Yanis Varoufakis: Schäuble Leaves but Schäuble-ism Lives On

Yves here. It was painful to read the encomiums for Wolfgang Schäuble yesterday as he is about to leave his post as German finance minister and become speaker of the Bundestag. The New York Times and Financial Times, among others, praised for his role as austerity enforcer and depicted him as the truest defender of European unity. In fact, the neoliberal policies that Schauble backed increased the centrifugal forces in the Eurozone, weakened an already anemic recovery, and provided powerful evidence that Europeans are anti-democratic, which in turn helped fuel Brexit and the rise of nationalist parties, particularly in France and Germany. These accounts also either failed to mention or greatly underplayed the fact that Schäuble took bribes from an arms merchant, which put an end to his aspirations to become Chancellor.

By Yanis Varoufakis. Originally published at his website

Wolfgang Schäuble may heave left the finance ministry but his policy for turning the eurozone into an iron cage of austerity, that is the very antithesis of a democratic federation, lives on.

What is remarkable about Dr Schäuble’s tenure was how he invested heavily in maintaining the fragility of the monetary union, rather than eradicating it in order to render the eurozone macro-economically sustainable and resilient. Why did Dr Schäuble aim at maintaining the eurozone’s fragility? Why was he, in this context, ever so keen to maintain the threat of Grexit? The simple answer is: Because a state of permanent fragility was instrumental to his strategy for using the threat of expulsion from the euro (or even of Germany’s withdrawal from it) to discipline the deficit countries – chiefly France.

Deep in Dr Schäuble’ thinking there was the belief that, as a federation is infeasible, the euro is a glorified fixed exchange rate regime. And the only way of maintaining discipline within such a regime was to keep alive the threat of expulsion or exit. But to keep that threat alive, the eurozone could not be allowed to develop the instruments and institutions that would stop it from being fragile. Thus, the eurozone’s permanent fragility was, from Dr Schäuble’s perspective an end-in-itself, rather than a failure.

The Free Democratic Party’s ascension will see to it that Wolfgang Schäuble’s departure will not alter the policy of doing whatever it takes to prevent the eurozone ‘s evolution into a sustainable macroeconomy. The FDP’s sole promise to its voters was to prevent any of Emmanuel Macron’s plans, for some federation-lite, from being agreed to, and for pursuing Grexit. Even worse, whereas Wolfgang Schäuble understood that austerity plus new loans were catastrophic for countries like Greece (but insisted on them as part of his campaign to discipline France and Italy), his FDP successors at the finance ministry will probably be less ‘enlightened’ believing that the ‘tough medicine’ is fit for purpose.

And so the never ending crisis of Europe’s social economy, that feeds the xenophobic political monsters, continues.

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  1. PlutoniumKun

    Just a slight – perhaps pedantic – point. I’m not sure its correct except in its loosest sense to say that Schauble is a ‘neoliberal’. I think it can be deceptive sometimes to label everything we leftists don’t like as ‘neoliberal’. He comes from quite a distinct line of German thought which explicitly rejects Keynesianism (even though the German economy has in reality many carefully built in counter-cyclical stabilisers) but mixes some Hayek with old fashioned mercantilism. The obsession with trade surpluses is one obvious differential between them and what we would consider neoliberalism. There is a good discussion of the distinctiveness of German conservative economic thought here.

    As for the praise Schauble gets, it continually astonishes me, even in the victim countries, that Merkel and Schauble get such a free pass for the enormous damage they have done to Europe in the past 10 years, and that includes from many on the notional left. I think it shows just how hard it is to shift the notion of ‘balanced budgets’ and ‘living within our needs’ as a form of virtue . The (in many ways justified) worldwide admiration for the German economic model is such that people find it very hard not to feel somehow that they are always right. Even in Germany of course the potential for long term ruin has been set by the almost complete absence of investment in infrastructure over the last 2 decades.

    1. Frenchguy

      While I agree that German economic thought is archaic and that Merkel/Schauble were quite narrow-minded during the euro crisis, one criticism that I think is unfair is the one where they supposedly “imposed” austerity. Schauble in particular was always quite clear: if you want to stay in the Eurozone, you have to respect the fiscal rules that were agreed beforehand otherwise no worries, we will help you leave. I’ll repeat that, Schauble was aware that Grexit might be the better option and was prepared to help but he left the choice to Greek leaders (side note, it’s actually the French that ruled out an exit from the Eurozone). The rules might have been dumb but the time to complain was before signing them, not after (newsflash: Germans are stickler for rules). Of course, peripheral countries knew that exiting the eurozone was actually not a panacea and Varoufakis in particular hoped to blackmail Germany into accepting his plans, that went well…

      So yeah, to say that they saved the Eurozone is far-fetched and they were certainly not visionnary in any sense of the world but they did bend the rules and they did spend a lot of domestic political capital on that (on the other hand, a bailout for the periphery was not that unpopular in France but French leaders pretty much capitulated on the issue…). If you want a comparison, Merkel allowed the AfD to take flight in order to help the periphery while Tories in the UK did bail out of the EU in order to woo back UKIP voters. And of course, I am still waiting for the US governement to send any money to the Euro periphery since it is so simple.

      There were few good guys during the euro crisis: Trichet was a disaster, Sarkozy signed on the Deauville accord a bit too enthusiastically, the Greeks did fake their deficit numbers (something that people forget too quickly, it was a major breach of trust) and Varoufakis played the blackmail game, Spanish politicians gunned for new records of corruption, Ireland set up one of the biggest corporate tax heavens of all time, Berlusconi was morally the worst of the bunch, even Draghi was perhaps a bit too slow to push spreads back to down (though he probably did the best he could)… Among all of that mess, I think you can argue that Merkel was relatively the best of all, not that much of a compliment though.

      1. Peter Mott

        I’m reading Varoufakis book at the moment and I think that the accusation of blackmail is not fair. This is because the threat of blackmail is to do something that is morally wrong. But Varoufakis’ position was that if a measure of debt-relief could not be agreed then Greece should leave the euro (and “haircut” some Greek bonds with the ECB). This was a perfecrtly reasonable and moral course of action. If I have any criticism of him (and I have not finished the book yet) it is that he had unrealistic expectations of what could be acheived by being reasonable, and even more so of how quickly being reasonable could possibly work.

    2. makedoanmend

      Yes, these are all very good points, excellent points in fact. And one should be able understand and delineate the differences between German conservatism and its UK variety of tory conservatism for instance. I’d just interpret/input your points in a slightly different perspective.

      It really seems that the outcomes of both versions of economic conservatism produce similar neoliberal outcomes in aggregate: reduced wages, precarious working conditions, increasing economic inequality, reduced services, tax money being funnelled to businesses, and vanishing/crumbling infrastructure. It really seems to be a matter of degree rather absolutes. UK infrastructure seems to be in decent shape and with PPP even the Tories can buy into a degree of Keynesian stimulus via public works, whilst it seems the Germans have largely dropped the ball. Then again, Obsourne* was all about the rhetoric of balanced budgets – that is, balanced budget for the poor, unbalanced budget stimulus for the rich. So, there can also be a Tory similarity with the German type of economic conservative strand.

      So, I suppose, like everything else, the complexity is revealing in itself; and knowing how the different strands of economic conservatism evolved might help us understand how to counteract the pernicious effects.

      For the average working punter the situation, in toto, just keeps getting worse.

      [*To all NC’ers, Osbourne was finance minister under Cameron in the UK. If you should ever meet him, don’t ask him what the product of 8 x 7 is. He thinks that kind of question isn’t cricket and is basically a subversive type of activity.]

      1. paul

        To be fair, he was the only person to publicly shed tears over Margaret thatcher’s quite natural death. I’m sure he mopped his eyes afterward with an old ‘hang mandela’ t shirt (de rigeur for his generation) before popping out to walk the dog with his old pal natalie rowe

    3. paul

      I think ordoliberal is the appropriate term of art for schauble, a lawyer not an economist, and one with a rather dredd like approach to jurisprudence (bribes being acceptable business expenses in Germany until recently).

      That gross chancellor kohl’s bagman’s career was eclipsed by agent Angela must have been a terrible stone in his shoe.

      I still remember him gelatinising Michael Portillo in one of his many tv license funded flounces around Europe. He pummelled poor Michael with his hausfrau hogwash as mercilessly as he vivisected Greece.

      It was noticeable that Michael assumed that Germany’s strength was due to Schauble’s ‘character’ rather than seeing a rather rank case of institutional inheritance.

      1. Mark P.

        I think ordoliberal is the appropriate term of art for schauble

        It is. And the first responder to the OP, Plutonium Kun, up top, in fact provides a link to an analysis of ordoliberalism, and how it played out during and since the GFC.

        with a rather dredd like approach to jurisprudence

        I like the way you put that

    4. Yves Smith Post author

      I agree that he’s on board with ordoliberallism which is basically a nutcase extremist version of neoliberalism that is mainstream in Germany but I didn’t want to over-egg the pudding. Let us not forget that the non-ordoliberal IMF has fronted for the Troika’s tender ministrations to debtor countries during pretty much all of Schauble’s tenure, save its pushback in the latest round of financing for Greece over the refusal of EU state lenders to Greece to write off some of the debt owed. And the IMF still capitulated.

      So if the IMF stood shoulder to shoulder with Schauble, does the fact that he was an ordoliberal as opposed to neoliberal make any difference in practice?

      1. paul

        It is probably splitting hairs from the same mangy dog, but I think ordoliberalism captures the prim sanctimony of monsters like schauble.

      2. PlutoniumKun

        Second try here (I wrote a reply to you which disappeared into cyberspace, it may pop up again).

        I agree that the distinction between ordoliberalism, liberalism and neoliberalism is a bit irrelevant when the outcome is the same. And they do agree with each other on most subjects. I just think its worth paying attention to the distinct differences between the mainstream German version of liberalism and Anglo liberalism.

        To take the issue of austerity, it always seems to me that the Germans are True Believers. They have a moral belief that excess spending, government deficits, and trade deficits are wrong in every circumstances. Neoliberals pay lip service to this but (correctly) ignore this in practice. Tories and Republicans are always quite happy to bust budgets when it suits them and in reality don’t seem to care about trade deficits.

        On the other hand, while Neoliberals are True Believers on the benefits of free movement and trade, Ordoliberals are far more pragmatic, and are at heart mercantilists and corporatists (and this includes being quite happy to keep Trade Unions and other social sectors ‘on board’ rather than seeing them as enemies). This is clearly reflected in the constitutional make-up of the EU.

        I think that one of the crucial failures in the Eurozone is that for a whole series of reasons the structural design of the Eurozone was hijacked by liberal True Believers, and much of the fault for this was the intellectual failure of the broader left to understand the importance of controlling monetary policy.

        Its also worth pointing out that while in the Anglosphere ‘liberals’ have a unified approach and dominate the main parties, in many European countries, in particular Germany, there are, and always have been, distinct parties representing the different shades of liberal views, with Christian Democrats being Ordo’s, while smaller parties such as the Free Democrats representing a ‘purer’ form of liberalism. As Yanis points out, a strengthened FDP is a disaster for Europe, we can only hope that the Greens somehow manage to wrestle away some of the economic portfolio from them.

        1. Left in Wisconsin

          Philip Mirowski, who seems to have tried as much as anyone to clarify what is and isn’t neoliberalism, considers ordoliberalism one of at least three or four variants: ordo, Austrian, Chicago School and, probably, James Buchanan’s public choice. He identifies Carl Schmitt as a key influence on Hayek, particularly Schmitt’s notions that the economy was too important to be left to the whims of democracy (“only a strong state can preserve and enhance a free-market economy”) and “the exception,” which is to say that the state should stay out of the economy at all times (i.e. no bailouts for you) except when preserving the market requires state intervention. Think Obama and big banks.

          For those who aren’t familiar with Mirowski, here is a good piece on Defining Neoliberalism (in which, parenthetically, he provides an excellent takedown of Wikipedia as a forum for learning about anything controversial). To some, he takes a bit of getting used to but he is a terrific writer and you are bound to learn some new words. Have dictionary at the ready!
          Defining Neoliberalism

        2. digi_owl

          The basic problem with EU is that what “left” there is present in it, is of the student/champagne left that is more about glitz and humanitarian causes than they are workers rights and similar that used to define the left both before and after WW2.

          I keep bumping into students and “young professionals” that praise the EU because first of all they got to study abroad under some EU scheme, and now can take their credit card and smartphone and set up camp anywhere their hearts desire within the euro zone.

          They are effectively blind to the problems this “freeflow” cause for long fought for rights and protections of the working man and woman. This while parroting the idea that EU is what has not caused a major European war in a generation or two…

          1. makedoanmend

            Being a European leftist myself, I seldom bump into my compatriots who are drinking champagne as if its fizzy water, flashing credit cards and so on. Many are working middle class people struggling to get by; many others are working poor; and some are getting along just fine. In other words, there is an entire gamut of socio-economic backgrounds represented in the left in Europe.

            Many of my compatriots are educated. When did leftists have to eschew higher and further education? One of the primary acts of socialist leaning peoples in the late nineteenth century was to lobby for and provide additional channels of education to sections of the community who previously didn’t have the resources to study, or simply didn’t have time during the day and were denied physical facilities when they did have the time.

            Yes, there are many people who seem to be doing fairly well and might espouse leftist viewpoints without bothering to understand better why they espouse such views. I would suggest this is the case with many of our compatriots, whatever their political leanings. And it’s not so easy either to categorise and identify the working class. I know of several manual labourers who would go ballistic if you suggested they were anything less than middle class citizens.

            Also, it’s rather easy to conflate liberals with leftists? I would argue they are not the same political beast.

            Some students in my biology course (an admixture of biochem & agrics) just started an anarchist society. The first in the university’s history. I hope these young and well educated people, who come from many different backgrounds and from several European countries, can explore what leftism means and how it impacts on everyone for good or ill. Equally, I hope they are successful in better understanding the human condition as they down pints of wallop in some pub around town.

            1. digi_owl

              And your “anarcist commune” is just the kind of disconnect i am pointing at, though i should perhaps not have conflated student and champagne leftists as much as i did.

              It may be an interesting anthropological experiment, but it is wholly disconnected from the everyday struggles of workers, be it industrial or service.

              There is a certain overlap between champagne and student left however. This in their (willful?) ignorance of everyday worker struggles, while they try to ramrod all kinds of “humanitarian” causes in far off corners of the world.

    5. Terry Flynn

      Thank you. Just an anecdotal observation that supports this based on 15+ years of Spanish holidays. I always had an apartment so I had options to go eat out with friends I made in the complex or cook for myself.

      Spanish restauranteurs, if you got them to give their private views, hated German tourists compared to Brits: the latter would far more often go “sod it, we’re eating out” thus benefiting the local hospitality industry (and deal with the resulting credit card debt later!) . I and others noted how less often Germans did this…. They clearly had a food budget which dictated finding the nearest LIDL/ALDI and cooking dinner for themselves in their apartments. In the shops (in areas that definitely weren’t “dominated by German holidaymakers) you’d see a disproportionate number of Germans buying pasta/bread/sauces – obviously intending to cook most nights.

      I’ve read on NC the increasing pressure on German domestic budgets following the schroeder “reforms” etc and anecdotally I saw plenty of “living strictly within one’s means” on display on holidays… And Spanish restauranteurs saw it too.

      1. PlutoniumKun

        Ask any tourist town hustler and they’ll tell you the way to sell to Brits is to say ‘its on discount!’ while the way to sell to Germans is to say ‘its the best quality!’.

        Mind you, its also a cultural thing. I had a French acquaintance say that the big complaint in her small village is that the Dutch insist on bringing their horrible tasteless tomatoes with them on holiday. The Brits will always eat out of course, there is no point to being on holiday otherwise and quite right too.

        But on a purely anecdotal basis I’d agree with you that Germans seem much less inclined to splash out on holiday (I’ve noticed that about supermarkets in Spain/France too). German incomes certainly have been squeezed unnecessarily for 2 decades now (its still amazes me that the German workers blandly accept this in most sectors). Germans used to be known as big spenders when they holidayed in Ireland, but they don’t have that reputation anymore.

        1. Terry Flynn

          I agree that I’m surprised so many German workers have blithely accepted this constriction on their incomes.

          Again, there must be cultural factors at play that mean they have accepted that this is all part of “how Germany apparently works so well” as a country /society.

          I am curious how long this mindset will continue as neoliberalism – even with the better German constraints on its effects – inevitably creeps further up the income distribution. Things like the balanced budget law (if fully adopted and adhered to) will cause increasing problems… The AfD electoral success may be the canary in the coalmine.

          1. paul

            while I haven’t been in Germany in the last few years,last time I was in berlin,amid the cranes(the parliament island seemed to be a noble attempt at architectural landfill) and the infrastructure that was clearly behind demand, I was astonished at how many familiblogged characters were there, on the trams,busses, streets.
            Went into a local bar, (much to my better 50% advice), we were the only ones that were not chronically disabled,no beer on tap but they all could hardly been nicer to us.
            The german miracle is being worn to a thread was my conclusion.

          2. paul

            Wander into a german village town and you will see how unhappily this is playing out. Visiting the charmingly understated max ernst museum outside koln, I remember a well pensioned hausfrau rolling her eyes in our direction at a couple of young lads (dark skinned of course),her face would have turned milk.
            They were just young lads talking loudly.
            Because we are both tall and blue eyed she did not seem to have a problem with us at all.

          3. Left in Wisconsin

            I agree that I’m surprised so many German workers have blithely accepted this constriction on their incomes.

            The German manufacturing economy is very strong but German workers in the exposed sector are no less subject to job relocation blackmail than workers anywhere else. The macro-economic data might “prove” that German workers are underpaid, but German wages are based off the export economy and the relocation threat is real. German manufacturing workers are already probably the highest paid in the world (depending on choice of measure). Widening the cost differential with Eastern and Southern Europe, not to mention other places with even lower wages, I think is rightly perceived as risky.

            1. Ignacio

              I think you have a point here and it has to do with mercantilism. Probably, those workers employed in large factories exporting all around the world know that such mercantilism helps them keep their positions and relatively well paid positions compared with their peers in other countries. This must be the way CDU attracts labor to their side.

              Nevertheless, if german tourists spent more in Spain, we would have more money to spend in their factories, somebody should educate them, HA,HA, HA!!!

          4. digi_owl

            Apparently it has been sold as a way to keep Germany as an export powerhouse, thus allowing the nation to run a trade surplus.

            Never mind that especially since the intro of the Euro, this has lead Germany to effectively operating a beggar-thy-neighbor policy.

            Keep in mind that before the Euro, many neighboring nations would operate with a exchange rate hitched to the D-Mark. So if ever (West) Germany tried to push ahead, the others would devalue, and appear to drag Germany back down.

            But since the Euro, Germany have been (not necessarily intentionally) using their domestically suppressed wages to muscle the products and services into neighboring markets.

            Notice btw that much of the loans causing troubles in the “PIIGS” came from German banks (French banks were also involved, but to a lesser extent as France do not have the suppressed local wages). So if they fold, effectively Germany banking folds.

    6. Oregoncharles

      ” one obvious differential between them and what we would consider neoliberalism” is Germany’s enormous economic and political success over the last decade or more. Of course, the recent election indicates that a lot of Germans disagree with that judgement, so evidently the bag is mixed in ways not so obvious from here.

      That huge accumulation of power is the reason for the sometimes grudging respect granted to Schaueble and Merkel. It’s also a great danger to Germany, because in a continent with long historical memories (compared to Americans), it looks more and more like a Fourth Reich. Even though his domestic policies are so extremely neoliberal, Macron’s speech looks like the beginning of a rebellion, from the country qualified to lead it. We’ll see how that goes.

      1. digi_owl

        Economic might that has since at least the reunification, if not earlier, have been predicated on a, in practice, beggar-thy-neighbor trade policy.

        This by suppressing German wages to make German products and services cheaper than local equivalents.

        This has been particularly effective since the Euro came into use, as now the Euro nations can’t devalue their currencies to counteract this effect.

  2. pietro gori

    ‘What is remarkable about Dr Schäuble’s tenure was how he invested heavily in maintaining the fragility of the monetary union, rather than eradicating it in order to render the eurozone macro-economically sustainable and resilient’

    Well, yes, but the fact is that the eurozone cannot possibly be redered maco-economically sustainable
    and resilient. That is just well-entrenched wishful thinking on the part of Mr. Varoufakis

    1. Yves Smith Post author

      That’s not quite right. Varoufakis and Jamie Galbraith published a series of finesses, the biggest of which would have been creating an infrastructure bank that would invest, particularly in deficit countries.

      A big flaw of government accounting is that it does everything on a cash-flow basis, when private sector accounting separates balance sheet and income statement items. Germany could have supported this work around, using the accounting justification or other pretexts. It didn’t want to. By contrast, they’ve been extremely creative in figuring out ways to create much more complicated facilities and financial structures to shore up the banks.

      1. Chauncey Gardiner

        Thank you for this suggestion. I appreciate the values, intelligence, energy and experience of Yanis Varoufakis, and especially his insightful thoughts here on both the nature of the eurozone, Schauble’s desire to preserve its fragility, and his wish to strengthen it.

        Jamie Galbraith is no slouch, either. I would like to see their suggestions regarding policy initiatives both within and outside existing EU and other supranational structures that they believe could enable Greece to negate further abuse of its citizens, minimize the effects of Teutonic ordoliberal austerity, reverse privatization of the nation’s public assets, and strengthen the Greek economy. Hard to do when you don’t have a sovereign currency and must seek to build alliances. Might have applications elsewhere in the world.

    2. digi_owl

      That is sadly the one big flaw of Varoufakis, that he is of the champagne left that think the EU both can be saved and is worth saving.

      This means that when push comes to shove he will not go all the way, driving for reforms rather than disbandment.

      1. Ignacio

        Well, despite it flaws, the EU is worth saving if it is to the better. There are quite good initiatives coming from the EU and it provides a political framework above traditional nationalism that by itself is very positive. I like that from Varoufakis, his priorities are well positioned.

        1. Anonymous2

          This. Destroy the EU and you damage trade. Then living standards fall and you have some pretty unhappy people.

          1. digi_owl

            People are already unhappy. Not because of living standards, but because of future uncertainties. And EU is the cause, not the solution to, said uncertainties. And those can be traced back to the primary guidelines of EU, the freeflow, or trade if you will, across borders.

  3. Mickey Hickey

    You hit the nail on the head with “Ireland set up one of the biggest tax heavens of all time.”. With the help of corporate lobbyists at the European Commission in Brussels without that it would have been shut down quickly. My take on Germany is that they have still not recovered from the Weimar era hyperinflation and economic collapse. Germany tends to cling tightly to strategies whether they be winners or losers. The currency printing presses were cranked up to insane levels. Money was something to be turned into goods or services within minutes. Then overnight the gold backed Reichsmark was introduced and became an object of adoration that should under no circumstances be spent except for absolute necessities. The Reichsmark precipitated economic collapse. The inflation phobia of today’s Germany stems from the 1920s’. Frau Merkel was not and is not a political leader. She is above all a successful politician who tests the direction of the political winds daily and makes micro adjustments accordingly. As for Germans being sticklers for rules, I have a 9 year old grandson who is a stickler for rules even a good portion of Irishness did not save him. I found that he was amenable to changing the rules so I encouraged that and now he is almost Irish.
    With respect to German spending on infrastructure over the past twenty years. German infrastructure is in excellent shape compared to the rest of the developed world. Their public transit system is amongst the best in the world. Only in Canada (where I live normally) will you find better infrastructure than in Germany and that is due to large population increases resulting in newer infrastructure. Infrastructure lobbyists are preaching gloom and doom all over the developed world, a grain of salt is advised.

    1. PlutoniumKun

      Its complete hyperbole to describe Ireland as ‘one of the biggest tax havens of all time’. It is dwarfed within Europe by Luxembourg (which is a true tax haven in the literal sense) and the various UK off-shore havens. Vastly more money is moved through Switzerland and London for crooked or tax purposes and the Netherlands is an equal in using questionable rules to encourage investment.

      Irelands dodgy tax policies, largely designed by T.K. Whitaker, actually predate membership of the EU (1958 to be precise) and were implicitly accepted upon its membership.

      1. Oregoncharles

        Sort of like Greece’s dodgy balance sheets (if that’s the right term), intentionally overlooked when it applied for Eurozone membership?

        Of course, if you’re right about the others, the EU had compelling reason to overlook a few foibles. I gather Ireland rather paid for it after the GFC, though, and Greece is still paying for it.

        1. PlutoniumKun

          Not really – Ireland was a pioneer in using ‘favourable’ taxes to bring in jobs to poorer areas. So much so that even China essentially copied the Irish model (so the Tiger economies were actually copying the Celtic tiger, not vice versa to some extent). Essentially, the Irish model was to allow transfer pricing in exchange for screwdriver plants – in addition to special secret deals for promising new companies, like Apple (its often forgotten just how small Apple was when it first moved into Ireland – it was something of a triumph of the Irish development agencies to have identified it). This was all open and obvious when Ireland joined the EU. Essentially, it was considered legitimate at the time for smaller countries to use tactics like this – it was completely in line with academic theory on the time in development economics, especially clustering theories (the idea that if you get enough factories in one area together, they will organically develop into more integrated industries). There was nothing hidden from the EU. If anything, the EU approved as it was seen as important to have star pupils among the smaller members.

          Ireland is not a ‘tax haven’ in the sense that its not a large repository for dodgy money. There are some elements of tax haven laws in the Irish banking system, but its not considered a tax haven in international terms. The main issue is that manufacturing companies based in Ireland are allowed to use loopholes in Irish laws to hide profits. Thats something of a different matter – all countries do this to some extent, Ireland is just a more egregious offender.

          And its not really appropriate to compare it to Greece. Greece has been ruined by its poor model and its betrayal by the Eurozone. Ireland has gone from developing country status in the 1950’s to one of the most prosperous countries in Europe. The losses from the crash of the Celtic Tiger have been more or less made up. Much as I hate to say it, the Irish economic development model has by any measures been a stunning success. This is why neoliberals love Ireland so much.

    2. digi_owl

      You are right, and perhaps what is making the workforce willing to accept wage suppression.

      This because the cause of the hyperinflation was exchange rates and trade deficits. Germany were forced to pay reparations denominated in foreign currency, but had little to no export industry to earn said currency with (the Ruhr were under French administration for one). Thus they had to print ever more notes to buy the currency to make the payments, and each round would lead to worse inflation.

      The crazy thing is that Keynes warned about this, but was ignored.

      So based on this, it may well be that German leadership is hell bent on maintaining a trade surplus, even if it means beggaring neighbors and in the long run create a massive buildup of ill will against Germany.

  4. Distrubed Voter

    Thanks for quoting Varoufakis, and thanks for allowing wonderful commentaries again by such knowledgeable readers.

  5. Futility

    Incidentally, Der Spiegel published today an article about a photographer who documented the plight of prostitutes in Greece. There one can see the real world consequences of Schäuble’s policies. The women (and men) work for 15 Euro or less per customer. A lot of people see this as their last resort to feed their family. The article mentions that Greece increased the VAT from 13% to 24%, making condoms prohibitively expensive for the prostitutes which resulted in a marked increase in HIV infections. How Schäuble can live with himself, I don’t know.

    WARNING: The article is in German and some of the pictures are not fit for work.

    1. Eustache De Saint Pierre

      There was once an article that was I believe posted here which outlined the fact that the legalised & supposedly efficient German prostitution industry was not all it was cracked up to be – it appeared around the same time that a German woman had her benefits sanctioned due to refusing to work in the industry.

      I would just like to say that there is at least one Englishmen who finds cooking a pleasurable experience when on holiday, which when I can manage it due to the lady in my life’s preference would be Italy. Beautiful bread, real mozzarella, white creamy butter, divine proscuitto, & large perfect for Caprese salad tomatoes bought from small grocers – Just some of the treats on offer the make the break very special.

  6. Synoia

    Even worse, whereas Wolfgang Schäuble understood that austerity plus new loans were catastrophic for countries like Greece (but insisted on them as part of his campaign to discipline France and Italy), his FDP successors at the finance ministry will probably be less ‘enlightened’ believing that the ‘tough medicine’ is fit for purpose.

    And now perhaps one understands the 30 years war, the Franco-Prussian war, WW I and WW II.

    The “I’m certain I’m correct” in the face of a other reasonableness.

    1. digi_owl

      It is effectively a variant of the problem of becoming a monster while one believe one is defeating monsters…

  7. Scott

    Keynes was perceptive, and I can believe his warnings were understood, if not at the time, later. His portrait of Woodrow Wilson out of his depth completely when seated with politicians of France who were adept at bypassing and then destroying the “Points” the Germans had signed the Armistice because of.
    America was not successful at out witting the French. Moral leadership? Wilson just turned into a sidelined ignored & defeated character. It is no wonder Germany went to war again.
    The question now is whose warnings are we to hear now?
    Michael Hudson would say that capitalism is destroying itself. I have yet to see him on Rachel Maddow who often has David Cay Johnston on, though the questions are about Trump, not the Tax Code. Mr. Johnston could give us a good Tax Code.
    Mr. Hudson?
    Who in Government is listening to him?

    1. Mark P.

      Who’s listening to Hudson in the U.S. government?

      Well, maybe they aren’t now. Lots of folks at the DoD and State read him in 1972, right after he left off working for David Rockefeller and wrote SUPER IMPERIALISM: THE ECONOMIC STRATEGY OF AMERICAN EMPIRE as a diagnosis of how the dollar as global reserve currency was going to work once Nixon and Kissinger had taken the U.S. off the gold standard. They used Hudson’s book as a how-to manual and did their best to buy up all the copies.

      You aren’t going to see Hudson on the Rachel Maddow show, in short.

  8. Mark P.

    Who’s listening to Hudson in the U.S. government?

    Well, maybe they aren’t now. Lots of folks at the DoD and State read him in 1972, right after he left off working for David Rockefeller and wrote SUPER IMPERIALISM: THE ECONOMIC STRATEGY OF AMERICAN EMPIRE as a diagnosis of how the dollar as global reserve currency was going to work once Nixon and Kissinger had taken the U.S. off the gold standard. They used Hudson’s book as a how-to manual and did their best to buy up all the copies.

    You aren’t going to see Hudson on the Rachel Maddow show, in short.

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