Activists in anti-austerity protest outside Goldman Sachs International. Demotix/ Mark Kerrison. All rights reserved.In a recently released recording of a teleconference between Yanis Varoufakis and a group of hedge fund managers, Mr Varoufakis spoke frankly about the Grexit contingency plans he had developed when he was the Finance Minister. This “plan B” involved some fancy financial innovations and some carefully concealed information gathering operations. By these means Greece’s Finance Ministry was able to think about emergency alternatives to the Euro, without letting Brussels know what it was doing.
This story is presently causing something of a furore in the international media. One inference flying around is that Mr Varoufakis’ plan B illustrates his untrustworthy nature. For this interpretation, the Eurogroup’s unrelenting suspicions of Varoufakis is seen as further justified. If Varoufakis was prepared to use covert and arguably unlawful methods in his contingency planning, this evidences his character flaws even more than his narcissistic hair-cut and his irritating habit of lecturing the Eurogroup on economic fundamentals. Obviously, the man cannot be trusted.
Interestingly, the discourse of trust is a significant political football in the Eurozone at present. But the absence of trustworthiness is not the real problem with his plan B.
Any more than casual following of the dealings between Greece and the Eurogroup over the past few years makes it clear that no Greek government, and no Greek finance minister, could have earned the troika’s trust. For the troika wants a Greek government it can rely on to be totally compliant with their austere repayment conditions, and grow their economy and repay their debts. The evidence – as even the IMF now admits – is indisputable: such an expectation is simply impossible. The austerity requirements and the refusal to restructure debt, as mandated by the troika, is obviously killing a struggling economy, ravaging the poor and eroding social cohesion. And yet, under these conditions Greece is required to produce large surpluses which would still be inadequate to make any appreciable impact on repaying its debt. Because there is nothing any Greek government could have done to both implement the loan conditions and grow their economy so as to repay their debt burden, Varoufakis’ trustworthiness or otherwise is clearly a red herring.
Another thing this plan B story does is feed into the domestic desire for a scapegoat. With Greece humiliated after its defiant referendum result, with its banks still only barely functioning, and with Syriza presiding over the most savage set of austerity conditions the Greeks have yet faced, a scapegoat becomes desirable to some. Finding an internal villain to blame and drive out, so as to appease the angry gods, appeals to an age old feature of collective human psychology. There are Greeks who blame Syriza’s failure to deliver on its January platform for the wrath of the troika. To these people, the idea that the Finance Ministry secretly accessed banking information simply must be nefarious and wrong. However, as understandable as it is for scared and suffering Greeks to turn on Varoufakis, he is not the cause of Greece’s woes. In reality, something other than a lack of trust or the desire for a scapegoat lies underneath the current interest in Mr Varoufakis’ non-actioned plan B. What is really going on concerns the question of who is allowed to think outside the box of the way we construct finance, and who is not, and why.
Let us look at who is allowed to think outside the box.
In 2008 American corporate bankers were inventing and using special financial instruments which enabled them to generate huge private profits out of speculative hutzpah and mathematical magic. They also placed the entire global financial system in peril of collapse. Even so, these ‘out of the box’ thinkers were not punished. Clearly some people – who just happen to work in “too big to fail” American financial corporations – can make the rules of finance up to suit themselves, and can expect government money to fix things up if anything goes wrong. When the US government threw trillions of tax-payer dollars down the throats of five giant private finance corporations, this was seen as a necessary action that could not be avoided. This public bail-out of private institutions may have caused a little soul searching in high finance circles at the time, but essentially, the Wall Street game was being played in the way all the big powers expected it to be played. Global financial power exists for the advancement of global financial power, and nation-states are there to make sure that nothing goes wrong for the risk takers.
Another example of how respectable ‘out of the box’ high finance thinking works is provided by FATCA. The Foreign Account Tax Compliance Act is a US law which facilitates the global surveillance power of the US Internal Revenue Service. If any bank in the globe refuses to comply with the US government’s request to know exactly what goes on in every global account so that it can identify and tax American accounts with a balance of more than $50,000, then that institution is charged a 30% withholding tax on any activity done by that bank and on every one of that banks customers, whether they are American citizens or not. Non-compliance also means that such banks are shut out of American markets. Thus, even the Swiss comply. The question of how the US Internal Revenue justifies taxing non-US banks for non-compliance is intriguing, but essentially, they get away with this because of nothing other than the sheer financial power of the US Treasury. No-one who is a serious player in global finance tells the US Treasury to butt out, or that they are acting in violation of non-US government’s national sovereignty, or that they are violating the basic principles of privacy and international law, or that they have become global financial dictators … whatever they do is just how things are.
What we learn from this is that for big financial players and big governments, power is its own justification. This is called financial realism. All the Eurozone troika are doing in relation to Greece is following the American example of financial realism. Here, that which is legal, necessary and right is, in the final analysis, whatever the financial institutions with the most power tells you is legal, necessary and right. That their rules work in their interest is taken for granted. Anyone who doesn’t play the game that they control, by their rules, will be punished severely.
So here is Mr Varoufakis’ real crime: he is thinking about the rules of finance outside of the box mandated to him by the troika because he is concerned for the wellbeing of the Greek people. What is wrong about this is that Greece is a small and indebted player in someone else’s finance game, ridiculously seeking to operate outside of the rules that those in power have set in place to suit themselves. This Greek rule-bending ambition, from a position of weakness, violates the basic principles of financial realism.
It is true, Varoufakis defies the laws of financial realism. However, he does not take this stance up out of naivety. Varoufakis is all too aware of how financial realism operates. What makes him such an anomaly is that he is also aware of three other things. Firstly, his philosophical awareness of the dialectic between necessity and freedom enables him to believe in politics rather than simply in power. This delineates him from the blind determinacy and complete political indifference of dedicated financial realists, both in Brussels and in the mainstream media. Secondly, he is aware that financial realism violates the basic principles of democratic accountability, national sovereignty and moral responsibility. Thirdly, he is aware that the rules of finance do not have to be set up to function in financial realist terms. This makes him a potentially dangerous political actor in the Eurozone who just might upset the whole apple cart of the status quo.
To preserve the power of the financial realists, Varoufakis simply must not be taken seriously. Hence, all this patronising media dribble about his clothes, motorbike and hair. Hence, all these relentless media beat-ups about any action he takes that is not coherent with financial realism. Varoufakis must be shunned, defamed, belittled and ignored at every opportunity. This is really what is driving the present media furore over Mr Varoufakis’ unspeakably shocking plan B.