Picture the scene when a sheepish Finance Minister enters the Chancellor’s Berlin office bearing a control panel featuring one yellow and one red button, and telling her that she must choose to press one or the other. This is how he explains what each button will do:
The red button
If you press it, Chancellor, the euro crisis ends immediately, with a general rise in growth throughout Europe, a sudden collapse of debt for each member state to below its Maastricht limit, no pain for Greek citizens (or for the Italians, Portuguese, etc.), no guarantees for the periphery’s debts (states or banks) to be provided by German and Dutch taxpayers, interest rate spreads below 3 per cent throughout the eurozone, a diminution in the eurozone’s internal imbalances, and a wholesale rise in aggregate investment.
The yellow button If you press it, Chancellor, the situation in the eurozone remains more or less as it is for a decade. The euro crisis continues to bubble along, albeit in a controlled fashion. While the probability of a break-up, which will be a calamity for Germany, remains non-trivial, the chances are that, if you push the yellow button, the eurozone will not break up (with a little help from the European Central Bank), German interest rates will remain extremely low, the euro will be nicely depressed (‘nicely’ from the perspective of German exporters), the periphery’s spreads will be sky-high (but not explosive), Italy and Spain will enter deeper into a debt-deflationary spiral that sees to a reduction of their national income by 15 per cent over the next three years, France shall slip steadily into quasi-insolvency, GDP per capita will rise slowly in the surplus countries and fall precipitously in the periphery. As for the first “fallen” nations (Greece, Ireland and Portugal), they shall become little Latvias, or indeed Kosovos: devastated lands (after the loss of between 25 per cent and 40 per cent of national income, a massive exodus of their skilled labour) on which our people will holiday and buy cheap real estate. In aggregate, if you choose the yellow button, Chancellor, eurozone unemployment will remain well above U.K. and U.S. levels, investment will be anaemic, growth negative and poverty on the up and up.
Which button do you think, dear reader, the Chancellor would want to push?
Whereas the yellow button would hold no attraction for the American President or the British Prime Minister, for the German Chancellor the yellow button is a far more powerful option. Even if the Chancellor wanted to opt for the red button, she would be terrorised by the reaction of the German electorate were she to do so. Letting the Greeks and the Italians, the Spaniards and the Portuguese, off the hook of their Great Depression so “easily” would be unlikely to win many votes east of the Rhine and north of the Alps.
For two years now, the German public has become convinced that Germany has escaped the worst of the crisis because of its people’s virtuous embracing of thriftiness and hard work; in contrast to the spendthrift southerners, who, like the fickle grasshopper, made no provision for when the winds of finance would turn cold and nasty.
This mindset goes hand in hand with a moral righteousness which implants into good people’s hearts and minds a penchant for exacting punishment on the grasshoppers — even if punishing them also punishes themselves (to some extent). It also goes hand in hand with a radical misunderstanding of what kept the eurozone healthy and Germany in surplus prior to 2008: that is, the Global Minotaur whose demand-generation antics were for decades allowing countries like Germany and the Netherlands to remain net exporters of capital and consumer goods within and without the eurozone (while importing U.S.-sourced demand for their goods from the eurozone’s periphery).
Interestingly, one of the great secrets of the post-2008 period is that the Minotaur’s death adversely affected aggregate demand in the eurozone’s surplus countries (Germany, the Netherlands, Austria and Finland) more than it did the deficit member states (like Italy, Spain, Ireland, Portugal and Greece). While the sudden withdrawal of capital from the deficit countries brought about their insolvency, countries like Germany saw their “fundamentals” more grievously affected by the crash of 2008. This fact, in conjunction with the terrible squeeze on German wages, explains the deeper causes of the animosity in places like Germany that so very easily translates into anger against the Greeks and assorted Mediterraneans — feelings that are then reciprocated, thus giving the wheel of intra-European animosities another spin, favouring the rise of xenophobia, even Nazism (in countries like Greece, quite incredibly), and thus leading to a wholesale readiness to push all the yellow, as opposed to the red, buttons in sight.
To recap, the Minotaur’s surplus recycling was essential to the maintenance of the eurozone’s faulty edifice. Once it vanished from the scene, the European common currency area would either be redesigned or it would enter a long, painful period of disintegration. An unwillingness by the surplus countries to accept that, in the post-Minotaur world, some other form of surplus recycling is necessary (and that some of their own surpluses must also be subject to such recycling) is the reason why Europe is looking like a case of alchemy-in-reverse: for whereas the alchemist strove to turn lead into gold, Europe’s reverse alchemists began with gold (an integration project that was the pride of its elites) but will soon end up with the institutional equivalent of lead.
• Yanis Varoufakis is former Finance Minister of Greece. This is an extract from his book The Global Minotaur: America, Europe and the Future of the Global Economy , published by Zed Books.
—© Guardian Newspapers Limited, 2015
