Yanis Varoufakis's Blog, page 24

Is This the End of ‘Socialism for the Rich’? – The Atlantic

Last Thursday, the International Monetary Fund spooked the markets and surprised the commentariat by chiding the U.K. Conservative government for fiscal irresponsibility. The shock was palpable. For the IMF to criticize the government of a major Western economy was a little like the janitor scolding the landlord for putting the building’s assessed value at risk. That sense of a reversal of the usual order of things was all the sharper because, lest we forget, it was Britain’s Tories, under Margaret Thatcher’s steely leadership, who wrote the book on fiscal probity as the bedrock of neoliberalism. The IMF spent more than four decades inflicting that orthodoxy upon hapless governments the world over.As if in a bid to amplify the stir it knew it would make, the IMF’s communiqué went so far as to censure the British government for introducing large tax cuts (now partially canceled after the IMF intervention), because they would mainly “benefit high-income earners” and “likely increase inequality.” Tories loyal to Britain’s beleaguered new prime minister, Liz Truss; America’s feistier Republicans; international economic pundits; and even some of my comrades on the left were briefly united by a common puzzlement: Since when did the IMF oppose greater inequality? One would be hard-pressed to identify a single IMF “structural adjustment program”—ask Argentina, South Korea, Ireland, or Greece (where I was once a finance minister who had to negotiate with the IMF) about the strings attached to its loans—that had not increased inequality. Had the fund’s hard-nosed bureaucrats enjoyed a road-to-Damascus moment?Three theories have surfaced about the IMF’s motives for opposing the U.K.’s tax cuts for the wealthy. One is that the IMF board feared that the fund would struggle to raise sufficient money were London subsequently to request a bailout. Another theory, voiced by former U.S. Treasury Secretary Larry Summers, is that the IMF now understood it ought to show evenhandedness in its dealings with countries rich and poor. “When there’s a crisis situation or policies that are manifestly irresponsible, it’s kind of natural for the IMF to take some kind of note,” Summers told the Financial Times, adding, “I don’t think the IMF should distinguish between its rich country shareholders and its emerging market shareholders.”A third theory followed the Pauline-conversion rationale, suggesting that the IMF’s statement damning the Truss government’s giveaways to the ultra-rich could mark a sea change in the Washington-based institution. According to this view, the IMF was realizing that to save the international liberal order from the various authoritarian populists ascendant in the world—such as Donald Trump, Giorgia Meloni, Marine Le Pen, Viktor Orbán, Narendra Modi, and Jair Bolsonaro—it must shift its mission in a more social-democratic direction.Though interesting hypotheses, none of these explanations engages with the reality to which the IMF was responding with last week’s surprising statement. The notion that London will go cap in hand for a bailout too big for the IMF to deliver is absurd. Britain is a wealthy country that borrows exclusively in a currency printed by the Bank of England. If worse came to worst, the Bank of England could raise interest rates to as much as 6 percent to stabilize sterling and the money markets. An interest rate at that level would certainly demolish the U.K.’s economic model of the past 40 years, but it would be the choice over an IMF bailout every time.And I have firsthand experience that contradicts the theory that the IMF has only now, for the first time, decided to confront a G7 country whose policies it deems to be threatening global financial stability. In my negotiations as Greece’s finance minister with the IMF in 2015, the fund’s top officials were openly scathing about the German government’s rejection of a full restructure plan for Greece’s public debt; they accused Berlin of undermining Europe’s, and by extension the world’s, financial stability.A year later, in a telephone conversation among senior IMF staff published by WikiLeaks, its European chief told a colleague that the IMF should confront the German chancellor and say, “Mrs. Merkel, you face a question. You have to think about what is more costly: to go ahead without the IMF … or to pick the debt relief that we think Greece needs in order to keep us on board.” So much for the second theory, that the IMF now ought to start acting toward Western governments the way it does to developing countries.This brings us to the third, and most interesting, of the three explanations: that to save the global liberal order from right-wing populism, the IMF is turning social-democratic, “woke” even—as some British Tories accuse it of doing. The truth, I fear, is less heroic. What happened last week is simply that the IMF panicked. Along with other smart people in the U.S. government and at the Federal Reserve, its officials feared that the U.K. was about to do to the United States and the rest of the G7 what Greece had done to the euro zone in 2010: trigger an uncontrollable financial domino effect.In the days preceding the Truss government’s mini–budget statement, the $24 trillion U.S. Treasuries market, whose health decides whether global capitalism breathes or chokes, had already entered what one financial analyst called a “vortex of volatility” not seen since the crash of 2008 or the first days of the pandemic. The yield on the U.S. government’s benchmark 10-year bond has risen sharply from 3.2 percent to more than 4 percent. Worse, a large number of investors had recently stayed away from an auction of new U.S. debt. Nothing scares those in authority more than the specter of a buyers’ strike in the U.S. bond markets.To steady the investors’ nerves, officials came out in strength with reassuring messages. Neel Kashkari, the Minneapolis Federal Reserve president, summed up the spirit thus: “We are all united in our job to get inflation back down to 2 percent, and we are committed to doing what we need to do in order to make that happen.” This was the moment when the U.K. government chose to announce Britain’s most expansionary fiscal policy since 1972.American officials were not the only ones to fret. Days before the London government’s so-called fiscal event, the European Systemic Risk Board—a body established by the European Union after the 2008–09 crisis—had issued its first-ever general warning, in effect confirming that Europe’s financial markets had fallen into the volatility vortex that originated in the United States. Europe’s electricity providers were being bankrupted by commitments to future orders at exorbitant prices, Germany’s mighty manufacturing industry was shutting down because of natural-gas shortages, and public and private debt was climbing fast.An extra financial shock from the U.K. had the potential to cause huge spillover effects across Europe and beyond. If the U.S. subprime market could push French and German banks over a cliff in 2008–09, this latest shock wave from the Anglosphere could do similar damage, especially if it rocked the U.S. Treasuries market.In the face of this mounting transatlantic storm, the IMF’s decision to step in was unsurprising. The only remaining puzzle is why the IMF pointed to the inequality-causing effects of the Truss government’s tax cuts for the ultra-rich. Although force of circumstance has changed something significant, I doubt this spells the demise of the IMF’s neoliberal instincts. Much more likely is this: The IMF realized that the post-2008 inequality-generating policies it helped enforce have plunged North Atlantic capitalism into a state of gilded stagnation that is now unstable, and it feared that the volatility vortex would worsen on news of measures that would create even greater inequality. If the IMF has begun to dislike inequality, it is only because the IMF sees inequality as a proxy for systemic instability.After the 2008 financial collapse, the U.S. and the EU adopted a policy of socialism for bankers and austerity for the working and middle classes. This ended up sabotaging the dynamism of North Atlantic capitalism. Austerity shrank public expenditure precisely when private expenditure was collapsing; this sped up the decline of both private and public spending—in other words, aggregate demand in the economy. At the same time, quantitative easing by the central banks channeled rivers of money to Big Finance, which passed it on to Big Business, which, faced with that low aggregate demand, used it to buy back their own shares and other unproductive assets.The personal wealth of a few skyrocketed, the wages of the majority stagnated, investment crumbled, interest rates tanked, and states and corporations became addicted to free money. Then, as the pandemic lockdowns stifled supply and furlough schemes boosted demand, inflation returned. This forced central banks to choose between acquiescing to rising prices and blowing up the corporate and state zombies they had nurtured for more than a decade. They chose the former.All of a sudden, though, the IMF saw the liberal establishment’s lost capacity to stabilize capitalism reflected in rising economic inequality. So the last thing the markets needed, the fund’s technocrats realized, was more socialism for the wealthy. But it would take a feat of wishful thinking to interpret the IMF’s panic-driven reaction as a sincere conversion to economic redistribution and social democracy. A warning against an act of elite self-harm was the extent of it.Yanis Varoufakis, a member of the Greek Parliament and a former finance minister of Greece, is the author of  Adults in the Room: My Battle With the European and American Deep Establishment  and, most recently, the novel Another Now.

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Trickle-down Truss is carrying on the dirty work of Thatcher, Blair and Osborne – THE GUARDIAN

If Kwasi Kwarteng’s mini-budget survives the storm it triggered, a banker on a million-pound annual salary stands to receive £50,000 of income tax relief – on top of the extra bonuses the bank can throw in, now that the Liz Truss government has removed the cap on them. Meanwhile, a Deliveroo rider gets a pep talk on the emancipatory value of aspiring to be wealthy, presumably as an incentive to pedal harder. This is the gist of the government’s growth strategy or, according to former Brexit minister David Frost, its antidote to stagnation and defeatism.While it’s tempting to draw the obvious analogy between zombie ideas such as the trickle-down growth effect, and the classic Hollywood horror film Night of the Living Dead, a more appropriate response to the seriousness of the situation is to follow the banker’s extra cash. The government claims the banker will invest it, thus promoting growth. If it were not a blatant lie, it might have passed as a touching example of unfounded faith. But unlike Adam Smith’s bakers, butchers and brewers, who would invest any spare cash into better and more bread, ale and meat, the banker will buy into some fund that will, in turn, purchase shares, derivatives and bonds.These recipients of the banker’s extra money have a long track record of not investing in actual productive capacity. Why would they, when the masses out there can’t afford to buy new, high-value products? Instead, big businesses use any funds that come their way either to buy back their own shares (to boost their share price and, consequently, their bonuses) or to speculate in the derivatives market or in real estate. The dirty secret behind the zombie idea of trickle-down economics is that only one thing can prevent the vicious financial cycle from spinning out of control: the government’s (and, sometimes, the central bank’s) power to feed it.Margaret Thatcher, whom Liz Truss pretends to idolise, understood this dirty little secret. She learned the hard way that tax cuts for the wealthy merely shifted income to the ruling class without delivering growth dividends. For her neoliberal policies to deliver a semblance of growth, she had to throw into the vicious financial cycle pre-existing public wealth: council houses and public utilities (gas, electricity, water) in particular. In short, Thatcher’s policies boosted growth not because trickle-down worked, but because swathes of society’s common wealth was liquidated at cutdown prices and thrown into the City’s cauldron.Thatcher’s business model for the UK has remained more or less the same ever since. While the last Labour government did use its revenues from taxing the City to fund the NHS and social services, the UK’s productive capital base continued to shrink. Tony Blair and Gordon Brown not only maintained the financialisation cycle that Thatcher had begun, but boosted it in two ways: by removing all remaining regulatory constraints on the City, and by throwing into its circular flow the proceeds from deregulated public services.Then, in 2008, under the weight of its hubris, the financialisation vicious cycle had its famous collapse. At once, the Bank of England combined forces with the government to re-float it. To that splendid example of socialism exclusively for the financiers, George Osborne added austerity, which, by suppressing aggregate demand further, eradicated any remaining drive toward actual investment in Britain’s productive base.Four decades after the neoliberal experiment began, the evidence is in: trickle-down economics is dangerous make-believe. Growth is in fact impervious to the top income tax rates. Paul Krugman recently showed that neither Ronald Reagan’s tax cuts nor Bill Clinton’s tax hikes affected the US’s income path significantly. Similarly in the UK, the data dispels the Tory conviction that Thatcher put Britain on to a brave new path to higher growth. We find that in 1979, the output per hour worked in the UK was trailing France and Germany by 17% and 18% respectively. Did the UK catch up after four decades of trickle-down tax policies and assorted deregulation measures, which never happened in France? No, in 2019, France’s productivity remained 18% higher than the UK’s, and Germany’s 17%.From this historical perspective, the recent backlash against Liz Truss seems almost unfair. Sure enough, the new prime minister and her chancellor blundered monumentally. Nevertheless, it is disingenuous of the Truss trashers to try to pin on her the sins of a business model inspired by Thatcher, modified by Blair, shored up by Osborne, undermined by Brexit and neglected by Boris Johnson. The hapless new PM’s rookie mistake was to try to beat Rishi Sunak (while also jettisoning Johnson’s levelling up agenda) by doing … a Thatcher. Alas, because she lacked Thatcher’s access to plentiful public assets to be injected into the financial sector, and with the Bank of England too spooked by inflation to print more money to revitalise financialisation, Truss ended up trying to achieve the impossible: to do a Reagan, but without the mighty dollar in support.The problem with zombie ideas that refuse to die is that, once they re-emerge, they encourage other deadly undead ideas to rise up too. There are already signs that Kwarteng, instead of killing off the trickle-down zombie, will instead revive the austerity zombie. Impervious to the fact that tax cuts never generate growth, and austerity never arrests the growth rate of public debt, the UK is destined to be haunted by these two zombies for two more years.The silver lining is that Trussonomics has almost guaranteed the Tories’ defeat in the next election. And then? Does Keir Starmer’s Labour have a plan to break up the doom-loop of state-maintained wealth appropriation centred upon the City? The UK’s future, and any hope of undoing four decades of unnecessary damage, will depend on it.Yanis Varoufakis is the leader of MeRA25 in Greece’s parliament, a former finance minister of Greece, and author of Another NowFor The Guardian’s webpage click here

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Zombie capitalism is unravelling – THE NEW STATESMAN

This is no sterling crisis. It is a crisis of British capitalism caused by 40 years of underinvestment and deindustrialisation, exacerbated by chronic reliance on speculative bubbles and triggered by Liz Truss’s extravagant kindness to Britain’s wealthy.While all eyes are on the fall of the pound, the real drama revolves around the Bank of England’s interest rate. Typically, a developed country’s exchange rate rises when its government announces its intention to borrow big. Foreseeing a rise in interest rates, speculators rush into the currency to take advantage. However, precisely the opposite happened after Kwasi Kwarteng’s (not-so) mini budget last week because of a dirty secret known to almost everyone: British capitalism is even more addicted to low interest rates than the United States or continental Europe.In view of the UK’s high inflation (9.9 per cent), its record current account deficit (8.3 per cent of GDP) and its low foreign exchange reserves, the Bank of England cannot steady the gilt market, or the pound, by buying gilts – as it announced on Wednesday – or pounds. These desperate moves can only buy a little time. Before long, it will need to raise its base rate to at least 6 per cent to equilibrate money markets. But such a rate would kill the corporate zombies on which the British ruling class depends for its existence, not to mention the house price levels on which the Tories have built their electoral dominance. That’s why the pound’s slide is merely a symptom of a deeper crisis of post-1979 British capitalism, not its epicentre.The Thatcher insurgency was ultimately a political project to deindustrialise Britain while encouraging the City of London to create mountainous paper wealth by financialising council houses and public utilities. Fully aware that she could not emulate Ronald Reagan’s borrowing – lacking the exorbitant privilege of the dollar – Margaret Thatcher’s growth strategy involved controlling public debt while letting private debt rip – the opposite of what Truss is doing today.Under Thatcher, chancellor after chancellor unshackled the City while keeping a tight rein on the Treasury – primarily through inhuman cuts to social benefits, the NHS, education and all the other services that gave people modicum of control over their lives. Mounting private debt did not frighten ministers because, unlike today, they had three reasons to welcome sky-high interest rates: the relatively low levels of private debt they inherited; the government’s mortgage relief scheme (now gone) and, crucially, the availability of so many council houses and public utility (gas, electricity, water) shares to dump into the City’s financial cauldron at below-value prices.The Blair and Brown years saw financialisation accelerate further and in sync with the breakneck speed at which Wall Street spawned itsinfamous derivatives. While Labour ploughed a substantial portion of the UK’s tax receipts from Big Finance into the NHS and social services, the process of underinvestment in productive capital continued. Then, the 2008 crash burst the bubbles in which Britain’s ruling class had invested so much since 1979.Almost immediately, the Bank of England, along with the US Federal Reserve and every other major central bank, rushed in to refloat the City and Wall Street. At the same time, in an absurd attempt to compensate for their largesse, they imposed austerity on the majority of their people – more so in some countries than others but, nonetheless, universally. The result was the elimination of what little actual investment was taking place. Why would big business invest its central bank monies when the little people out there were broke? Why not just buy back shares so as to boost share-linked bonuses and buy splendid houses, art and yachts?David Cameron and George Osborne’s Britain was, of course, not the only economy where socialism was lavished on the financiers while the majority of people were subjected to austerity. What distinguished Britain from continental Europe was that financialisation started earlier in the UK and penetrated much deeper into the fabric of an economy that had been purposely deindustrialised. Thus, the Bank of England’s post-2008 money creation zombified the UK economy far more than the German or French economies.Then came the pandemic. Central banks reacted to the spectre of capitalism’s implosion with more money printing on behalf of the same financiers who gave it to the same CEOs to buy back more of their shares. However, to avoid starvation during the lockdowns, some of the freshly-minted money had to be handed over to the furloughed workers. As the lockdowns artificially choked the supply of goods and services, the little people got some of the central bank money to spend, demand rose and, hey presto, inflation was back.The crisis that is now taking its toll on sterling has been, in this sense, a long time coming. It harks back to 43 years of class war against working Britons, four decades of under-investment and, crucially, 13 years of monetary largesse that turned the City, former utilities and mortgage owners into low-interest rate addicts.What broke the dam were the handouts lavished on the rich by a Prime Minister and Chancellor who pretend to model themselves on Thatcher but who, in reality, are trying to do the impossible. You cannot pursue Reaganomics without a modern-day Paul Volcker able and willing to print the world’s reserve currency and to raise interest rates, if necessary, to 20 per cent.UK interest rates will, undoubtedly, rise and the pound will recover. But many of the ruling-class zombies will die. A new inequality will rise within the British bourgeoisie – between rentiers who managed to reduce their debt liabilities in time and others who did not.Meanwhile, the UK’s working class, the young and pensioners will suffer a disastrous, secular decline in their prospects. Two more years of this government will guarantee that the next one will not be able to mend the wreckage left by Thatcherism’s latest metamorphosis.

For The New Statesman‘s website click here.

 

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The Greek Watergate – UNHERD

Nothing surprises me more than politicians professing to be surprised that their phones have been tapped. In the world revealed to us by Edward Snowden almost a decade ago, no phone is beyond the reach of motivated eavesdroppers. This is not to say, however, that phone-tapping political opponents has lost its capacity to poison democracy. If those in power can get off  after they are caught red-handed, the floodgates of authoritarianism open widely. Soon, what remains of our democratic checks and balances is washed away. This is why Greece’s own Watergate scandal, which has gradually come to light over the past few months, has a significance well beyond the borders of democracy’s supposed cradle.To put the recent revelations in context, Greece has as proud a tradition of politically motivated phone-tapping as any other country. I still chuckle when I recall what happened in the early hours of a May morning in 2015 during my short stint as Greece’s finance minister. Soon after I had concluded a sensitive conversation with my friend Jeff Sachs, the phone rang. It was Jeff again, this time laughing uncontrollably.“You will not believe this,” he said. “Five minutes after we hung up, I received a call from the National Security Council. They asked me if I thought you meant what you’d told me.” I had fully expected my phone had been tapped, but two things made Jeff’s news remarkable. First, the eavesdroppers not only had the capacity to instantly recognise that what I had said to Jeff was of real significance, but they must also have had an open line to America’s NSC. Second, they had no compunction whatsoever about revealing that they were tapping my phone!I was, of course, neither the first nor the highest-ranking Greek politician to have been honoured with such attention. We now know that, back in 2008, the phones of the then-prime minister, his wife, half the cabinet and close to 100 government officials were tapped by US agencies. Nor was eavesdropping monopolised by US agencies. In 2015, operatives of EYP — the Greek intelligence agency — dropped into my ministerial office to check for bugs, and pointed out the window at two vans which, they said, belonged to the German Embassy and contained listening equipment trained at me and my team. A few months later, the Prime Minister I was serving under told me that the EYP’s head had been spreading the toxic lie that I was in cahoots with Wolfgang Schäuble (Germany’s then Finance Minister) to get Greece out of the eurozone.Clearly, in view of such experiences, I was not at all surprised, let alone shocked, at the news that EYP has recently been eavesdropping on politicians and journalists. So, why am I branding this latest incident as Greece’s Watergate? Why do I go so far as to believe it poses a greater threat to democracy than Richard Nixon’s original?The short answer is: because Nixon was forced to resign once it was revealed that he had endeavoured to cover up spying. Kyriakos Mitsotakis, the current Greek Prime Minister, has in contrast succeeded in neutralising the democratic institutions set up to maintain a semblance of legality — before they neutralised him.The sequence of events leading to the exposure of Greece’s Watergate scandal began in July 2019, immediately after Mr Mitsotakis won the last general election on behalf of New Democracy, our conservative party. One of the very first decrees he issued, as incoming Prime Minister, was one that gave his office direct control over and responsibility for EYP. “Why on earth is the PM taking over the supervision of EYP?”, I remember a parliamentary colleague asking me that very day. It was, indeed, a curious move.Our trepidation only grew following two personnel choices. First, Mitsotakis appointed a nephew of his, Grigoris Dimitriadis, to oversee EYP on his behalf. Secondly, he chose as EYP’s new head Panagiotis Kontoleon, the CEO of the Greek franchise of the private security firm G4 — a man with no record of public service, and whose appointment Mitsotakis could only complete after amending the relevant law to remove the prerequisite that the EYP chief holds a postgraduate degree.Given his concerted and very public efforts to take complete control of the state intelligence agency, something no other PM had ever done, it became impossible to shift blame to some other minister once the faeces hit the proverbial fan.Of the more than 17,000 wiretaps that EYP admits it has placed during the last year alone, two cases are at the heart of the current scandal. The first is that of Thanasis Koukakis, an investigative journalist who dared look into Greek shipowners’ loans that had been illegally written off by the Bank of Piraeus (one of the banks that Greek taxpayers have had to repeatedly bailout). It turns out that Koukakis was one of EYP’s “subjects of interest”, an outrage that would have probably gone unnoticed without the second, higher profile, case.It was this case that broke the camel’s back: an investigation begun by the European Parliament’s IT department accidentally revealed that Nikos Androulakis, an MEP belonging to PASOK (the formerly dominant party in Greek politics), was being phone-tapped by EYP. It was explosive news because, at the time his phone was tapped, Androulakis was contesting the leadership of PASOK — a contest that he, eventually, won. The significance of that contest cannot be understated, since its outcome mattered a great deal to Mitsotakis and his governing New Democracy party.Since the middle of the pandemic, opinion polls have persistently suggested that the next election, which must take place by July 2023, will result in a hung parliament. While Mitsotakis’ New Democracy seemed likely to remain the largest party, it was not even close to an absolute majority. PASOK, in third place, was therefore positioned as kingmaker: whoever the party chose to side with would end up in government.The stakes of PASOK’s leadership race suddenly seemed very high. Of the three main candidates, the one that would almost certainly choose to back New Democracy and Mitsotakis to form a government was Andreas Loverdos — an MP and former minister who had served gladly in New Democracy-PASOK coalition governments between 2011 and 2015. Every newspaper, radio and television station supporting Mitsotakis was rooting for Loverdos to beat Androulakis in the PASOK leadership primary. Is it any wonder that the revelation of EYP’s surveillance of Androulakis was big news? In a period during which the ruling party was rooting for Androulakis’s opponent, the nation’s spy agency — which ruling party’s leader and his nephew controlled and supervised to the full — was tapping Androulakis’ phone!As if that were not sufficiently outrageous, the Prime Minister doubled down with a disgraceful reaction to the ensuing uproar. In a six hour-long parliamentary debate on the subject, the Mitsotakis repeatedly insisted that the wiretap on Androulakis was perfectly legal, even if it was politically disingenuous. When we pressed him on the legal and logical justification for tapping Androulakis’ phone, he referred vaguely to grounds of “national security” — claiming that such sensitive matters cannot be spoken about in an open parliamentary session. At that point, we — the leaders of the opposition parties — called his bluff and voted to convene a special parliamentary Select Committee, which would debate these “national security” grounds in confidence.And so it was that, a few days later, a Select Committee convened. Among the summoned witnesses were, naturally, the two men Mitsotakis had appointed to run EYP: Dimitriadis and Kontoleon. Both appeared in front of the Committee and both, reading from the same invisible script, repeated the same mantra: “We cannot answer your questions because the information the Select Committee seeks is privileged.” After a few pointless and cacophonous sessions, lacking any power to arrest witnesses for contempt of Parliament, the Committee disbanded and the case was closed.And here’s the rub. Politicians, like corporations and athletes, often try out illegitimate practices to tilt the playground in their favour. In our surveillance society — in which our every move, thought or click is turned into a valuable commodity — phone-tapping is, unfortunately, commonplace. However, when a President or a Prime Minister seeks direct control over the nation’s spooks in order to press them, and their gadgets, into spying on opponents, they cross a Rubicon. If a leader is caught red-handed, our democratic institutions may be judged on whether they can neutralise him. In the case of Watergate, it was hard to unveil Nixon’s complicity, but the moment the President’s involvement was established, he was gone. In the case of Greece’s Watergate, our parliamentary sovereignty was jettisoned so that the guilty PM could stay put. In this sense, Greece’s Watergate bodes more ill for democracy than America’s original.The reader may, understandably, ask: why should this defeat of Greece’s parliamentary democracy, however sad it may be, matter in the grander scheme of things? Because, my dear reader, you should never underestimate Greece’s capacity to be the harbinger of terrible developments that will come to your shores before you know it. Can you recall where the Cold War began? Not in the streets of Berlin in 1945, but in the streets of Athens in December 1944! Do you remember where the eurozone crisis began? Not in Italy or Spain or France, but in Greece in 2010! For some reason I am not privy to, my country has a proven record of giving birth not only to some important values, like democracy, but also to existential threats to Western civilisation. Which is why the ever-complacent West should be paying attention as our Greek Watergate scandal unfolds.

For the UNHERD original webpage click here

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Europe’s electricity market: the scam of the century? – Video

Every fortnight, DiEM25’s coordinating team livestreams our internal discussions of topics central to Europe’s and the world’s current predicament. On 8th September 2022 we discussed the electricity price hikes that, like a wrecking ball, are destroying what is left of Europe’s sustainability as an economic and social entity. Here is a clip of my analysis of why these markets are exploding and of the scandalous financialisation that is responsible for so much hardship spreading around Europe.

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Why energy markets should be dismantled, especially during and after the war in Ukraine – On Democracy Now!

We look at how the Ukraine war is contributing to an energy crisis across Europe with Greek politician and economist Yanis Varoufakis. Last week Russia announced it would not resume sending natural gas to Europe via the Nord Stream 1 pipeline, blaming Western sanctions for supposed maintenance delays keeping the gas shut off. Prior to the war, Russia supplied Europe with 40% of its natural gas, but now European nations must find ways to cope with fuel shortages and soaring energy prices as winter approaches. Varoufakis says a history of market liberalization and reliance on cheap Russian gas has left the continent scrambling, in turn pushing up energy costs in the Global South as richer European countries buy up other sources of energy. “Yet again, Europe is exporting misery to the rest of the world,” says Varoufakis, a member of the Greek Parliament and former finance minister. His latest piece for Project Syndicate is “Time to Blow Up Electricity Markets.”Transcript

AMY GOODMAN: This is Democracy Now!, democracynow.org, The War and Peace Report. I’m Amy Goodman, with Juan González.

As Ukraine continues to seize more Russian-occupied land in its largest counteroffensive to date, we turn now to look at how the war in Ukraine is leading to an energy war in Europe. Last week Russia announced it would not resume sending natural gas to Europe via the Nord Stream 1 pipeline until the West lifts sanctions imposed after Russia invaded Ukraine in February. Prior to the war, Russia supplied Europe with 40% of its natural gas. Now European nations are scrambling to find ways to cope with gas shortages, as well as soaring energy prices. There are growing fears the energy crisis could lead to rolling blackouts and the shuttering of some industries during the winter.

We go now to Athens, Greece, to Yanis Varoufakis, member of the Greek Parliament, former finance minister of Greece. His latest piece for Project Syndicate is headlined “Time to Blow Up Electricity Markets.”

Yanis, welcome back to Democracy Now! What do you mean?

YANIS VAROUFAKIS: We shouldn’t have electricity markets. It’s an abomination. Think about it, Amy. There can’t be an electricity market, to the extent that in your apartment, in your studio, there is one single wire coming out of the wall carrying electricity. There can’t be a market. It’s an actual monopoly. The only way we could have had a market would be if we had 50 different wires, each belonging to a different company, and we could choose which one we connect our appliances to. But, of course, that would be completely crazy, because we would have 50 grids running through every suburb, through every city, through the land. That would be so inefficient, it would be ridiculous.

So, what we have is not really markets. We have the state that steps in and pretends that it is a market, simulates a market, creating a kind of semblance of competition between producers of electricity and a semblance of competition between, supposedly, retailers of electricity, people who — companies that buy electricity wholesale and then sell it to you individually. But all that is a state creation. It’s, you know, a libertarian’s, right-winger’s nightmare, if you want. It’s a market — it’s a fake market created by the state.

And the impact of this being a fake market emerges during periods of stress, like in the 1970s, when we had the oil crisis, and then, of course, that translated into electricity price crisis, and now with what is happening with supply chain interruptions and the war in Ukraine. The thing to remember is that electricity prices, the prices that people in New York, in Los Angeles, here in Athens, everywhere, the prices we pay have risen by a much greater factor than the cost of producing electricity. So, you’ve got the oligarchs that are dominating this state market, that pseudo-market, that fake market, benefiting tremendously out of this crisis.

JUAN GONZÁLEZ: And, Yanis, I wanted to ask you about this. Europe made a decision, clearly, following the collapse of the Soviet Union, that it would integrate its economy, especially when it came to energy, with Russia, now, of course, being forced rapidly to move for other sources of gas and oil. Could you talk about this decision, the original decision and now the change, and what the impact of Europe’s strategic decisions are having on the rest of the world?

YANIS VAROUFAKIS: Actually, if you look at it historically, the decision goes back to the early ’70s. It was back in the early ’70s that West Germany and the Soviet Union started this arrangement of providing cheap gas to the German industrial machine in exchange for détente, in exchange for cash that the Soviet Union was collecting.

The tragedy is that since the Lehman Brothers collapse and the Wall Street implosion in 2008, which very quickly brought down the whole of the banking sector in Europe and precipitated a major economic and social crisis in Europe, with Greece being, of course, the worst-hit place, but Germany, France, Italy, Spain, Ireland, Portugal — we all suffered as a result — during that period, we didn’t invest in energy, in renewables. We had zero investment, almost zero investment in the renewables, that we needed in order to save the planet, on the one hand, and to decouple from the Putin regime in Russia. And it is only now, years and years later, that the chickens are coming home to roost across Europe.

JUAN GONZÁLEZ: And the impact on the Global South of Europe buying up gas and oil wherever it can find it?

YANIS VAROUFAKIS: Well, it’s awful, isn’t it? We are exporting poverty. In 2008, 2009, 2010, with the crisis of the German and the French banks initially, and then the public debt crisis, Europe exported deflation to the rest of the world. We exported unemployment to the rest of the world. Now we are exporting poverty, energy poverty, which translates then into food poverty, because, as we speak, there is a scramble, by Germany, by France, by Italy, even by little Greece, to buy all the gas that we can, you know, in liquefied form from Norway, from Qatar, from Algeria, from wherever they are selling it. And, of course, rich Europe, rich European countries, relatively rich, they can outbid the whole of the African continent and most of Asia, Latin America in those markets. So they’re pushing prices up for those countries, the developing world, while at the same time food shortages are hitting those countries. So, you know, yet again, Europe is exporting misery to the rest of the world. We’ve doing this for a thousand years; it’s not new, right? Colonialism began from these shores.

AMY GOODMAN: Yanis, if you could talk about your call for an end to Russian sanctions and your response to the latest kind of Ukrainian blitz taking back city after town, Russia, though, saying they would not negotiate at this point?

YANIS VAROUFAKIS: Well, it’s a tragedy that people are not negotiating when there’s a war, wherever that war happens. But I have say that, Amy, whenever an invaded country manages to repel the invader, I rejoice. I rejoice now that the Russian troops have been pushed back. I would rejoice if Palestinians managed to claim back their stolen land. I would rejoice everywhere and anywhere invaded peoples claim back their homes, their cities, their villages, their fields, their olive trees, whatever.

Having said that, we have a complete tragedy here in Europe with Ukraine, because I cannot see this war ending. There can be no final victory either for Putin or for Ukraine. There is very little doubt that Putin, as we speak, is planning another murderous escapade in different parts of Ukraine. We are in for a very long war, the victims of which are going to multiply and, you know, which will spread far and wide, as we said. There will be people dying of hunger in Africa, in Latin America. We are going to have an inflammation of the new Cold War between the United States and Europe, on the one hand, and China and Russia, on the other hand, with African nations, Asian nations pulling their hair out, because they — clearly, they don’t like Putin. They don’t like what Putin is doing. But at the same time, they refuse to accept that the United States of America, the government of the United States of America, or the Europeans can impose sanctions on anyone they don’t like, because they know that these sanctions have never been either efficient or in the interests of the majority of people in a majority of countries.

JUAN GONZÁLEZ: And, Yanis, I’m wondering — the big story in the corporate and commercial media the past few days, obviously, has been the death of Queen Elizabeth. Your perspective from — as a leftist political leader from Greece about all the fixation in much of the Western world over monarchs and, obviously, the royal family of Britain?

YANIS VAROUFAKIS: I try to be very careful, whenever somebody dies, independently of my opinion of the deceased, to respect the people who are in grief. And therefore, I will be very restrained in my response. Let me, however, give you a response.

My grief is for civil liberties, for freedom of expression. An acquaintance of mine the other day had a very interesting experience outside the House of Commons, the Parliament of the United Kingdom, in London, you know, next to Big Ben, or under the Big Ben. There was an arrest recently of a demonstrator who had the audacity to hold a placard up — not actually. It wasn’t even a placard. It was a piece of paper in which he had scribbled “not my king” as Charles was passing by. This person was arrested. My acquaintance, a couple of days later, went to the same spot and had a blank piece of paper and a pen. Blank piece of paper and a pen. And the police came along, and they were about to jump on him. And he said to them, “So, if I write here on this piece of paper, ‘not my king,’ will you arrest me?” And they said, “Yes.” So they were waiting. Now, that, to me, is the death of democracy. And since your wonderful channel is called Democracy Now!, I think, it is something that we should all be very, very aware of.

AMY GOODMAN: Yanis Varoufakis, we want to thank you so much for being with us, member of the Greek Parliament, former finance minister of Greece. We’ll link to your latest piece in Project Syndicate, “Time to Blow Up Electricity Markets.”

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Are we Greeks insufferable nationalists? UNHERD

We Greeks have a reputation for being insufferable nationalists, most of whom genuinely believe that Greek culture is superior to that of other nations and peoples. We were even anointed the most culturally chauvinistic Europeans in a recent Pew survey. At the risk of confirming that stereotype, I shall blame it on… foreigners, with their immoderate praise of Greek culture and their superficial reading of their own silly surveys.On 28 May, 1979, the occasion of Greece’s accession to the European Economic Community, Valéry Giscard d’Estaing, then president of France delivered a speech in Athens and declared: “Europe without Greece would not be Europe… We are all, in our language and thought processes, children of Greek civilisation…” Today, he concluded, “Europe is rediscovering Europe.”A century or so earlier, the Cambridge mathematician and philosopher Alfred North Whitehead wrote that “the safest general characterisation of the European philosophical tradition is that it consists of a series of footnotes to Plato”. Not to be outdone in philhellenism, commenting in 1941 on the Greek resistance to the Italian and German invaders, Winston Churchill famously added: “Hence we will not say that Greeks fight like heroes, but that heroes fight like Greeks.”Surely any people showered with such lavish praise by influential foreigners would be forgiven for taking a certain pride in their culture. For Greeks used to hearing folks like Giscard d’Estaing insist that. Greece  Europe, and vice versa, telling a pollster that they do not believe their culture to be superior would be tantamount to questioning the superiority of European civilisation. In fact, from a Greek’s perspective, it is the equivalent of asking the French, German, Spanish or Dutch to respond, with a yes or no answer, to the silly question: “Is European civilisation better or worse than other civilisations?” In this sense, modern Greeks are neither more nor less culturally chauvinist than Europeans who celebrate European civilisation as if the horrors of European colonialism had never happened.But ask us Greeks about modern Greek culture and you will get a very different response. Sure enough, we have our fair share of looney ultra-nationalists, some of whom believe that Darwinism applies to every human except the Greeks, who stem from some divine extra-terrestrial gene. Yet the vast majority of my countrymen and women think very little of our contemporary culture, ways and behaviours. The past decade, especially since our wholesale bankruptcy, has left us reeling, insecure and verging on self-loathing.Yes, we still appreciate the glowing successes of Greeks who left Greece in search of a better life elsewhere. Yes, we celebrate the odd athletic victory and we appreciate the beauty of Greece’s land, sea and environment. Yes, we maintain some pride in uniquely Greek concepts like philotimia — a penchant for acting in a dignified way simply for the hell of it. But at the same time, we fear that these qualities, natural and spiritual, have been diluted terribly in recent decades; partly because we neglected and cannibalised them (our monstrous investment in tourism, for example), and partly because of a European Union that helped us lose our way.When Giscard d’Estaing made his 1979 speech, a year before northern Europe formally admitted us to the EU, most Greeks rejoiced. Alas, we soon realised that a general loss of dignity was the hefty price we would end up paying for the privilege. I am often asked why Europe first let us Greeks into the Common Market and later into the euro. The correct answer sounds improbable today: because, back in 1979 when Giscard was waxing lyrical about Greek civilisation, the Greek state had one of the lowest levels of public debt in Europe and its citizens had next to none. Yes, we were a poor people but we managed within our modest means, living and breathing paradigms of parsimony. That’s what we brought into the EU: low debt and high levels of home ownership — a combination that was the Western banker’s wet dream.Even in 1999, just before we were admitted to the euro, barely any Greeks had a mortgage, let alone a credit card. However, to enter Europe we had to lower our trade barriers and, later, to dismantle all capital controls. Immediately, a tsunami of imports, money and loans left northern Europe for Greece. Not that we resisted it, hungry as we were for the material trappings of modernity. Before we knew it, our factories were shut (and converted into warehouses for the imported washing machines and fridges that were once manufactured here); our bank accounts went from thin black to deep red; our dignity and philotimia were torn asunder.It was only a matter of time before the global debt and banking bubble burst, before the same Europeans and Americans who once praised us as the pillars of Western civilisation turned on us. Conveniently ignoring that they had insisted we borrow mountains of their money — so we could buy their cars, washing machines and haute couture — they did not hesitate to call us all sorts of names unfit to print here.Worse still, under our breath, we call ourselves similar names. When talking to each other, we have no qualms of being highly self-critical, often bordering on self-hatred. No Greek I know would, for instance, disagree with David Holden, the Times journalist who in 1972 depicted Greece as “rich in talent and poor in resources, developed in its tastes and underdeveloped in its capacities”. And so partly out of a false dedication to not disappointing those who talk up Greek civilisation, and partly due to our anger with ourselves and with a Europe that led us astray before treating us like cattle that lost their market price, we respond to idiotic survey questions with fake pride. Of course, we know it is fake — but, then again, fake pride is the last resort for those who have forfeited the real thing.For the Unherd webpage click here

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Time to Blow Up the Electricity Markets – Project Syndicate

The European Union’s power sector is a good example of what market fundamentalism has done to electricity networks the world over. With the end of cheap natural gas, retail consumers and businesses are paying the price for their governments’ embrace of a shoddy theory.ATHENS – The blades of the wind turbines on the mountain range opposite my window are turning especially energetically today. Last night’s storm has abated but high winds continue, contributing extra kilowatts to the electricity grid at precisely zero additional cost (or marginal cost, in the language of the economists). But the people struggling to make ends meet during a dreadful cost-of-living crisis must pay for these kilowatts as if they were produced by the most expensive liquefied natural gas transported to Greece’s shores from Texas. This absurdity, which prevails well beyond Greece and Europe, must end.The absurdity stems from the delusion that states can simulate a competitive, and thus efficient, electricity market. Because only one electricity cable enters our homes or businesses, leaving matters to the market would lead to a perfect monopoly – an outcome that nobody wants. But governments decided that they could simulate a competitive market to replace the public utilities that used to generate and distribute power. They can’t.1The European Union’s power sector is a good example of what market fundamentalism has done to electricity networks the world over. The EU obliged its member states to split the electricity grid from the power-generating stations and privatize the power stations to create new firms, which would compete with one another to provide electricity to a new company owning the grid. This company, in turn, would lease its cables to another host of companies that would buy the electricity wholesale and compete among themselves for the retail business of homes and firms. Competition among producers would minimize the wholesale price, while competition among retailers would ensure that final consumers benefit from low prices and high-quality service.Alas, none of this could be made to work in theory, let alone in practice.The simulated market faced contradictory imperatives: to ensure a minimum amount of electricity within the grid at every point in time, and to channel investment into green energy. The solution proposed by market fundamentalists was twofold: create another market for permissions to emit greenhouse gases, and introduce marginal-cost pricing, which meant that the wholesale price of every kilowatt should equal that of the costliest kilowatt.The emission-permit market was meant to motivate electricity producers to shift to less polluting fuels. Unlike a fixed tax, the cost of emitting a ton of carbon dioxide would be determined by the market. In theory, the more industry relied on terrible fuels like lignite, the larger the demand for the EU-issued emission permits. This would drive up their price, strengthening the incentive to switch to natural gas and, ultimately, to renewables.Marginal-cost pricing was intended to ensure the minimum level of electricity supply, by preventing low-cost producers from undercutting higher-cost power companies. The prices would give low-cost producers enough profits and reasons to invest in cheaper, less polluting energy sources.To see what the regulators had in mind, consider a hydroelectric power station and a lignite-fired one. The fixed cost of building the hydroelectric station is large but the marginal cost is zero: once water turns its turbine, the next kilowatt the station produces costs nothing. In contrast, the lignite-fired power station is much cheaper to build, but the marginal cost is positive, reflecting the fixed amount of costly lignite per kilowatt produced.By fixing the price of every kilowatt produced hydroelectrically to be no less than the marginal cost of producing a kilowatt using lignite, the EU wanted to reward the hydroelectric company with a fat profit, which, regulators hoped, would be invested in additional renewable-energy capacity. Meanwhile, the lignite-fueled power station would have next to no profits (as the price would just about cover its marginal costs) and a growing bill for the permits it needed to buy in order to pollute.But reality was less forgiving than the theory. As the pandemic wreaked havoc on global supply chains, the price of natural gas rose, before trebling after Russia invaded Ukraine. Suddenly, the most polluting fuel (lignite) was not the most expensive, motivating more long-term investment in fossil fuels and infrastructure for LNG. Marginal-cost pricing helped power companies extract huge rents from outraged retail consumers, who realized they were paying much more than the average cost of electricity. Not surprisingly, publics, seeing no benefits – to them or to the environment – from the blades rotating above their heads and spoiling their scenery, turned against wind turbines.The rise in natural gas prices has exposed the endemic failures that occur when a simulated market is grafted onto a natural monopoly. We have seen it all: How easily producers could collude in fixing the wholesale price. How their obscene profits, especially from renewables, turned citizens against the green transition. How the simulated market regime impeded common procurement that would have alleviated poorer countries’ energy costs. How the retail electricity market became a casino with companies speculating on future electricity prices, profiting during the good times, and demanding state bailouts when their bets turn bad.It’s time to wind down simulated electricity markets. What we need, instead, are public energy networks in which electricity prices represent average costs plus a small mark-up. We need a carbon tax, whose proceeds must compensate poorer citizens. We need a large-scale Manhattan Project-like investment in the green technologies of the future (such as green hydrogen and large-scale offshore floating windfarms). And, lastly, we need municipally-owned local networks of existing renewables (solar, wind, and batteries) that turn communities into owners, managers, and beneficiaries of the power they need.

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Greeks and other southern Europeans could now be feeling ...

Greeks and other southern Europeans could now be feeling schadenfreude as Germany faces the collapse of its economic model in the face of the Ukraine war and the new cold war with China. But with a democratic Europe in the balance, this is no time to gloat.ATHENS – It is never easy to wake up to the news that your country’s business model is busted. It is difficult to acknowledge the obvious: that your political leaders had either been deluded or lying to you when they assured you for decades that your hard-earned living standards were safe. That your immediate future now relies on the kindness of foreigners determined to crush you. That the European Union, in which you had placed your trust, had been engaging in a permanent concealment exercise. That your EU partners, to whom you are now appealing for help, look at you as a villain whose comeuppance is long overdue. That economic elites in your country and beyond are seeking novel ways to ensure that your country remains stuck. That you must endure massive, painful changes to ensure that nothing changes.Greeks know this feeling. We experienced it in our bones in early 2010. Today, it is the Germans who are facing a wall of condescension, antipathy, and even mockery. Ironic as it may seem, no Europeans are better placed than the Greeks to understand that the Germans deserve better; that their current predicament is the result of our collective, European failure; and that no one – least of all the long-suffering Greeks, southern Italians, Spaniards, and Portuguese (the PIGS as we were once called) – benefits from schadenfreude.The tables have been turned on Germany because its economic model relied on repressed wages, cheap Russian gas, and excellence in mid-tech mechanical engineering – particularly manufacturing cars with internal combustion engines. This resulted in massive trade surpluses during four distinct post-World War II phases: under the US-led Bretton Woods system, which provided fixed exchange rates and market access to Europe, Asia, and the Americas; then, after the collapse of Bretton Woods, when the single European market proved highly lucrative for German exports; again following the introduction of the euro, when vendor financing opened the floodgates for both goods and capital flowing from Germany to Europe’s periphery; and, finally, when China’s hunger for intermediate and final manufacturing products took up the slack after the euro crisis dampened demand for German goods in southern Europe.Germans are now slowly coming to terms with the demise of their economic model and are beginning to see through the multifaceted Big Lie their elites were repeating for three decades: Fiscal surpluses were not prudence in action, but rather a monumental failure, during the long years of ultra-low interest rates, to invest in clean energy, critical infrastructure, and the two crucial technologies of the future: batteries and artificial intelligence. Germany’s dependence on Russian gas and Chinese demand was never sustainable in the long term; and they are not mere bugs that can be ironed out.The claim that the German model was compatible with Europe’s monetary union is also being exposed as false. Lacking a fiscal and a political union, the EU was always going to saddle Club Med governments, banks, and corporations with unpayable debts, which eventually would force the European Central Bank to choose between letting the euro die and embarking upon a permanent bankruptcy-concealment project.Germans are realizing this today as they observe a hamstrung ECB which is damned if it raises interest rates substantially (causing Italy and others to implode) and damned if it doesn’t (allowing runaway inflation). While it never should have been the ECB’s job to save the euro from its flawed foundations, Germans can see that their politicians lied to them that their economic model could survive the 2008 crisis as long as other eurozone countries practiced enough austerity. They are also coming to understand that their leaders’ stimulus-phobia led to permanent socialism for the southern European oligarchs, the Franco-German bankers, and various zombified corporations.Once upon a time, those of us who criticized the notion that every eurozone country should become like Germany objected that the German model worked only because no one else had adopted it. Today, with the end of cheap gas and America’s new cold war with China, the German model is kaput even for Germany. Yes, German exports will rebound, aided by the low value of the euro. Volkswagen will sell a lot more electric cars once supply chains are restored. BASF will bounce back, once energy supplies are secured. What will not return is the German model: A large chunk of Volkswagen’s revenues will go to China, whence the battery technologies come, and mountains of value will shift from the chemical industry to AI-related sectors.Some German friends are pinning their hopes on the falling euro to restore the German model to health. It won’t. Low-savings countries with a structural trade deficit, like Greece or Ghana, do benefit from devaluation. High-savings countries with a structural trade surplus, do not – all that happens is that poorer domestic consumers subsidize richer exporters, which is precisely the opposite of what the German social economy needs.My message to German friends is simple: Quit mourning. Cut through the denial, anger, bargaining, and depression, and start designing a new economic model. Unlike Greeks, you still have enough sovereignty to do so without the permission of creditors.But first, you must resolve a critical political dilemma: Do you want Germany to retain political and fiscal sovereignty? If so, your new model will never work within this eurozone of ours. If you do not want to go back to the Deutsche Mark, you need a model embedded within a full-fledged, democratic European federation. Anything else will continue the Big Lie with which you are now painfully coming to terms.

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Inflation, socialism’ for corporations & austerity for workers: FORTUNE comments on Yanis Varoufakis’ take

Known for sporting a leather jacket in meetings with foreign dignitaries during his brief stint as Greece’s finance minister in 2015, Yanis Varoufakis has become a bit of a rebel in economic circles. A member of Greece’s Hellenic Parliament and founder of the left-wing European Realistic Disobedience Front, or MeRA25 party, Varoufakis hasn’t historically pulled any punches when it comes to his scathing criticism of fellow economists and politicians, and his most recent article is no exception.The author of  Adults in the Room: My Battle With the European and American Deep Establishment  and currently an economics professor at the University of Athens, Varoufakis continued his long-running critique of austerity in a Project Syndicate op-ed published over the weekend, and added a new argument about the inflation that has shocked the world in 2022.Central banks have given corporations a type of “lavish socialism” since the 2008 financial crisis, Varoufakis wrote, while workers have been stuck with “harsh austerity,” and the highest inflation in 40 years is just the latest twist.A half-century–long power playThe economist’s argument is based on the idea that corporations have led a “half-century–long power play” to boost their stock prices, creating unsustainable business models and fragile global supply chains along the way. But it’s all gone wrong in recent years, and workers have been left to clean up the mess.Before the great crisis of 2008, he said, U.S. corporations used “pyramids of private money” from cheap and plentiful imports and consistent foreign investment to create a “labyrinth” of global just-in-time supply chains instead of focusing on increasing productivity.Then, when the 2008 financial crisis hit, the pyramid collapsed and central banks were forced to step in and save the day. Interest rates were slashed to near-zero and many central banks began a somewhat controversial policy known as quantitative easing—which involves central banks buying government bonds and mortgage-backed securities in hopes of increasing the money supply and spurring lending and investment.But while corporations were being saved by central bank policies and federal government bailouts, workers were left to fend for themselves.“Governments were cutting public expenditure, jobs, and services. It was nothing short of lavish socialism for capital and harsh austerity for labor,” Varoufakis says. “Wages shrunk, and prices and profits were stagnant, but the price of assets purchased by the rich (and thus their wealth) skyrocketed. Thus…capitalists became both richer and more reliant on central-bank money than ever.”Wealth “triumphed” in real estate and equity markets in this era of government and central bank support, but Varoufakis says asset prices quickly became divorced from the real economy. Then the pandemic hit, and the flows of cash that had allowed corporations to flourish over the past decade were suddenly redirected to consumers.“Western governments were forced to channel some of the new rivers of central-bank money to the locked-down masses within economies that, over the decades, had depleted their capacity to produce stuff and were now facing busted supply chains to boot,” he said.When consumers spent some of the money they were given by the federal government via stimulus checks, suppliers couldn’t keep pace with the new demand, leading inflation to rise—and corporations, the war in Ukraine, and COVID-19 lockdowns only added to the problem.“Corporations with great paper wealth responded by exploiting their immense market power (yielded by their shrunken productive capacity) to push prices through the roof,” he said.Still, Varoufakis argued that we aren’t seeing a wage-price spiral in the U.S., where workers asking for pay increases to preserve their income amid inflation end up increasing costs for companies, which in turn increase their prices to compensate. The lack of a wage-price spiral means central banks shouldn’t be asking workers to “take one for the team” and go without wage increases.“Today, demanding that workers forgo wage gains is absurd. All the evidence suggests that, unlike in the 1970s, wages are rising much more slowly than prices, and yet the increase in prices is not just continuing but accelerating,” Varoufakis said.Still, the inflation problem means Western governments and central banks are faced with a tough decision, Varoufakis argues: “Push conglomerates and even states into cascading bankruptcies, or allow inflation to go unchecked.”The economist didn’t describe what he believes central bank officials will choose, but he argued the end results are unlikely to be appealing to the masses.“So, what happens now? Probably nothing good,” he said. “To stabilize the economy, the authorities first need to end the exorbitant power bestowed upon the very few by a political process of paper wealth and cheap debt creation. But the few will not surrender power without a struggle, even if it means going down in flames with society in tow.”

For the FORTUNE original webpage click here

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