Learning from Varoufakis

In this week's long read, Dr Nick McKerrell gives his thoughts on Greek ex-finance minister Yanis Varoufakis’ recent book ‘And the Weak Suffer What They Must?' The book puts the 2008 economic crash and the EU's role into context. What lessons can be drawn?

There is an old quote by Trotsky that left wing groups used to recite: “The memory of the working class is their organisations.” But it felt like, pre-Corbyn, the UK Labour party and other mainstream left politicians had a dose of amnesia over pretty recent events. It was only ten years ago the banking system shuddered to a halt, precipitating the near collapse of capitalism – taking out some age old institutions – before being bailed out by pro-big business governments across the globe. The world we live in today is a direct consequence of those events, but often when faced with the dire reality of austerity in our communities and workplaces we fail to make the connection. Scottish comedian Frankie Boyle even did a routine about the tendency to misdirect such frustrations towards immigrants.

One of the many good things Yanis Varoufakis does in ‘And The Weak Suffer What They Must’ is provide a comprehensive overview of these bailouts across the planet so we never forget. This isn’t the book’s sole focus – rather Varoufakis seeks to present a guide to the particular form that the economic crisis has taken within the EU, both pre and post 2007. This crisis is laid at the door at the designers of the Euro project and in particular their institutionalisation of austerity in the last decade.

In doing this he provides a guide to the labyrinthine manoeuvres of the European bureaucracy within that period – many of which are easily forgotten. He outlines how, in effect, bank bailout bills were transferred to ordinary European citizen by their actions. This triggered the Greek crisis in which Varoufakis, as Syriza’s first Finance Minister, played a critical part.  (The details of that major struggle are outlined in Varoufakis’ publication Adults in the Room). The overall structure is engaging and readable with handy references, funny analogies and summarising paragraphs, reflecting his training as a lecturer and academic.

For Varoufakis, the essential point is that the roots of the Euro crisis are as far back as 1971. American President Nixon announced the dismantling of the post-WW2 Breton Woods agreement with Europe. This “dollar zone” tied the world’s currencies to America and specifically its value related to gold, which stayed steady and provided a stable foundation for capital. 

In effect, America used its world dominance and surplus economy to fuel capitalism from the 40s onward as a counter point to the Soviet Union. This allowed strong economies to develop in particular in Germany and Japan. The problem was this led to the US losing its surplus as modern economies started to threaten their domination of international trade. The USA looked for a new direction economically. The unilateral removal of this stability caused European capitalism to go into a tailspin. “A series of knee-jerk reactions” led them to try and develop their own currency zone in a variety of short-lived forms from the early 70s onwards, culminating with the launch of the Euro in 2000.

The Euro’s problems ultimately collided with the ‘new’ American dominance that came to the fore post-1971.  Again, Varoufakis forensically explains the roots of the US Imperialist economic policy of “controlled disintegration", a phrase used by Paul Volcker, Richard Nixon's economic adviser and later head of the Federal Reserve Bank, in a 1978 speech. Rather than exporting their surplus to the world, the USA would run massive deficits and get the world’s surplus to come to them.


How was this done? Essentially by allowing finance capital to let rip, deregulating the casino of Wall Street and setting interest rates at sky high levels to attract money from across the planet. As a result, manufacturing industries (which relied on lower interest rates) began to crumble and ordinary working people saw their wages collapse – first in America, then in Europe. This model (aped by Thatcher in 1980s Britain) created a new type of American dominance, fuelling a monster of credit, gross inequalities of wealth and world poverty. It’s hardly surprising this system dramatically collapsed as soon as it did.

Europe reacted in two ways to this “new” world economy. It wanted in on the financial gains that this offered and Germany duly invested its surplus, as did all the European banks.  Varoufakis outlines the explosion of lending that was encouraged by Germany to the poorer Southern European states. At the same time, though, Europe attempted to create its own island of stability with a common currency zone, longing for the pre-1971 Bretton Woods days. The problem was this was inherently contradictory.

The common Euro currency mode eventually agreed to by a reluctant Germany would not allow for circulation of surpluses to weaker economies. In fact, there was an explicit “no bail out rule” for weaker parts of the Eurozone. This made it fundamentally different to other currency zones – notably the formation of the USA and the Bretton Woods Agreement itself. The surplus countries would benefit as their currency partners suffered – stability would be an impossibility. This contradiction did not really manifest itself during more prosperous periods. In Varoufakis’ words, America was “watching the global shop” until the 2007/8 financial crisis took hold and the EU could stumble on with people “relatively dissatisfied and happy at the same time”. The flawed machinery of the EU was fully exposed and continues to be.

The “no bail out clause” was nominally adhered to as the weaker economies led by Greece and Ireland collapsed, but not as far as the banks went. Such bailouts turned into debts to be paid by Greek and Irish citizens with austerity laden conditions. This again was inherently contradictory: how can you pay back debt when your means to make any money to do so are restricted? Furthermore, the debt was not owed to the states but the banks which the EU refused to separate. In one excellent chapter, Varoufakis coins the phrase “Ponzi austerity”, where in order to pretend debts are reduced you give people more and more unpayable loans.

Contradictions are central to this work. The dialectics of modern capitalism are knowingly exposed by Varoufakis, who in the foreword approvingly quotes his “eccentric Marxist” tag. He uses a variety of case studies: he dissects how the USA deliberately built the German and Japanese economy up in the post war period as stable economies until it had to destroy them. He observes how Thatcher feared political Eurofederalism being created as a result of the currency project - one of the roots to the Brexit victory in 2016 - despite such a goal being the furthest thing from the European bureaucracy’s collective minds.

He also looks at the American state’s reliance on high interest rates and the inherently unstable financial bubble that has now resulted in a planet of zero interest rates and negligible growth. But the ultimate paradox gives the work its title – the strong require the weak to attack, but they cannot survive if the weak remain weak. In the context of capitalism, how will they buy products or pay back debts if they remain poor? These tensions give this economic historical work some of the narrative momentum of a thriller as Varoufakis promotes his analysis in a logical and fairly unarguable way.

Yet what of the political picture and potential solutions? Varoufakis mentions his credentials as a protester against Thatcherism and his principled resignation in the summer of 2015 when the Syriza government caved into the austerity of the “troika”. However, his recent economic history of the world does not cover peoples’ struggles against the inequity of both world capitalist structures before and after 1971.

In part, this must be because of time and focus. His work is to explain why the EU is fundamentally wrong in how it has dealt with the last decade’s economic crisis and how the roots of this are in its design and its relationship to the world economy. However, it does feel as if something is missing. He does mention the traditional social democratic parties and how they fell under the spell of the American deficit capital machine in the 1980s and 90s, using the appropriate Classical analogy of the lotus eaters who were seduced from their journey home in the Odyssey by the narcotic effects of the lotus fruit.

In part, though, the political justification for accepting capitalism in this form and not struggling to change it originated from prominent proponents of Eurocommunism in the Marxism Today journal. The right wing of the Labour Party in the UK used the changing nature of the economy to justify the fundamental acceptance of unregulated finance capital. Further industrial struggles like the miners’ strike of 1984 were outmoded, doomed to fail and not reflective of the new society. Of course, the caveats and context were ignored. Blair even contributed a weak piece to the journal in 1989 as a lowly right wing Labour spokesperson. Indeed, some Eurocommunists saw Blair as a potential radical leader when he took over from John Smith in the mid-90s.


The Eurocommunist position is part of the tradition Varoufakis came from himself, but at a different historical time when the “new model” of capitalism has collapsed in on itself. So while his analysis of capitalism is excellent, he offers no real political solutions in terms of parties or movements. He's hardly alone in lacking a clear political organisational structure answer, whether that be for the left in Scotland, the UK or internationally. The only exception is the permanent party builders of various stripes who put forward the unchanging demand of “join us to change the world”.

The solutions he puts forward are, then, not about creating new socialist formations but rather institutional – in other words, a modern Keynesianism. A detailed appendix outlines potential reform to the EU and its financial institutions. Here, Varoufakis creates his own contradiction. His preferred answer relies upon democracy as the only antidote to crisis. How though can such democracy be introduced into a cartel’s bureaucracy? Is it really capable of withstanding such reform? 

Linking back to Trotsky, the argument has echoes of the political revolution he called for against the bureaucracy in Stalinism through workers’ democracy. Even some nominal followers of Trotsky thought this was going too far and that bureaucracy was beyond reform through its degeneration. Ultimately, it collapsed in on itself, paving the way for capitalism. Although the key difference was that the Soviet bureaucracy emerged from a workers’ revolution with all the weight that provided, EU bureaucracy emerged from a big business cartel and an uneasy compromise between German and French capital. That in mind, perhaps collapse is the more likely outcome. The unthinkable consequences of fascism returning only colours Varoufakis’ argument.

I remain unconvinced it will be easy to democratise the Eurogroup and Varoufakis’ interventions on this idea are among his weaker arguments. But I highlight these nitpicks within the context of a brilliant book which explains how we got to where we are and how things could get a whole lot worse.