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Tuesday 12 December 2017

Greece Crisis: So is Greek Finance Minister Varoufakis a Marxist?

Greek Finance Minister Yanis Varoufakis (L) speaks with Greek Minister of Culture, Education and Religious Affairs Aristidis Baltas before the first major speech of Greek Prime Minister Alexis Tsipras in parliament in Athens February 8, 2015.
REUTERS/ Kostas Tsironis
Greek Finance Minister Yanis Varoufakis (L) speaks with Greek Minister of Culture, Education and Religious Affairs Aristidis Baltas before the first major speech of Greek Prime Minister Alexis Tsipras in parliament in Athens February 8, 2015. REUTERS/ Kostas Tsironis

Damien Kiberd

How do you make sense of an economics professor who sees economics, as it is taught in universities across the world, as a useless discipline?

Greece’s finance minister Yanis Varoufakis has taught economics at Cambridge University, at the University of Essex, at Sydney University and most recently in Texas.

But asked about his view on Economics, he said: ‘I found it such a morose subject, so bone crushingly boring, so much reliant on third rate mathematics. Why study inane metamorphoses of third rate mathematics when I could study first rate, aesthetically pleasing, ideologically unproblematic mathematics? So I immediately transferred to the School of Mathematics.’

Varoufakis has a point. So called ‘bourgeois’ Economics is based on somewhat shaky foundations, intangible concepts like ‘Utility’ and ‘Consumer Surplus’.

Marx, and earlier the British economist David Ricardo who created the labour theory of value, grounded their work on real, measurable variables like the hourly rate of wages, or consumer prices or the average rate of profit. Most modern economists, however,  are trained to measure concepts like the ‘utility derived from consumption of a good’ or –better still-the ‘marginal utility derived from additional consumption of that good’.

‘Marginal utility’ as a concept –because it involves measurement of a rate of change- allows the  professoriate to introduce a slew of differential and integral calculus to the picture, along with lots of linear algebra. And this in turn allows the professors to give their discipline the patina of a pure science.

But Varoufakis, an acknowledged expert on game theory, reckons the problem is even worse than this. He thinks that modern mathematical economics is often working backwards from the answer to the question. In interviews with left wing theoretical journals, he has claimed that when the mathematical exercises run into insurmountable problems, the professors simply ‘close off’ their positions and claim to have provided a solution.

So is Varoufakis a Marxist? He says that Karl Marx ‘framed’ his perspectives from childhood to the present day (he was born in 1961). His father was a communist but Yanis himself is reluctant to talk about Marx ‘in polite society’ because it turns people off.

In recent detailed interviews he appears to reject the notion that the work of either Ricardo or Marx could provide a comprehensive answer to today’s problems and described himself as a ‘Libertarian’. He appears to be something a of a Renaissance Man too, quoting chunks of Dylan Thomas in BBC interviews and citing the somewhat earlier works of Tacitus to rebuff a pro-austerity critic in Brussels last week.

Tacitus observed that austerity could lead to a ‘desert with peace but that is all you’ll have, a desert with peace’.

The so-called ‘far left’’ finance minister also sent for help last week not to the Kremlin but to the investment bank Lazard Freres which will apparently advise Athens on ‘debt restructuring’. Greece is already expert on this subject. Three years ago it organised a massive debt swap which was little more than a disguised €100bn default, and which incidentally was part funded by the ECB.

On that occasion private banks took a hit. Varoufakis logically wants to repeat the dose now but his problem is that 76pc of Greek debt is now owned by the ECB the IMF and the EU and its various Luxembourg registered satellites. And whatever about the IMF, the Germans and Finns and apparently the Irish won’t permit another dolled-up default.

So Varoufakis has decided to go round the problem. He wants the ECB loans to Greece replaced by ‘perpetual’ bonds. This sounds weird but at current bond yields a 50-year Greek bond with a low coupon and a possible initial roll-up of interest would hardly rate as debt at all. Believe it or not the British government used to issue similar bonds –they were known in Churchill’s time as Consols.

Varoufakis wants the repayment of EU debts linked to growth in Greek GDP. Again this sounds weird. But those with long memories will recall that under the 1953 London Debt Agreement repayment of German bonds was partially delayed until ‘Germany was reunified’.  This took 47 years to achieve.

The ECB/EU/IMF refused to take any hit during the last Greek default. Rescue finance in the Eurozone is provided by organisations like the EFSF and ESM where loans are provided via Luxembourg with each EU member state only guaranteeing its  own proportion of the finance. Thus troubled Italy and Spain would be asked to carry a combined 18pc of the bill. Germany, which has refused to guarantee Greek loans on a joint and several  basis (whereby Germany could be liable for the entire debt) would be in for about 28pc.

Varoufakis and the Syriza government want Greece to remain a full member of the Eurozone. But can it?

The Eurozone, he says, is like the Hotel California. Easy to get in, as Goldman Sachs discovered when they wrote the Greek application. But hard to get out.

That’s in Greece’s favour. Yet the mod music is deteriorating by the day. Wolfgang Schauble’s welcome for Varoufakis in Berlin was about as warm as moonlight on a tombstone. The earlier ECB decision to reject Greek bonds as collateral for further liquidity was another blow to a government that was only days in office.

The odds must be that the EU will make a brutal example of the Greeks before long. They don’t want the left wing contagion to spread, especially to Spain and to Podemos.

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