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Yanis Varoufakis: EU 'waiting for bubble to burst' with states poised for financial crisis

Daily Express logo Daily Express 20/02/2021 Joel Day
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The coronavirus pandemic has forced countries around the world to take unprecedented economic measures. Perhaps the most significant came last year when the EU agreed to a COVID-19 recovery fund, which was given the green-light to roll out last month. The package means that the 27-member states will now share collective debt.

The EU and its predecessor, the European Economic Community (EEC), was founded on the promise of financial restraint, with shared debt against the rules.

A health crisis has been enough to break down that barrier, however, with the package appearing to work in favour of leaders like German Chancellor Angela Merkel and French President Emmanuel Macron who are keen for further EU integration among member countries.

The eurozone, which includes most but not all of the EU's members, fared better than initially thought during the final three months of 2020.

It thus set Brussels up for a less contracted recovery going into the New Year.

Yanis Varoufakis talking on a cell phone: Yanis Varoufakis: Greece's former Finance Minister said the EU's bubble will eventually 'burst' © GETTY Yanis Varoufakis: Greece's former Finance Minister said the EU's bubble will eventually 'burst' a group of people looking at a cell phone: EU: The bloc has agreed on an ambitious coronavirus recovery fund © GETTY EU: The bloc has agreed on an ambitious coronavirus recovery fund

With the loans now slowly rolling out across the continent - combined with grants - the bloc hopes to soften the blow and to stir growth as its vaccination programme makes a start.

However, when comparing historical data in the wake of crises to today, claimed Yanis Varoufakis, Greece's former Finance Minister, the EU and its eurozone looks set to eventually "burst".

This, he argued during a 2018 Oxford Union address, will result in dire straits for Europe's poorer nations, as their rich northern neighbours like France and Germany escape the worst.

Talking about Greece's situation following the 2008 financial crash, Mr Varoufakis said: "We had really low levels of debt: the great asset Greece brought into the eurozone was low levels of debt and collateral.

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a group of people sitting around a living room: Eurzone: Varoufakis drew on historical crises that have resulted in economic hardship in Europe © Youtube/OxfordUnion Eurzone: Varoufakis drew on historical crises that have resulted in economic hardship in Europe

"We had low incomes, we were unproductive, we were slightly corrupt, we were all those things - but we owned our homes, and we were the apple in the eye of German bankers.

"A banker looks at you, and if you do not owe money to anyone, you own your own home and you're thirsty for washing machines, German cars and imports, you are a dream for a German banker. And so they lend to you.

"And suddenly, everything's fantastic; from 2000 to 2008, the eurozone resembled a majestic riverboat that was launched onto a calm steel ocean.

"It looked splendid, because it was a riverboat and not an ocean faring vessel, but the moment we had the first crisis, the first storm, it started sinking."

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a crowd of people standing in front of a sign: Greece: Mass protests have marred Greece for the past decade following the 2008 crash © GETTY Greece: Mass protests have marred Greece for the past decade following the 2008 crash a view of a city at sunset: European Central Bank: The institution offered Greece loans that the country is still paying back © GETTY European Central Bank: The institution offered Greece loans that the country is still paying back

He continued: "I'm not blaming anyone here, but for every irresponsible borrower, there is an irresponsible lender.

"But this is a structure of a monetary union that lacks the federal treasury; what happens is that there is a period of exuberant growth, both in the surplus and the deficit countries.

"During that period gigantic bubbles are being built in the economies of the deficit countries and in the banking sector of the surplus countries.

"And then something happens - usually in Wall Street - like in 1929 and 2008, and the bubbles burst and then it's a catastrophe."

a screenshot of text: Coronavirus package: Italy looks set to receive the largest grant © Express Newspapers Coronavirus package: Italy looks set to receive the largest grant

Southern European nations who were hit worst at the beginning of the pandemic look set to receive the largest amounts of EU loans.

Notably, Italy will receive €222billion (£194bn) - €85bn (£74bn) of which is a grant, while €124bn (£108bn) will be given in low-interest loans.

Many on the continent now fear that the money could further tether countries to Brussels.

a man standing in front of a crowd: Italexit: Italy's eurosceptic movement fears the country will now be bound to Brussels © GETTY Italexit: Italy's eurosceptic movement fears the country will now be bound to Brussels

They fear that they might be asked to implement harsh austerity measures, as was Greece post-2008 after accepting loans from the European Central Bank and International Monetary Fund (IMF).

Sergio Montanaro, Italexit Party spokesman, told Express.co.uk that the EU funds "bind countries to the EU".

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