Yanis Varoufakis: Greece’s Debt Is More Unsustainable Than Ever

Yanis Varoufakis

Ahead of Greece’s general election on Sunday, the business press claims that the country is bouncing back from its years of austerity. Yanis Varoufakis tells Jacobin why, for ordinary Greeks, the situation is only getting worse.

Yanis Varoufakis, Greek economist and general secretary of the MeRA25 political party, center, participates at a protest during a strike in Athens, Greece, on March 16, 2023. (Nick Paleologos / Bloomberg via Getty Images)

Interview by
David Broder

Over a decade since the start of Greece’s sovereign debt crisis, claims that the country has got “back on its feet” seem rather out of step with reality. The February 28 rail disaster in Tempi, which killed fifty-seven people, provided a tragic reminder of how national infrastructure has been devastated by years of austerity and shock privatizations.

Seeking a fresh mandate in Sunday’s general election, the right-wing New Democracy faces criticism not just for Greeks’ economic woes, but also its record of authoritarianism and spying on opponents. Yet its main competitor, Alexis Tsipras’s Syriza, is struggling to mobilize popular discontent. After he spent his spell in office from 2015 to 2019 imposing the austerity he had promised to resist, the Greek left remains greatly weakened.

Yanis Varoufakis was finance minister in the first Syriza-led government, resigning this role in July 2015 rather than capitulate to austerian dogmas. A staunch critic of Syriza’s record, Varoufakis is today a leading member of the left-wing party MeRA25, for which he has also been an MP since 2019. Jacobin’s David Broder spoke to him about the ongoing effects of austerity on Greece, the bases of its claimed economic “recovery,” and his party’s alternative.

David Broder

On Sunday, the Financial Times published an article that told us that, after a decade of bailouts and austerity, Greece had rebounded. GDP is still only 80 percent of 2008 levels, and wages under 75 percent, but growth is now rapid and the country is on the cusp of regaining its investment-grade rating. The headline cited the Eurobank chief executive’s claim that this was the “greatest turnaround in the European financial system.” How realistic a picture is this?

Yanis Varoufakis

It depends on whose perspective you take. If you care about the people of Greece, then all this is an Orwellian lie. If you are looking at Greece as a foreign investor, it is true.

Greece is deeper in the hole of insolvency today than it was in 2010, when the whole world of finance — the International Monetary Fund, the European Central Bank, and the European Commission — said we were bankrupt. Back then, our debt was something like €295 billion and our income €220 billion, whereas today the debt is €400 billion and our national income, in real terms, €192 billion. Most of our debt is owed to the troika and to foreign investors. So, our dependence on the kindness of strangers is greater than ever.

Greece’s population today has, on average, 20 percent lower living standards than in 2010; if you look at the working class, the reduction of GDP per capita is 45 percent. As for private sector debt, around two million out of ten million Greeks have negative equity and nonperforming loans. It’s a world record: it didn’t even happen in the US in 2008–09, during the subprime mortgages crisis.

But how come I acknowledge that from the perspective of foreign investors, Greece is doing better than any other country? Well, government bonds are trading at 3.6 to 3.7 percent yields — a very nice spread over German ones at 2.2 to 2.3 percent. Everyone knows that the Greek state is bankrupt and the bonds are junk. So, why do they buy them? The European Central Bank (ECB) has announced that it will back Greek bonds. It’s a political decision to declare Greece solvent, just as it was a political decision to declare it insolvent in 2010. Christine Lagarde and her minions are making a nod and a wink to investors.

Why is the ECB standing behind bonds, when it didn’t in 2012 or 2015? Recent years saw a world first, a mechanism for extracting wealth from the bankrupt. The powers that be have instituted the so-called Hercules plan, taking bonds off the books of banks and selling them to vulture funds based in the Cayman Islands. They belong partly to foreign investors, partly to people who run the Greek banks, partly to the extended families of the political class. They can, for instance, buy a nonperforming loan of €100,000 but for just €3,000. They don’t expect to get the money back; but if they can sell the collateral for €50,000 they have extracted €47,000 in rent to the Caymans without paying a cent in tax. This can extract around €70 billion from a sub-€200-billion-a-year economy.

So, it may sound like a paradox that the financial press is hailing an economy whose public and private sectors are more bankrupt than ever. But seeing the gains foreign investors can draw from this situation, it is no paradox. Greece is a goose laying golden eggs: such profit rates don’t exist anywhere else. To boot, this Hercules scheme, passed by the Greek parliament, guarantees a minimum of €23 billion. The Greek state — and thus the ECB itself — stands behind the vultures’ interests, if they don’t manage to extract enough in dispossessions.

David Broder

In January, you called Syriza, New Democracy, and Pasok the parties of the “Memorandum Arc” — saying that they were ignoring the reality that whoever is in power at the end of the decade will be forced to borrow ever more. But in what ways has Greece sunk further into dependence on European loans since 2015? Are there not some elements of renewed growth, for instance in construction or tourism?

Yanis Varoufakis

What we are seeing is disinvestment — money is being spent in ways and in sectors that decrease this country’s productive capacity.

The government and the foreign press are celebrating an increase in foreign direct investment (FDI), and it is indeed increasing. But what’s the effect on prices? A vulture fund that brings €3,000 to buy a €100,000 loan counts as FDI. But it’s just bringing a small amount of money to extract a much larger amount through dispossession. It doesn’t leave a single thread of productive capital.

The Frontex border forces are pushing people back at the Greek coastline, with the result of many deaths at sea. Yet through the Golden Visa system, we are offering Schengen visas [allowing free circulation across most of Europe] to anyone who brings €250,000. Again, this is not productive investment. In my downtown neighborhood they are buying apartments to turn them into Airbnbs. This doesn’t build the capital stock, but takes properties from the housing market, as they are no longer available for rent, and pushes locals out. People from Ukraine or Russia or China or Nigeria use their Schengen visas not to stay in Greece but to move to France or Germany. The US tourists’ money goes from an American bank account to a German one; so, the money bypasses Greece entirely while also increasing rents for locals. So, the investment is for the purpose of profiting from real estate, nonperforming loans, and privatizations detrimental to the productive economy.

We can also take the example of the rail crash in which fifty-seven people died. MeRA25 members of parliament had predicted the dangerous effects of privatization. The Greek rail company was sold off to the Italian state rail firm Ferrovie dello Stato for €45 million in 2017, but there was no investment, and instead the Greek state committed to pay €15 million in annual subsidies for the Athens-Thessaloniki line. It was a complete scam.

For all the talk about the EU Next Generation funds, the distribution of the money is completely and utterly corrupt. It either goes to oligarchs, who are not adding investment, or to the banking system. What we have seen, since Tsipras surrendered in 2015, is a continual plunder, a large-scale experiment in various forms of rent extraction. Immediately after the pandemic I said that the recovery fund was macroeconomically insignificant; if some spoke of a Hamiltonian moment, really it was the death knell of any project for fiscal union.

David Broder

What could a Greek government do differently?

Yanis Varoufakis

MeRA25 is the only party with a fully-fledged, modular, multidimensional program for government, an economic, social, and environmental manifesto that offers an alternative to the so-called Memoranda of Understanding which are ruling the roost here in Greece.

One major element is a publicly owned bank to replace Hercules and stop the buying and selling of nonperforming loans on secondary markets. Rather, this bank — called Odysseus — would register these loans and allow those whose home or small shop or farm is at risk to avoid the foreclosure, dispossession, and auctioning of their property, for a small fee not exceeding one-sixth of their disposable income.

Banks would pass bad loans to Odysseus, which would then freeze them through bond issuance. The idea is that once the prices of the properties exceed the face values of the frozen loans, then there can be negotiations between the borrowers and Odysseus. They would not lose the share they have already paid. This would stop the transfer of wealth to the Cayman Islands and the social disaster resulting from dispossessions.

Another key element concerns energy. The electricity grid has been privatized and is in the hands of the oligarchs who purchased the remnants of the public electricity board. Our program sets out the gradual nationalization of energy producers and distributors, ensuring that the price of energy does not exceed the average cost of production.

After my departure from the finance ministry, a “superfund” was imposed to manage public assets. This is a unique case in world history: since it is directly troika-controlled, Greece’s assets are formally, legally controlled by foreign powers, the worst kind of neo-neocolonialism. We are proposing its disbandment and the passing of all public assets to a new public developmental bank. Its capital stock would create a stream of investment, including for the green transition and organic farming.

Another institution we propose is a free, digital payments system, based on the software of the Greek tax office. People could receive and make payments based on their tax-filing number, effectively a transaction system outside of the ECB, private bankers, Mastercard, or Visa. While it would save €2 billion every year, this is a controversial proposal because it is independent of the ECB, which would thus be unable to blackmail the Greek banking system as it did in 2015.

Moreover, we propose the disbandment of companies that trade in human labor, the rampant system of hiring via middlemen. We would reduce VAT from 24 to 15 percent and cut small businesses’s tax rate from 22 to 10 percent, while increasing the corporate tax rate from 22 to 30 percent. Funding for health and education is today abysmally low, and needs to be doubled. In all of this, we are not promising something that cannot be paid for, but an anti-austerity program.

David Broder

Your list for Sunday’s election, known as MeRA25-Alliance for Rupture, includes Popular Unity, and thus currents who favor a break from the eurozone or even the EU itself. What common ground do you have on this question, and what does it mean for implementing your program?

Yanis Varoufakis

With Popular Unity, we have had a difference of tactics and to some extent of strategy. It had as a goal exit from the eurozone. We thought that wasn’t a good idea, economically or politically. Yes, the euro is a terrible currency, is not viable, and has asphyxiated Greece and Italy. But we thought putting the aim of eurozone exit up front did not make sense politically. Exiting will come at a hefty cost.

What has happened in the last year is that our comrades in Popular Unity have come around to our position, coalescing around the original position of MeRA25. What is also true, however, is that since 2015–16, the eurozone has never failed to miss an opportunity to make the euro economies viable. For it to be viable, a political and fiscal union would be necessary.

The problem, today, is that the eurozone is both invincible and unsustainable. So, we need to have plans in place for what to do if the euro dissolves on its own. It would be tremendously stupid to imagine that the German Bundesbank does not have a plan for printing Deutschmarks, if it had to. It’s a bit like foreign policy: it would be remiss of us not to have a plan in case Turkey’s president Recep Tayyip Erdoğan invaded Rhodes tomorrow, even though we do not expect it to happen.

We are steadfast in insisting that euro-exit is not a policy aim. But at a time when the euro is unsustainable, our Demeter — our digital, publicly owned payments system — has two distinct merits. It allows us to breathe better and more freely within the eurozone. And, if the need were imposed upon us, it can be used as a conduit toward something else.

David Broder

Though it is somewhat behind New Democracy in the polls, Syriza is clearly hoping to form a government. In a recent interview for Star TV, Tsipras said that Pasok and MeRA25 would have little option but to support his party in office, rather than let Greece head for repeat elections. Are there any circumstances in which you would support such a government?

Yanis Varoufakis

For two years, as a result of the MeRA25 congress, our party has had a policy calling on the leadership of Syriza to sit around the table, without any preconditions. That is, to put aside all the bitterness and our past differences, to honor our proportional-representation electoral system and explore the prospect of a convergence that can make this society viable again and end the radical exploitation of the many.

In this call we also mentioned the — indisputable — fact that the Greek constitution doesn’t allow us to do what happens in Germany or Italy, where the parties sit around a table for three months after election day until they come up with what they consider a viable government plan. This coming Monday morning, someone is going to get the opportunity to try to form a government by Wednesday night at the latest. During these couple of days, it would be impossible to have any real conversation that could lead to a decent progressive government plan. So, for the last two years we called upon Syriza to have discussions with us.

Tsipras said no — that we would have talks after the Sunday when the election was held. We say: no, if you wait till the Sunday of the election, we won’t talk after that, because all you will do is give us two or three ministries in exchange for us becoming complicit in the rule of the oligarchs. And the oligarchs surely don’t need a manifesto: they have the Memoranda, they have their own law firms, they rule by stealth.

We aren’t going to go to people and say, “vote for us to end the nonperforming loans scam, to end the electricity marketplace, to renationalize and reconstitute our railways that took fifty-seven lives,” just so that on Monday morning we can accept a handful of ministries.

David Broder

On Monday, I attended a conference in London, where UK home secretary Suella Braverman cited Greece alongside Britain, Poland, Italy, and Denmark as countries taking a tougher line on migration. In an interview with Bild, Prime Minister Kyriakos Mitsotakis called for EU funding for the border fence along the whole Turkish border. If his New Democracy is sometimes compared, more negatively, to Viktor Orbán’s Fidesz in Hungary, in what sense is it an outlier, or part of a wider reshaping of the Right?

Yanis Varoufakis

Mitsotakis has based his power on a combination of radical centrism, troika-speak, and ultranationalism. It is a government of neoliberals adopting troika policies, and of neofascists who depict foreigners and Muslims as “Satan.” That is how they portray desperate people avoiding war and hunger, who try to cross into Greece.

I’ve had the misfortune of living in Australia in the 1990s, Britain and Texas in the early 2010s. Mitsotakis has something of the Australian premier John Howard, the first leader to imagine and implement the inhuman policy of taking refugees arriving at the country’s shores and bribing some foreign poor country to take them into its own concentration camps. He has something of Braverman; indeed, the EU has for years been funding monsters in Libya to keep refugees in concentration camps in the middle of the Sahara.

He is also a mini-Trump, taking the border wall in northern Greece as a symbol of national prowess and pride. What is the difference? That he actually built it, and takes photos of himself in front of the wall. The former comrades in Syriza accuse him of being a Greek version of Viktor Orbán (but not Trump — indeed, Tsipras had a very good working relationship with him as president). Shamefully, Tsipras, too, has explicitly stated that he’s in favor of the border fence — the only difference is over whether the funding should come from the EU.