With the details of the deal struck by Greece still hidden from the public, former Greek Finance Minister Yanis Varoufakis spills the beans on what really happened behind closed doors, and how Greece was never supposed to get above water again.
‘Absolutely impossible, totally non-viable and toxic’
A week after he resigned as Greece’s Finance Minister, Yanis Varoufakis had very little to say that is positive about the ordeal in an hour-long interview with The New Statesman.
He spent five months working on a deal with the ECB, the European Commission and the IMF, otherwise known as “The Troika.” Like fighting a three-headed monster with a dull knife, his view is that little was negotiated out of good faith, or a desire to come to an amicable resolution.
He now fears that the deal struck this week will be much worse than deals they have previously turned down. He said:
“[The Troika’s proposals were] absolutely impossible, totally non-viable and toxic … [they were] the kind of proposals you present to another side when you don’t want an agreement. This country must stop extending and pretending, we must stop taking on new loans pretending that we’ve solved the problem, when we haven’t; when we have made our debt even less sustainable on condition of further austerity that even further shrinks the economy; and shifts the burden further onto the have-nots, creating a humanitarian crisis.”
Varoufakis is not alone in seeing the destructive potential for these new austerity measures and their intent. Nobel economist Paul Krugman says the demands being made of Greece are "madness" and are in direct opposition to the alleged purpose of the European Union that was sold as a group of countries working together in times of despair.
- Paul Krugman
“What we’ve learned these past couple of weeks is that being a member of the Eurozone means that the creditors can destroy your economy if you step out of line,” said Krugman. “This has no bearing at all on the underlying economics of austerity.” Adding:
“This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief. It is, presumably, meant to be an offer Greece can’t accept; but even so, it’s a grotesque betrayal of everything the European project was supposed to stand for.”
According to Varoufakis, the ringleader for Troika negotiations was Germany’s Finance Minister Wolfgang Schäuble. He was the mastermind of the previous Greek bailout agreements from 2010 and 2012. Schäuble wanted to make sure that the election of the new government in Greece had not changed anything in negotiations.
“[Schäuble] was consistent throughout. His view was ‘I’m not discussing the programme – this was accepted by the previous [Greek] government and we can’t possibly allow an election to change anything.’ So at that point I said ‘Well perhaps we should simply not hold elections anymore for indebted countries’, and there was no answer. The only interpretation I can give [of their view] is, Yes, that would be a good idea, but it would be difficult. So you either sign on the dotted line or you are out. It is all like a very well-tuned orchestra and he is the director.”
Being the Greek Finance Minister, and an economist working on an economic problem, it would stand to reason that Varoufakis’ input on an economic solution would be most wanted. Quite the opposite, in his estimation.
What would happen when he’d try to ‘talk turkey’ with the other 19 finance ministers of the Eurozone about the details of the situation?
“It’s not that it didn’t go down well – there was point blank refusal to engage in economic arguments,” he explained. “Point blank. You put forward an argument that you’ve really worked on, to make sure it’s logically coherent, and you’re just faced with blank stares. It is as if you haven’t spoken. What you say is independent of what they say. You might as well have sung the Swedish national anthem – you’d have got the same reply.”
As if toying with its prey, the Troika contingent would give false hope to the negotiations, and placate the Greek government. They would basically give them busy work to waste time, and drain the country’s resources, sabotaging their ability to negotiate better terms over time. The Eurozone had plenty of time on its hands; Greece not so much.
“They would say we need all your data on the fiscal path on which Greek finds itself, all the data on state-owned enterprises,” continued Varoufakis. “So we spent a lot of time trying to provide them with it and answering questionnaires and having countless meetings. So that would be the first phase. The second phase was they’d ask us what we intended to do on VAT. They would then reject our proposal but wouldn’t come up with a proposal of their own.”
“And then, before we would get a chance to agree on VAT, they would shift to another issue, like privatization. They would ask what we want to do about privatization: we put something forward, they would reject it. Then they’d move onto another topic, like pensions, from there to product markets, from there to labour relations. […] It was like a cat chasing its own tail. We were set up.”
- Yanis Varoufakis
The Grexit Card
Varoufakis believed that Greece had one shot at negotiating a viable long-term deal, but it was risky. If you are not a threat to walk out, Greece had no negotiating leverage, and that is what the Troika believed. Varoufakis wanted Greece leader Alexis Tsipras to be ready with a plan for when the ECB closed Greek banks, and once the banks were closed, he could act unilaterally.
The closure of the banks was a plot to force a deal after which he had three options:
- Greece could issue Euro-denominated IOUs;
- Apply a “haircut” to the bonds Greek issued to the ECB in 2012, reducing Greece’s debt; or
- Seize control of the Bank of Greece from the ECB.
This would not constitute a “Grexit”, but it gave them that card to play if needed. It showed they were serious. Varoufakis thought that Greece could not be expelled by the Eurogroup without a legal precedent or mechanism to do so.
Keeping the possibility of a Grexit out there could have won Greece a better deal. The victorious voting referendum offered Greece the mandate they needed to strike with such bold moves. Alas, Tsipras was not on board with this approach, and internal leadership voted the plan down four to two. Varoufakis resigned shortly thereafter.
It appears Varoufakis is relieved that his personal ordeal is over, and he gave the situation everything he had. He left before Greece was given over to the banking and private interests in this still-unannounced deal, and his conscience is quite clear.
Varoufakis looks to finish writing a book on the Grexit, and may resume teaching economics, as he did previously. And while he was unable to save Greece from the Troika, maybe he can save the next generation from repeating the mistakes of today.