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  February 4, 2015

Syriza Needs Alliance Against German "Beggar Thy Neighbor" Policies - Flassbeck (1/3)

Economist Heiner Flassbeck tells Paul Jay that Germany has violated EU agreements and Syriza should focus on creating an alliance with Italy, Spain and France to oppose policies that are driving Europe into a deeper recession
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Dr. Heiner Flassbeck graduated in April 1976 in economics from Saarland University, Germany, concentrating on money and credit, business cycle theory and general philosophy of science; obtained a Ph.D. in Economics from the Free University, Berlin, Germany in July 1987. 2005 he was appointed honorary professor at the University of Hamburg.

Employment started at the German Council of Economic Experts, Wiesbaden between 1976 and 1980, followed by the Federal Ministry of Economics, Bonn until January 1986; chief macroeconomist in the German Institute for Economic Research (DIW) in Berlin between 1988 and 1998, and State Secretary (Vice Minister) from October 1998 to April 1999 at the Federal Ministry of Finance, Bonn, responsible for international affairs, the EU and IMF.

Worked at UNCTAD since 2000; from 2003 to December 2012 he was Director of the Division on Globalisation and Development Strategies. He was the principal author of the team preparing UNCTAD's Trade and Development Report, with specialization in macroeconomics, exchange rate policies, and international finance. Since January 2013 he is Director of Flassbeck-Economics, a consultancy for global macroeconomic questions ( Co-authored ACT NOW! The Global Manifesto for Economic Policy published in 2013 in Germany.


PAUL JAY, SENIOR EDITOR, TRNN: Welcome to The Real News Network. I'm Paul Jay.

The new Greek foreign minister, Yanis Varoufakis, has told Europe, instead of writing off Greece's debt, they're proposing a kind of debt swap.

Now joining us to analyze what this is and what possible success it might have is Heiner Flassbeck. Heiner now joins us from Germany. Heiner was the former director of the Division on Globalization and Development Strategies at the United Nations Conference on Trade and Development, otherwise known as UNCTAD, and he's a co-author, with Costas Lapavitsas, who is a new member of the Greek Parliament, of a book called Against the Troika: Crisis and Austerity in the Eurozone.

Thanks very much for joining us.


JAY: So, first of all, explain what is Varoufakis proposing here in this debt swap? And is this a big concession from the election speeches, or just a variation on it?

FLASSBECK: Well, it's a variation. You see, the point is whether you do a default--default is such a bad word, and nobody likes it, so it is reasonable not to talk about default but to talk about a swap or restructuring of debt--the official word, I would say, is restructuring of debt. And that can be done in many different ways. It can be done in the way of, so to say, postponing the debt coming due to infinity and can't be done by cutting interest rates to zero. I don't know. There are many, many ways to do it. Or you can swap the debt into something else.

JAY: So what does that mean? What is a debt swap, for people that don't understand the term?

FLASSBECK: The swap is meaning you exchange the papers that you have which says the Greek government owes you a certain sum into a paper that says you're depending on certain things, for example the growth of the Greece economy. That is one option--the Greek government is going to pay you something. So it's a conditional repayment that is one of the most important and the most loved idea behind that.

JAY: So is there any reason to think that's going to be more acceptable to the troika? Now, troika is--we're talking about the European Commission, the European Central Bank, and the International Monetary Fund, which are sort of the three organizations that have been dictating austerity to Greece. Is there any reason to think they're going to find this any more acceptable, this debt swap?

FLASSBECK: I'm not sure, I'm not sure at all, because for them, you see, the most important thing is not debt as such, but is the reforms, the so-called reforms, the so-called structural reforms, where the countries have the conditionality to do something. And whether the debt is now repaid in the next ten years and next 20 years or so is not important. And that is not what it's all about. What you have to discuss is the conditionality, and this is not covered by Varoufakis' proposal. He just speaks about, so to say, reducing a bit the burden of debt for the government. The actual debt, that is absolutely reasonable and necessary. But much more important is--and nobody talks about that at the moment, or they talked--the Greek government, the new Greek government, talked about it on the first day, but--two days, but then they stopped--is to stop the conditionality.

JAY: So give--this is things like lowering the amount of pensions that are paid, the minimum wages.

FLASSBECK: Everything, all the things, the long list of 100 points, including the privatization of the port in Piraeus or things like that, crazy things that have nothing to do with the Greek performance--or not much, at least. Only under a neoliberal ideology it has much to do with the Greek performance. So these things are very important. And there, is far as I understand, the German finance minister said very clearly, no, no way to change that, because this is even decided by the German Parliament, and how can I convince the German Parliament to change the contract with Greece, including to change the conditionality.

JAY: Well, that's what the whole SYRIZA election campaign was based on, which was changing the conditionality.

FLASSBECK: Absolutely. Absolutely. And that is why I think the approach of SYRIZA at this moment is not very clear. So what they should do is--what they need is political backing. They have to form a coalition in Europe. That's--no doubt about it. And when I last met Mr. Tsipras, I told him, if you don't have a coalition, well, the Germans will laugh at you, they would not take you serious with whatever proposals you come at, that you need a coalition, including France and Italy.

Now, tonight, as I understand, Mr. Tsipras is meeting the Italian prime minister, and so far maybe that's the beginning of it, I hope. But this is the only way to do what is necessary.

Let me say this also. The debt question is not the most important. The most important one is to stimulate the European economies. What we said in our book--and I think Krugman was following--it said, flows are much more important than stocks. You know? This is--let me explain it for one minute. Flows means the income flow, the demand flow, or this is extremely important. It's much it's much more important to look back at stocks of debt that are piled up for the last 20 or 30 years. Forget about this debt. This debt is not important. The important thing is that the Greek government now has the room of maneuver, has an additional 10 billion or 20 billion to spend on investment to do something for the people so that the people can consume more, so that the economy begins to recover.

And here comes the crucial point for me: this is not only necessary for Greece; it's necessary for the whole of Europe, including even Germany. Everywhere we have lack of demand, everywhere we have the stagnation or recession. In Italy, we still have a grave recession. France is stagnating for more than a year. We have overall recessional tendencies in Europe now for five years. And it's incredible nobody talks about this, but this is to push the point, how to turn around this economy. Then the stocks come later. The bad stocks are always the result of bad flows. So you have to get good flows, so to say, to reduce the stocks.

JAY: But it seems rather clear that this troika, that's not their agenda. There's a little bit of movement on that with this bit of quantitative easing. But clearly the amount of money at stake in terms of debt in Greece is not that significant. I think at one point the German central bank had a bigger investment in a casino in Las Vegas, I believe, than most of the Greek debt. So it's about the conditionality, as you said. But for them it's if you concede on Greece, then you need to concede in Spain, and then you concede in Italy, and Germany does not seem interested in that.

FLASSBECK: Well, I'm not sure. I think the political landscape is changing a little bit, and quite in favor of Greece. If you look around and you see the comments of the rest of Europe compared to the German comments, then in the rest of Europe, they were very mild, or even friendly. And even Mr. Obama has mentioned Greece in a friendly way, by the way, to say that to the American audience. Surprise, surprise, he did it.

And so far, the landscape has changed a bit. Many people understand that Greece has gone through something that no country should go through, namely, a Great Depression, reduction of overall income of 30 percent, a huge increase in unemployment, and so on and so on. So this is--the mood is good for Greece, and they should use the window of opportunity. This is what I mean by forming a coalition now: they have the chance, if they get Italy on board, if they get France on board, and later in the year they would get Spain on board, because if Podemos is going to win, then they have Spain also on board.

JAY: Podemos is a new political party in Spain that's somewhat like SYRIZA.

FLASSBECK: It's a new left party up that comes up, is very close to SYRIZA, and is very friendly to SYRIZA. So Podemos is leading the polls. So if they would win in Spain, that would be, then, really, really a dramatic change in the political landscape. And insofar--but what we should not forget--I think it's underestimated--the commission has changed. We have a new commission.

JAY: This is the European Commission.

FLASSBECK: European Commission in Brussels. And the boss of that commission, Jean Claude Juncker, the Luxembourg former prime minister, is a very pragmatic person. And he's not radical at all. And he's not neoliberal in the proper sense of the word. So there is a chance to form something that can oppose Germany. But at the end what you have to do--and I think I said it in our interviews many times--what you have to do is you have to oppose the German mercantilist approach. That is what it's all about. You have to oppose it, and then you need bold politicians in Europe to do exactly that, to say, no, mercantilism is old and dead and it's the worst ideology of the world, and we have to stop it right now.

JAY: Well, for the troika, the German elite, the European elite, does it also--now also a political question? Do you actually allow a left government to come to power and succeed? I wonder if it isn't even more important to them to make sure SYRIZA fails than anything else?

FLASSBECK: Well, they would be happy if they failed, that's for sure, as well as they're happy if Matteo Renzi and Fran├žois Hollande are going to fail. That's for sure. But, you see, as you're in power, for the moment, at least, you have an opportunity, you have to do something, you have an opportunity to challenge something. You know what I would do.

Let me very briefly explain how I would do it tactically, strategically. You see, the German surplus of the current account for this year and the official forecast of the German government is, again, 20-30 billion higher than last year. It's more than 200 billion--a surplus of more than 200 billion, which clearly means, logically means that the German economy, the German politicians are building their whole model of the German economy on more indebtedness of other countries of the rest of the world, including Europe. So they need new debt from the rest of the world of 200 million for this year to get a small growth of 1.5 percent, which is ridiculous. So this is the point where they should come in and they should say, so if the Germans--.

JAY: I mean, hold on. Let me just break this down and make sure. I'm understanding it and viewers are understanding it. They're sitting on all this surplus, and what they need to do with it is loan it to somebody. So they need some debtors to pick up his $200 billion.

FLASSBECK: They need debtors. They need debtors. Germany needs debtors more than anybody in the world, because the whole economy is built on this surplus, on this idea that the rest of the world would be debtors and Germany's always a creditor, which is a foolish idea, and we know it for a long time. Mr. Keynes was the first to raise it after the Second World War, that it's a foolish idea. Every reasonable economist knows it's a foolish idea. It's mercantilism. That is what what I call mercantilism. It's the old idea, if you pile up gold or something like that, precious metals, then you are a powerful nation, which is absolutely ridiculous now at times. So what they're piling up is debt of other countries. And it's absolutely clear that this debt can never be repaid. But they're piling it up, piling up you like hell.

JAY: Well, then you get into a situation like a mafia loan shark that you've got to break some legs, because if the word gets out that you're soft, you can't collect your debts.

FLASSBECK: No, you can't collect it. You have to give the rest of the world a chance to turn around this trade relation. I mean, the rest of the world needs--and that is again a recognition by Mr. Keynes after the First World War already--he said, you have to give the debtor a chance to become a creditor; otherwise, they can never repay the debt. But if the creditor, Germany, insists to keep the surplus--and that is exactly what they do every year. And, again, there was a Parliament discussion this week, where they did it again, they insisted, we need this surplus. But that is logically impossible that the debtors repay their debt. But at the same time, the Germans are asking everybody to repay their debt. So it's against the logic, what they do.

So this is the point, you see. And it's a violation of the rule inside the Monetary Union that you should not have macro economic imbalances that go beyond a certain point. The Germans insisted that it should be 6 percent of GDP, but now the German surplus is even going far beyond that. It would be 8 percent of GDP this year. So I would, if I were Mr. Tsipras, I would take this point. I would say, you see, the Germans are violating everything, and the most important thing under the sun, namely, the current account balance--and at the same time, they're accusing us of violating other parts of the treaties of the European treaty. So who is the biggest violator, and who's going to play along the rules or against the rules?

JAY: And this is the logic with which you try to build your coalition.

FLASSBECK: I would build my coalition exactly along these lines, and then it would be very difficult for the Germans to argue and to say, no, we don't care about that; our violations do not count; only yours count. If you then have a strong political coalition, including Italy and France, they could easily, in my view, easily get a majority in Europe against the Germans. And then that's the point where you have to go. That's where you have to go. That is what you have to target.

JAY: Okay. In the next part of our interview, we're going to talk about whether options does Greece have if this coalition doesn't emerge. Please join us for part two with Heiner Flassbeck on The Real News Network.


DISCLAIMER: Please note that transcripts for The Real News Network are typed from a recording of the program. TRNN cannot guarantee their complete accuracy.


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