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

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Yanis Varoufakis Shares His Views on the Global Economy, Brexit and the Political Game

“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.

About the European Pensions & Investments Summit 2018

The 18th annual European Pensions & Investments Summit is the ultimate meeting point, bringing elite buyers and sellers together. The Summit offers regional pension investors and international fund managers and consultants an intimate environment for focused discussion of the key new drivers shaping institutional asset allocations. Taking place at the Fairmont Le Montreux Palace, Montreux, Switzerland, 23 - 25 April, the Summit includes presentations on taking advantage of future market trends, utilising alternative strategies, identifying financial risks and canvassing global opportunities to source sustained portfolio profitability.