Yanis Varoufakis: Draghi’s Outrageous Deployment of McKinsey, Europe’s Predicament, DiEM25’s Proposals

Yves here. Independent of Varoufakis’ questioning McKinsey’s ethics, as we and many others have (see for instance our recent post, Goldman Is Evil But McKinsey Is Worse), the Greek economist is correct to call out how the Italian government is engaging McKinsey in a role that usurps democratic rule.

McKinsey has clearly and consistently worked to increase the power and pay of executives relative to low-level laborers, as an Atlantic story last year, How McKinsey Destroyed the Middle Class, describes in compelling detail. Or better yet, see an insider account from Current Affairs: McKinsey & Company: Capital’s Willing Executioners.

For Draghi bring McKinsey in as advisers makes clear whose interests will be served, and it’s not those of ordinary Italians.

By Yanis Varoufakis. Originally published at his website

Last week, upon hearing that Mario Draghi, as Italy’s new PM, employed McKinsey to advise the government on how to spend the billions of the EU Recovery Fund, I tweeted, in anger and frustration: So predictable, so sad: Mario Draghi hired McKinsey to ‘organise’ Italy’s distribution of the Recovery Fund monies. What next? Get the Mafia to re-organise the Ministry of Justice? A furore followed within Italy’s twitter. Here I stand by my tweet in an interview with La Stampa, answering also questions on Europe’s preposterous response to the economic challenges of Covid-19 and to DiEM25’s proposals, from March 2020, on how the EU should have responded.

In Italy your tweet about McKinsey has triggered a huge debate. Don’t you think it was inappropriate to compare the management-consulting firm to the mafia?

PM Draghi’s decision to engage McKinsey was scandalous and an insult to the good people of Italy. In effect, it constitutes a statement that, to distribute EU funds, Italian democracy needs advice from a consultancy firm with a track record bordering on the criminal. Thus the humourful, and perfectly apt, punchline suggesting that if Mario wanted to do a little worse he would need to engage the Mafia in re-organising the Ministry of Justice.

The Italian Ministry of Economic Affairs has explained that McKinsey’s contract is worth approximately 20.000€ and the consulting company will not “organise Italy’s distribution of Recovery Fund money”, as you wrote. “McKinsey – explained the Ministry in a note – will offer only a technical-organizational support”. Do you see that as a step forward?

I see it as a guilty attempt to wriggle out of a disgraceful cockup. What is the difference between “helping organise” from offering “technical-organisational support” of Italy’s distribution of Recovery Fund money? None! As for the fee, even if they did it pro bono, their engagement is an affront to the Italian people’s well-developed sense of decency.

McKinsey & Company is one of the most prestigious consulting management firms in the world and has advised corporations and governments around the world. Also France hired McKinsey to help in the pandemic. So, why do you think it is wrong to hire McKinsey?

They are certainly “powerful”. But prestigious? Not in the slightest. Only very recently they were fined $600 million for helping push drugs that contributed to the death of 450 thousand Americans. Tom Peters, an ex-McKinsey employee, explained in the Financial Times how the firm cynically calculated the expected fines to pharmaceutical companies from intentionally causing thousands of deaths and then advised them to go ahead! So, yes, it was more than wrong for PM Draghi to hire McKinsey. It was immoral.

In your last interview with La Stampa, almost one year ago, you affirmed that the EU Recovery Fund “will not be enough for Italy without Eurobonds”.  Now we know that Rome will receive 209 billion euros. Did you change your mind about this? 

No, quite the opposite. They time has come to inform the Italian public of how hopelessly inadequate the Recovery Fund is. To begin with, $120 of these billions are loans, which is the last thing Italy needs as loans cannot ameliorate the insolvency problem at hand. Only around $80 billion will come in the form of grants, to be distributed over six years, at the rate of $13 billion every year. Compared to the increase in Italy’s debt, both private and public, this is a drop in the ocean or, put more scientifically, it is macroeconomically insignificant. In conclusion, sadly, what I said a year ago is now fully confirmed.

Politically, in Italy, “The Times They Are a-Changin”. We’ve got a new premier, Mario Draghi, and the party of Matteo Salvini have accepted to participate in the new government of national unity. Only Giorgia Meloni is in the opposition. What do you think about this unpredictable scenario?

A clear defeat for Italian democracy. By dominating the opposition, Giorgia Meloni and her neofascist party will be the only beneficiaries of the discontent that will, inevitably, grow as the overblown optimism following Mr Draghi’s appointment gives way to the harsh reality.

Why don’t you trust Mario Draghi? In the last decade it was one of the most important people for the survival of the euro and he has been accused of helping Southern European countries ECB. Have his monetary policies damaged Athens?

My opinion of Mario Draghi is irrelevant. Yes, in 2015 Mr Draghi strangled Greece’s democracy, and in the process damaged European democracy, by shutting down Greece’s banks in order to blackmail the Greek people into accepting yet another unpayable credit card from the troika under neo-colonial conditions. Mario was, in my opinion, given an ultimatum by Berlin: Crush the Greeks if you want to be allowed to buy Italian, French and Spanish bonds.

Still, if Mario had been chosen by a majority of Italians, in an election where he had presented his program to the public, as a democrat I would congratulate him. In other words, what is relevant is that, once again, Italian democracy has been replaced by a system where the Prime Minister is selected behind closed doors by political leaders striking deals that have nothing to do with the programs they put to the people.

So what should Italy and, I would say, Europe do to the deal with the economic depression caused by COVID-19?

DiEM25’s answer, presented a year ago, remains valid: First, get the ECB to issue a proper, 30year, Eurobond to the tune of at least €1 trillion and use that money, on the basis of an automated formula, to ensure that the new debt caused by the pandemic is europeanised – as opposed to burdening Italy, Spain, France, Greece or Germany. Second, the ECB should regularly credit the bank accounts of every European family directly – as both Presidents Trump and Biden have done in the US. Third, Europe should invest, centrally, in a Green Energy Union/Grid to the tune of 5% of Europe’s GDP, to be funded by European Investment Bank bonds that the ECB supports in the bond markets.

What about Europe? Will it be stronger or weaker after the pandemic?

Much, much weaker. Investment fell during 2020 by 50% and the output gap grew to 8%. The Recovery Fund will only make up for, at best, one-eighth of this over the next few years. It is too little and it will come too late to prevent another wasted decade for the Eurozone.

How are things going in Aegina and in Greece? I’ve read that until the 16th of March you will be still in lockdown. How is the economy going under the conservative government of Kyriakos Mitsotakis?

Aegina remains a gem but, alas, the Mitsotakis government, lacking anything resembling a plan, is proceeding with wishful thinking as his only compass. As for the economy, judge for yourselves: In 2010 Greece went bankrupt because our public debt rose to €300 billion, our GDP fell to €220 and the budget deficit exceeded 10% of GDP. Today, public debt exceeds €355 billion, GDP languishes at €166 billion and the budget deficit exceeds 10%.

To conclude on a more political note, has DiEM25 any relationship with the Italian Democratic Party? Do you know, or have you ever met, Enrico Letta?

DiEM25 neither has nor wishes to have a relationship with the Democratic Party, which we consider to be a major contributor to Italy’s woes and, also, a stagnant party lacking any capacity for innovative, progressive thinking. As for Enrico, yes, I know him well and I like him very much, personally. Last time we met was in Paris where he invited me to address his students at Sciences Po. Is it not wonderful that politicians, economists, artists etc. can disagree strongly and still benefit from dialogue while enjoying each other’s company?

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  1. Colonel Smithers

    Thank you, Yves.

    As per https://www.politico.eu/article/how-consultants-like-mckinsey-accenture-deloitte-took-over-france-bureaucracy-emmanuel-macron-coronavirus-vaccines/, McKinsey is increasing its reach in / over France, too. One can add BlackRock to that list of parasites.

    Many McKinsey alumni work in the British government, vide NHS and Jockey Club chief Dido Harding, her MP husband John Penrose and junior health minister Helen Whately. Mr Laura Kuenssberg, also known as James Kelly, has been seconded to the cabinet office for many years. William Hague served as party leader and foreign secretary.

    In Belgium, it was alleged that McKinsey’s pension fund ‘ investment arm exploited the sponsor employer’s contract with the European Commission to oversee the post bail out restructuring of KBC and other banks.

  2. DJG, Reality Czar

    Varoufakis’s assessment of Letta and the Partito Democratico is an excellent parting shot in a thought-provoking interview. As he points out, Letta has been teaching at Sciences-Po in Paris. Like Draghi, he’s being summoned to be a technocrat. Luckily for Letta, the polls have given the PD a bounce into second place, a few points under the largely execrable Lega. (When your most reasonable rising star is Gov. Zaia of the Veneto…)

    The Partito Democratico is deliberately modeled after the U.S. Democratic Party, including sweeping in various centrist and even conservative barnacles–lots of neoliberalish people from the former Margherita and other fiefdoms. Just as the U.S. Democratic Party is barely functional, the P.D. was designed not to function. So it doesn’t.

    So the Italian elites will engage in an austerity dance that means suppressing the unions and the aspirations of young people who don’t want to live lives of limited choices, all the while wondering how Meloni, who makes Marine Le Pen seem like sweetness and light, is gaining support.

    1. lou strong

      I think that the distinction between politician and technocrat is partially outdated, in the light of the revolving doors system.
      Apart his articles in the mainstream press pushing Italy’s accession to the ESM ,articles that went on even after Italy’s accession to the Recovery plan, the only time I heard about Letta some months ago was because he was supposed to enter in the Board of Directors of a big French corporation as a part of an hostile takeover, that finally failed .
      He started as a “politician” but the bad luck in the last attempt didn’t prevent him to earn some good money in the past as a member of the Board of Directors of other big corporations.

      The best way to observe the situation is , once again, with the lenses of paradox.

      President of Republic Mattarella has humiliated his own party (the PD ) imposing to the PD a subordinated position in the government together with the apparent archeenemy (Lega ).
      It happened exactly the same in 2011 , President Napolitano ( PD member as well ) imposed a government to the apparent archeenemies PD and Berlusconi.
      The quite purely ceremonial role that the Constitution reserved to the President of Republic has been substituted by a material system in which the President is the biggest internal decider, whose main task is to make the proconsul of the foreign interests and bondages , namely US ( the Nato ) and EU (euro, Eurobureaucracy, Franco-German axis ).

  3. Eustache de Saint Pierre

    I imagine that as the Italians are up to the neck with Covid with a 3rd wave rising, it was likely a good time to slip Draghi in through the back door. It is very sad for a country that over about 30 years I grew to love & I do wonder how long & not just in Italy they will be able to keep a lid on it. With Greece as the prime example even if an alternative is elected it has it seems little power to change things, particularly with the ever present financial harpie enforcers waiting in the wings. So much for Democracy when even in Ireland 2 sides of the same centre right coin can heal their historic differences to get in bed together in order to block another alternative.

    I’m guessing that the pandemic & the obvious EU mismanagement of it could accelerate matters, but perhaps the corporations don’t care & would be happy to work with some ultra right wing goon as long as they could make a deal – as was the case with Hitler.

  4. Susan the other

    Interesting that YV included Germany in his list of countries being unfairly forced into austerity over the 2008 debacle and continuing thru this Covid debacle. Before (2012) YV was blaming Germany for blaming Greece. And rightly so. Maybe Germany is no longer using McKinsey’s rule book. And Italy is doing deals with Russia for Sputnik 5 manufacturing rights as we speak. That’s gotta be a very big No-no for Nato. Italy is also getting trading deals done with China. Asking McKinsey for advice on their economy seems laughable. Is McKinsey making any projections? $20,000 seems like a pittance for McKinsey however. Or maybe that small amount is too small for them to be sued. In any event, the problem that needs to be resolved is the neoliberal logjam between capital and labor. McKinsey, of course, wants all the advantages to go to crony capitalism which is in its death throes, but it’s become too timid to ask for its usual large fees for this sort of blatantly egregious advice. That’s telling. The rest of humanity wants the majority of the money to go for labor/environment. Where’s the consulting firm that can see past this impasse? It’s absurd.

    1. Dirk77

      Here is a thought experiment I would like to see answered. Say the working class, aka the downtrodden, etc., hired McKinsey to improve their situation. Assume that McKinsey would not take the crony capitalist view as you mention, but would advise what is best for this client irrespective of any moral constraints or body count concerns, which is something McKinsey appears able to do. What then would this advice be?

  5. Irrational

    Am I misunderstanding something or are we talking about a McK contract of less than 20k? Does that really buy you anything from any consultancy, let alone McK? Happy to stand corrected.

    1. Yves Smith Post author

      You are missing the point. A consultancy dedicated to advancing the interest of capital should not be advising governments on fiscal spending. Period. This is a usurpation of democracy.

      And you should know from the history of the Internet that when something is free or effectively free, you are the product.

    2. Skip Intro

      So they are doing it essentially ‘pro bono’. Does this make it seem like a better or worse idea? To me the negligible fee means they expect to be claiming their reward elsewhere.

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