron curtain – yet in the case of the only European nation that actually has shaken off the “monstrosity” and is in the process of escaping the “iron cage”, The United Kingdom, Varoufakis recommended to remain within the cage. Does he actually believe his own words, or was it that the “wrong” kind of people were in favour of leaving?
In conclusion: Varoufakis has become a bit of rock star intellectual in left-wing circles, regurgitating old Marxist tropes in new, “progressive” language, wearing an open neck shirt and no tie. That gives you cred amongst the lefty kidz.
Unlike these Old Masters, what has made Varoufakis famous is not the originality of his thoughts (they are not) but the fact that he was Greece’s Minister of Finance at a time when all eyes were on that situation, and that he bravely tried, and failed, to stand up for his country. Indeed, he seems to realise this (whether consciously or not) as he almost narcissistically, in the manner of a bore at a party, keeps fitting in variants of “when I was finance minister of Greece” to the text; the whole book is steeped in a tone that suggests a vain man’s hurt pride at the hands of the nasty Germans.
None of this can take away from him, or the book, that as an economist he has an excellent grasp of the mechanics of the processes that make the Euro a mistake of such enormity, and the Eurozone a place that works a lot better for some (the Germans) than others (all the others). He has a school-masterly grasp of economic history, although, as mentioned, his ideology gives him a tendency towards one-eyed tunnel vision. Thankfully he intersperses his text with a few anecdotes, to highlight particular points, and from a literary point of view these are, perhaps unsurprisingly, the best bits of the book. Not only because they are the best written, but also because they are truly enlightening.
Too often these days, not least thanks to social media, it is easy to be locked into echo chambers reinforcing our prejudices. Opponents of Brexit, who often denounce supporters of Brexit as “ignorant”, would do especially well in reading this book, and possibly become slightly less ignorant themselves. Even if Varoufakis is wrong on many topics, he knows of what he is talking, both from a theoretical point of view and from first hand experience.
On that basis, the book is highly recommended reading.