Interview with: Yanis Varoufakis, Former Minister of Finance in Greece

1. Interview with: Yanis Varoufakis,
Former Minister of Finance in
Greece
“The global economy is in a very
unstable equilibrium. It is not a matter
of if, but when the bubble will burst,”
says Yanis Varoufakis, Former Minister
of Finance in Greece. “Investments need
to rebalance globally. China must invest
less while Europe and the US should
invest more,” he suggests.
Varoufakis is a keynote speaker at the
marcus evans European Pensions &
Investments Summit 2018, taking
place in Montreux, Switzerland, 23 - 25
April.
What is your economic outlook for
the next few years? What political
and economic uncertainties should
institutional investors plan for?
The current state is unstable. The
Eurozone remains a net exporter of
deflation while China is the only real
provider of investment and aggregate
demand at a global macroeconomic
level. Thus the US economy will
determine future opportunities and
threats. I am concerned that the new
tax bill will boost the federal budget
deficit. Investment in fixed capital is
already weak and interest rates are on
the way up. This combination, and
Trump’s penchant for antagonising
China and creating circumstances that
could lead to a trade war, will be the
source of the greatest threat. We have
an equity bubble in the West and an
investment bubble in China, and it is a
question of when we will face negative
repercussions from this unstable
equilibrium.
In the meantime, investors will make
lots of money. Ideally, the bubble will
not burst. Ideally, the EU and US will
get their act together and work with the
Chinese authorities to rebalance the
world economy. But we do not live in an
ideal world. This means returns to
investors are potentially gigantic, but so
are the threats of losses.
What factors are critical for stable
economic growth?
Investments. The reason why we lack
stable economic growth is because
many markets have recovered but
investment in fixed capital and
economic activities that generate good
quality jobs have not recovered. This
has nothing to do with the availability of
funds. We have the largest liquidity lake
in the history of capitalism but the
owners of this capital are afraid of
investing in goods and services there
might not be demand for. And when
they do not invest, demand proves
insufficient, confirming their negative
expectations. It is a never-ending cycle.
The only way to break this is to
coordinate investments at the G7 or
G20 level. Investments need to
rebalance globally. China must invest
less while Europe and the US should
invest more. There are ways to do this.
How could investors achieve
portfolio resilience and agility in
this landscape?
Investors know what they need: a
combination of safe assets, risky assets
and some hyper risky assets. The
question is, what will create the
circumstances at a macro level so that
those choices can be made with some
degree of certainty? The way markets
are behaving at the moment, it is
impossible to know what would
guarantee portfolio resilience at a micro
level.
What concerns do you have for
Brexit and the EU? What is the best
outcome for all parties?
Brexit is a disaster in the making.
Theresa May locked herself into a prison
of her making. She interpreted the
referendum as a vote to end freedom of
movement and get out of the single
market, but not everyone voted for
that. People did not intend for Britain to
get out of the single market as well as
the EU. May committed to getting
Britain out while promising trade
agreements that would leave Britain
better off. When a politician issues
promises she cannot fulfil, it leads to
political failure.
The talks are leading to a mutually
disadvantageous deal. A bad agreement
for Britain and the EU. What is the
alternative? To end these phoney
negotiations and for Britain to apply to
become a member of the European
Economic Area, like Norway. That would
solve a number of problems.
What is your key message in
“Adults In The Room: My Battle
With Europe’s Deep Establish-
ment”?
The message to readers is that most
powerful officials are powerless. The
public looks at them as powerful
individuals, but when you get to know
how institutions operate, you realise the
political system prevents them from
doing what they themselves think is
right.
We have to change the political game.
The way it was designed and how it
evolved over decades has given rise to
political circumstances that produce bad
outcomes for everyone, including those
in power. Just like in a Shakespearean
play or an ancient Greek tragedy, the
powerful become the victim of their own
power. My message is that we should
change the way we run politics because
failure is not due to human beings but
the way politics is designed.
Returns to
investors are
potentially
gigantic,
but so are
the threats
of losses
Yanis Varoufakis Shares His Views on the
Global Economy, Brexit and the Political Game

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