MALE SPEAKER:
Welcome, everybody,
to one more Talks
at Google event.
Today's guest needs no
introduction, virtually.
Today's guest is Yanis
Varoufakis, the former finance
minister of Greece during one
of the most tumultuous periods
of its financial history,
if not history overall.
He's a professor
of economic theory
at the University of
Athens and a former member
of the parliament.
He is author of "The Global
Minotaur," among other books,
and his newest book
is "And the Weak
Must Suffer What They Must."
I would like to
ask Mr. Varoufakis
to come to the podium here
and share with us thoughts.
Thank you.
[APPLAUSE]
YANIS VAROUFAKIS: Good
afternoon, everyone.
It's a very rare occasion
for a politician,
academic, confused person like
me, to be in a place like this.
I've done it before in
similar organizations,
even though Google
is unique for reasons
you do not need me to explain.
And I have excellent memories
of trying to bring together
a techie audience
with my concerns
about the ways of the world--
in other words, politics.
I'm going to talk
to you today and try
to encourage you to participate,
to start a dialogue with me,
on the concept of money.
The purpose is not academic.
It's not to have a philosophical
discussion about money.
It's my view that we live
in a very troubled world--
that Europe, and that's what
this is about, is, if you want,
the part of the
global economy where
the troubles of
global capitalism
manifest themselves in the most
poignant and magnified manner.
And Europe is perfectly capable
of destabilizing the United
States.
It already has
destabilized China.
And through China it has
destabilized Latin America.
And if my analysis holds
water, the next generation
is going to face
challenges that have not
been faced since the 1930s.
I hope I'm completely wrong.
But I very much
fear that I'm not.
And money is a very
good starting point
of a conversation,
especially with an audience
like your good selves.
The reason is that money is
the most quantifiable variable
of an economy.
Love, beauty, value-- they're
all supremely important.
But their qualities, any attempt
that we make to quantify them,
devalues them in a sense.
But money comes in as a
result of commodification
and marketization to turn
values into quantities,
to quantify that which is
considered by the market
to be valuable.
Now, the reason why I'm
beginning with money
to tell a story about the
troubles of global capitalism
and the challenges of
the next generation,
is because if you think of
money as a good, what is a good?
Something people want.
So tomatoes are
good, potatoes are
good if people want to eat
them, and money is good
if people want money.
If it is a good, then in a
commodified, capitalist world,
it must also be a commodity.
And of course it is a commodity.
You just look at the
foreign exchange market--
huge trades every day, money
being exchanged for money.
So money is a good,
and it is a commodity.
So why is its price negative
in more than 40% of the world?
The price of money is
the rate of interest.
It's the price one is prepared
to accept for not using money,
for giving it to somebody else.
And we live in a
world, especially
in Europe, where
the price of money
is either 0 or extremely,
very low, or indeed,
in places like Japan, in Europe,
and in certain bond markets
here in the United
States, it is negative.
Now, how can a good
have a negative price?
It must be a bad by definition.
Negative prices are
associated with bads.
So you have toxic
waste in your backyard,
you're prepared to pay
someone to get rid of it.
That's what negative
price means.
So how can it be that money
could have a negative price?
Well, the reason is that
money is not just a quantity.
It is not just a commodity.
It is a lot more than that.
A 19th century
revolutionary referred to it
as the alienated
ability of humankind.
That was Karl Marx, by the way.
But forget Marx, since
we are in California.
[LAUGHTER]
And not in Vermont,
which I believe
is the people's
republic of this era,
or New Hampshire or
something like that.
Let's think of the reason why
the price of money in Europe
today is negative, and why
it is almost 0 if you look
at the Fed's overnight rates.
If you are an entrepreneur,
and you're tossing and turning
in bed at night, mulling
over and wondering
as to whether you should
invest in a new production
line, a new company, a
new product, a new line
of products, what
is it that you are
worried about at that moment?
You're worried about
whether that investment will
turn a proper return out.
And what will this depend on?
It will depend on two things.
It will depend on
your costs, and it
will depend on the
demand for the commodity
that your production
line will be churning out
six months, eight months,
a year from the moment you
make the investment, if you
choose to make the investment.
So the price of money,
the rate of interest,
is an input into the costs.
So the higher the price of
money, the more costly money
is to borrow or to utilize for
the purpose of your investment.
So you think, OK,
so this is where
it works like a commodity.
When its price comes
down, you think,
OK, my costs are coming down,
so my propensity to invest
increases.
But that is not what keeps
entrepreneurs awake at night,
and potential investors.
What really keeps
them awake at night
is the prospect of sufficient
demand for the commodity
six months, one year later.
And what does this depend on?
That depends on whether
others like herself
or himself who are also turning
and tossing in bed at night
will make the
decision to invest,
because the aggregate
level of demand
is driven by the aggregate
level of investment.
So this is a problem
that suddenly moves out
of the standard
conception of money
as a commodity that has a
price like potatoes that
have a price, because
with potatoes, if you have
excess supply of potatoes,
you are selling potatoes,
and you want to get rid of
them before the end of the day
because you don't want to
sell the same stale potatoes
tomorrow, what do you
do to get rid of them?
You reduce the price,
and at some point
you will hit a
level of price that
will clear the market--
the market, your stalls.
People will just buy it.
If you drop it at
$0.02 a ton, people
will just-- so there is a
price which clears the market.
But the investment game
that I just described
is precisely that.
It is a game.
And what is a game?
It is a situation where
the outcome does not
depend on what you do, but
it depends on what others do,
and what you think that
they think that you
think that they will do.
That's what a game
is, like in chess,
like in the stock exchange.
So suddenly, whether
you invest or not
depends on your
belief or optimism
that the level of
aggregate investment
will exceed a certain threshold,
because only if it exceeds
a certain threshold,
only then will there
be enough demand to make
your investment profitable.
So the way I-- when I
was still a professor,
the way I tried to explain this
to students, especially MBA
students who are
cutthroat and try
to undermine each
other like there's
no tomorrow-- I remember
I used to love doing that.
It was great fun for
me, not for them.
I used to say to them, you know
what, I hate marking scripts,
so I'm going to give
you your grade now,
day one, first lecture.
I'm going to give you
this semester grade now,
and then we can meet for the
purposes of your education
and mine.
Just take a piece of paper
out, write your student number,
and I want you to add a number,
a digit between 1 and 9,
including 1 and 9.
And your grade
will be as follows.
I will pick up this
piece of paper.
I would find the piece of paper
with the lowest integer choice.
That will be the common
factor of all of you.
I will multiply this by 11.
And for each one of you, I will
subtract from that 11 times
the minimum your own choice.
And that will be
your grade, which
means that if everybody chose
9, the minimum would be 9,
99, 9 times 11, would be the
common factor for everyone,
minus 9, their own
choice-- 90% everyone.
If everybody chose
eight, 80% everyone.
If everybody chose
one, 10% everyone, OK.
Now I can tell you, every
single time I did this,
the vast majority chose
1 and everybody failed.
And this is not the
prisoner's dilemma.
It's not a free rider problem.
It's not a situation
where you want to cheat,
you want others to
choose a high number
and for you to
choose a low number.
Why?
Because if you choose
the low number,
then the minimum goes
low, and you lose, too.
Here is a typical
coordination problem.
Everybody's trying
to do the following--
the optimal strategy, by
the way, in this game,
is to choose what you
think the minimum will
be amongst the rest
and choose that.
So if you think that
everybody else will choose 9,
you're best off choosing
9, because if you choose 8,
the minimum becomes
8 and you lose, too.
If you choose the minimum
will be 8, you choose 8.
So it's a guessing game.
Everybody's trying
to guess the minimum.
And what they in the end do
depends on the average degree
of optimism.
If the class is optimistic
that people will be optimistic,
that everybody else
will be optimistic,
then they all choose 9,
confirming the optimism
that they imagined
would be prevalent.
But if they're pessimistic,
they will all--
I remember, I would pick
out one of those students,
and I would say to
them, OK, you chose 1.
Why did you choose 1?
Don't you realize by choosing
1, you fail and everybody fails?
And the answer is,
yes, but you know what?
It is a rational
belief, prediction,
to think that there will be at
least one person in this room
who fears that there is another
person in this room who fears
that there is someone in
this room who will choose 1,
because then, 1 will
be the minimum choice,
and then I'm best off, given
that 1 will be the best
choice, to choose 1,
because if I choose more,
than you will be
subtracting more than 1
from the common factor.
Now that is the
conundrum of investment.
If investors fear that the
level of investment will be low,
then the level of
investment will be low.
And their pessimistic
expectations
are going to be confirmed.
And they will turn
around and say, see?
I was right.
But that doesn't
mean they were right.
It means that we live in a
world of multiple equilibria--
some good-- 9, 8,
7, in the example
that I gave you,
some awful-- 1, 2, 3.
And courtesy of
being equilibria,
there is no one outcome
which is more equilibrium
than the other.
They are all equilibria.
Some are better.
Some are worse.
What determines
whether we go from
the good to the bad, or vice
versa-- average optimism.
This is a problem with
recessions that turn
into permanent depressions.
This is a problem when
investment is completely stuck.
Have you noticed that in
the United States today,
we have the following very
interesting phenomenon,
and very worrying phenomenon.
We have extremely low rates of
interest, extremely high profit
rates, and very low
levels of investment.
How is this possible?
There rate of interest should
be in equilibrium, more or less
the same, as the rate of profit.
The rate of profit
should reflect the rate
of interest and vice versa.
If the two are out
of kilter, it means
we have a major incongruity.
Something is broken
in our economy.
And if profit rates are
high, why don't people
invest to make more profit?
And yet they don't.
The example I gave you with
the failure of optimism I think
offers an answer.
At the moment, we
have a situation
where if you take the United
States, Europe, and Britain--
the British, some of
them like to be thought
of as outside of Europe--
so effectively, Europe
and the United States, we
have, the last time I looked,
around $6 trillion
doing nothing--
sloshing around in the financial
sector, not being invested,
refusing to be invested.
Why?
It's not that those who own that
money do not want to invest it.
And by the way, by investment,
I mean real investment.
I don't mean buying
houses and buying shares.
That's not investment.
Investment is when
your company says,
OK, we're going to expand
this particular sector,
we're going to invest
in people, we're
going to invest in
machinery, we're
going to invest
in new technology.
That's investment.
So one thinks of capitalism as
a system where you have savings.
You have financial
intermediaries
that take those savings
and lend them to companies
that then invest it.
Those investments
produce the incomes that
then replenish the savings.
And this recycling
process continues.
But at the moment, savings
in the developed world,
let's put it this way, exceeds
investment by 7 trillion.
Never before in the
history of capitalism
have we had such high
levels of savings
and such low levels
of investment.
If you think of the
rate of interest
as the price of money that
must equilibrate savings
and investment, when there is
excess supply of money, when
savings is there and investment
is there, there must--
what happens is
the price of money
must drop so that this happens.
Except the price of
money drops to below 0,
and this gap is not
ameliorated, doesn't go away.
And why doesn't it go away?
Let's go back to the bedroom
of the entrepreneur who is
tossing and turning at night.
And let's say that this is a
very old-fashioned entrepreneur
like me.
I'm not an entrepreneur,
but I'm old-fashioned
because I listen to
the radio at night
when I can't sleep, to
the BBC World Service
since I was a kid,
for some reason.
And 3 in the morning, tossing
and turning, wondering, shall
I invest, shall I not invest?
And suddenly the
news comes through,
Janet Yellen is
reversing the tapering.
Instead of increasing
interest rates
as she has announced
that she will do,
she's going to reduce it even
further, because of China,
because of sluggish growth,
blah, blah, blah, blah-- things
you read in the Wall Street
Journal and Financial Times
on a daily basis.
What do you think at that point?
Oh, good, the price of
money is going further
into negative territory
and we'll invest,
or do you think
what I think you'll
think-- oh my goodness,
for Janet to be doing this,
things must be really bad.
And then the drop in the price
of money makes you do what?
Stop investing.
So it does exactly the
opposite of what happens
in the market for potatoes.
In the market for potatoes,
the price comes down
and the excess
supply disappears.
In the money market, when we're
caught in a crisis like this,
the price of money comes down,
and the problem gets worse.
And the excess supply
of money gets worse.
And this is why we are caught
up in this never-ending crisis
after 2008.
The United States
has stabilized itself
through the
activities of the Fed,
but this incongruity between
savings and investment
has not gone away.
This is why you have stagnant
wages, and this is why,
after a whole generation
in the United States after
the mid-'70s-- so for the
first time in the history
of the United States,
the end of the escalator,
between federation, between
independence of the United
States and 1974, wages
constantly increased.
Every generation knew
that the next generation
will be better off.
From 1973 onwards, median
wages have been declining,
and they have not stopped
declining ever since.
Consumerism was boosted
in the '80s '90s and 2000s
because of debt.
Increases in wages that
stopped were replaced
by increases in indebtedness.
In 2008, our comeuppance came.
The nemesis followed for
the hubris-- foreclosures,
since then stagnant wages,
skyrocketing inequality.
And the result is
Donald Trump in America.
In Europe we have
even worse phenomena.
We have the Nazis in
the Greek parliament.
We have the Alternative
for Deutschland in Germany.
We have the Popular
Front in France.
We have UKIP in Britain.
The list is endless.
But these are just, in my view,
symptoms of this conundrum
that we're facing.
Now, many people, especially
here in the United States,
tend to think that,
ah, problem is the Fed.
The problem is too
much easy money.
The problem is that we have lost
control of the money supply,
that we ended the gold standard.
Instead of having a real
commodity whose supply
is controlled by
nature, we allowed
the Fed to be creating easy
money before the crisis,
easy money after the
crisis, and there
is a loss of credibility
of the money markets.
This is all nonsense,
allow me to say.
There reason is very simple.
There can be no such
thing as a gold standard.
There can be no such
thing as apolitical money.
And I've already
explained, I think,
why-- the story about
optimism, because the moment
pessimism prevails-- and it
can be prevail for any reason,
for any reason.
There can be some earthquake.
There can be a bubble bursting
in some subprime market,
or in some particular
money market.
There are all sorts of
different candidates
to spearhead a
degree of pessimism
in a boisterous, dynamic,
capitalist economy.
But the moment the
seeds of pessimism
begin to grow and turn
into an ugly plant,
at that moment, the
only thing you can do
is not reduce interest rates.
It's not go through
a deflationary spasm
by reducing prices, price
of money, price of labor,
cheapening things that you
want to increase the supply of.
The only thing you
could do at that point
is to intervene politically
through a political mechanism
of effectively creating--
expanding the money supply,
on the one hand, and
expanding public investment
on the other hand.
This is a New Deal idea.
It's a very simple idea.
It didn't work
perfectly in the 1930s,
but I can assure
you-- assure you.
I would like to convince
you, if I had another lecture
to talk about that,
that it prevented
the slide of the United
States into fascism.
If it wasn't for the New
Deal, "The Grapes of Wrath,"
Steinbeck, would have
led to the emergence
of extremely nasty political
forces in this country.
It's even debatable
whether the United States
would side with the Allies
against Nazism in Europe.
So the idea that our criticism,
very justifiable criticism
of the authorities,
of the establishment--
and remember, I'm a left
winger, so I'm the last person
to defend the established
way of doing things.
But the idea that
somehow we will
find a technical fix, whether
you call this bitcoin,
or some technological
evolution of money that
will replace the fiat money
that the European Central
Bank, and so on, print--
this is simple fantasy.
And let me just make
the simple point
that if you imagine that you
take the bitcoin story, which
is a digital version
of the gold standard,
you tie the quantity of money
to some apolitical process--
in the case of gold, to
how much gold you can find
under the surface of the earth.
In the case of bitcoin,
to some algorithm
invented by somebody with
a Japanese pseudonym.
If you do that, then you
ensure two things-- firstly,
that economic
development is going
to be slower than it would
be otherwise long term,
simply because at some point,
development will exceed--
or growth, the rate of growth,
will exceed the rate of growth
of the money supply.
When that happens,
this is immediately
going to have a
deflationary effect.
So there will be
less money chasing
after more goods, so the
prices are going to have
a natural tendency to fall.
And the moment you introduce
deflationary expectations
in the mindset of consumers,
investors, producers
and so on and so
forth, suddenly you
have a diminution in investment.
Why?
Because if you
know that something
that today costs 10
tomorrow will cost 9,
you will have a natural
tendency to delay consumption.
And therefore, if
investors think
that you will have a natural
tendency to reduce consumption,
they will have a natural
tendency to reduce investment.
So that starts a downward
deflationary spiral,
even if it isn't very acute.
So that's one reason.
The second reason is,
when there is a crisis--
and crises will always happen.
They are to capitalism that
which hell is to Christianity--
unpleasant but essential.
The system doesn't
work otherwise.
[LAUGHTER]
You're going to end up with
a crisis and no capacity
to boost money supply in
order to create liquidity
by which to fight
the insolvencies that
are as a result of the crisis.
Of course, what we
have been doing,
the quantitative easing
of the central banks,
which began in Japan
in the 1990s, then
was transferred here
in the United States,
with Ben Bernanke
responding aggressively
by increasing the money supply
for the purposes of what
I suggested.
And now, Europe always comes
four years too late-- doing it
in Europe now.
The problem with
this is that, yes,
it is a palliative for
the crashing economy,
the global crashing economy,
but it's only a palliative.
It's like giving aspirin
to somebody who's suffering
from a far worse disease.
It helps, but this
doesn't cure it.
And the central
bankers know that.
So there's been a failure of
the politicians to get together
and to support the central
banks with the only thing that
can be the silver bullet that
kills the pessimism-- the New
Deal idea.
So the point I'm trying to raise
here in the heart of the tech
industry, here in
Google, is that money
seems like a quantity.
People like you think, OK,
quantity, technical solutions,
mathematics.
Anything that is quantified
must be a mathematical problem
which we can solve without
the messiness of politics.
But my message to you is that
money is not just a quantity.
It's also a quality that has
to do with human sentiment--
the optimism that I was
referring to, which cannot be
quantified.
You remember the game that I
was playing with my students,
or I was forcing
upon my students,
doesn't have a solution.
It has multiple solutions.
And when you don't have--
when everything is possible,
when every outcome is
a potential solution
to the mathematical
model, then effectively
it is as if you don't know.
Imagine a meteorological
model, which
reports that tomorrow there is
an equal probability of rain,
hail, or shine.
It may be
mathematically accurate,
but it is useless for the
purposes of prediction.
So the technology and the
mathematics cannot substitute
for the political process
which is necessary in order
to stabilize a debt deflationary
global economy or national
economy or economic bloc like
that of the European Union.
Of course, I am a great advocate
of technological solutions
as long as we do not replace
politics with technology,
as long as we fuse the
politics, progressive politics,
with good technologies.
And let me just give you
one example of something
that I was planning to do in the
ministry of finance in Greece,
and maybe get some
feedback from you.
In Europe, the reason Europe
is such a basket case--
think about it.
2008 happened, unemployment
rose both in Europe in America
to 12%.
You're down to 5
and 1/2 percent.
In Europe we're at 12%.
We still have deflation.
Investment is the
lowest it's ever been.
Why is this?
Well, if you look
at the eurozone,
the collection of
countries, of 19 countries
using the same currency
but without having
even a confederacy,
let alone a federation,
we created an astonishing
economic system.
We have a large central
bank, like the Fed,
but no state next to it
or behind it, no treasury.
And we have lots and
lots, 19 governments,
without central banks.
So you can imagine why, when
the force, the full blast
of the 2008 financial disaster,
hit both America and Europe,
America had the
automatic stabilizers--
not clever politicians.
Politicians could all
be asleep, or they
could have all been on holiday.
The beauty of the federal system
is in automatic stabilizers.
It goes into operation
without anyone knowing it.
So for instance, when Nevada
went under, the banks of Nevada
were salvaged
immediately by the FDIC,
not by the state
government of Nevada
going to Paris and to
Berlin and to Washington cap
in hand begging for
funds to save its banks.
Similarly, when the
level of unemployment
increased in Nevada because
construction workers were
unemployed following the
collapse of the real estate
market, it was Social
Security that immediately,
from the federal budget,
supplemented that.
So the state of
Nevada did not die.
If it was operating
as Europe does,
it would have been a
Greece-- insolvent,
with insolvent banks,
constantly cap in hand
seeking more extend and
pretending Ponzi loans.
So in Europe we
have this situation.
Given that we had
this situation,
we needed, and I think
every eurozone member
state, except perhaps Germany,
needs more degrees of freedom,
more fiscal space.
So here is an idea
that I had on how
to create more
fiscal space, even
though we don't
have a central bank,
and we were locked
out of money markets
because our state was bankrupt.
So this is how we did it.
This was an idea I had, and then
we reached the implementation
to the level where
we were almost ready,
three or four days away
from pressing the button
and actually starting
the system up.
The tax office,
the IRS, our IRS,
has of course a website
where you go in there,
you have your tax file number,
your Social Security number,
you go in there, you see
how much money you owe,
and you do transfer using web
banking from your bank account
to the state, like everywhere.
The idea was to create a reserve
account per tax file number.
And when the state-- the
state owes a lot of money
to a lot of people,
because it's bankrupt,
including its own citizens.
So companies that sell
drugs, pharmaceuticals,
or general suppliers
of the state,
it takes 18 months
before they get
paid because of the lack of
liquidity of the Greek state.
So I was thinking,
OK, imagine we
can say to the
entrepreneurs, we owe you
a million dollars from drugs
you sold to the hospital.
You can wait for 18 months,
or I can put this money
in your reserve account now.
Just type it.
It's just 0s and 1s that go
into this reserve account.
And I give you a PIN number.
Of course, you can't
take this money out,
because I don't
have a central bank
and I don't have the right
to monetize anything.
But I can give you a PIN
number, and you may owe money
to another of your suppliers,
and using that PIN number,
you can transfer it to
that tax file number,
and then the third
party can use this money
to repay its taxes to me.
Or you can give it
to your workers.
It can be an alternative.
It's euro denominated,
or dollar denominated
if this happened here,
it's euro denominated,
so it's not another
currency, but it
uses-- it's tax-backed liquidity
that is created through the tax
system.
And the idea here was
to take it further.
Even in good times, when the
state doesn't have a liquidity
problem, to use the same
system, but differently, to say
to people, the state
doesn't owe you any money,
but if you want us to put some
money in that reserve account,
we will do it.
Give me $1,000, or
euros, and I'll do it.
Now, why would you want
to give me 1,000 euros?
You wouldn't.
Why entrust the state
with 1,000 euros when
you don't owe the state
anything and the state doesn't
owe anything to you?
Well, you will have to pay
tax next year, won't you?
You have a car.
You have a house.
You have sales tax,
or you may have
to pay income tax-- all sorts
of different taxes and charges.
Well, what if I were to say
to you that, because this
is digital, it can
be time stamped,
and the system knows that
if you've kept this money,
you purchased it from me,
you transferred real euros
to the state and I put these
numbers in your reserve
account, time stamped,
in a year's time
I'll give you 10%
off for extinguishing
taxes-- 10% of an
interest rate in this day
and age is humongous.
And this is a way
that the state-- this
is peer to peer
lending for the state,
between the citizens
and the state,
bypassing the bond markets.
And then you could
develop it further.
You could have an
app that allows
you to go to the supermarket
and use this to pay for things
given that the
supermarket will be
able to use this for
its own suppliers
and to repay its own taxes.
So this is, if you want, a
parallel payment system, which
is purely digital, and which
gives more degrees of freedom
to a fiscally stressed
entity, whether this
is a municipality, a
country in the eurozone,
whatever, or even
a community that
wants to develop its own
payment system, parallel payment
system, that is denominated in
the same currency as the nation
or the bloc.
Now I had, of course,
an additional incentive
for doing this.
When a guy called Alexis
Tsipras, who then became
my prime minister, started
talking to me years
ago about-- at that time I
had no intention, no interest,
no inkling that I would ever
get involved in politics.
I was just talking
to him because he
wanted to try out some ideas.
He asked me, I remember,
back in 2012, 2013,
because at that time the little
political party that he led
had 4%, and it was three
years later that we went up
from 4 to 40% and won government
on the 25th of January
last year, 2015.
He said to me, if we
challenge the creditors
and we say to them that
the policies they're
imposing upon us are killing the
cow that is supposed to produce
the milk that they want, so it's
in their interest not to kill
the cow, our country, our
economy, our taxpayers,
our private sector, and
to reboot this agreement,
what do you think the first
challenge we will face
is going to be?
And I was very clear on this.
I told him-- I wrote him
a memo back in 2012, 2013.
I said the first
thing that will happen
is they will close our banks
down, or they will try to,
in order to throttle us,
in order to asphyxiate us,
to force us to retreat.
By the way, let me just
now go to the future,
or to the more recent past.
I became the minister
of finance on the 27th.
We won the election on
the 25th of January.
I became minister
of finance the 27th.
On the 30th, three long
days afterwards-- oh,
by the way, another
embedded story.
The first day I
moved in on the 27th,
I convened a meeting of the
treasury officials to ask them
the pressing question,
what's our funding like?
The answer was, minister,
we're not doing very badly.
And I said, OK,
define not very badly.
We have 11 days
before we default.
[LAUGHTER]
Now, that is a very
inauspicious beginning
to a ministerial career
for a minister of finance.
So that happened the 27th.
Two days later, I had the
president of the Eurogroup--
the Eurogroup is the
body of finance ministers
of the eurozone, as well as
what we call the troika--
Christine Lagarde, representing
the International Monetary
Fund, Mario Draghi, the
president of the European
Central Bank, our Fed, and the
representatives of the European
Commission.
The president of this
body, a gentleman
called Jeroen
Dijsselbloem, the finance
minister of the Netherlands,
came to see me in my office.
And lo and behold,
it was as if on cue.
We had several meetings
with minders and assistants
and all that bureaucratic,
boring stuff,
and then the fun was when we
met together in my office, just
the two of us, tete-a-tete
to get to know each other.
Instead of nice to meet
you, let's work together,
I got the following--
what do you
intend to do with the program.
That's almost science
fiction, the program.
The program is all
the economic policies
that were being applied
between 2000 and 2015, which
led to the loss of 1/3--
1/3-- of GDP, of nominal GDP
in Greece.
That's worse than the
1930s in the United States.
So this program
is the reason why
we were elected, because the
Greek people had enough of it,
and we were elected
to renegotiate it.
And I tried to be as moderate
as I could, and I said to him,
look, we were elected to
challenge this program.
But, of course,
this is a program
that the rest of the European
Union is committed to.
So what happens in
a democracy when
you have two principles that
clash, two programs that clash?
You sit down and you
find a compromise.
So why don't we sit down
and start with a clean sheet
and ask ourselves a very
simple question-- how
can we help the Greek
economy recover in such a way
as to allow the Greek people to
regain hope and the creditors
to get some of their money back,
because the way we're going,
there will be no
money for you guys,
simply because the
country will be dead.
We will have created
a desert and called it
peace-- Tacitus, Roman Empire.
And the answer
was, if you insist
on renegotiating the
program, your banks will be
closed by the 28th of February.
That was on the 30th of January.
So what I had said
to Tsipras in 2012,
'13 happened on the third day.
In the end, they
closed the banks down,
and they overthrew
our government,
but this is not for
you Googlers here.
But I'm trying to explain,
remember the payment system,
the digital parallel payment
system that I was planning?
This was also a way of
creating a system that
would be functional and
operative if they close
the banks down,
giving us a capacity
to maintain a
semblance of normality
in the economy, a
system of transactions
that would survive.
So the only reason
I'm mentioning this
is not only because
it's, I think, topical,
but because it speaks to
what I was saying before,
that I believe that
technological solutions,
digitization of money,
is the way to go,
but calling upon
you not to fall prey
to the fantasy of apolitical
money, to the fantasy
that technology can take
the politics out of money.
In this book, I mention
a scene from the House
of Commons,
Britain's parliament,
where a woman that I
spent my youth despising
and demonstrating
again and again
and again against,
Mrs. Margaret Thatcher,
a very right-wing politician--
nevertheless, a politician who
on the last day of her
prime ministership,
the day she was fired
by her own cabinet--
there was a coup d'etat within
the cabinet orchestrated
by ministers who wanted
Britain to join the euro.
And Thatcher was opposing
them tooth and nail,
and they overthrew her.
So it became clear to her during
the cabinet meeting of that day
that she was out.
People who were in
the room, I have
friends-- one friend
who was in the room
told me that it was the first
time ever that she shed a tear.
She was visibly-- the
Iron Lady cracked.
But then she regained her
poise and went to the House.
She was still prime minster.
And there was a scheduled
prime minister's question time.
But of course, the
news had spread
that this was her last one.
And she let rip.
She allowed herself to enjoy
her last appearance in the House
of Commons as a prime minister.
And a question from
the opposition,
a very silly question
from the opposition,
who tried to undermine her and
to split the Conservative party
between those who wanted
to go into the euro
and who didn't,
like Thatcher, was
what did she think
about-- why was she
opposed to the idea of
a central bank which
is outside the political
process, the European Central
Bank, depoliticizes
Europe's money,
and allows Europe to
unite in a monetary union
without money being in
the hands of politicians?
And this right-wing
politician at moment
said something that really
appealed to me, and still does.
I think it was probably the most
prescient and correct statement
on money by any European
politician of the last 30
years.
That doesn't mean that I agree
with everything else she did.
I still am proud that I
opposed her government,
that I joined every
demonstration I
could find against her.
She said, who controls
interest rates, who
controls monetary
policy in Europe,
controls the politics of Europe.
That cannot be changed
with technology.
But a new form of
progressive politics,
together with a new
technological, innovative
approach to digitizing money
and creating parallel systems
for payment, that give
maximum degrees of freedom
to regional governments, to
municipalities, to communities,
is, I think, the way to go.
And allow me to finish up
by saying that this idea has
to have a global manifestation.
In 1944, somewhere in New
Hampshire, Bretton Woods,
there was this conference
of 150 delegates that
designed the postwar
global plan, as I call it,
the Bretton Woods system,
as it has come to be known,
to which I devote a couple
of chapters in the book.
The idea there was to create a
monetary system that is global,
with a surplus
recycling mechanism very
similar to the idea
of the New Deal,
but applied at a global level--
a system which would find ways
of taking the surpluses from
the regions in which they are
produced and recycling them
as productive investments
in the regions that
are in deficit.
This is what happens
in the United States.
When Boeing gets a contract
to build a new fighter jet,
the stipulation is
that, yes, but we
have to have a
greenfield factory built
in Arizona or in
Missouri, in a state which
is depressed-- not out of
philanthropy towards Missouri,
but that is the only way
of ensuring that California
and Washington state will
continue to have their surplus,
if incomes are being
produced in Missouri
through technologically
advanced work that produces
both skills and income, so
that the income of Missouri
can continue to produce the
net exports within the dollar
zone of California
and Washington state.
Now, unless we find
a way of returning
to the spirit of Bretton Woods,
hopefully using technologies
for a digital accounting
system, a digital payments
mechanism that would penalize
both surpluses and deficits
and redistribute
surpluses in order
to ameliorate for the gross
imbalances between savings
and investment at
the global scale,
we are not going to be
facing the challenges
that the next
generation is facing,
both here and in Europe.
Thank you.
[APPLAUSE]
AUDIENCE: The growth
of the economy overall
seems to be based on
population growth.
Japan's GDP per
capita is actually
continuing to
increase, and yet you
don't see optimism in Japan.
And it seems like the
reason is that the size
of the economy as a whole
is not continuing to grow.
YANIS VAROUFAKIS:
Japan is not in strife
because of population decline.
Population decline and
aging is not helping.
It is not helping.
But that's not the reason.
The reason why Japan fell
into this trap in the 1990s
was because there was a
huge bubble in real estate,
that bubble was burst
after the Plaza accords,
when effectively the
United States forced
Japan to overvalue-- to revalue
an already overvalued yen.
That created a massive
wave of insolvencies,
both in real estate
and in banking.
Then the government
for years tried
to cover up the
insolvency of the banks
by turning them
effectively into zombies.
And by the time we reached 2008,
when the rest of the economy
fell off a cliff, the
rest of the global economy
fell off a cliff, a net
exporting-oriented economy
like Japan simply managed
to stay still, to stagnate.
Take Germany.
Germany is also
shrinking, and also
in the same demographic
trap as Japan.
Its growth rate has been quite
positive and quite optimistic.
Now of course, Germany
itself is caught up
in the trap of the eurozone.
But my view is that
we should simply
be looking at GDP
per capita, and there
is nothing to stop us from
remaining perfectly optimistic
as long as savings and
investment are balanced.
Take Japan, for instance.
Remember I was talking about
the gap between savings
and investment.
It's huge in Japan.
There is so much saving
compared to investment
that this gap-- this,
for me, this gap
is the solvent of optimism.
It feeds on optimism negatively
by creating pessimism,
and then the
pessimism feeds back
into maintaining the gap
between savings and investment.
What Japan needs is to open
its borders to migrants.
AUDIENCE: So why
wasn't the system
that you developed for
payments finally deployed,
even after the referendum
rejecting the terms
of the European Union?
And do you think Greece
would be better off
if it had been deployed?
YANIS VAROUFAKIS: Well, it
was only one of the projects
that I had in train.
The five months I
was in government
were a period of
conflict between us
and the troika of lenders.
It was a war that we lost.
And we lost it because
our side was divided.
With Alexis Tsipras
we had an agreement
that if they closed down our
banks, we would retaliate.
And we had the leverage.
We had $30 billion
of debt to the ECB,
which, if we restructured--
and we were perfectly
within our legal
rights to do so,
because it was Greek
law, not American law,
not British law-- then
it would bring down
the whole QE program of Draghi.
Draghi knew that.
He would not have
shut down our banks
if our threat to restructure
the debt was credible.
That threat stopped
being credible
when Alexis and
I were disunited,
and when parts of
the government--
the deputy prime minister,
to be precise-- signaled
to Draghi that, don't
listen to Varoufakis.
We won't let him
haircut those bonds.
So the moment the
other side realized
that I would not be allowed to
use the leverage that I had,
it was just a matter of
waiting until our surrender.
And I hoped that
the referendum would
energize the prime minister
to say, press the button.
It didn't.
That night he said to me,
it's time to surrender.
And I said, no, it's
time for you to surrender
and for me to resign.
And of course, none
of the other projects
went through, because
from that moment onwards,
we have a troika government.
My colleagues, my good friends
who remain in government,
are not in power.
They simply rule on
the basis of the emails
that they receive from Brussels.
MALE SPEAKER: So we have
a few online questions,
because we have an
audience around the world.
You have been a strong
advocate of trying
to fix the European
Union experiment
instead of letting it
collapse under its poor design
and decisions of the
nondemocratic Eurogroup.
How many countries will have to
be sacrificed in this process?
YANIS VAROUFAKIS: I hope none.
You see, this
question has embedded
in it a false assumption.
The false assumption
is that I am
advocating that we should
sacrifice some countries
to save the rest.
I have an organic view
of the European Union.
The European Union either
survives as a whole or it
collapses as a whole.
And if it collapses as a
whole, if it disintegrates,
we are going to have a
repetition of the 1930s.
There is going to be a
rupture along the river Rhine
and across the Alps between
the northeast of Europe,
that will become a new
Deutschmark zone that
will be highly deflationary
as the new Deutschmark goes
through the roof, and the rest,
the Latin areas, plus Greece,
they're going to
go through a shock
of high inflation
and high unemployment
as their currency is devalued.
And no one is going to come
throughout well out of that.
Political monsters
will emerge when
this happens, because the
conflicts will be great.
The depression is going to
spread from Greece everywhere
else.
Bad things begin in Greece
and spread throughout Europe.
The Cold War began in Greece.
The euro crisis began in Greece.
The disintegration
of the European Union
is beginning in Greece.
I don't know why we
are sort of fated
to be the harbinger of
terrible things to come.
And therefore, to conclude
my answer to this question,
at the moment, we are
sacrificing one nation
after the other.
We are pushing them off the
cliff of competitive austerity
in order to preserve something
that is disintegrating
and cannot be preserved.
My suggestion is this--
we have a choice.
Either do away with
the European Union
or try to fix it for everyone.
The doing away with it is going
to throw us off that cliff
that I was referring,
to the other cliff,
into the vortex of the 1930s.
This is my estimation.
I may be wrong.
The alternative is
to-- and you know,
technically, it's very simple
to stabilize the European
Union economically in a way
that no one gets sacrificed.
The problem is the
political will.
This is the irreducibility
of politics.
MALE SPEAKER: And one
more question, which is,
in hindsight, what was the best
and what was the worst measure
that you implemented
as a minister?
Well, the thing is, you
see, I didn't get the chance
to implement almost anything.
One of the reasons was
that I had had the lenders
on the other side
doing this and saying,
if you dare put anything
through Parliament, any bill
without our approval, this
will be casus belli and the end
of the negotiations.
Do you believe that?
So the only two bills that I
pushed through Parliament, one
had to do with what we
called emergency measures
against extreme poverty.
So effectively, we gave a credit
card, a pre-paid credit card,
to 350,000 families who
were below the lowest
of the low of low levels
of extreme poverty.
And with it, they could-- it's
the equivalent of food stamps,
plus provisions of minimum
supplies of energy,
because their houses
were disconnected
from the electricity grid,
and some help with their rent.
This was the one thing
that I tried to do.
And the second thing, which is,
I think much more significant,
it didn't go to
Parliament because we were
waiting for the negotiation.
It was a plan for ending
the Greek crisis, which
was compiled together
with very able people
from this country and elsewhere.
So my team comprised people like
Jeffrey Sachs from Columbia,
Larry Summers-- you've
heard of Larry Summers,
I think-- a former
Conservative finance minister
from England, Norman
Lamont, Lord Lamont,
the former chief economist
of Deutsche Bank.
We killed ourselves
for three, four months,
to come up with a plan for
Greece's recovery, ending
the Greek crisis, that had a
fiscal plan, a plan for debt
restructuring, that
would alleviate
the pressures of
unsustainable debt,
but in a way that would
not be politically
unfathomable for the creditors,
and reforms for product
markets, for the pension
fund industry, and so on
and so forth.
This, I'm very proud
of that document.
The fact that that was not
even discussed with the lenders
because the lenders were simply
dragging us through the mud
until we were overthrown,
that is another matter.
But I'm still confident that
that document will go down
in history as a
missed opportunity.
AUDIENCE: I'm from Athens,
and we have some other Greeks,
so thanks for being here.
I just wanted to ask about this
payment system you mentioned.
How would you encourage people
to transact in the system
if they lack faith in what
backs the system-- the Greek tax
system and the Greek government?
YANIS VAROUFAKIS: Well, to
begin with, in the first phase,
they would have no
choice in the sense
that you're owed a million,
I don't have the money
to give it to you in cash,
so I'm saying to you,
here is a million, and
you can use it to pay her.
AUDIENCE: Why would she accept--
YANIS VAROUFAKIS: And
if she owes money to me,
if she owes money to
the state-- and she
does, because I'm
the state and she
is a citizen or an entrepreneur,
and you can extinguish
that debt, and she can
extinguish her tax debt to me,
that's all the incentive
you need in the world.
It's a very efficient
way of multilateral tax
extinguishment, extinction.
Extinguishment, yes.
AUDIENCE: Thank you.
So it sounds like the no
vote from the referendum
became a yes in large part,
as you were talking about,
with Tsipras feeling like, you
could say forced to surrender.
You might phrase
that differently.
But I'm wondering,
what is, at this point,
is really the next realistic
steps for Greece specifically?
As having family there, I'm
less concerned about the rest
of the eurozone, and
more specifically--
YANIS VAROUFAKIS: Yeah,
but you afford to be,
because there can never
be a Greek solution
without a European solution.
AUDIENCE: So is it,
though, is it to take it
to the next step of sort
of allowing it to get
to a forcing function point?
Or is there something that can
be more readily established
in near term that could
avoid that forcing function
point as you move
forward in time?
YANIS VAROUFAKIS: This is a
very painful question for me,
and I'll tell you
why it's painful,
because we had an opportunity
in 2015 to reboot the loan
agreement.
And we missed it
because we were divided.
And now we signed
a new agreement.
Well, we-- the government
has signed a new agreement.
You only have to read the
first page to despair.
And it is clear--
recently WikiLeaks
published a dialogue between
two functionaries, Thomsen
and [INAUDIBLE] of the IMF, and
they are saying to one another
what I'm telling you, that
this can't work, it won't work.
Poor Greeks, they're being
squeezed to the ground
by the Europeans, and the
Europeans are making us,
the IMF, squeeze
them to the ground.
And this is just terrible and
we want to get out of this.
This is the IMF,
speaking, right,
so you don't have to
take my word for it.
So what do we do now?
You see, that was
the very big question
that I was asked
after I resigned.
People were coming to me,
and they're supporters,
and they were pressing me,
pressurizing me quite a lot
to start a new political party.
And I just couldn't do it.
What would I have
promised the people?
That I would do
that which I failed
to do the first time around?
And anyway, it's too late now.
The crisis has spread
out beyond Greece.
Now we have a massive fight
between the German finance
minister and the
European Central Bank
on negative interest rates.
I don't know whether
you've been following this.
My hope-- and this
is what I'm doing,
and this is what
I why I'm applying
all my efforts in the
democracy in Europe movement.
My hope is that what
we started in Greece
we can take to the
rest of Europe,
because unless we reboot
European policy at the center,
with French participation,
German participation, Italians,
the Spaniards, the
Irish and so on,
then it is impossible
to reboot Greece.
It sounds quite
desperate, I know,
but it's a desperate
situation, and there's
no sense in stopping our
pragmatism from dominating.
AUDIENCE: Thank you.
AUDIENCE: Hi.
Thank you for coming.
I have a more sort of personal
question for you about--
YANIS VAROUFAKIS: Not my shirts.
AUDIENCE: What?
How did you, during this time
of probably insane stress
and pressure and
deadlines and difficulty,
sort of manage your process
and be productive given
what was going on around you?
YANIS VAROUFAKIS: It's
called adrenaline.
[LAUGHTER]
It's adrenaline.
The phone kept
ringing constantly,
and every phone
call was a crisis
that I had not predicted--
funding crisis, usually.
Something that-- because when
the system is collapsing,
it is chaos.
You know, non-linear
mathematics.
AUDIENCE: Yeah, so how do you--
YANIS VAROUFAKIS: It's
completely unpredictable what's
going to hit you
the next second.
So it's adrenaline, and a
sense of responsibility.
Look, my therapy was walking
everywhere in Athens.
So I had no guards or
anything like that.
I would walk to Parliament.
I would walk to the prime
minister's house or office,
residence.
I would walk home or
go on my motorcycle.
But usually I would
walk only because
of blending with people
who would come and disagree
with you, but
getting their energy.
Seriously, this is
what kept me alive.
And it's because of that
that I could not not
resign on the 5th of July.
I thought, why,
to keep the chair?
I don't like this chair.
Take it away from it.
I was only happy
in it when I felt
that it was a prospect
for doing something good,
for rebooting the situation.
AUDIENCE: Thank you.
AUDIENCE: Thank you for
coming, first of all.
At the beginning
of last year, when
you started as a
finance minister,
I had the impression that you
were a team with Mr. Tsipras.
YANIS VAROUFAKIS: That I was--
AUDIENCE: You were
a team together.
YANIS VAROUFAKIS: Yes.
That's the impression
I had, too.
AUDIENCE: Yes.
[LAUGHTER]
So when you resigned and
Mr. Tsipras remained there
as a prime minister,
I had the impression
that he gave up on you.
And I had the impression
that he used you as a bluff
against the creditors.
So my question to you is,
why did he give up on you?
Do you have an answer for that?
YANIS VAROUFAKIS: No, I don't.
I don't.
And you know what?
I have a policy of not
projecting my prejudice
on somebody else's
mind-- the other mind
problem in philosophy.
Especially in politics,
it's wrong to do it.
What I can do is I
can tell you what
he has said to me, because
I think that's legitimate.
But trying to project my
views about him on him
and then telling you what
I think he was thinking,
I will not do that.
I will never do that.
It's not productive,
I don't think,
and I don't trust myself
to be able to do it.
But, look, Alexis
allowed the troika,
in particular Dijsselbloem, the
guy who had come to my office,
and Merkel, to drive a wedge
between us-- slowly at first,
and then they kept hammering it
in until we were very distant.
There was a moment--
there were many moments.
I won't give you the precise
details, but sometime late
March, early April, I
started feeling that.
By the end of April, I was in
open confrontation with him.
There was a moment when-- for
me, the unsustainable debt,
and our determination
when we were still a team
not to accept
another euro of debt
unless we had stabilized
the Greek debt,
rendered it sustainable, and
rebooted the economic program
for Greece, that
was our agreement.
And technically speaking,
a very important part
of this agreement had to do
with the primary surplus.
The primary surplus,
I remind you,
is the difference between
the government's tax take
and government expenditure,
excluding debt repayments.
That's the primary surplus.
Now, the troika had
imposed on Greece
a crazy, insane target of
3 and 1/2, 4, 4 and 1/2%
of GDP in a broken economy.
That's just-- any
investor who sees
this thinks, OK, leave Greece
alone, because for them,
with no credit, no investment,
and a debt deflationary crisis,
they can only try to
achieve that primary surplus
by increasing taxes
year in, year out.
So for me, that
number was important.
It was both substantially
important and psychologically
important for creating
a shock of optimism,
to reduce it to 1%,
1 and 1/2% at most.
And Tsipras and I
had agreed on that.
At some point, end of
April, I'm in his office.
I entered his office to
discuss various things.
I could feel since
the end of March
there were problems
between us, the way
he was negotiating without
me with Merkel and so on.
What Merkel had said to him was,
look, ditch Varoufakis and I'll
give you a deal.
It's very simple.
And they reason why they needed
to ditch me was very simple.
I had made it abundantly clear
I am not signing a new bailout
loan until and unless I could
see that the numbers added up.
And make my day.
Just shoot me.
I'm not doing it.
And I had credibly
committed to this.
So they knew that they
had to get rid of me.
Why?
Because all these
agreements are signed
not by the prime minister,
but by the finance ministers.
So I was an obstacle.
So they drove this
wedge between us.
And I remember
walking to his office.
It was 27th of April
or something like that.
At that time,
there was a barrage
of attacks in the press, both
international and national
against me.
And he went to the restroom.
And there was a piece of
paper on the coffee table.
And so I picked it
up and I read it.
And I could see that he
had given them 3 and 1/2%
of the primary surplus.
And he comes back,
and I say, Alexis,
do I take it that you gave this
without telling me because you
knew I would veto it?
He said, yeah.
At that point, I said to
him, why did you do that?
You know that I can't
possibly support that.
He said, Yanis, you've
got to become pragmatic.
You have to give something
to take something.
I said, OK, fine.
What did we take?
[LAUGHTER]
What did we take?
He said, they promised
that they will give us
something on the debt.
Something on the debt--
what does that mean?
A debt restructure.
I said, Alexis, you're
driving-- I used words
that I can't use now.
We're friends, right.
This is complete idiocy.
If you accept that you can
reach a 3.5% primary surplus,
you're accepting that
your debt is sustainable,
because you take the surplus and
you give it to the creditors.
And then why would
they give you a debt
restructure if you promise
to give them that money?
So these are complements.
They are not competing.
So if you give this,
you give that, it's
like giving a shark a little
bit of blood to convince
him to go away.
No way.
And we had a major clash.
So the question is, why did
I not resign that night?
Well, I wrote my
letter of resignation.
It was the first
one-- second one.
I wrote five.
[LAUGHTER]
I submitted the fifth.
The reason was
because-- I'll tell you
why-- because I felt that even
though he was bending over
backwards to please
the creditors,
they would not give him
an agreement whatever
he gave them.
They wanted to
drag our government
through the mud
as a demonstration
effect for the Spaniards,
the Irish, the Portuguese--
if you dare elect a
government like these people,
this is what you get.
And I felt that when the degree
of humiliation for Alexis
reached a certain threshold,
then he would come back
and he would say, come
on, let's do it now.
It didn't happen.
AUDIENCE: Thank you.
MALE SPEAKER: And I think
this is the perfect time
to thank our guest today with
this intimate story of how
it went on.
So please give a hand
to Mr. Yanis Varoufakis.
[APPLAUSE]
YANIS VAROUFAKIS: Thank you.
