Is the Global Economy Just a Giant Debt Scam? Here's What the Financial Elite Doesn’t Want You to Know
Why is the world the way it is, and how did it get that way? One book I read in the past year explained more about that question than any other, and it wasn’t about Donald Trump or the rise of the far right or the endangered state of democracy — or at least not directly. Beneath the surface, it was clearly about all those things and many more.
It was also a startling and dramatic read on its own terms and one of the best-written nonfiction works I’ve encountered in recent years. It's a witty, erudite and deeply humane chronicle by a man who almost accidentally found himself in the corridors of power, with backstage access to the Western world’s financial elite. It sometimes reads like a “wrong man, wrong place” comedy and at other times, as its author says, “is the stuff of tragedy, Shakespearean tragedy, ancient Greek tragedy.”
Why haven’t you heard about this book, which is called “Adults in the Room: My Battle With the European and American Deep Establishment,” and was written by Yanis Varoufakis, a leftist academic who briefly served as the Greek finance minister at the apex of that nation’s debt crisis in 2015? (It was published last year, but is just out in paperback.) I think that question that answers itself — and believe me, it gets answered several times over when you read the book. For essentially the same reasons, I haven’t gotten around to writing about Varoufakis and “Adults in the Room” until now, despite what a terrific read it was and how invigorating it was to talk to him when he visited Salon last year. He doesn’t fit easily into the news cycle, and his ideas don’t fit neatly into the dominant political paradigm.
First of all, volumes about the global economy by obscure European leftists don’t exactly pile up five-star reviews or fly off the shelves at Barnes & Noble: Yes, I see you holding up your copy of Thomas Piketty’s “Capital in the Twenty-First Century,” the startling exception that proves the rule. More to the point, Varoufakis’ book is practical and anecdotal rather than theoretical or abstract, and the story he tells is deeply displeasing to virtually everyone in government, finance or business throughout the Western world (meaning the economic zone dominated by the United States and the European Union).
Varoufakis never retreats into left-wing dogma and never calls his political adversaries names, and his story is far more compelling as a result. In fact, Larry Summers, the former U.S. treasury secretary and former Harvard president, is one of his mentors and ideological foils throughout the book, and they disagree about nearly everything. "You realize how bad things were if someone like Larry Summers is helping someone like me," Varoufakis jokes.
In any case individuals are not the problem: Not in the Greek crisis of 2010-15 in which Varoufakis briefly played a starring role, not in the tide of right-wing nationalism that threatens to tear Europe apart, and not in the Trumpified political climate of the United States. The problem is systematic, not a question of the wrong people being in charge.
Varoufakis argues that the entire Western economy has become a massive con game, on a scale thousands or millions of times larger than anything Bernie Madoff could have imagined. Furthermore, in his telling, it’s a con game run by intelligent and not necessarily malevolent people who understand perfectly well that the whole enterprise is a fraud that’s bound to come crashing down eventually. He says he knows that to be true because those people told him so, in the kinds of closed-door meetings where the uppermost level of the managerial caste discuss such things. That’s where the “Greek tragedy” enters the Greek tragedy: Those who supposedly control the system have instead become its prisoners. Or to put it another way, pay no attention to the man behind the curtain.
If anything, Varoufakis can’t resist the human drama. When I asked him whether that was a specifically Greek failing, he laughed but did not deny it. In person he doesn’t seem bitter or angry in the slightest, and looks as if he had been sent over by a casting director to play the role of a worldly European intellectual. He’s handsome, stylish and self-deprecating, and speaks English with almost no accent. (He has a Ph.D. in economics from the University of Essex and has spent much of his career teaching at universities in Britain, Australia and the U.S.)
He depicts powerful insiders whom many progressives would be inclined to view as duplicitous villains, like Summers or International Monetary Fund chief Christine Lagarde, in almost sympathetic terms. His title refers to an infamous remark by Lagarde during the final stages of the Greek crisis in June 2015, when she appeared to dismiss the left-wing government Varoufakis represented as children: “The key emergency is to restore the dialogue with adults in the room.” Despite that obvious insult, Varoufakis says he got along well with Lagarde personally.
It’s neither fair nor accurate, Varoufakis told me during our Salon Talks conversation last fall, to depict such people as scheming masterminds of the neoliberal economy, pulling the strings from atop capitalism’s equivalent of Mount Olympus. “What I experienced was people who were neither good nor bad trying to do their best under circumstances not of their own choosing,” he said, “and then using neoliberal narratives in order to justify themselves, ex post facto. The question is, if they were not in control, if they were powerful and at the same time powerless, what on Earth is going on? Who is running the shop?”
As Varoufakis says, the answer to that question is shrouded in deliberate mystery. He was among the leaders of what he calls a “prison break,” the Greek people’s short-lived attempt to escape from the crushing cycle of debt and fiscal austerity that had starved their welfare state and nearly destroyed their society. A few weeks after Lagarde’s “adults in the room” comment, the revolt was over: Varoufakis’ Syriza party capitulated to the demands of the IMF and the European Central Bank — which it had specifically promised not to do — and he resigned as finance minister.
Varoufakis argues that what happened in Greece is happening to us all, on a different scale, and that it was never about one irresponsible little country whose government spent too much money and whose citizens wanted too much free stuff. It’s a long and complicated story about how the world really works, and about the false narratives that get spun in public to conceal that. I encourage you to watch our entire conversation, embedded below — and even more so, to read “Adults in the Room.” Rather than publishing the entire transcript here, I thought it might be more helpful to summarize the main points.
Former Greek finance minister Yanis Varoufakis
Former Greek finance minister Yanis Varoufakis joins Salon to discuss his new memoir “Adults In The Room: My Battle With Europe’s Deep Establishment.” Varoufakis shares the untold story of Greece’s financial crash, what lies behind true power, and his continued grassroots efforts to bring transparency and democracy to European politics.
Democracy has been undermined by the “financialization” of both the economy and politics
What Varoufakis means here is that during the development of capitalism, first economic power became more important than political power, and then bankers and venture capitalists became more important than old-style business tycoons. “It became more profitable, and a greater source of power, to be a financier than to be Henry Ford,” as he put it.
This change placed politicians in a new relationship to money and power: “Even progressives, like the Democrats in this country or social democrats in Europe, struck a Faustian bargain with financiers instead of playing the role of mediating between labor and capital,” Varoufakis said.
In the infamous example of the Clinton administration, it agreed to deregulate the financial industries in exchange for political support that would guarantee the future of social programs like Social Security or Medicare. The result was disastrous on many levels. “When the bankers on Wall Street, in the City of London, in Frankfurt and in Paris created gigantic pyramids of private money as a result and those collapsed, the politicians in power were clueless,” Varoufakis said. “They lacked the analytical capacity to understand the 2008 crisis. They didn’t see it coming. They couldn’t understand it when it happened and they lacked the moral authority to put the financial genie back in the bottle.”
Capitalism collapsed in 2008, just as communism had collapsed in 1991 — the system we have now is something else
This is an argument Varoufakis has made many times, including in his 2011 book “The Global Minotaur.” As he expressed it to me, the financial crisis of 2008 led to “a wholesale collapse of what used to be called capitalism,” which has not recovered nearly as much as most people believe. What we have instead is an almost galactic-scale system of moving debt around to conceal the various flaws and shortfalls in the system. Varoufakis calls it “bankrupt-ocracy,” in which enormous but endangered or bankrupt financial institutions wield enormous power over the rest of society. “That’s not capitalism.” And on the subject of shell games …
The massive Greek bailout was a hoax that did nothing to help the Greek people — it moved money straight from the pockets of European taxpayers to the coffers of the big banks
This is the central aspect of Varoufakis’ critique: He has never denied that previous Greek governments made bad decisions to borrow large sums of money, although the nature of the Eurozone financial system in the wake of the 2008 collapse gave them little choice. That left Greece as “the most bankrupt state” in modern European history, and it received “the largest bailout in human history” between 2010 and 2012, a total close to $300 billion, “in order to give it to the French and the German banks under conditions of austerity that necessitated and guaranteed a great depression.”
Let’s restate that, because it gets more shocking the more you think about it. The bailout money came from the European Central Bank and the IMF, largely meaning the taxpayers of France, Germany and other prosperous nations of Western Europe. Exactly none of it went to restore social services or repair roads in Greece. All of it was used to make payments on the Greek government’s existing debt — most of which was to banks in Western Europe. So Angela Merkel and FranÃ§ois Hollande (then the French president) and other political leaders extorted money from their own taxpayers, on the pretense that they were helping out a small, struggling nation on Europe’s southern fringe, and siphoned it directly to the biggest European banks, largely in their own countries. It was a direct wealth transfer from ordinary people to the financial elite.
Of course none of those political leaders was willing to admit this. In this context, the “fiscal austerity” enforced on the Greek people was nothing more than sadistic political theater, designed to convince the larger European public that the central problem all along had been Greek idleness and improvidence, but that now the sun-drenched southerners would feel some tough love. And indeed that happened. Some areas of the Greek public sector were zeroed out. Pensions were slashed and retirement ages raised; mandatory taxes were attached to electricity bills. Greece experienced a 28 percent decline in national income in three years.
The "left-wing" Syriza government didn’t even want another bailout: Its position was more fiscally responsible than that of the financial power brokers
Varoufakis' party won the Greek election in early 2015 on an anti-austerity platform, but that didn’t mean it wanted another handout from the bankers. The new government’s one task, Varoufakis said, was to go to Greece’s creditors and “say the sensible thing: We’re not going to take another one of your Euros or dollars until we restructure the Greek debt to make it viable. We have a sensible fiscal policy. We have to end austerity, which is killing whatever is left of the private sector, and then everything else is negotiable.” But accepting more bad loans to make payments on the existing ones was off the table: “I was trying to look German citizens in the eye and say, ‘Look, your government is trying to impose upon me more loans from you when I know I will not be able to repay them.’ … This is not a left-wing position.”
Varoufakis jokes that his principal allies in Europe turned out to be the bankers (who were getting paid, after all), along with the libertarians and the old-school conservatives, rather the thoroughly “financialized” remnants of the social democrats: “This is a terrible fate for a left-winger, having support from Ayn Rand enthusiasts.”
The Greek rebellion had to be crushed for political reasons, because it threatened to expose the shell game and undermine the credibility of the entire economic order
“Look, it’s really not rocket science,” Varoufakis said. “We had a bankrupt state that was given the largest loan in human history. At the same time, public expenditure -- on schools, on street building, on bridge repairs, on everything -- was slashed to zero almost, while tax rates to businesses that were suffering a massive loss in demand went through the roof. When you do this to an economy and you have a broken banking sector, so banks are not lending even to profitable firms, all you are going to end up with is a permanent depression, which is what happened." Once the European financial powers understood what they had done, he said, they felt they couldn't afford to extricate themselves from this catastrophic decision "because they had to lie to their own constituencies -- the IMF to the various governments represented there, the German government to their own members of parliament; the French to their own people.”
Varoufakis says that in one of their private meetings Christine Lagarde told him, “Look, you’re right in what you’re saying, but you’ve got to understand: We have invested so much political capital in this program that we can’t go back.”
For people like her, he suggests, “My duty and the duty of our government was … for Greece and the Greek people to go into a corner and die quietly, and not make noise. That’s what they were asking for.”
What was the cumulative global result of all these processes? Do you really need to ask?
Is this where we get back to Trump and Brexit and the rise of authoritarianism and right-wing nationalism around the world? It is. Varoufakis sees all those things as clearly connected and part of an unmistakable backlash. After mainstream politicians had cynically transferred those billions of dollars in banking losses onto ordinary people both in America and Europe -- magically combining the high taxation of social democracy with the austerity state of free-market capitalism -- they then pretended to be baffled by what happened next.
The political movements that benefited from this climate, as Varoufakis puts it, were those fueled by racism and xenophobia, "the right-wing monsters that breed in the environment of deflation." Establishment parties then "wondered why it was that the discarded people from our neighborhoods and villages and towns turned against them and decided to vote for somebody that peeved them, annoyed them, just in order to get back at the establishment that had discarded them. Great wonder, isn’t it?”