Varoufakis and the weak suffer what they must; europes crisis and americas economic future (2016)

AND THE
WEAK
SUFFER
W H AT
THEY
MUST?



AND THE
WEAK
SUFFER
W H AT
THEY
MUST?
e u rop e’s c r i si s a n d
a m e r ic a’s ec onom ic f u t u r e

YA N I S
VAROUFAKI S

New York


Copyright © 2016 by Yanis Varoufakis
Published by Nation Books, A Member of the Perseus Books Group
116 East 16th Street, 8th Floor
New York, NY 10003
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Library of Congress Cataloging-in-Publication Data
Names: Varoufakis, Yanis, author.
Title: And the weak suffer what they must? : Europe’s crisis and America’s
economic future / Yanis Varoufakis.
Description: New York : Nation Books, 2016. | Includes bibliographical
references and index.
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for m y mot her eleni,
who would have savaged with the greatest elegance and compassion
anyone contemplating the notion that the weak suffer what they must



con t en ts

preface

The Red Blanket

ix

chapter 1

And the Weak Suffer What They Must

chapter 2

An Indecent Proposal

chapter 3

Troubled Pilgrims

chapter 4

Trojan Horse

chapter 5

The One That Got Away

chapter 6

The Reverse Alchemists

chapter 7

Back to the Future

chapter 8

Europe’s Crisis, America’s Future

af terword

1

27

61

90
119
143

198

From Dissonance to Harmony
Acknowledgments

238

250

253

Appendix to Chapter 7: A Modest Proposal
Notes

265

References
Index

255

313

317

About the Author

337

vii



p r e face

THE RED BLANKET

O

ne of my enduring childhood memories is the crackling sound of
a wireless hidden under a red blanket in the middle of our living
room. Every night, at around nine I think, Mom and Dad would huddle together under it, their ears straining, bursting with anticipation.
8SRQKHDULQJWKHPXIÀHGMLQJOHIROORZHGE\D*HUPDQDQQRXQFer’s voice, my six-year-old boy’s imagination would travel from our
home in Athens to Central Europe, a mythical place I had not visited
yet except for the tantalizing glimpses offered by an illustrated Brothers Grimm book I had in my bedroom.
My family’s strange red blanket ritual began in 1967, the inaugural
year of Greece’s military dictatorship. Deutsche Welle, the German
international radio station that my parents were listening to, became
our most precious ally against the crushing power of state propaganda
at home: a window looking out to faraway democratic Europe. At the

end of each of its hourlong special broadcasts on Greece, my parents
and I would sit around the dining table while they mulled over the
latest news.
Not understanding fully what they were talking about neither
bored nor upset me. For I was gripped by a sense of excitement at the
VWUDQJHQHVVRIRXUSUHGLFDPHQWWRÁQGRXWZKDWZDVKDSSHQLQJLQRXU
very own Athens, we had to travel, through the airwaves, and veiled
by a red blanket, to a place called Germany.
The reason for the red blanket was a grumpy old neighbor called
Gregoris. Gregoris was known for his connections with the secret police and his penchant for spying on my parents; in particular my dad,
whose left-wing past made him an excellent target for an ambitious,
lowly snitch. After the coup d’état of April 21, 1967, brought neofascist

ix


x

P R E FA C E

colonels to power, tuning in to Deutsche Welle broadcasts became one
of a long list of activities punishable by anything from harassment to
torture. Having noticed Gregoris snooping around inside our backyard, my parents took no risks. And so it was that the red blanket
became our defense from Gregoris’s prying ears.
During the summers, my parents would use up their annual leave
to escape the colonels’ Greece for a whole month. We would load up
our black Morris and head north to Austria and southern Germany
where, as my father kept saying during the interminable drive, “Democrats can breathe.” Willy Brandt, the German chancellor, and, a little
later, Bruno Kreisky, his Austrian counterpart, were discussed as if
they were family friends who also happened to be great protagonists

in isolating “our” colonels and supporting Greek democrats.
The reception of the locals we encountered while holidaying in
these German-speaking lands, away from the kitsch neofascist aesthetic of the colonels’ propaganda, was consistent with our conviction
that we, as Greeks abroad, were bathed in genuine solidarity. And
when our Morris would sadly putter back into Greece, past border
crossings replete with photographs of our mad dictator and symbols of
his crazy reign, the red blanket beckoned as our only refuge.

A HAND SHUNNED

$OPRVWÁIW\\HDUVODWHULQ)HEUXDU\2015,PDGHP\ÁUVWRIÁFLDOYLVLW
WR%HUOLQDV*UHHFH‰VÁQDQFHPLQLVWHU7KH*UHHNHFRQRP\KDGFROlapsed beneath a mountain of debt, and Germany was its main credLWRU,ZDVWKHUHWRGLVFXVVZKDWWRGRDERXWLW0\ÁUVWSRUWRIFDOO
was, of course, the Federal Ministry of Finance, to meet its incumbent
leader, the legendary Dr. Wolfgang Schäuble.
To him, and his minions, I was a nuisance. Our left-wing governPHQWKDGMXVWEHHQHOHFWHGGHIHDWLQJ'U6FKfXEOH‰VDQG&KDQFHOORU
Angela Merkel’s allies in Greece, the New Democracy Party. Our electoral platform was, to say the least, an inconvenience for their Christian
Democratic administration and their plans for keeping the eurozone
in “order.” The elevator door opened up onto a long, cold corridor at


THE RED BLANKET

xi

the end of which awaited the great man in his famous wheelchair. As
I approached, my extended hand was refused. Instead of a handshake,
KHUXVKHGPHSXUSRVHIXOO\LQWRKLVRIÁFH
While my relations with Dr. Schäuble warmed up in the months
that followed, the shunned hand symbolized a great deal that was
wrong with Europe. It was symbolic proof that in the half century sepDUDWLQJP\QLJKWVXQGHUWKHUHGEODQNHWDQGWKDWÁUVWPHHWLQJLQ%HUlin, Europe had changed profoundly. How could my host even begin

to imagine that I had arrived in his city with my head full of childhood
memories in which Germany featured as my security blanket?
By 1974 the Greeks, with moral and political support from Germany, Austria, Sweden, Belgium, Holland and France, had overWKURZQ WRWDOLWDULDQLVP 6L[ \HDUV DIWHU WKDW *UHHFH MRLQHG WKH GHPocratic union of European nations, to the delight of my parents, who
could, at last, fold up the red blanket and put it away in the cupboard.
Less than a decade later, the Cold War had ended and Germany
was reuniting in the hope of losing itself, in important ways, within a
XQLWLQJ(XURSH&HQWUDOWRWKLVSURMHFWRIHPEHGGLQJWKHQHZXQLWHG
Germany into a new united Europe was the ambitious program of a
monetary union that would put the same money, the same banknotes
and even the same coins (one side of which would be identical, no
matter where it was issued) into every European’s pocket. “Make them
use the same money,” an Athenian taxi driver told me once in the early
1990s, “and, before they know it, a United States of Europe will creep
up on them.”
By 2001 the two countries brought together beneath our family’s
red blanket in the bygone era of my childhood, Greece and Germany,
shared the same money, along with more than a dozen other continenWDOQDWLRQV,WZDVDQDXGDFLRXVSURMHFWUHGROHQWZLWKDQDPELWLRQWKDW
no European of my generation could resist.

BE ACON ON THE HILL

In fact, this process of European integration had begun long before I
was even born, in the late 1940s under the tutelage of the United States.


xii

P R E FA C E

It was foreshadowed by the Speech of Hope delivered by US Secretary

of State James Byrnes in Stuttgart in 1946 in which he promised to the
SHRSOHRI*HUPDQ\IRUWKHÁUVWWLPHDIWHUWKHLUGHIHDW†WKHRSSRUWXnity, if they will but seize it, to apply their great energies and abilities to
the works of peace . . . the opportunity to show themselves worthy of
the respect and friendship of peace-loving nations, and in time, to take
an honorable place among members of the United Nations.”
Soon after, Greeks and Germans, together with other Europeans,
started to meet and discuss the possibility of unifying in what would
later become the European Union. We were uniting despite different
languages, diverse cultures, distinctive temperaments. In the process
RI FRPLQJ WRJHWKHU ZH ZHUH GLVFRYHULQJ ZLWK JUHDW MR\ WKDW WKHUH
were fewer differences between our nations than the differences observed within our nations. And when one nation faced a challenge, as
Greece had in 1967 with the military takeover, the rest came together
to assist. It took half a century for Europe to heal its war wounds
through solidarity and to turn into a beacon on humanity’s proverbial
hill, but it did.
Unifying hitherto warring nations on the basis of popular mandates founded on the promise of shared prosperity, the erection of
common institutions, the tearing down of ludicrous borders that previously scarred the continent: this was always a tall order, an enchanting
dream. Happily, it was now an emergent reality. The European Union
could even pose as a blueprint that the rest of the world might draw
courage and inspiration from so as to eradicate divisions and establish
peaceful coexistence across the planet.
Suddenly the world could imagine, realistically, that diverse nations
might create a common land without an authoritarian empire. We
could forge bonds relying not on kin, language, ethnicity, a common
enemy, but on common values and humanist principles. A commonwealth became feasible where reason, democracy, respect for human
rights and a decent social safety net provide its multinational, multilingual, multicultured citizens with the canvass on which to become the
women and men that their talents deserved.


THE RED BLANKET

xiii

“ W H E N C A N I H AV E M Y M O N E Y B A C K? ”

Then came Wall Street’s implosion in 2008 and the ensuing global
ÁQDQFLDOGLVDVWHU1RWKLQJZRXOGEHWKHVDPHDJDLQ
2QFHWKHXQLYHUVHRI:HVWHUQÁQDQFHRXWJUHZSODQHWHDUWKLWVLPploding banks and the subsequent credit crunch took their toll on European nations, in particular those relying on the euro. Britain’s NorthHUQ5RFNZDVWKHÁUVW(XURSHDQEDQNWREXFNOHXQGHU*UHHFHWKHÁUVW
state. Thus a death embrace between insolvent banks and bankrupt
states ensued throughout Europe. However, there was a great difference between Britain and countries like Greece. While Gordon Brown
could rely on the Bank of England to pump out the cash needed to
save the City, eurozone governments had a central bank whose charter
did not allow it to do the same. Instead, the burden of saving the inane
bankers fell on the weakest of citizens.
By late 2009 the Greek state’s bankruptcy was threatening French
and German banks with Lehman’s fate. Meanwhile the Irish banks’
annihilation brought down the Irish state, magnifying the woes of
France’s and Germany’s banks. Panic-ridden politicians rushed in
with gargantuan taxpayer-funded bailouts that burdened the weakest
RIWD[SD\HUVDV*RRJOH)DFHERRNDQG*UHHFH‰VROLJDUFKVHQMR\HGWD[
immunity. Incredibly, the bailout loans were given under conditions
of income-sapping austerity that further weakened the weak taxpayers
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WKDQMXVWLÁDEOHSDQLF3RUWXJDO6SDLQ,WDO\DQG&\SUXVZHUHWKHQH[W
dominoes to tumble.
Lacking a credible response to the euro’s inevitable crisis, Europe’s
JRYHUQPHQWVWXUQHGDJDLQVWRQHDQRWKHUSRLQWLQJDFFXVDWRU\ÁQJHUV
everywhere, and falling prey to a beggar-thy-neighbor attitude last
seen in Europe in the 1930s. By 2010 European solidarity had been
eaten up from within, leaving nothing but a wretched shell of once

solid camaraderie.
What caused the euro crisis? News media and politicians love simple stories. From 2010 onward the story doing the rounds, throughout
Germany and the Protestant Northeast, went something like this:


xiv

P R E FA C E

The Greek grasshoppers did not do their homework and their
debt-fueled summer ended abruptly one day. The Calvinist ants were
then called upon to bail them out, together with various other grasshoppers from around Europe. Now, the ants were being told, the
Greek grasshoppers did not want to pay their debt back. They wanted
another bout of loose living, more fun in the sun, and another bailout
VRWKDWWKH\FRXOGÁQDQFHLW7KH\HYHQHOHFWHGDFDEDORIVRFLDOLVWV
and radical lefties to bite the hand that fed them. These grasshoppers
had to be taught a lesson, otherwise other Europeans, made of lesser
stuff than the ants, would be encouraged to adopt loose living.
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many advocate against the Greeks, against the government I served in.
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asked me playfully, but with a hint of despondent aggression, on the
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smiled politely.

GRASSHOPPERS E VERY WHERE

As I hope to demonstrate with this book, Aesop’s fable about the grasshopper and the ant, or any narrative of this type, is terribly misleading
as a description of the causes of our current crisis.
For a start, it fails to acknowledge that every nation has powerful

grasshoppers, including Germany and other surplus nations. It neglects to mention that these grasshoppers, of the North and the South,
have a habit of forging commanding international alliances against the
interests of the good ants that work tirelessly not only in places like
Germany but also in places like Greece, Ireland, Portugal.
More importantly, though, the real cause of the eurozone crisis is
nothing to do with the behavior of grasshoppers or ants or any such
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invention of the euro. Indeed, this book is about a paradox: European
peoples, who had hitherto been uniting so splendidly, ended up increasingly divided by a common currency.
The paradox of a divisive common currency is a central theme of
this book. To make sense of this paradox, and thus to understand the


THE RED BLANKET

xv

real reasons why the narrative of grasshoppers and ants, of bailouts
DQGDXVWHULW\LVVRZURQJZHZLOOQHHGÁUVWWRH[DPLQHWKHKLVWRULFDO
roots of the euro: in the postwar settlement of Europe, with the socalled Bretton Woods conference of July 1944, in which the economic
structure of Europe was forged, and in the collapse of that structure
with the so-called Nixon Shock in 1971. It is a story in which the United
6WDWHVSOD\HGWKHFULWLFDOUROHDQGLWRFFXSLHVWKHÁUVWWZRFKDSWHUVRI
this book.

EUROPE AND AMERICA:
T H E B O O K I N T H R E E “M O M E N T S”

In fact this book began life as a sequel to my previous book, The Global
Minotaur, in which I outlined my take on the causes and nature of

the 2008 global crash. Unlike The Global Minotaur, in which America
had the lead role, this book casts Europe as the protagonist. But even
though Europe is the protagonist, America provides the air our protagonist breathes, the nutrients that it feeds on, the global context in
which it evolves, and also features as a potential victim of our protagonist’s avoidable failures. This book turns its spotlight on three historical moments that bind together, and at once push apart, Europe’s and
America’s fortunes.
7KHÁUVWRFFXUUHGLQ1971 when, in a bid to preserve its global economic dominance, America expelled Europe from the dollar zone (an
equivalent to the eurozone that was instituted at Bretton Woods). Its
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back into America itself (see chapters 1 and 2).
The second moment was lengthier and came when an unhinged
Europe tried repeatedly to make amends for its expulsion from the
dollar zone by bundling together its many different currencies into a
PRQHWDU\ XQLRQ RI VRUWV…ÁUVW LQWR WKH (XURSHDQ 0RQHWDU\ 6\VWHP
then into its very own eurozone (see chapters 3, 4 and 5). Much of the
book is devoted to showing how Europe’s monetary union came about
and, importantly, the manner in which its evolution was guided, often
unseen, by economic decisions, past and present, made in Washington,
DC.