Athens, Greece - Youths class with riot police during a demonstration. Image by Getty Images via Daylife

This morning, I spoke with Yanis Varoufakis, Professor of Economic Theory, and Director of the Department of Political Economy within the Faculty of Economic Sciences of the University of Athens. From 2003 to
2008, he served as Director of The University of Athens Doctoral Program
in Economics.

I asked Varoufakis about the riots, the German media campaign depicting Greeks as lazy and corrupt, and the details of the IMF loans.

“It’s quiet now”

It was always my opinion that a period of serious, deep recession is not a period when demonstrations have a lasting power. You don’t get revolutionary spirits rising during a recession, at least, not
at the beginning of a recession. There will be flare-ups. There’s no
doubt about that, but I don’t think the trend is going to be upward –
not in the next year, or so.

If you think of 1929, when the crash of that era happened in the United States, it took two, or three, or four years before collective action began to emerge. At first, when a crash occurs, people [keep
private] their fears, and dreams, and they lick their wounds for a
while.

There are plenty of wounds, and they’re deep. Varoufakis says there’s a widespread sense of injustice in Greece. The $30 billion IMF loan comes with a price tag of wage cuts and tax increases, additional
burdens on an already stressed and overworked population. In this way,
Greece mirrors the United States. Workers are frustrated in the wake of
the massive bailouts, and with their own social paralysis.

I think the sense of injustice can be felt all over the world. We had a major crisis in 2008, and the people who created it, and the circumstances for that
crisis, are the ones who benefited enormously in the run-up to that
crisis. And now the bill has come, and it needs to be paid.
These people will not be paying it. Guess who’s going to be paying it? It
will be those, who during the run-up to 2008, did not enjoy any of the
privileges of that bubble. And now, they are the ones who are
going to have to pay, starting from a very low income, the cost of the
exuberance of the period preceding 2008.

Just as worker wages have been stagnate in the U.S. since the mid-70s, Greece’s workers have seen their wages frozen for the last 15 years, more or less. Without the means to buy essentials, workers
starting using credit cards to survive — pushing off the inevitable much
like Wall Street did with the derivatives market, but unlike the elite
business class, no one would rush to aid workers when they went broke.

Wall Street went on a frenzy because, on the one hand, it was handling the profits of the Capitalist class, and on the other hand, it was handling the debt of the working class. It packaged both
profits and debts in these beautiful securitized little derivatives, and
created a massive market, which then collapsed in 2008. And guess who
picked up the bill? The taxpayer.

Similarly, here in Greece. Workers are making a pittance here in Greece. If you read the foreign press, it sounds as if workers are living the good life without having to pay for it, and being profligate,
and so on. Yes, there is a social class, and a small minority, who are
like that, but the workers here have had stagnate wages for the last 15
years, more or less. And the only way they could keep up with the
increasing living standards marketing and social norms were imposing
upon them was through borrowing.

So you’ve got a parallel life there. Debt has been increasing in the private sector, and because the state had to find ways of ameliorating the social conflicts that were emerging at the time of serious bank
profits and Capitalist profits, they were trying to increase
social services through borrowing. So a lot of
borrowing happened up until last year because the state was trying to,
on the one hand, play the role that capital was not playing in providing
services capital was denying its workers, and the workers themselves
were borrowing on their credit cards, and private loans, so debt
spiraled out of control, and when 2008 came, just like in the U.S., the
whole thing burst.

The vicious foreign media campaign depicting Greeks as lazy, corrupt, and “living the good life” is only partly true. There is a small social group kicking it sweet, zipping around Athens in Porsches, but it’s not
the workers.

If you go around the posh parts of Athens, you see a great deal of wealth. Its no difference between the wealth you’ll encounter here to what you’d see in Paris, Los Angeles, in London.
You go to the poor areas, and we have third world country-like
conditions. You have teachers, who teach in remote
villages for the equivalent of $800 USD a month in a country where
prices are sky high. And now, what we have is a
situation where the government is asking of that teacher to lose 10
percent of his or her wages as a contribution to the overcoming of the
crisis. While all along, the people driving their Porsches and their
Mercedes Benz in the city center of Athens, will be paying very little
simply because they are quite adept at not paying taxes at all.

The teachers are now being asked to cut their lavish $800/month paychecks in the spirit of bailing out Greece. Except, the bailout isn’t really for Greece. It’s a bailout of the European banks. The Eurozone,
an economic and monetary union of 16 European Union member states,
including Austria, Belgium, Cyprus, Finland, France, Germany, Greece,
Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia,
Slovenia and Spain, has adopted the euro currency as their sole legal
tender. But the burden of individual nations is hardly fairly shared.

The weakest link

If you think of the Eurozone as a currency union – as a union of countries with very different economies – bound together by a common currency. If you look at other such currency unions, like the
United States, or the United Kingdom, which is also a currency union
with England, Scotland, Wales, and so on, you find that in every
currency union, there are systematic trade imbalances within it.

…

So for example, London has systematic trade surpluses with the north of England. Now, in those kinds of unions, no one says the north of England should be expelled from Britain. What happens is, you
have a currency union, and at the same time, you have a mechanism for
recycling surpluses – for taking profits from the surplus regions, and
investing them in deficit regions either through Social Security or
direct investment. …When the British government decides it wants to
build a new sports center, or railway station in the northern region,
this is [a] mechanism for recycling surpluses. This is the only way
currency unions can exist.

But there is no mechanism for recycling surplus in the Eurozone. Germany, a country that has recently enjoyed vast surpluses, is now making the absurd demand that Greece must get rid of its deficit, even
though Germany’s previous surpluses existed in large part because
of Greece’s deficit.

Up until 2008, when the whole Capitalist world was growing, and the Eurozone was increasing its GDP – not very fast, but it was increasing – and Germany enjoyed a surplus trade position with the
United States, the whole thing was manageable. But then 2008 happened.

The United States stopped being the vacuum cleaner that sucked in the imports of Germany, China, and Japan to the extent that it used to. So Germany lost its surplus position in terms of trade with regard to the
United States, and to a very large extent, with China, and they tried to
make amends by bolstering its position within the Eurozone. So now the
Eurozone accounts for the majority of Germany’s trade surplus.

There is a small piece of arithmetic which should ring some alarm bells here. If Germany wants to get out of the post-2008 crisis, through increasing its surplus position — enhancing its surplus position
– vis-à-vis the rest of the Eurozone, it is slightly absurd that – at
the same time – it insists that the rest of the Eurozone doesn’t have a
deficit. Because, you know, my deficit is your surplus, and vice-versa.

The credit crunch of 2008 caused the “whole architecture of the Eurozone” to crack, according to Varoufakis. The weakest links fell first, and the whole thing would have begun tumbling down, unless
something major happened – some kind of massive intervention.

What happened in Greece was, in my estimation, going to happen anyway. If it wasn’t Greece, some other country would have been the weakest link. If you look at Spain, for instance – Spain, which is
next in line for the chop by the financial markets – they did everything
right. They did everything by the book. They did not have a government,
which lost control of the deficit like the Greek one.

If anything, in 2008, when the credit crunch took place, the Spanish government was running a small surplus. Also, its banking sector was very well regulated; Spain has a productive manufacturing base. No one
would have thought Spain would get into the deep trouble it finds itself
in now. So the fact that Spain is in this situation is
testimony to the very simple point that I’m making, that the Eurozone
was going to face a serious storm after 2008, one that it could not
defend itself against because there was nothing in its institutional
design to do so.

“It’s not a bailout for Greece. It’s a bailout for European banks”

The whole point of this money is that its provided in order to avert a discontinuation of the payments the Greek government is making to its creditors, and its creditors are primarily European
banks: French and German, primarily.

So this money is being borrowed by the Greek state – not to be invested – but in order to transfer it to the European banks.

The deficit hawks, everywhere, are wrong

Deficit hysteria in America, led in large part by Pete Peterson, a conman who stands to financially benefit from the privatization of Social Security, is based on the incorrect theory that the government is
run like a family. When a family encounters tough economic times, they
“tighten their belts” and cut spending. If a government does this, a
recession tailspins into a depression. Anyone advocating social spending
cuts or privatization of Social Security is either miseducated, the
victim of propaganda, or stands to
make hundreds of billions of dollars on the con.

Economic history proves – not even from the 1920s – but the 1980s, onwards, that if the economy goes into a nosedive, and you cut Social Security, and you cut wages, it simply accelerates its path
towards the bottom.

Look, Republicans happen to be in opposition at the moment, so they will say things that are quite different than if they were in power. Let’s not forget that your Republican governments have been the ones
causing the American debt to balloon. The American debt
increases every time a Republican president goes to the White House. It
was Ronald Reagan who turned the American deficit, and the American
debt, into a weapon of mass destruction. It was George W. Bush who did
it. Clinton actually reduced it. If anything, Carter reduced it.

So the Republicans’ pronouncements have to be taken with a large grain of salt.

It’s very simple. If you cut wages, and reduce pensions, and increase indirect taxation during a massive, severe recession – we have a -5 percent recession at the moment, industrial production has declined
by 20 percent during the first two months, building has declined by a
massive 35 percent – all you’re doing is racing to the bottom.

“We are turning against one another”

Recession begets bigotry. I’ve written extensively about the rise of right-wing
extremism
in
the U.S., as well as in Europe.
Just as the recession in America has inspired hatred against immigrants
and other minorities, Varoufakis is worried that the anti-Greek
propaganda now spouting from the foreign media will not only turn the
world against Greece, but also create a paranoid, jaded Greek
population.

I very much fear, from what I hear from friends who are living outside of Greece, that – especially in Germany, but not only in Germany, as far as places like Korea – that this whole narrative of PIGS
(Portugal, Ireland, Greece, Spain,) and in particular the narrative
about the lazy Greeks, who are either crooks or are incapable of doing a
fair day’s work, and who are demonstrating because they don’t want to
pay for their own debts. This kind of talk is creating racist
backlash against Greeks living abroad. And what upsets
me perhaps even more is that it creates a backlash against that backlash
in Greece, so now we have Greeks here who remember the awful days of
the Nazi occupation and trying to return the [favor] to Germans, who are
abusing Greeks, with their own brand of generalizations and idiocy.

This is the problem with crisis. It happened in 1929, and I very much fear its happening now. We are turning against one another, and we’re forgetting what the real causes of the problem are.