‘Adults in the Room’ by Varoufakis. Good, necessary and very frightening.

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Merijn T. Knibbe
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Yanis Varoufakis has written a book which shows that the European Union is, at present, disfunctional and does not live up to the treaties.

The EU treaties are clear:

“The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall promote scientific and technological advance. It shall combat social exclusion and discrimination, and shall promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child. It shall promote economic, social and territorial cohesion, and solidarity among Member States. It shall respect its rich cultural and linguistic diversity, and shall ensure that Europe’s cultural heritage is safeguarded and enhanced”.

But it doesn’t. As shown by  ‘Adults in the Room’ by Yanis Varoufakis, the minister of finance of Greece who, for five months, defied the ‘Troika’ (the combination of the ECB, the IMF and the European Commission who, with the Eurogroup, the regular meeting of the ministers of finance of the Eurozone, in the background).

• It is a necessary and a good book. It is very well written (style, structure) and it is about an important theme: the political nature of Europe. It did not bore me for one moment.
• To me, the gist of the story was not surprising. This is meant as a compliment. I did read the Memoranda of Understanding (the shallow documents written by just another anonymous EC or IMF economist who has to do just another overpaid gig) which are used to subjugate countries. I did read the EC and Eurozone treaties. I did track the statistics on deposit flight, the newspapers and whatever. It is of course much richer in detail – but it is the story as I remember it. The point: he’s not making things up. It is important to note this as there will be spin which will indicate he does.
• Varoufakis is accused of being a narcissist. He isn’t. He is more like a modern day Hercules. Hercules was an agricultural super hero: harvesting apples, cleaning stables, slaying lions, birds and boars who threaten the flocks and ravage the fields. Varoufakis had to combat the leaches and vampire squids which threaten our financial system. And yes, leaches they are. Varoufakis recounts that, when he lowered wages of some Troika people in the Greek bureaucracy who were paid by Greece but who earned much more than the prime minister, with 40% (the average wage cut in Greece) this met with disapproval from the Troika. And their wages were increased again, to a higher level than before, when Varoufakis had left. When you cut off one head of the hydra, two will grow back. A selveserving elite? Yes.
• To an extent, he succeeded. His arithmetic, his proposals and economic models were sounder as well as much more business friendly and social than those of the Troika. And especially: more future oriented.
• Which was not hard. As stated above, the MoU’s are shallow. The IMF economic model used to calculate the consequences of a VAT hike for hotels from 6 to 24% did not take price elasticity of demand into account; Varoufakis team could build, from scratch, a better model in two weeks. In the Eurogroup, discussion was stifled (by Jeroen Dijsselbloem).
• But the MoU’s were of course not meant to restore prosperity. They were not even meant to enable Greece to pay back its international debts. They were meant to subjugate a country and to sideline democracy and the Greek constitutional court. Varoufakis recalls how Macron (at the time minister of economics in France), who seems to have sensed to stupidity of the MoU’s and who wanted to try to help Greece, was sideline (via Hollande) by Merkel. He recalls how the Chinese state, which wanted to invest in Greece (and massively so) as part of its silk road project, was told to reconsider, especially on its intention to buy short term Greek government debt. But when there was no money to pay back the IMF and Greece had to default to the IMF, the Greek Central bank suddenly came up with this money, almost literally at the last minute – as a default threatened the Troika.
• The Greek government had a weapon against the ECB (this was surprising to me). The ECB still owned about 30 billion of Greek debt which was emitted under Greek law. Which meant that Greece could default on this debt. This might, especially in Germany, have triggered a response from the German constitutional court which would have jeopardized the QE policies of the ECB. Hey, the Greek constitutional court was sidelined, but the German court rules supreme…
• Long story short: Greece was almost subjugated. Until the referendum which, with a 61,3% majority, voted NO against subjugation. Aside – this is of course not the only popular blow against Brussels, think Brexit, think the Ukraine referendum in the Netherlands. Speaking of Ukraine: the ridiculed debt swap proposals of Varoufakis (perpetual bonds as well as bonds linked to nominal GDP of a country) were used by the IMF in the Ukraine. The referendum gave Greece the possibility to default on the ECB debt and eventually to introduce a new Drachme. The Troika had had a large change to restore prosperity to Greece (which was in the interest of the creditors, too, of course) and Varoufakis could have been their most cherished ally. But the Troika totally blew it – and therewith crippled Europe.
• Alas, the rest of the Greek government did not dare to cast the die and subjugated to a MoU which was even harsher than the initial one, which rightly made Varoufakis leave this government. This MoU had predictable results. The Greek depression continues unabated. Unemployment is 22%. The young are emigrating. And, from a geopolitical perspective, the entire south eastern flank of Europe is now in tatters and a mess.

There are of course large problems with the structure of the Greek economy. Despite the unprecedented crisis the current account is at this moment is only about zero – amazing. Which means that any genuine none export-lead recovery will lead to a rapid increase of the current account deficit. Which will be difficult. Most international trade of a country is often with its neighbors. In the case of Greece, these are either in tatters themselves (Albania, Macedonia), dirt poor (Bulgaria) or outcompete Greece – Turkey levies a 7% VAT on tourism while Greek hotels have to levy 24%. A personal anecdote: two years ago I met, by chance, a women working for the Lidl, a German supermarket chain. These chains often have Italian weeks, French weeks etcetera (no Dutch weeks, as I recall), during which special products from these countries are sold. She had to organize the Greek week. But she had trouble finding food companies in Greece which were large enough to produce the amounts she needed… There is work to do. But that is exactly what Varoufakis was up to. And which the leeches prevented. The British are warned. Brussels will do everything to make Brexit fail – even if it will cost the British population as well as the EU population dearly. And Merkel reigns supreme.