The economic ideas of Syriza – the party that has just won the general election in Greece – make sense and could lead to a deeper change in European economic policy.
This is the assessment of Hannu Laurila, professor of economics at the University of Tampere. He knows Syriza’s leading finance guru Yanis Varoufakis very well.
Varoufakis, who has worked as a professor of economic theory at the universities of Athens and Texas, visited Tampere in August 2014 when the Finnish translation of his book Global Minotaur: America, Europe and the Global Economy was published. The book was translated by a group of Laurila’s students.
Varoufakis was appointed as the Greek Minister of Finance on 27 January.
“A nice guy and an inspiring speaker”
Yanis Varoufakis was a keynote speaker in the international Power, Culture and Economy Conference at the University of Tampere where the Finnish translation of his book was also launched.
“He is a very nice guy, an inspiring speaker, articulate and efficient,” Laurila says of his Greek colleague.
According to Laurila, Varoufakis is an original Keynesian who supports a global surplus recycling mechanism (SRM). According to this idea, there must be financial recycling between surplus and deficit countries because the way the global economy works does not keep all national economies in balance at all times.
“We need a financial mechanism that also allows for a deficit to be covered in the longer term.”
The metaphor of the minotaur points to the fact that while the US economy ran a massive deficit for decades both in its public budget and trade balance, international capital flowed into Wall Street to be refined and used to cover this twin deficit.
As early as 1944, John Maynard Keynes proposed a mechanism to recycle capital between surplus countries and deficit countries.
“The financial support for Greece went to the banks”
Varoufakis says that the financial aid the European Union granted to Greece benefitted the banks but did not support the Greek economy. On the contrary, the situation in Greece has worsened, with the country amassing new debts while at the same time receiving financial aid.
“Varoufakis thinks that bank bailouts are idiotic. Supporting the banks just boosts a rotten banking sector. The international financial system keeps the global economy running to its own advantage, and the bank bailouts are more of the same,” Laurila says.
Nevertheless, Laurila thinks that Varoufakis’s proposal to invest massively in a recovery policy through the European Investment Bank (EIB) could be feasible. The European Central Bank could support the recovery measures by using quantitative easing to buy the EIB’s debt instruments.
Do Varoufakis’s ideas work in practice?
“Yes, some of his ideas work,” Laurila says.
He suspects that Varoufakis will not be able to bring about a global SRM or beat the power of the banks because there are obstacles too big for him and Syriza to overcome.
“He won’t be able to change the bigger picture, but the European investment programme, for example, does make a lot of sense.”
The EIB’s recovery package would be bigger than the earlier 300-billion-euro package conducted by Jyrki Katainen, Vice-President of the European Commission.
“We need recovery measures throughout the European Union. Measures on the national economic level – i.e. in Greece or Finland – will not solve the problem.”
“Nothing is achieved by austerity measures”
The situation in Greece is flammable. In the EU, austerity measures have been very systematically applied over the past five or six years, and the tenet that each country is responsible for its own debts has proved quite persistent.
“Many years have elapsed, but not much has been achieved other than exacerbated social juxtapositions,” Laurila says.
The election win for the Syriza coalition, which opposes the politics of austerity, is one of the first significant tests of how far austerity politics can be taken.
“It is a good lesson to show that a militant pan-European policy is not working. It has not had the desired financial effects. We are now facing the ultimate limit. Some restraint, respite or a change of direction is inevitable.”
According to Laurila, the election results mean a change in European politics that could also encourage political movements in other countries. A general election will soon be held in Spain, which has a much larger national economy than Greece.
“In Finland, the Greek election result is probably not going to be reflected in the election in April. I doubt that the parties opposing the current doctrine will benefit from it. Finns always lag behind. We will still apply the old policies in the next parliamentary term.”
Still, Laurila has a feeling that the ideological tide of economic policy is gradually turning.
“The market liberal right-wing political movement has been strong for a long time. Perhaps the general setting is adjusting a little.”
Yanis Varoufakis 2011: Global Minotaur: America, Europe and the Global Economy. Zed Books Ltd, London & New York. Finnish translation: Maailmantalouden Minotauros. Translation by Hannu Laurila et al. Vastapaino 2014.
Text: Heikki Laurinolli
Photographs: Jonne Renvall and Taina Repo