The former finance minister of Greece was in Geneva for the Global Investment Forum. He slams the European Union for its half-hearted approach to the war in Ukraine.
Yanis Varoufakis served as Greece's finance minister for six months in 2015, when his country went into bankruptcy. The 61-year-old economics professor regained a seat in the Greek parliament in July 2019 with his newly founded left-wing party Mera25.
A highly regarded European public figure, Varoufakis spoke at the 6th edition of the Global Investment Forum in Geneva last week with great candour. Geneva Solutions asked him what the future holds as the war in Ukraine rages on and the Covid-19 pandemic continues to unravel.
GS News: The world has faced two years of pandemic and is now going through another global crisis with the war in Ukraine and its ripple effects. How do you assess the situation?
Yanis Varoufakis: The pandemic and the war in Ukraine accelerated the crisis but it is the same one that has been morphing into other crises. The problems we face now began with the way in which central banks and governments handled the 2008 crisis. In April 2009, a huge amount of money was injected into the economy, sending asset prices, stock exchanges and house prices soaring, along with inequality. While money supply rose, investment into production shrunk, pushing interest rates lower. Fearing recession or deflation, investors started buying back their own shares and caused stagnation.
When the pandemic came, more money was printed – by that time, there was no other option. The interruption of the supply chain due to the lockdown pushed up the price of goods. Banks lost control of the situation and now they need to increase interest rates to combat inflation. But if they do that, then Italy, Greece, and the whole developing world will go bankrupt. This is where we are. We are paying the price for 13 years of macroeconomic catastrophic management.
What should be done to rectify these strategic errors?
We should do three things. First, we should increase interest rates immediately to three per cent. Then we must restructure the debt of Italy, France, Greece and the developing world. Finally we should continue to print money while increasing interest rates, but instead of giving it to the private banks, direct it towards, for example the European Investment Bank (EIB), which can issue bonds for the European Central Bank (ECB) to create a fund for a green energy union for Europe. This could be invested in decoupling from natural gas, not just from [Russian President] Putin, but also from Qatar and Texas. Investing in gas doesn’t create good quality jobs. Investing in smart grids, with smart solar panels and offshore wind, does, all while saving the planet and pushing down the cost of production in the long term.
As Greek finance minister, you fought against what you call European bureaucracy. The war in Ukraine had driven Europe to an unlikely consensus. Do you think Europe has changed or is it the same one you knew?
It remains the same Europe that cannot really decide. The consensus you refer to is NATO’s. It's not that Europe managed to get together and act as one. At the moment, it is all in the interest of the United States, not of Europe. When Olaf Scholz says he'll buy €100bn worth of weapons, it’s from the US. The increase in sales of shale gas and LNG also benefits Texas and New Mexico. Is this in the interest of Europe or in the interest of Ukrainians? I don't think so.
It would be good if the EU could reach consensus on how to end the war. [French President] Macron more or less agrees with this and keeps talking about negotiating with Putin, but he only represents France and France is irrelevant. Only [US President] Biden or a proper EU could negotiate with Putin. But this isn’t possible without a European government. [European Commision president] Ursula von der Leyen has no legitimacy – she's a failed minister of defence from Germany. So I don't see a United Europe. I see a disunited, fragmented Europe that simply is doing whatever the US tells us to do – not in the interests of Europe, Ukrainians, or the people who will starve in Africa and Asia because of the rise in the price of fertilisers.
You don't believe Russia can be defeated?
I think Putin is a war criminal but I was saying that in 2001 when the UK Prime Minister Tony Blair, the US and Germany were doing business with Putin. Do I believe that this war is going to end with Putin's demise? It is possible, if this war goes on for ten years, like the Soviet Union lost in Afghanistan, and collapsed.
But look at Afghanistan. It's a dreadful mess! This is what will happen to Ukraine. Do we want to sacrifice Ukraine to get a regime change in Moscow? I want the Russian Democrats to overthrow Putin. The Americans, the British are telling Ukrainians to fight and defeat Putin. But they're not putting a boot on the ground. They're behaving like the US did before Pearl Harbor, which is to arm Europeans and not get involved. This is hypocrisy at another level.
Going back to the Global Investment forum, do you think private investment has a role to play in the world that you are describing?
Of course, but the private investment industry cannot create a path on its own. That's why you need governments. That's why you need the EIB and the ECB to lay the path towards a green energy union with public money. Then private investments will follow.
Do you see opportunities for private investments right now?
For serious speculators, the tragedy is in the lack of volatility. The volatility we're experiencing now gives opportunities to those who know how to exploit it. There's no doubt that there will be opportunities in green energy for patient investors. Green energy, offshore energy in particular, investing in next generation solar panels and so on is a safe bet.
The topic of this year’s forum is “leading with purpose”. Do you have a good example of purpose driven leadership?
Franklin Roosevelt led the whole people out of the Great Depression with a plan that was radical and controversial. It drew the wrath of bankers. He said a lot of things that many people did not want to hear. This is important for leadership. Politics or finance that tries to stroke the ears of the audience, is not leadership, it's populism.
What future opportunities do you see for Geneva?
Cities around the world that manage to create better versions of big tech that are consistent with human growth as opposed to simply exploiting humanity, like Silicon Valley does, will attract talent and offer high quality living standards. Geneva has the necessary finance and high tech to move in that direction.
How do you see the world after the pandemic and the war in Ukraine?
I will not make a prognosis because, when it comes to society, we don’t have the right to predict. We have a duty to say what should happen and what must be done. We're not spectators. We are participants. I think we need to avert a new cold war between America and China. We need to avert the strengthening of military blocks like NATO because when there is an action, there is a reaction. I fear a similar alliance between China and Russia which will trigger another arms race, another conflagration of geopolitical tensions, and another breakdown of any prospect of coordinating America, Europe and China – the three pillars of future prosperity and a green transition for the world to avoid climate change.