Yanis Varoufakis on why Croatia shouldn’t adopt the Euro, German politics and much more

Exclusive interview with Yanis Varoufakis conducted by Nataša Vlašić Smrekar for Croatian media Vecernji List. Read it below:

Q: Recently you claimed to the DiEM25 subsidiary in Rijeka that the eurozone wouldn’t do any good to the Croatian economy or Croatian citizens, just like Greece, Portugal, and Spain… But so far Croatian politicians have not used the national currency, kuna, as a lever of monetary policy. It seems that there is no significant difference in whether we have the euro or the kuna?

YV: During times of relative financial calm (like now or like the 2001-2007 period), the cost of keeping the kuna (e.g., the higher interest rates you must pay for loans or the fees for converting kuna into euros) seems unnecessary and can easily lull you into wondering what’s the point of keeping the kuna. In this light, I can understand the majority saying to themselves: “Let’s adopt the euro to stop paying fees and higher interest rates – we all think in euros anyway.” But, that would be a major mistake: Having your own currency is a little like having a car insurance policy – you do not value it until you have an accident! In fact, it is more valuable than that. Giving up the kuna would be the equivalent not only of giving up your car insurance but of increasing the chances of a road accident as well!

Why am I saying that adopting the euro would increase the probability of a financial crisis in Croatia? For this simple reason: Presently, when wages are paid in kuna, German banks are somewhat reluctant to lend working class and middle-class Croats because of the possibility that the kuna-euro exchange rate will slide, thus making it harder for Croat borrowers to repay euro loans. But, the moment Croatia adopts the euro formally, German banks will be less coy in lending Croat banks to lend to Croats, especially those who own property that can be used as collateral. Soon, more and more loans will flow from Frankfurt to Zagreb via Croatian banks. The result will be a vast increase in private debt owed ultimately to German bankers while house prices rise (as more buyers will have borrowed more money to buy them). All this will contribute to a false growth spurt, as people who think their assets and businesses have risen in value borrow even more (e.g., via credit cards) to buy more Volkswagens and Peugeots and other imports. That’s how a bubble is inflated before going ‘pop’, leaving behind a trail of bankruptcies.

You can imagine the rest: Having been inflated due to the adoption of the euro, the inevitable private debt bubble will have burst. Because this debt is, now, denominated in a currency that the Croatian central bank cannot print (euros!), Croatian banks will go bust and so will a Croatian state that will not be able to honour its deposit guarantee to Croat savers. At that sad moment two possibilities arise: One is that Croatian banks will go bust and the Croat state, to refloat them, will re-issue the kuna, i.e., exit the eurozone. Another is that the European Central Bank will step in to refloat both the Croatian banks and the Croatian state by means of a huge Greek-like bailout loan that, of course, will be given only under conditions of extreme austerity for the vast majority of Croats. In both cases, the majority of Croats are facing a disaster head on.

In short, my advice to Croat friends both of the left and of the right is: Don’t do it! Stay out of the eurozone! After all, there is a great deal to lose from eurozone membership and very little to gain, as the cases of Poland, Hungary and Czechia demonstrate (the former communist EU countries that, by not joining the euro, did better than any of the peripheral eurozone economies; e.g. Greece, Portugal, Spain, Cyprus etc.).

Q: A change in the economic structure and decision-making in the eurozone can hardly be expected from Germany. Do you have a proposal on how to democratise decision-making regarding economic policies in Europe, how to include countries like Greece, Portugal, Spain, and Croatia, but also France and Italy, in this process?

YV: The simple answer is that the only way properly to democratise the eurozone is to turn it into a democratic federation, complete with a federal government and a federal finance ministry that unifies a large part of both public and private debt.

Margaret Thatcher had opposed the euro because she feared it was a move toward “federation through the backdoor”. If only she were right! It was not an attempt to usher in a federation. It was far worse than that: A monetary union that locked our peoples in an iron cage of austerity while denying them the opportunity to vote democratically to break open the cage’s door. Why did the political architects of the euro do this?

For two reasons: From the perspective of surplus countries, like Germany and the Netherlands, it made sense because any financial crisis in the eurozone would put them in the driving seat – since governments of deficit countries (including Italy and France) would be bankrupt and their leaders too frightened to speak up in EU Council and Eurozone meetings. The second reason is that oligarchy in every country (surplus and deficit member-states) loved the idea of making it not just hard but impossible for any elected government to shift significant income or wealth from the haves to the have nots. [That was the effect of denying states the instruments of a central bank while ensuring that the governments would be either on or close to their spending limits.]

The problem with the above analysis is that, when people hear it, they despair. No one believes that, as things stand, it is feasible to talk of a democratic federation – one in which, as long as the principle of one-person-one-vote stands, the majority of people will be residents of the poorer, deficit member-states. This realisation begets a sense of helplessness. Nothing empowers fascists, xenophobes and ultra-rightists more than a sense of national humiliation and personal helplessness. To counter this feeling, DiEM25 proposed in the last European Parliament elections – as part of our Green New Deal for Europe – a two-step process toward the effective democratisation of the European Union:

Step 1: A simulation of an economic federation based on two main moves. First move would be to let the European Investment Bank (EIB) put huge amounts of green investment across Europe and, in particular, in building up a Green Energy Union. This move would simulate a federal investment program by cutting the nation-states out and financing the Green Energy Union without new taxes and centrally. How? The EIB issues bonds to the tune of half a trillion euros every year and the ECB promises to buy them if need be (something it would not need to do because the mere promise it would buy them would suffice to create huge demand for these bonds). The second move would be to ‘europeanise’ public debt equal to 60% of any country’s national income. How? By having the ECB issue bonds of its own, to that amount, and swapping them for the national bonds – a simulation of creating a federal European public debt similar in structure to the US federal debt.

Step 2: Once large portions of European investment and public debt had become quasi-federal, through the simulations proposed in Step 1, the socio-economic stagnation Europe has been facing since 2008 would end and Europeans would start recognising the EU as a force for good in their daily lives. At that point, DiEM25 hoped, it would be possible to begin the conversation of how to put together a proper, fully-fledged, democratic federation.

Q: What does the relatively poor result of the Green Party in the elections in Germany tell us? It seemed like it would surpass the old Social Democratic Party (SPD), which had in fact betrayed the working class for a long time, but that still did not happen. Can you comment on that?

YV: here was, undoubtedly, a degree of incompetence during the election campaign on behalf of the Green Party’s leaders. However, the main lesson is that de-radicalising a formerly radical movement does not work. The German Greens have spent years trying to demonstrate to the German establishment that they are a ‘safe pair of hands’, that they can be trusted by the establishment, that the oligarchy should not fear them, that they are ready to govern with the Christian Democrats if they must. The result is that they had to adopt a conservative economic agenda that ditches the main tenets of the New Deal while keeping the name Green New Deal. In the end, they ended up as ordoliberals who wanted more money for recycling and some constraints on growth. Conservatives were not attracted to that (“Why not vote for the real conservatives?” they thought) while many radicals were put off.

Q: Did the election bring any change to German politics?

YV: Yes, this election killed off any hope there was of a progressive turn in German politics after Angela Merkel’s departure. On the one hand, the complete control of the SPD by Olaf Scholz, the next Chancellor, guarantees that German social democracy will remain fully committed to stringent austerity for Germany’s working class and a sad replication of Merkel’s variety of Christian Democracy. On the other hand, the entry of the FDP in government ensures that, even if Herr Scholz were to have an epiphany, the FDP will veto any progressives change in Berlin’s attitude toward both domestic and European politics. This is why DiEM25 is making the risky but important move of founding a new progressive party in Berlin on the 13th of November. Undoubtedly, our party will be small and must face an uphill struggle. But, given the ignominy of Die Linke and the rightist turn of the Greens, we decided that DiEM25 must have a voice in German politics which, even if faint at first, allows us to tell our story to the German progressives and to invite them to join hands with us because, let us be clear on this, nothing good can happen in Europe if it does not have a firm foundation in Europe’s powerhouse – Germany.

Q: Can you assess the role of Germany, and especially Angela Merkel, in the Western Balkans, in fact Southeast Europe?

YV: Once capitalism had its near-death experience in 2008, and the German banks went bust, Merkel’s administration put in place a sordid plan: To bail out the Frankfurt-based banks by transferring cynically the banks’ losses onto the shoulders of the weakest of Europe’s citizens. German workers had already shouldered huge levels of austerity, courtesy of both social democratic and Christian Democratic Chancellors and finance ministers. After 2009, it was the turn of the working and middle classes of South Europe to suffer the consequences. The countries of the former Yugoslavia, plus Bulgaria, suffered the indirect ill-effects of Mrs Merkel’s policies which I describe simply as ‘generous socialism for the bankers and harsh austerity for everyone else’. The only countries that did not completely collapse were the ones whose industry had been integrated into the German industrial machine (Poland, Hungary and Czechia) that was producing goods mainly for the Chinese market. And then, in 2015, came the influx of refugees where, after the end of Mrs Merkel’s two-week-long experiment with humanism (that is, after her own party forced her to abandon the open doors policy for Syrians), Berlin forged alliances with the most xenophobic politicians of the Western Balkans, along with my former comrades in the SYRIZA government, to instigate the crime against humanity – and against the idea of a borderless Europe – that is the ramshackle migration policy of locking innocent people up in Turkey, letting them perish in the Aegean Sea and, generally, subjecting them to studied inhumanity so that they can send a message to where they came from saying “Stay away from Europe – it is a cruel continent”. The problem with this alliance between Mrs Merkel and the ultra-right in the Western Balkans and beyond is that, in addition to being vile in itself, it poisoned politics and reinforced misanthropes across Europe – its Eastern and South-eastern flanks in particular.

Q: What do you think of the Left’s position in Europe, and in the world in general? Has left-wing political thought recovered from the fall of communism? Where in all of this is the Progressive International?

YV: It is precisely because the Left never recovered from its 1991 defeat, and studiously failed to create a transnational progressive politics that some of us banded together to form the Progressive International. As for Europe, the situation here is worse than anywhere across the planet. In Europe, the total defeat of the Left was due, in my estimation, to the decision of the Party of the European Left to turn down DiEM25’s proposal of presenting Europeans in the European Parliament elections of 2019 a unified, cohesive, logical economic and political agenda. Why did they turn it down? Because they prioritised ‘unity’, i.e. running under the same umbrella, those who surrendered to the EU establishment (e.g., SYRIZA), those who sought an exit from the EU (e.g., Melenchon, Lafontaine) and those who had no real view on the EU (e.g. Podemos). Except that this ‘unity’ was useless as it was based on an incoherent message to the peoples of Europe. (How could it be different when parties so different in ethos and orientation run together?) My hope for the Progressive International, in Europe and elsewhere, is that it will not repeat the mistakes of the Party of the European Left and, instead, follow the example set by DiEM25. If it remains a loose confederacy of nation-state based parties, it too is doomed. DiEM25, and I personally, will do our utmost to prevent this.

Q: You think that the order in which we live is no longer capitalism, but techno-feudalism. Competitive, free markets have actually been usurped? What is happening?

YV: Central to the thesis that technofeudalism is distinct from capitalism is the observation that, following 2008, the rise of digital platforms, and more recently the pandemic, the two main drivers of capitalism are no longer central to the economic system: Profits and Markets. Profit-seeking, of course, continues to drive most people. And markets are everywhere. However, the broad system we live in is no longer driven by private profits. Nor is, these days, the market the main mechanism for wealth extraction or creation.

What has replaced profits and markets? The short answer is: Central bank money has replaced capitalist profits as the system’s fuel, and Big Tech’s digital platforms have replaced markets as the mechanism for value extraction.

Central bank money replaced profits as the system’s driver: Profitability no longer drives the system, even though it remains the be-all-and-end-all for individual entrepreneurs. Indisputable evidence that central bank money, not profits, power the economic system is everywhere. A great example is what happened in London on August 12, 2020. It was the day markets learned that the British economy shrank disastrously – and by far more than analysts had expected (more than 20% of national income had been lost in the first seven months of 2020). Upon hearing the grim news, financiers thought: “Great! The Bank of England, panicking, will print even more pounds and channel them to us to buy shares. Time to buy shares!”

This is just one of countless manifestations of a new global reality: In the United States and all over the West, central banks print money that financiers lend to corporations, which then use it to buy back their shares – whose prices are thus decoupled from profits. The new barons, as a result, expand their fiefs, courtesy of state money, even if they never earn a dime of profit! Moreover, they dictate terms on the supposed Sovereign –  the central banks that keep them ‘liquid’. While the Fed, for example, prides itself over its power and independence, it is today utterly powerless to stop that which it started in 2008: printing money on behalf of bankers and corporates. Even if the Fed suspects that, in keeping the corporate barons liquid, it is precipitating inflation, it knows that ending the money printing will bring the house down. The terror of causing a bad debt and bankruptcy avalanche makes the Fed a hostage of its own decision to print and ensures that it will continue printing to keep the barons liquid. This has never happened before. Powerful central banks, that today keep the system going singlehandedly, have never wielded so little power. Only under feudalism did the Sovereign feel similarly subservient to its barons, while remaining responsible for keeping the whole edifice together.

Digital platforms are replacing markets: During the 20th Century, and to this day, workers in large capitalist oligopolistic firms (like General Electric, Exxon-Mobil or General Motors) received approximately 80% of the company’s income. Big Tech’s workers do not even collect 1% of their employer’s revenues. This is because paid labour performs only a fraction of the work that Big Tech benefits from. Who performs the bulk of the work? Most of the rest of us! For the first time in history, almost everyone produces for free (often enthusiastically) Big Tech’s capital stock (that is what it means to upload stuff on Facebook or move around while linked to Google Maps). That has never happened under capitalism. Key to understanding our new system is the realisation that digital platforms are not a new form of market. That when one enters Facebook as a user or Google as an employee, one exits the market and enters a new-fangled tech-fief.

What does this transformation of capitalism to technofeudalism mean for us all? Examples of the effects of technofeudalism include:

  • The impact on social classes, and on the genderised division of work, of the fast retreat of waged labour, and its replacement with unpaid work in a society where the work-leisure distinction disappears
  • The effect on a political system built around two parties, one tending to represent waged labour (which is shrinking) the other capital (which is increasingly provided by free labour)
  • The impossibility of regulating the power of digital fiefs/platforms as they grow into (to quote Zuckerberg) ‘metaverse companies’
  • The loss of any democratic authority over state money that fuels inequality, opens the door for oligarchic cryptocurrencies, and increasingly limits humanity’s capacity to serve our common interest – including our ability to stem catastrophic climate change
  • What it means for the whole of humanity, including the top 0.01%, to be steadily proletarianised – in a manner that turns The Matrix from science fiction into a documentary.

Q: What is the alternative to techno-feudalism and how can it be achieved?

YV: On this huge question, allow me to refer you to my last book – a political science fiction novel entitled ANOTHER NOW. In it, the plot and its characters serve the purpose of describing two things. First, how would things work (companies, housing, money, trade, democracy in the workplace, the region and the country, etc.) in a free democratic market society where all property is collectively owned, there are no stock exchanges and no commercial banks. Secondly, what kind of revolution might bring about such a socio-economic order? To answer these two questions, ANOTHER NOW imagines a global movement following the Crash of 2008 that rebelled in ways very different to those of the OCCUPY WALL STREET movement. Not wishing to offer more spoilers, I hope you allow me to say no more at this stage. 

Q: What do you think about the proposal to introduce a 15 percent tax on multinational companies? Is that enough for any significant change in the world? Can the problem of huge inequalities in the world be at least reduced by introducing a more significant global corporate tax?

YV: It is a gimmick that will do precisely nothing to restore a modicum of tax justice to the world. Let me make this abundantly clear: Last year Amazon earned €44 billion in Europe of which it paid zero corporate tax. Under the new so-called 15% global corporate tax regime, guess how much Amazon will pay: Zero again! How come? Because the global deal, negotiated at the OECD, specifies a 15% tax on only 20% of a multinational company’s global profits that accrue – and here comes the ‘fun’ part – at a margin of above 8% above costs. But because Amazon’s accountants are good at exacerbating the costs, last year these margins were below 8%. Thus, once more, Amazon will pay no tax!

Q: Can we talk about very deep class divisions in some of the richest societies like the US, but also in China?

YV: The most important thing to remember here is that what the mainstream press refer to as trade wars between the United States and China are, in reality, class wars within the United States and China. In the United States, multinationals have been exporting jobs for years to China in order to squeeze both Chinese and American workers. Equally, in China, the growth model relies on huge investment (up to 50% of national income) which means that wages are squeezed beyond belief. While American and Chinese capitalists see their profits burgeon, and their governments squabble, it is the American and Chinese workers who fall prey to awful working lives and diminishing life prospects.

Q: Food and energy prices are rising dramatically, inflation and interest rates are expected to rise. What is happening in European and world markets and why?

YV: After decades of globalisation that stretched supply chains unbelievably, the Covid-19 disruption caused a sharp rise in transport costs, including the transport of oil and LNG. Coupled with some other random factors (e.g., very low wind powering the wind turbines of Northern Europe) and geopolitical brinkmanship (e.g., Russia temporarily restricting gas supplies to the EU to get its way with Nordstream 2), this blip in prices then sparked speculation: the usual suspects, making use of the huge quantities of money printed by the central banks, bought future supplies of energy and future cargo carrying capacity. The result? A temporary spike in prices is now turbocharged by speculation.

Q: Is European climate policy partially responsible for the rise in energy prices?

YV: No, not yet. But it may well play a role. Especially if we do not quickly introduce a carbon tax that is wholly re-distributed to the poorer Europeans.

Q: The climate is changing, nature and economies are collapsing, wars aren’t stopping… people are haunted by a premonition of cataclysm. However, all these problems could be solved if a worldwide political and economic consensus on cooperation based on reason, justice and progress could be reached. Do you believe that humanity is capable of such a change?

YV: This is the great paradox of our species. Capitalism unleashed productive powers humanity did not even know it had. But, at the same time, capitalism created new forms of mind-blowing depravity that humanity had never suffered before, not even in the Middle Ages. I mention this because we are well familiar with the historic disconnect between humanity’s wonderful capabilities and miserable outcomes. So, yes, I do believe we have the capacity to achieve common prosperity, that we have the technological skills to save the planet for climate catastrophe, and that we can rise up to the challenge of combining reason and ethics. But this is no guarantee, not even a hint, that we shall succeed.

In the final analysis, the whole thing boils down to the necessary and sufficient conditions for progressive change. The primary necessary condition is that we end capitalism. Tragically, this is not at all enough since the end of capitalism, as I argued above, is already happening because capitalism is begetting something worse than… capitalism: technofeudalism. So, restating the primary necessary condition, our task is to struggle simultaneously against capitalism and against the new system that capitalism is morphing into under the guidance of Big Finance, Big Tech, Big Pharma and, as always, the military-industrial complex.

But even this is not enough: To synchronise technology with humanity, and reason with ethics, we need to democratise workplaces, to end labour by replacing it with automata that allow us to indulge our talents, to better ourselves, to find happiness without destroying the planet, to do creative work – like artists, musicians and mathematicians for whom work is inseparable from the good life.

Q: What can the Progressive International do in this regard?

YV: It can help overcome nation-state based political parties, develop fully transnational movements and electoral vehicles, forge a Planetary Agenda, and unite us all into a struggle against the forces of reaction and oligarchy in every nook and cranny of this Earth of ours.

This interview was originally published in Crotian at Vecernji List

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