Tuesday, January 19, 2016

Varoufakis on the problems of the EU and the eurozone

Former Greek Finance Minister Yanis Varoufakis recently did an interview with Globo TV in Brazil. And he provides a transcript on his blog (Our movement to democratise Europe & developments in Latin America and China – Interview with Brazil’s GLOBO TV 01/19/2016). It includes various interesting and provocative observations, such as this one on France and Germany:

[French] President [François] Hollande never speaks against [German] Chancellor [Angela] Merkel when she speaks about the Eurozone, even when he disagrees. Remember he was elected in other to counter her perspective of what should happen in the Eurozone. The day he was elected he stopped speaking about it. Now, why is that?

There is a reason. If the Eurozone breaks up, and France and Germany go back to their own currencies, the French franc and the Deutsch mark, what will happen? There will be an exodus of money from France to Germany. Why? Because everybody will anticipate, correctly, that going back to their own currencies means that the Deutsch mark will go up and the French franc will go down.

Yes, but France and Germany are the axis of the EU. So, François Hollande – or whoever happens to be the President, Sarkozy, Hollande, this is not a personal issue – knows that if euro breaks up then France will be destroyed, and there will be a flood of money towards Germany. So he is scared of any disagreement because it may end up destroying his country. ...

Germany doesn’t have this fear, as a euro break up would lead to a flood of money to Frankfurt. Of course, German industry will be injured by the rise of the new German currency but its financial system will not collapse – as France’s would. This asymmetrical fear guarantees that whenever the Chancellor of Germany says something the President of France does not respond. Now, this is an immense power in the hands of the German Chancellor. She knows that if we make our Eurozone absolutely indivisible, impossible to break up – which is what we have to do to fix it – then the office of Chancellor will lose with asymmetric power, because the French president, whoever the French President might be, will no longer fear the break up and will start to speak his mind. So, the immense political power that the German Chancellor has comes from the fact that we are not fixing the euro. So, there is the political incentive for not fixing the euro. [my emphasis]
He also makes an important observation about the intertwining of the euro crisis and the refugee crisis:

If you look at the way Europe has been fragmented in the last 6 years, 7 years, since the 2008 great financial crisis in the United States, Europe and the world; if you look at the way we have failed to deal with that crisis consistently, and during this process of sequential failures, and the denial of the structural aspects of this crisis, our nations in Europe have been pulled apart. Turned against one another.

The events in the Middle East are absolutely independent of the structure of the Eurozone. Even if we had designed the Eurozone well, we would still have had the Americans invading Iraq, creating a rapture between Sunnis and Shiites, the Iranian and Iraqi war before that would have precipitated the whole thing, the collapse of the structural rigidity of Iraq would have spilled over into Syria, independently what Europe did.

But what we did within Europe, our failure to deal with the euro crisis, fragmented us, so when the refugee crisis came, we were not capable of dealing with it in a rational European fashion. We could not deal with a common problem in a systematic, common manner. So, there is a connection. [italics in original]

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