Yanis Varoufakis, Greek Finance Minister and Economist Joseph Stiglitz on Disruptions in the Eurozone
Rob Johnson, president of the Institute for New Economic Thinking, reports on conversations he chaired between Greek Finance Minister Yanis Varoufakis and Joseph Stiglitz at the INET-OECD conference.
SHARMINI PERIES, EXEC. PRODUCER, TRNN: Welcome to The Real News Network. I’m Sharmini Peries coming to you from Baltimore.
At the INET-OECD conference held on April 9th Yanis Varoufakis, the finance minister of Greece, spoke on the subject of the eurozone institutions during the bank bailout negotiations. And in another session, he was in conversation with Joseph Stiglitz and several other prominent economists including Rob Johnson, who chaired the session. He’s our next guest.
Rob Johnson is joining us from New York City. Rob is the president of the Institute for New Economic Thinking. He is also the director of the Economic Policy Initiative at the Franklin and Eleanor Roosevelt Institute. He serves on the UN Commission of Experts on Finance and International Monetary Reform.
Thank you so much for joining me, Rob.
ROB JOHNSON, DIR. OF ECONOMIC POLICY INITIATIVE, ROOSEVELT INSTITUTE: My pleasure.
PERIES: So Rob, Yanis Varoufakis said that the debt crisis have distracted us from the structural flaws of the eurozone. What did he mean by that?
JOHNSON: Well, I think he meant that while Greece has had their own problems, elites have not paid a lot of taxes and they’ve run up big deficits and debts over time, that that’s not the essence of what’s wrong with the eurozone. The eurozone is a situation where a country essentially has lost sovereignty, particularly over its monetary and credit policies, and the structural flaws, because of impaired labor mobility within the system, the lack of a budget which is, you might call system-wide, and lack of harmonious banking regulations, what they call a banking or a financial union, means that there are fault lines everywhere and that the debt problems are just what you might call the tip of an iceberg of the menu of structural remedies that are required to make that system wholesome again.
PERIES: Now, Yanis Varoufakis is among his colleagues in these discussions and conversations. Yourself as well as some of his advisors, James Kenneth Galbraith, were in conversation. Now what is it that you came out–what’s a takeaway from this conference?
JOHNSON: I think the takeaway from the conference is, number one, Yanis Varoufakis is a very fine and knowledgeable economist. Some people who are opposed to his boldness in negotiating policy seek not to deal with his challenges and the logic that he puts forward, but to try to discredit him with negative media.
I think he demonstrated clearly in the hour-plus time he was with us in–well actually more, almost two hours over two panels, that he’s a fine thinker. He can hold his own in any forum. Joe Stiglitz underscored at the end that he knows very few finance ministers that have the command of economics that Yanis has.
Now, that’s what you might call a personal dimension. Systemically, policy-wise, it is obvious that Greece has gone over the waterfall. They are not going to turn back the clock. What happened in the past regarding overspending or problems that relate to the incompatibility of the Greek economy with the other economies in the system, you know, they largely exist on tourism and a couple of agricultural products. They’re not a manufacturing economy. All of these things are just not the essence of the question now. The essence of the question is when they’ve gone over the waterfall, when the debt’s too big to pay, are we going to restructure the debt, or are we going to force them out of the system and then restructure the debt?
Making a negative example of Greece by forcing them out of the system has costs, because it then creates a shiver around everybody else. Spain, Portugal, Ireland. Even Italy would come under the same kind of logic, potentially. Not necessarily, but people would draw the inference. If you play tough with Greece, you might play tough with the next guy.
The second aspect of this that’s I think most disconcerting is that when you say you’re a common Europe, you’re supposed to all be one people. To throw one group out and say you can’t come back will always leave shudders in the system as to whether people who join Europe actually belong to Europe. But they’re over the waterfall. You either restructure the debt, or Greece will be forced to leave, because you can’t have a 50% unemployment all the time.
PERIES: Now, what is it that Yanis Varoufakis was calling for? He’s among colleagues, he’s among advisors, he is among people that have a great deal of influence in Europe as economists. What was he calling for and appealing for?
JOHNSON: I think he’s appealing for a constructive plan that restructures and reschedules debt, that acknowledges–as he said, we can no longer extend and pretend the debt. We have to acknowledge the burden is insurmountable. He would like, put very simply, to see the Greek people see a little dream. A little light at the end of a tunnel. A little hope that they can get back on their feet, get organized. And he’s fearful that absent that, you’re going to see more and more outward migration, particularly of young people in Greece, who do not want to sit and crash against the rocks in their productive life when they could go work someplace like Detroit, New York, Chicago, San Francisco, London, or Berlin.
PERIES: And how was that received?
JOHNSON: Well, by the INET audience very sympathetically. Yanis has been a member of our community, participated in workshops in previous conferences, including our Berlin conference. And as I said in my introduction, I thought it was extreme good fortune that he became the finance minister.
But the INET people–not to the person. There’s always differences of opinion in our community. But by and large everybody said that you are acknowledging the truth. You’re calling out the elephant in the room, and it’s time to get on with it and stop this, essentially, torture.
PERIES: I cannot help but ask you, was the elephant in the room, and was there any response from the institutions, the European institutions that Yanis Varoufakis was calling out? As well as some of the Greek counterparts?
JOHNSON: Well, my sense is that the other institutions don’t respond necessarily within our conference. I didn’t allow a Q and A. Not even journalists were asking questions at the end. But in the hallways there’s some conversation, and obviously that was on the record. That video is public domain, it’s on the INET website, and it was linked to and cited all over the world. And I’m sure people will write articles about it, and I’m sure other policy commentators will have many things to say.
I’ve been cleaning up after the conference, and I haven’t had a check to look through my, my logs.
PERIES: Including Bob Dylan’s site, which you cited earlier. Expecting rain.
JOHNSON: Yeah, I don’t think the Dylan fans had so much to say about Greek policy, but they did catch that I used a couple of Dylan lyrics in order to illustrate both the introduction of Yanis and what a tumultuous world he is in. And at the back end, that this crisis is quite mature, and I use the famous lines from The Times They Are a-Changing, suggesting that the loser now yet may later be the one who wins. So I think how I say–try to inject a little playfulness, a little humor into a very, very difficult situation.
PERIES: And finally, what’s looming is how is Greece going to be dealing with their upcoming payments? I know they’ve made this immediate payment to the IMF just last week. But how are they planning to deal with the upcoming payments in the summer?
JOHNSON: Well, I think they have to have some plans for reform, and some continued support from the EU, and potentially from the IMF, to help them get between here and there. We had long discussions in that second session of Yanis describing what he called a black labor market, meaning an underground labor market, where people are not paying into pensions, they are not paying taxes, and that the entire revenue basis of that country is hollowed out.
So I think he’s imagining reforms that bring the undercover economy back to the surface. Start collecting proper taxes and revenues. But it’s got to be required by some rebuilding of infrastructure and a plan that allows Greece, as I mentioned earlier, to see a little light at the end of the tunnel.
PERIES: Now Rob, one of the looming issues is the issue of the Greek exit from the eurozone in order to deal with this. And that would perhaps be accompanied by a first, of course, defaulting on their debt. Now, was that a part of your discussions?
JOHNSON: The discussion of debt default was not explicit, but the notion that we do not have any scope or envisioning this debt to be properly serviced and retired over time by the Greek population was almost taken for granted. That was obvious right from the outset.
PERIES: And the possibility of a Greek exit in order to deal with their crisis?
JOHNSON: I sense from the conversation, which like I said you can see in the video, that Varoufakis would like to see, would like to see the Europeans come in to what you might call partnership with the Greeks to keep them within the system. Breaking out of the system will be very painful, very acute, stressful. On the other hand, if he’s not going to receive cooperation, as some people in the room said in the aftermath of that session, the others are just allowing Greece to strangle itself. And it might as well jump out now rather than, how’d I say, sit and–as I call it, slam against the rocks and crash on a consistent, prolonged basis. That shouldn’t happen.
PERIES: Now, with the assistance of people like Joseph Stiglitz and James Galbraith and yourself sitting at the table, who played a critical role I think in the initial phase of calling for the extension and receiving the extension from the European institutions and the Troika, were there such appeal made on behalf of his country at this conference?
JOHNSON: First of all, I, unlike James Galbraith and Joe Stiglitz, I have not been an advocate one way or the other vis-a-vis the Greek government. The way I would put it is that, president of INET, my job is to foment critical discourse, and be a referee but not a player on one team or the other. And I try to maintain a sense of balance.
But the, the sensibilities that Joe Stiglitz has written about many times, and as a matter of fact Joe Galbraith wrote about in an article in Social Europe which I cited near the end of the conversation with Yanis and Joe, I would say there–how would I say. Their appeals have been bold and strong and repeated, and in that respect it was nothing new that came out of this conference. But nobody changed their mind in the direction of allowing Greece to continue to suffer.
PERIES: Rob, what do you think is next for Greece? What is critically important in terms of being able to deliver on some of the campaign promises Syriza has made to its people, and what would enable that?
JOHNSON: Well, I think Syriza has promised to its people in order to get elected that they would represent those people, and that the situation has become intolerable. So one of two things will happen. They will either leave the system to avoid continuing to choke, and they will go through a transition, a much weaker currency, and probably negotiations with Russia, negotiations with China and other countries that might support Greece would ensue. They will work out a plan that way. Could be very, very turbulent in the interim for the next six to twelve months.
The alternative is Europe decides to come what you might call into agreement, and provide some long-term restructuring, lower coupons on the bonds, much extended maturity, and take, I’ll call it Greece’s neck, out of the noose. Allow people, public servants to be paid, people to rebuild their confidence that they can open or maintain or run a business there. And then the Greeks themselves will have to as I mentioned earlier bring the undercover economy back to the surface.
PERIES: And what do you mean by that, the undercover economy?
JOHNSON: It’s a notion that almost all the labor market, everything’s become an informal or underground sector. What Yanis refers to in that session is the black labor market. It’s opaque. It’s dark. Nobody is paying their taxes. Nobody’s paying into the pension funds. There are no contributions, and that is not the basis for a what you might call strong and broad-based Greek revival.
PERIES: And Rob, I cannot help but ask, is there a plan for the development of the Greek economy in more sort of participatory democratic, economic initiatives underway?
JOHNSON: Oh, I think there are many such considerations and plans, both within the government and among international experts. But how that is to be achieved while Greece is embedded in the eurozone, which in several of our sessions–particularly the earlier one that Yanis was involved with, where a young scholar named Thomas Fazi spoke about the Italians losing sovereignty over their budget–no one can envision a more democratic, participatory system as long as they’re what you might say under the knuckle of the eurozone and the European Central Bank.
PERIES: Rob Johnson, thank you so much for joining us today.
JOHNSON: My pleasure.
PERIES: And thank you for joining us on The Real News Network.
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