Dave here. This is actually a really good entry into Varoufakis’ main theory of the financial crisis and its aftermath in Europe, with the added perspective of a Greek scholar addressing the Finnish public, and seeking linkages between the two Eurozone countries. With even Mario Draghi at Jackson Hole pointing the finger at austerity as the culprit for Europe’s second depression, Varoufakis is looking better and better as an analyst.
By Yanis Varoufakis, a professor of economics at the University of Athens. Cross posted from his blog
It is with great pleasure that I received the news from Finland that my Global Minotaur: America, Europe and the Future of the World Economy has just been published in Finland by the good people of Vastapaino Publishers. (Click here for their site.)
My Preface to this Finnish edition follows:
PREFACE TO THE FINNISH EDITION
Finland, like my homeland, Greece, is a small country at a treacherous geopolitical crossroads that traditionally inspired great anxiety amongst its people, but also instilled into their character considerable resilience. Unlike Greece, from the mid-1990s until fairly recently Finland succeeded in turning itself into a net exporting nation, ostensibly capable of powering its way into the ‘core’ of Europe’s monetary union. So, when in 2010 my country sank in a sea of debt, Finland ended up as one of the countries that, reluctantly, guaranteed the gigantic loans afforded to countries like Greece. Soon after, Finland fell into the second ‘dip’ of its post-2008 recession, where it still languishes today.
The euro crisis, which was the inevitable result of the global Crash of 2008, and of the Eurozone’s flimsy architecture, has, thus, caused considerable strain within the European Union, setting one proud nation against another. Brussels, Berlin and Frankfurt insist that the Euro Crisis is now abating. Economic reality, on the other hand, begs to differ. Europe’s real social economy is continuing to fragment, and Europe’s integrity and soul are imperilled by our elites’ gross denial of the systemic nature of the crisis.
We, Europe’s citizens, have a stark choice. We can either turn against one another, pointing moralising fingers and continuing the mutual ‘blame game’. Or we can choose to look more carefully at the deeper causes of a crisis that is pulling us apart and entangling us in a fruitless, pathetic discursive war amongst Europeans. I submit to you that the latter is the only sane route that we can travel upon hopefully, and in unity.
This book was, originally, an offering to readers searching for a dispassionate explanation of what happened in 2008; of why the ‘certainties’ that the majority had been led uncritically to adopt buckled under reality’s relentless pressure. The Global Minotaur pointed no moralising fingers. It did not even blame the bankers for what had happened. Indeed, it blamed no one in particular but sought to explain the ‘events’ (including the rise of insufferable greed amongst the financiers) in terms of a history of world capitalism that began at the ‘beginning’, proceeded to the early part of the 20th Century (when the first networked corporations emerged, demanding mega-banks to fund them), took in the post-1929 Great Depression, explained how the United States forged the Global Plan that was capitalism’s Golden Age (1940s to 1971) and, then, described in detail the construction of the weird, wonderful and toxic second post-war phase which I chose to call The Global Minotaur Phase. The seeds of the Crash of 2008, I argue, are to be found in the guts of this second post-war phase. The rest of the book is then devoted to explaining why the crisis occasioned by 2008 constitutes a never-ending process which was always going to place our societies on a tortuous path to a highly uncertain destination – unless, of course, there is concerted, determined, bold political coordination, at a global scale, to end it.
At the time of its English language publication in early 2011(and then again before the second edition in mid-2013; which is the one you are now holding), many readers, critics and colleagues put it to me that I was taking a great risk in prognosticating that the crisis’ end was not in sight. “What if the global economy begins to recover strongly in 2012 or 2013?”, I was asked by concerned friends and grimacing foes. My answer was: “If the facts disprove my theory, it is too bad for my theory. Nothing will satisfy me more than clear evidence of the crisis’ death.” Alas, the crisis has not died and my theory, sadly, remains un-falsified.
Turning back to Finland, you may have wondered why it is that your social economy is shrinking again, your current account has gone into the red, your debt-to-national-income ratio has risen so fast, your manufacturing is in decline, your aggregate investment is fading. In more brutal words, why is Finland emulating (though at a, thankfully, much lower magnitude), the kind of trends which are, more readily, associated with my own country, Greece? So far, not one cent of Finnish, Dutch or German taxpayers’ monies have been given to Greece, to Ireland, to Portugal etc. It cannot, therefore, be that the second Finnish recession is due to a fiscal transfer to the ‘South’. No, the reasons are deeper and this book tries to unearth them.
Central to the origins of Finland’s, Europe’s, and the global economy’s fundamental conundrum is the notion of surplus recycling. One of the forgotten ‘laws’ of macroeconomic arithmetic is that one nation’s deficits are another’s surpluses. Moreover, when different nations are bound together with politically engineered fixed exchange rates (e.g. the Gold Standard of the 1920s, the Bretton Woods system of the first post-war phase, or the Eurozone today), there is a tendency for capital to migrate violently from the surplus to the deficit countries, building bubbles in the deficit regions that drive pseudo-growth there which, nevertheless, creates demand for the exports of the surplus countries, therefore reinforcing their surpluses while magnifying the deficits of the deficit areas. When the bubbles burst, as they must, un-payable debts pile up in the deficit countries. If the political response to this insolvency is to put all the burden of adjustment, and debt repayment, on the weak, insolvent shoulders of the deficit countries, the result is permanent depression there and a slow-burning recession in the surplus countries, as the deficit ones can no longer afford to import from them.
This fundamental problem led to the Great Depression in the 1930s. In a bid to avoid it, the American designers of the post-war Bretton Woods system committed themselves constantly to recycle American surpluses to Europe and to Japan (while the US had surpluses and Europe-Japan were in deficit). Alas, by the end of the 1960s, America had forfeited its surplus position (having slipped into its infamous twin deficits: trade and federal government budget). The result was that, from the mid-1970s onwards, a new, weird and dynamic global surplus recycling mechanism, which I label The Global Minotaur, was born. Financialisation, globalisation, the inexorable rise of derivative trading, inequality’s triumphant march; greed; these were the Minotaur’s symptoms. Under its aegis, in Europe there rose another monetary system: the Eurozone which would never have come into being had it not been for the global reign of the Minotaur. The euro was, in this sense, the Minotaur’s European counterpart; its simulacrum.
In 2008 the Global Minotaur was mortally wounded, a victim of its own success. This magnificent, volatile and ultimately unsustainable global surplus recycling mechanism (that I dissect variously in the following pages) collapsed overnight. The result was that the global economy fell into a rut without it, and the Eurozone, which was predicated upon the global trade and capital flows made possible by the Minotaur, had suffered a major blow. It was like a tall building with weak foundations hit by a massive earthquake which it had never been designed to withstand. Tragically, our European leaders, instead of rushing in to create stronger foundations, opted for a permanent state of denial. They painted over the cracks, stuck wallpaper on the emerging gaps, and erected wooden scaffolds instead of injecting cement into the foundations. The results can be felt today from Helsinki to Porto and from Dublin to Crete.
If I could be granted one wish, regarding the book’s impact on you, the reader, it would be this: To offer a prism from which the crisis in Finland and in Europe can be seen as the inevitable outcome of an ill-designed economic system which good people have the power to re-design as long as they avoid playing the mutual ‘blame game’ that benefits only the xenophobes, the misanthropes and those who have found smart ways of profiting from other people’s labour and discontent.
 The bailout funds have taken the form of guarantees that will only translate into payments after Greece or some other peripheral nation default on their loans. While this is very likely to happen in the near future (especially for Greece), it has not happened as yet.