Wednesday, July 29, 2015

Mohamed A. El-Erian — In Defense of Varoufakis

From blaming him for the renewed collapse of the Greek economy to accusing him of illegally plotting Greece’s exit from the eurozone, it has become fashionable to disparage Yanis Varoufakis, the country’s former finance minister. While I have never met or spoken to him, I believe that he is getting a bad rap (and increasingly so). In the process, attention is being diverted away from the issues that are central to Greece’s ability to recover and prosper – whether it stays in the eurozone or decides to leave.
That is why it is important to take note of the ideas that Varoufakis continues to espouse. Greeks and others may fault him for pursuing his agenda with too little politesse while in office. But the essence of that agenda was – and remains – largely correct.
Project Syndicate
In Defense of Varoufakis
Mohamed A. El-Erian, Chief Economic Adviser at Allianz and a member of its International Executive Committee, is Chairman of US President Barack Obama’s Global Development Council. He previously served as CEO and co-Chief Investment Officer of PIMCO


Ryan Harris said...

Being technically right but losing political power is the same as failing. Varoufakis' great legacy will be that he forced an end to Greek kick-the-can down the road half solutions.
Not only in Greece but all over Europe, the window of opportunity to elect Skeptics to enact reforms to fix the broken monetary union is closing as political and economic pressure diminishes with economic recovery. I think Spain has elections in December and The Spanish economy is back to pre-crisis growth levels. Austerity does work in the 'long run'. Now European growth is more dependent on the charitability of foreigners willing to buy European exports which is more volatile than domestic growth and will throw Europe into chaos more frequently.

Another failure of fantasy land economics that focuses on "real" rather than "financial" when it should focus on the whole enchilada.
People need paychecks, like to work and have stable jobs, need to service debt and don't like to use debt. Unless you are a billionaire or a trust fund baby, the shelves are always stocked with real goods and financial is a constraint, while real resources or labor are never important. That is the reality most people have lived in since neoliberal, monetary and supply side economics took over. Money is the constraint, the bottle neck in the system.

Matt Franko said...

I think Ireland had a similar report to Spain here... in the NIA terms...

Ignacio said...

"I think Spain has elections in December and The Spanish economy is back to pre-crisis growth levels."

Ryan this is like unemployment 'recoveries'. Millions of worked hours have been lost and not recovered, participation rate still is abysmal and most of the created jobs are temporary jobs of poor income and seasonal in nature. This will resonate to a point in USA.

Furthermore most of them depend on something as volatile as tourism, with a lower euro helping, and the trade balance has worsened yet again (there is no true competitive gain, and ofc imports like energy are more expensive in real terms) while the deficit is increasing. Sure our German friends won't be happy about that :)

Podemos has fallen due to the Greece backlash and the 'recovery' story, but the government is not gaining popularity despite this. The vote has fragmented, the traditional socialist party is gaining back up again due to people identifying Syriza with Podemos, fringe parties or new 'centrists' like Ciudadanos are gaining more votes, etc.

There is no austerity (deficits are rising) and there is no recovery. It's like when women entered workforce, yet households real incomes didn't raise, what one family member could earn now you need two to sustain. Is the same double-speak as always since the Tatcher-Reagan era, which we haven't recovered yet, and probably won't as the agenda is the complete opposite. The ever-increasing crappification (or disappearance) of the middle class, just propelled by the eventual bubble-nomics until the average household cannot swallow more debt.

But you are saying this in your second paragraph already. The reality has not changed despite what 'statistics' (only those who are interesting to the governments) say, like GDP growth. And people knows it, because in Spain (and other nations here) 80% of the population does not trust the government, for the right reasons.

Ryan Harris said...

Absolutely. The current nascent investment boom beginning to sprout in Europe will only temporarily disguise the problems in the design of the currency union.

Europe does have an ace up its sleeve though. Their business ties to Africa and South Asia from their proximity and old colonial period make European industry, service and finance able to ride the largest industrialization investment boom in Earth's history that is about to occur. It will probably throw off enough financial assets in the decades to come to allow Europe to export it's way out of it's problems for quite a long time. Low long term European rates also make it less onerous for those foreign borrowers to repay their debts to Europe which in the past would have caused a crisis before the economic development ever occurred. The US, China and Europe are pouring money into Africa's development.

Additionally the flow of immigrants coming in from the wars in Syria and North Africa will help reduce the demographic problem, the slow growth, that is behind European de-leveraging.
Each person that makes it onto European soil will eventually become integrated and take on a couple hundred thousand Euros of private debt and they have more children on average so their kids will boost growth as well. They will also strengthen ties to Africa which will further cement Europe's special relationship as the African economy grows much larger than Europe itself.

The Neo-libs, if they stay in power will take credit for it all. It will be about as Genuine as Mosler or Schiff saying that they predicted the next recession. Their timing was just a bit off, eh?

Tom Hickey said...

The problem with neoliberalism now is that economic stats don't match up with perceived reality. Economies are recovering according to the stats, but the recovery is benefitting global elites almost exclusively. Trickle down is not happening.

Polling shows that large numbers of people don't see recovery happening because they are separated from the world in which elites live.

Marie Antoinette's "Let them eat cake" may or may not be true historically, but elites need to wake up to the poetic truth of it.

Actually, they already have and are militarizing domestic security and increasing surveillance.