LONDON — Yanis Varoufakis, the outspoken former Greek finance minister, said US President Donald Trump risks stoking a Europe-style debt crisis with his economic plan.
“My great concern with Donald Trump is that his economic pronouncements don’t square up,” Varoufakis said in an interview with Bloomberg TV’s Guy Johnson.
Varoufakis said Trump’s proposed $US1 trillion (£830 billion) government spending plan “is unfunded and will lead to skyrocketing deficits if he succeeds with all the tax cuts he wants to push through.”
At the same time, diplomatic tensions could lead China to sell its holdings of US treasuries, pushing up bond yields and making it more expensive for Trump to fund the plan by borrowing on the international capital market.
It’s a sequence that echoes the European debt crisis, which started in 2010 when investors lost confidence in the ability of Greece and other southern European countries to fund government spending and pay back their national debt. That led to higher government borrowing costs, a series of banking crises, and sharp cuts in spending and economic growth.
“But when yields of treasuries start skyrocketing [Trump] will slam on the brakes of austerity, which is the last thing global capitalism needs at the moment,” Varoufakis said.
Varoufakis also said that the UK government is making a “mistake” in its approach to Brexit negotiations, prioritising a hard Brexit over the free movement of Europeans and membership of the single market.
“What we’ve had in Britain after the referendum is a magnificent transformation of people like Theresa May from moderate remainers to gung ho Brexiteers,” Varoufakis said.
Theresa May “is making a substantial mistake,” he said. “She’s not preparing the British people for a negotiation that will be inefficient and may well lead to a hard Brexit by default after Article 50 is triggered.”