Greek Finance Minister Yanis Varoufakis has called on the European Union to reform its institutions and use the EIB to boost investment in Greece. He believes the EU should address the structural inequalities that plague its weakest members. EURACTIV France reports.
The annual forum of the Institute for New Economic Thinking on 9 April provided a hospitable stage for Yanis Varoufakis to explicate his vision of economic theory, and the European economy. The government minister, and professor of economics, found himself the centre of attention at the Paris forum, and took the time to explain his strategy in detail, as a crucial payment deadline loomed over his country’s finances.
“Few finance ministers have such a talent for economics as Yanis Varoufakis,” the Nobel Prize winner Joseph Stiglitz acknowledged, before asking him questions on the reasons behind Europe’s economic deadlock.
Founding fathers to blame for lack of eurozone integration
“I believe we have to put an end to the divided eurozone and aim towards greater consolidation. We must change this process of pitting one nation against another, and renew the momentum of integration and unification,” the new minister said. He added that he would not be there talking about the Greek crisis if the EU had been federalised.
Yanis Varoufakis blames the EU’s incomplete federal integration on the fact that its founding fathers, including the pillars of European politics François Mitterrand and Helmut Kohl, did not believe in their power to create a United States of Europe. They established an economic and monetary union in the hope that cooperation between the states would get closer over time, and they thought the political union would come about naturally in a time of crisis.
“But the opposite has happened. The crisis that hit Europe means that it is now more difficult to convince the states to move forward. The crisis did not bring us together, but pulled us apart. If we tried to form a United States of Europe today, we would fail. But I think we need to modify the treaties and try to change this situation,” the professor said.
How would the federation have responded?
The Greek finance minister argued that a federal Europe would have reacted differently to the crisis, which brought about debt, the collapse of the banking system, under-investment, and an explosion of poverty.
He said that member states’ debts were preventing them from making the investments necessary for their future, but that strategic interventions from the European Investment Bank (EIB) could help.
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The EIB can release bonds, and has already done so, although so far only in small doses, out of fear of reducing yields. The ECB’s monetary easing policy of buying state bonds has also been so effective that there are none left on the market. “If the ECB was ready to buy the eurobonds released by the EIB, there would be no more yield problem. So all we have to do today is change how we use the existing institutions, because the EU really needs to repair its economy by injecting money into the private sector,” the minister said.
“We are not asking German taxpayers to finance an investment programme on the outskirts of Europe, but we are asking the existing institutions to mobilise their financing abilities,” he added. The economist said that some companies in Greece had large backlogs of orders that they could not fulfill due to a lack of funds.
Ready to compromise
Questioned over what Greece needed today, the minister said he was searching for a compromise. “This is what happens in a democracy: When we are faced with opposing positions, we have to get round the table and find a compromise. We suggested delaying the deadline until the end of June to give us the time to think about what should be done in Greece”.
Varoufakis also gave his analysis of the economic and social situation in Greece. Whilst he recognised the need for economic reform, he also observed that after five years of aggressive fiscal consolidation, Greek exports had stagnated. “That means that something is not working, regardless of what political position we take,” he said.
“The problem is that ‘reform’ has become a dirty word in Greece, like the word ‘democracy’ in Iraq!”
This, he said, is the legacy of five years of badly implemented reforms that addressed the smallest problems and left the most important issues to one side.
“Today, if a Greek hears the word ‘reform’, he gets worried. If he is retired he will worry about cuts to his pension, if he is an entrepreneur he will worry about VAT increases. VAT is already at 25%: the problem is the collection, not the tax rate,” Varoufakis said. He added that Greece needed to put a positive spin on the word “reform” by tackling the country’s worst problems: tax evasion and tax loopholes. He stressed just how difficult it is to make reforms during an economic depression without the full support of the population.
The Greek finance minister said that “Structural imbalances within a monetary union inevitably place the burden of adjustment on the weakest shoulders. You don’t need to be from the right or the left to recognise this: it is visible from day to day!”
He used the example of salaries to illustrate how imbalances can hit the poorest countries the hardest. The fact that wages are lower in Greece does not cause a problem to Volkswagen, for example, simply because Greece does not produce Volkswagen vehicles.
“It is up to the institutions to deal with this, these inequalities that have been accentuated by the crisis.” Varoufakis even said that their refusal to do so amounted to an admission of guilt.
The Greek economist also highlighted the urgent importance of reforming the European institutions, beginning with the European Financial Stability Facility (EFSF), which, he said, appears to have been created for nothing: Iit is so rigid that we can’t do anything with it.” He also gave one “very depressing” example. In February, the ECB stopped Greek banks from using Greek state bonds as guarantees for their refinancing.
The minister said: “We cannot raise the necessary funds, even if it is only to help the negotiations along.”
“Even the British Conservatives understand that when you implement austerity measures in a country that is going through a deep depression, it just causes economic activity to contract even more,” he said.
While Varoufakis found a receptive audience in his peers at the Paris forum, he received little media attention for his in-depth analysis. Like the other European finance ministers, the news agencies present were more interested in what he had to say about the Greek debt and the latest payment deadlines.