Home > Greece, Uncategorized > On the Euro Summit’s Statement on Greece: First thoughts

On the Euro Summit’s Statement on Greece: First thoughts

from Yanis Varoufakis

In the next hours and days, I shall be sitting in Parliament to assess the legislation that is part of the recent Euro Summit agreement on Greece. I am also looking forward to hearing in person from my comrades, Alexis Tsipras and Euclid Tsakalotos, who have been through so much over the past few days. Till then, I shall reserve judgment regarding the legislation before us. Meanwhile, here are some first, impressionistic thoughts stirred up by the Euro Summit’s Statement.

  • A New Versailles Treaty is haunting Europe – I used that expression back in the Spring of 2010 to describe the first Greek ‘bailout’ that was being prepared at that time. If that allegory was pertinent then it is, sadly, all too germane now.
  • Never before has the European Union made a decision that undermines so fundamentally the project of European Integration. Europe’s leaders, in treating Alexis Tsipras and our government the way they did, dealt a decisive blow against the European project.
  • The project of European integration has, indeed, been fatally wounded over the past few days. And as Paul Krugman rightly says, whatever you think of Syriza, or Greece, it wasn’t the Greeks or Syriza who killed off the dream of a democratic, united Europe.
  • Back in 1971 Nick Kaldor, the noted Cambridge economist, had warned that forging monetary union before a political union was possible would lead not only to a failed monetary union but also to the deconstruction of the European political project. Later on, in 1999, German-British sociologist Ralf Dahrendorf also warned that economic and monetary union would split rather than unite Europe. All these years I hoped that they were wrong. Now, the powers that be in Brussels, in Berlin and in Frankfurt have conspired to prove them right.
  • The Euro Summit statement of yesterday morning reads like a document committing to paper Greece’s Terms of Surrender. It is meant as a statement confirming that Greece acquiesces to becoming a vassal of the Eurogroup.
  • The Euro Summit statement of yesterday morning has nothing to do with economics, nor with any concern for the type of reform agenda capable of lifting Greece out of its mire. It is purely and simply a manifestation of the politics of humiliation in action. Even if one loathes our government one must see that the Eurogroup’s list of demands represents a major departure from decency and reason.
  • The Euro Summit statement of yesterday morning signalled a complete annulment of national sovereignty, without putting in its place a supra-national, pan-European, sovereign body politic. Europeans, even those who give not a damn for Greece, ought to beware.
  • Much energy is expended by the media on whether the Terms of Surrender will pass through Greek Parliament, and in particular on whether MPs like myself will toe the line and vote in favour of the relevant legislation. I do not think this is the most interesting of questions. The crucial question is: Does the Greek economy stand any chance of recovery under these terms? This is the question that will preoccupy me during the Parliamentary sessions that follow in the next hours and days. The greatest worry is that even a complete surrender on our part would lead to a deepening of the never-ending crisis.
  • The recent Euro Summit is indeed nothing short of the culmination of a coup. In 1967 it was the tanks that foreign powers used to end Greek democracy. In my interview with Philip Adams, on ABC Radio National’s LNL, I claimed that in 2015 another coup was staged by foreign powers using, instead of tanks, Greece’s banks. Perhaps the main economic difference is that, whereas in 1967 Greece’s public property was not targeted, in 2015 the powers behind the coup demanded the handing over of all remaining public assets, so that they would be put into the servicing of our un-payble, unsustainable debt.
  1. Achilleas
    July 14, 2015 at 3:34 pm

    Yanis says:
    “Does the Greek economy stand any chance of recovery under these terms? This is the question that will preoccupy me during the Parliamentary sessions that follow in the next hours and days.”

    Q: Do you mean to say that after being a FM for 5 months you don’t have a clear answer to that and you’ll have to think about it until Wednesday’s vote on parliament?

    Yanis says:
    “The Euro Summit statement of yesterday morning signalled a complete annulment of national sovereignty”

    Q: It is governments who surrender the sovereignty, and this time it was the SYRIZA government and its PM Tsipras. The greek people said loud and clear to NOT surrender. Your government did. Why? Because of your ideological and myopic political/economic analysis summarized in the dictum “EURO under ANY sacrifice(for the greek people of course)”.

  2. paul davidson
    July 14, 2015 at 4:00 pm

    so correct Yanis!. But the only good economic solution is that the creditor nations must take unilateral action to remove the debt yoke from Greece’s neck by creating a situation where Greece can work its way out of debt — the creditors have the wherewithal to do it and the result will be a stronger economic growth in all of Europe including Greece.

    How?, by creditors following the principles first laid down by Keynes in his Keynes Plan presented at Bretton Woods and developed by myself in my 21 century plan for an International Monetary Clearing Union. The creditor nations must buy more goods and services from the debtor nation.

    If Europe had adopted a Eurozone fiscal union as well as a monetary union — as in the USA– then when a region falls into persistent trade deficits and crushing debt burdens, the fiscal government should take action by increasing spending on goods and services from the deficit region so that that region can work more and earn its way out of debt! That is what the New Deal did in the 1930s under Roosevelt and it worked by making the USA economically more united and economically stronger..

  3. paul davidson
    July 14, 2015 at 4:13 pm

    Yaris comparison with the Treaty of Versailles is an excellent one. Remember Keynes’s argument that reparations put into place via Versailles merely meant disaster.

    And this view led Keynes – a quarter of a century later- to suggest as a principle of the “Keynes Plan” that the creditor nation should remove the debt by buying additional goods and services from the debtor nation — and this lead fter World War II to the USA engaging in the Marshall Plan to prevent the devastated European nations from going into unrepayable debt — and instead gave the Europeans sufficient funds as a gift to buy things needed — A Eurozone Marshall plan to Greece would allow it to get out of the unpayable international debt.

  4. July 14, 2015 at 4:21 pm

    This has really got nothing to do with money and everything to do with a political power demonstration by the European Junta that dresses itself in a set of clothes called “European Union”.
    Greece must be seen to be subjugated by brute force, hung on the gallows to dry in the wind,
    as a warning to any other upstarts.
    And banks work even better than tanks!

    • Jens-Christian Sørensen
      July 17, 2015 at 1:36 am

      Exactly. Even Helmuth Schäuble cannot be ignorant of the fact that the greek debt is unsustainable and this “agreement” will not solve anything. This is about something else entirely.

  5. July 15, 2015 at 1:58 am

    As a friend of Steve Keen’s you must have been aware of his IDEA site’s recommendation for a “complementary currency” for Greece. Even though it is a tame and tepid version of Social Credit it would have been an excellent and workable way for Greece to exit either with the Euro or as a complementary currency to a new Drachma. I can’t figure out whether the reasons why it was not considered were because it was not capitalist enough or not socialist enough which only goes to show how captured economists’ minds are by orthodoxy and consequently unable to conceive of a third alternative to those two that is an integration of their best aspects and which places the rights and welfare of the individual above the tyranny that both Finance Capitalism and Socialism have shown themselves to historically and inevitably devolve into.

  6. July 15, 2015 at 2:12 am

    We must keep in mind that Greece is on the cusp of a thousand-year cultural bloom as the Mediterranean Station on the new, soon to be built. ultra high speed rail from Beijing, via Moscow, with a connecting loop through Constantinople.

    Real democracy focuses the distributed intelligence of Greek citizens, no totalitarian corporatist hierarchy can match the distributed intelligence of info-age, free Greeks.

  7. July 15, 2015 at 5:39 pm

    The case for pure economics
    Comment on ‘On the Euro Summit’s Statement on Greece: First thoughts’

    What is the proper job of the economist qua scientist? “A scientific observer or reasoner, merely as such, is not an adviser for practice. His part is only to show that certain consequences follow from certain causes, and that to obtain certain ends, certain means are the most effectual. Whether the ends themselves are such as ought to be pursued, and if so, in what cases and to how great a length, it is no part of his business as a cultivator of science to decide, and science alone will never qualify him for the decision.” (Mill, 2006, p. 950)

    The economist qua scientist brings knowledge to the table, not his personal opinion. It is the legitimate political institution that determines the political ends. This is the ought-part, science is concerned exclusively with the is-part of reality. The is-ought difference is reasonably clear since Hume but has been deliberately ignored by every talented public speaker since then. However, for science this difference is fundamental.

    “A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. … A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent.” (Haack, 1997, p. 1)

    The economist who comments on political goals leaves the realm of science. This, of course, is no problem at all under one condition. All he has to do is to put off his scientific hat and to put on his political hat and then go the other way. This, off course, holds in normal times with legitimate political bodies in place. What has to be done if political bodies are on the way to lose their legitimacy is quite another matter.

    Why has politics and science to be strictly separated? Simply because it is less probable that the scientific ethics of objectivity/impartiality/knowledge flows to politics and more probable that subjectivity/partiality/opinion flow to science. Gresham’s Law about bad money driving out good applied to sociology says: politics debases science but science does not improve politics. Therefore there is an overall net loss from close interaction. Partiality and impartiality simply cannot coexist in one and the same person.

    That part of economics that has been political from Smith, to Marx, to Hayek, to Keynes, and on to the actual orthodox and heterodox activists has to be clearly separated from science and eventually thrown out. To the extent that theoretical economics has been hijacked by political economics it has to regain its full independence.

    As far as politics is of importance for theoretical economics it has to be taken in from political science. Theoretical economics has to answer only one single question: how does the monetary economy work? This presupposes that the economy is understood — broadly speaking — as a system with objective features. Of no primary interest is psychological or sociological second-guessing of human behavior. As far as behavioral issues are of importance for economics they have to be taken in from psychology or sociology.

    It is not the task of the economist to dabble in psychology, sociology, political sciences, history, anthropology, law, etcetera. Interdisciplinarity, for one, means that economics relies on the results of other sciences and in turn offers reliable knowledge about the working of the monetary economy. The same applies to all other practical cooperation.

    “In order to tell the politicians and practitioners something about causes and best means, the economist needs the true theory or else he has not much more to offer than educated common sense or his personal opinion.” (Stigum, 1991, p. 30)

    Here is the crux. There is no such thing as a true economic theory. What economists have produced so far is not much more than educated common sense and an abundance of incoherent models that apply nonentities like equilibrium or utility or rational expectations or supply/demand functions or I=S, etcetera, etcetera. Whoever exchanges ideas with an economist gets lemons.

    The deep root of the failure of both Orthodoxy and traditional Heterodoxy is a complete lack of understanding of what profit is.* The profit theory is false since Adam Smith. This in turn means that economists have failed to capture the essence of the market system. Neither Marxian attack nor Liberal defense of the market economy ever had a sound theoretical foundation (2015). Economists have nothing to offer of scientific value.

    In sum: the poor results of political economics are not only an embarrassment for economics but — as a severe collateral damage — have negative external effects for the true sciences. It cannot be expected from the public that it immediately recognizes the difference between cargo cult science** and the real thing. This provides an ecological niche for illusion and deceit that undermines the integrity of science.

    Here is the wake-up call from a genuine scientist. “So we really ought to look into theories that don’t work, and science that isn’t science.” (Feynman, 1974, p. 11)

    Both, Orthodoxy and traditional Heterodoxy is lost for science. Their proponents are still employable for some econ-talk and entertainment in the media. Yet, young students indeed have the choice between becoming real innovative scientists or just some redundant quacking frogs in the morass of political economics.

    To recall: (i) human progress has neither been brought about by politicians nor by business men nor by economists but solely by scientists, and (ii), because of their scientific failure over the last 200 years economists have consistently stood in the way of establishing overall economic welfare.

    Egmont Kakarot-Handtke

    Feynman, R. P. (1974). Cargo Cult Science. Engineering and Science, 37(7): 10–13.
    URL http://calteches.library.caltech.edu/51/2/CargoCult.pdf.
    Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism.
    Skeptical Inquirer, 21(6): 1–7. URL http://www.csicop.org/si/show/science_
    Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL
    Mill, J. S. (2006). A System of Logic Ratiocinative and Inductive. Being a Connected View of the Principles of Evidence and the Methods of Scientific Investigation, volume 8 of Collected Works of John Stuart Mill. Indianapolis, IN: Liberty Fund.
    Stigum, B. P. (1991). Toward a Formal Science of Economics: The Axiomatic Method in Economics and Econometrics. Cambridge, MA: MIT Press.

    * See the blog post ‘Mental messies and loose losers’
    ** See Wikipedia

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