Yanis Varoufakis on the Euro Crisis: The Global Minotaur out now in Finnish

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:


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.[1] 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.


[1] 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.

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About David Dayen

David is a contributing writer to Salon.com. He has been writing about politics since 2004. He spent three years writing for the FireDogLake News Desk; he’s also written for The New Republic, The American Prospect, The Guardian (UK), The Huffington Post, The Washington Monthly, Alternet, Democracy Journal and Pacific Standard, as well as multiple well-trafficked progressive blogs and websites. His has been a guest on MSNBC, CNN, Aljazeera, Russia Today, NPR, Pacifica Radio and Air America Radio. He has contributed to two anthology books, one about the Wisconsin labor uprising and another on the fight against the Stop Online Piracy Act in Congress. Prior to writing about politics he worked for two decades as a television producer and editor. You can follow him on Twitter at @ddayen.


  1. John

    Typical of situations where there are serious, ongoing crises the elites create an environment where the “little people” are fighting amongst themselves so as to conflate the real reason why things are so bad. Even when we have a chance to make a difference we tend to keep the status quo in place — because the alternative, we are told is far worse. Taking a look at the EP elections held in May Greece had just less than 60% eligible voters show up at the polls. Sure, the left wing faction got a bigger share of the votes but European parties govern by coalition so there could never be a mandate to throw the bums out. Some are still believers.

    We can continue to look at history as some sort of omen but politicians are not interested in history, because politics is where decisions are made and not in macroeconomic theory. Comparing the euro to Bretton Woods does not hold water for these folks because for them there is no alternative. We must come to the realisation the status quo is here to stay — pain & suffering — for years to come.

    1. Simon

      I have to say that I agree. My assumption has been for a long while now that things would come to a head, that somehow the creaking would give way to an explosion, but I now think, like Japan, there will be a slow grinding pain and suffering with constant promises of escape being just around the corner.

      “we are not crushed by despair but by hope” as the quote goes. We are continually led to believe we are close to the end, but only to keep us going a little while longer. All this does is extend the time during which the looting can take place.

      In the IMF’s conditions for its loans to the Ukraine so I have read, allow for GMO crops to be grown (previously banned) and also fracking in the East (which the East doesnt want).

      Things won’t come to a head until the masses wake up “slaves in the land their fathers once conquered”. And perhaps not even then. The masses are all suffering from Stockholm Syndrome.

  2. Jesper

    I’d look more closely at this and instead of focusing on the first part I’d look into the second:

    “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.”

    Extracted from above: “there is a tendency for capital to migrate violently”.

    And look into how capital can ‘migrate violently’. What are the prerequisites? Capital accumulation into few hands makes capital easier to move.

    Simply put, when capital is accumulated too much then there is a risk of violent capital migration leading to devastation.

    1. Steve H.

      “building bubbles in the deficit regions that drive pseudo-growth there”

      This is where I also get nervous. One solution to the big-picture problems is the local-network, local-production model. It builds on American-dream small property ownership, which is the main investment of labor-based income households. But if zirp free money comes floating in, pushing up property values, then the tax bill can shoot up prohibitively.

      Here in Bloomington, we are in one of the two counties in Indiana where property values did not decline last year. There is a college-town multi-story building burst going on. (Bloomington’s business is selling optimism about the future.) But the house down the block that had been in the family since the 1940’s sold at about 80% of assessed value, and the sale was forced because one of the kids had medical bills to pay. If fast capital starts shooting in more, many family household will fall, because wages have not kept pace, on neither individual nore aggregate basis.

  3. financial matters

    Ellen Brown makes a compelling case for public banking. She discusses the mainly pubic banking systems of Russia, India Brazil and China and how these banks tend to mete out ‘qualitative easing’ to small businesses and to poor people to create demand rather than to salvage the private banking system as the case in the EU and US.

    China’s ‘non-performing loans’ can be seen more in light of providing credit to businesses which also provide cradle to grave social services. India’s banking system works best when it provides loans to ‘high risk’ people such as farmers and small businesses rather than concentrating too much on profits. The BNDES of Brazil provides long term lending to strategic sectors and is much more stable than trying to get money to these industries by casino type stock and bond markets. ‘In the 1998 Asian crisis, many Russians who had put their savings in private banks lost everything, and the credit crisis of 2008 has reinforced their distrust of private banks. They want a bank in which they can feel their money is safe. As problems linger in global financial markets, local Russian companies are also switching to state-owned banks for funding.’

    She also brings up Cyprus and that other banks are considering bail-ins to help them maintain capital if necessary. And dealing with the derivatives problem by giving them superpriority.

    Ellen Brown , ‘The Public Bank Solution’, From Austerity to Prosperity.

  4. Jesper

    Is he recommending not ‘playing the blame game’ like in the US?

    No investigations, no prosecutions and no punishment for anyone in finance or in position of responsibility? It was the system that did it, no individual anywhere did anything wrong?

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