“The alternative is a gigantic dystopia, because the way we are moving today is creating nothing but hopelessness and despair and a shrinking middle class.”
Those aren’t the words of Donald Trump or Bernie Sanders. They’re from someone who watched his nation get hammered first by a financial crisis not solely of its own making and then by a heavy-handed international push to bully his government into accepting draconian spending cuts that ravaged the lives of millions of his fellow citizens.
That person is Yanis Varoufakis, a self-described “erratic Marxist” who served as the Greek finance minister when European leaders forced through dramatic tax hikes and spending cuts in exchange for the emergency loans Athens needed to make payments on more than 350 billion dollars of debt.
According to Varoufakis, this was a short-term move that saved the banks but decimated regular people and failed to solve any of the underlying problems with the financial system. “They had to couch their actions in false narratives and cover up previous crimes with new crimes,” he told me in an interview tied to the publication of his memoir, Adults in the Room: My Battle with Europe’s Deep Establishment. “They became prisoners of their own devices, trapped in a cage they had all built.”
Varoufakis believes that growing public fury over the way Western governments protect the global financial system could lead to the election of more demagogues like President Donald Trump and spark more European nations to consider Brexits of their own.
Our full conversation, lightly edited for clarity, appears below.
You start your book by comparing the financial crisis in Europe to a Greek tragedy. Why so ominous?
The essence of tragedy is when people are desperately trying to do what’s right but are trapped in circumstances that forbid it. I wrote this book because I think this is what has happened to Europe. I was locked in a confrontation with some of the most powerful organizations and institutions in the world, and yet the individuals making the decisions were, for the most part, caught up in a machine over which they had no control.
You call the global financial system “an inhuman, mostly unseen network of power relations.” In the least abstract way possible, tell me what you think went wrong?
During the period of deregulation, which began on Wall Street in the 1990s and came to crescendo under Bill Clinton, the banks suddenly realized that they had monstrous capacities to print money.
It was like having their own ATM with no constraints, no limits. Of course, that requires also an ideology that allows them to feel good about what they were doing, to feel like they weren’t jeopardizing anyone. This is the ideology of neoliberalism, and it produced the financial economic models that spawned a whole new species of “riskless risk” — if you recall that magnificently stupid phrase from the 1990s.
This idea of “riskless risk” sounds like a perfect assumption on which to build an economic house of cards.
That’s exactly right. The people who bought into this believe we had a new paradigm that allowed to banks to create value out of nothing and to do it safely. At the same time, politicians were impressed with all this money making, as it helped their careers and financed their campaigns. The ones with a greater public service conscience were also impressed by how the financial sector's taxes could pay for the welfare state, especially in places like in Britain and in Germany.
But I argue in the book that they were hoodwinked by this system of financialization and that in 2008 we all got our comeuppance. All those pyramids, all those Ponzi schemes came crashing down, and the politicians who didn’t see it coming panicked just as the bankers panicked.
And the response was basically to paper over previous mistakes with more mistakes?
They went through a sequence of short-term moves to save their bacon and the bacon of those who were financing them in the financial sector. But every time they did that, every time they saved the bankers, they alienated themselves from their electors, from the actual citizens. They had to couch their actions in false narratives and cover up previous crimes with new crimes.
They became prisoners of their own devices, trapped in a cage they had all built.
Are Europe’s financial problems fundamentally different than America’s? Obviously, we live in a globalized economy, but Europe seems especially ill-equipped to respond to financial crises.
The thing about the United States is that you’ve always had very pragmatic elites that sit around a table when a crisis like that of 2008 takes place and ask themselves the pertinent question, which is, "How can we save ourselves from this crisis?"
America has ways of using the existing institutions like the Fed, which was born out of the early 20th century financial collapse, to neutralize a crisis. America also has various New Deal institutions which allowed the US government to shift all the losses onto the government’s books. The result was a much quicker recovery.
In Europe, we have a central bank, which is not permitted to do this, and instead the sins of the bankers were shifted onto the shoulders of the weakest of taxpayers, beginning with the delinquents. Because those shoulders were not strong enough to carry that huge burden, the burden was spread to the taxpayers of other European countries. All of that led to a never-ending debt inflationary crisis is places like Greece and Spain, and to inflation in places like Germany and Holland.
You say major European leaders like former French President Nicolas Sarkozy and current German Chancellor Angela Merkel knew the 2010 bailout was a disaster, especially for Greece, but did it anyway. Why?
Of course, they did it to save their banks. Let me just give you a very simple number, which I think is quite mind-boggling. In 2008, when President Barack Obama was facing the financial crisis of 2008, the total exposure of Wall Street was something like 40 to 45 percent of American national income, which is very large. Compare that to Deutsche Bank, one of Germany’s largest banks, whose exposure was — wait for it — 50 times the national income of Germany. That’s insane. That’s 50 times the national income of a very rich country.
So when Merkel was faced with Deutsche Bank going bust, she handed over 500 billion Euros to a few German banks. She didn't like doing that — it was political poison for her. She was a conservative leader who was penny-pinching on the schools and hospitals for years. Suddenly, she had to give 500 billion Euros to very rich banks.
Eight months later, another phone call came to the chancellor saying, "Now we have to give them another such sum because the Greeks are going bust, and if the Greeks are allowed to go bust, then the Irish will go bust, the Portuguese will go bust, the Spanish will go bust, the Italians will go bust, and then there's nothing we can do to save Deutsche Bank."
And this is where, in your book at least, the story becomes tragic.
Well, Merkel couldn’t go back to her people and ask for another wad of money for the Deutsche Bank, so they portrayed it as a bailout for Greece. She was forced, effectively, by her own people, to go to the federal parliament in Berlin and lie to members of parliament.
This is when the Macbethian story begins, because once you commit that crime once, once you lie to your members of parliament and you say that this is money for the Greeks and we're going to be tough on them and we're going to make them pay it all back with interest and you know that they're not going to because they're bankrupt, you’ve set up an impossible situation that is bound to implode.
In the book, you recall your warning to EU creditors that if they crushed Greece financially, and by extension crushed Greece’s progressive challenge, that an illiberal, xenophobic backlash would ensue — both in Greece and across Europe. And that’s exactly what happened.
I gave countless speech against Brexit all across Britain and Wales and Scotland. I can tell you that I heard from countless people who supported me generally but remained fiercely against the European Union.
I explained to them why they should stay in the European Union, why they should join forces with fellow Europeans, why that would be more effective than Brexit. But they didn’t want to hear it. They would tell me, “We like you, we like what you tried to do for Greece, but the way the European establishment crushed you is an example of what might happen to us.” And so they were determined to separate from Europe.
Many of them were left-leaning, democratically minded people who were appalled by the way Brussels treated us and so they voted against staying in the EU as a direct reaction to the way our government was crashed. They were far more open to the appeals of the nativists and the isolationists because of what they saw happen to Greece and Spain and other countries.
I take it you see Donald Trump’s ascendance as connected to all of this?
Unquestionably. All of this is connected. The rise of the far-right, of ultra-nationalist movements, of anti-globalization movements — there was a kind of chain reaction that kick-started all of this. I can’t weigh particular causes and tell you that this factor is more important than that factor, but there’s clearly a connection.
The incompetent authoritarianism that the European Union showed in dealing with these crises, and the suffering it caused, was a major blow to progressivism everywhere.
Ultimately, the uncertainty and insecurity caused by our corrupt financial system created space for the simplistic solutions of the racist right. And we’re witnessing the consequences of that right now.
At the end of your book, you talk a lot about the need to devise a new financial order, one that is constructed via democratic processes and not by bankers. Now, a lot of people will read that as Marxist utopianism. It sounds lovely, but it’s hard to imagine how such a system would come into being.
First, I’d say that that was probably the received wisdom in America in 1931. I bet the idea of the New Deal sounded utopian then as well. But two years later it was a reality. Second, maybe it is utopian, but what’s the alternative? The alternative is a gigantic dystopia, because the way we are moving today is creating nothing but hopelessness and despair and a shrinking middle class. The young are trying to privatize their dreams by imagining that if they work very hard they would produce the next killer app and become billionaires.
Of course, that happens to very few. Most of them get burnt out, and by the time they're in their late 30s they have no social security, they have no hope, they have no insurance, and the result is a discontent that feeds the political monsters that we see around us.
If I were to invest my energies and the only two options were a massive dystopia and a potential utopia, I would rather go for the utopia. It's the only realistic plan.
But we started this chat by comparing the global financial crisis to a Greek tragedy, and tragedies don’t end well.
Someone once said that the problem with the inevitable is that it's usually usurped by the unpredictable. I'm never keen to indulge in predictions. What I know is that if we keep doing the same thing, the EU is doomed — but there's no reason why we should keep doing the same thing.
2015 was a magnificent moment in Greece; devastated people rose up. This can happen anywhere else. This is why, instead of concentrating on creating a new political party in Greece after 2015, I threw my lot in with other people to create a democratic movement across Europe.
I have no idea what the chances are of success. Maybe they're very small, but the fundamental difference between predicting the weather and what will happen to the EU — or the United States, for that matter — is that the weather doesn’t give a damn about our predictions, but what happens in our societies depends on us.
That is a greatly empowering thought.