My October 2012 interview with the new Greek Finance Minister Yanis Varoufakis shows that the new government of Greece will have a much deeper economic base than markets anticipate.
Indeed, Varoufakis is likely to be a breath of fresh air in a greatly troubled European community.
I remember well the debate I had with Varoufakis leading up to the video interview, which you can watch below. I put to him that the only way out of the Greek problem was for Greece to leave the euro and return to the drachma. We had a vigorous exchange and I must confess that I lost the argument.
In essence Varoufakis explained that upon leaving the euro, Greece would face many months without an effective banking system or currency and the damage to an already weakened economy would make it almost impossible to recover.
The new Greek government has come to power on the basis that it will relieve the suffering of the Greek people. But its Finance Minister believes with a passionate intensity that the Greeks can’t leave the euro. In other words those in the market predicting such an event are highly likely to be wrong.
Varoufakis says that it would be better if Germany left the euro but that is not an option he favours. Back in 2012 there was not a deep understanding that Europe had more than one problem and that its banking system crisis was quite separate to its government debt problem.
Varoufakis was adamant that the banking crisis had to be handled separately and to a large extent that is what happened in the years that followed. Frankly the European banks are in a far better position than they were when the interview took place so, at least when it comes to banking, the Varoufakis strategy has largely been implemented even though when he set this strategy out it was not universally accepted.
If you want to have a feeling for what it has been like in Greece and why Greek voters rejected further austerity, watch the 2012 video of their new Finance Minister. The misery in Greece is far deeper than the statistics indicate. Official wages might look similar but real wages have been smashed and there has been a massive business exodus. Greece is in a deep depression so the election outcome is no surprise.
The good news is that the presence of Varoufakis as Finance Minister means that the Greeks have not simply elected a group of ratbags as so easily could have been the case. He has a very clear solution for the European problem and frankly it is far more advanced and better argued than the idea presented by the ECB chief Mario Draghi. Varoufakis in 2012 was not in favour of money printing and he believed that once the banking crisis was settled it would be possible for the ECB to manage the debt of European countries.
I didn’t press him hard enough as to how this would take place but I have absolutely no doubt that he has a most detailed plan. So when he goes to Brussels seeking relief for Greece he will make that relief as part of a logical overall plan to get Europe moving again.
Instead of buying debt Varoufakis will be advocating investing in infrastructure. I don’t know to what extent he will canvass these ideas around the European community but if he links relief to Greek austerity to a new plan for Europe he will get tremendous support including support from Germany because under his plan Germany is not sucked dry guaranteeing European debt.
Markets have smashed Greek shares and are very nervous about what has taken place. Varoufakis is only one man and there will be a lot of ratbag elements in the new government. As we have seen from Australia, governments can have well thought out advanced plans and forget all about them when they get to power. But my assessment after half an hour with the man who became the new Greek Finance Minister is that he has taken on this onerous job with the clearest possible plan and it is a plan that will benefit not only Greece but Europe and the world. I do recommend you watch the video.