This was the title of one of my previous posts and it’s true.
For an economist or politician, Yanis Varoufakis has attracted an unprecedented amount of attention in the past six months, both positive and negative. I guess that just about every EU citizen knows that Yanis V. was once the Finance Minister of Greece. Greece, for goodness sake! Try asking someone in the street who they think is the Finance Minister of France or Italy or Hungary? I bet you that they won’t know. So you see my point.
There was a theory doing the rounds on the internet, a while back, that went something like this:
Yanis Varoufakis has some very good ideas to sort out the problems of Greece and the Eurozone. However, some of these ideas have serious political fallout potential for many of the incumbent EU politicians. Mr V. will not keep quiet, tow the conventional EU line and be an EU team-player. Therefore, the conclusion is that Mr V. is a troublemaker. Something will have to be done to make sure that the
stupid (sorry) EU public do not wise up to the fact that they have been lied to, kept in the dark, misled, treated like idiots (choose one or all according to your personal views). Since Mr V’s ideas must not be discussed or debated by EU politicians in any open and public forum, for the reasons already mentioned previously, the CIA method will have to be used to silence and discredit him.
The CIA method?……..do anything and everything to make him look like a fool, a misguided lefty, an outcast among his elite EU peers. Call into question his political acumen, accuse him of treason, criticise his clothes and where he lives, anything damn it, just as long as you don’t discuss his economic plans!
True?………who knows. But it certainly looked like this is what happened.
Unlike some commenters on other blogs (sorry Yanis, but it’s true), I will never try to speak on behalf of Yanis Varoufakis. I may discuss my interpretation of something that he said or did, but I will never become his spokesman.
One area of on-going dispute among Greek watchers concerns the terms “debt-relief” or “debt-forgiveness” or “debt restructuring” or “debt default” and how the Greeks want to deal with this. Many people believe that, if it weren’t for the vigilance of the EU “police”, Greece would have already done a “runner”. The Greeks get castigated daily about their so called desire to get all or some of their debt written off. I am sure that the Greeks do wish that this would happen, but that hasn’t stopped them from doing everything they can to keep up with the payments.
On my part, I have difficulty finding a single official government statement that supports the view that Greece wants to default on its debts. Since the time of the first bailout until today, each successive Greek government in power has turned itself and the country inside out in order to meet their debt repayment obligations. And in order to repay that debt, they have nearly stripped their country bare!
Therefore, to give some clarity on the debt issue and on other subjects, let’s hear what Yanis, himself, had to say:
A potential Syriza-led government will reject the suggested ESM precautionary credit line?
YV: SYRIZA should reject even one euro of fresh loans until and unless Greece’s public and private sectors are rendered solvent again. Greece’s (and Portugal’s) tragedy is not that we were lent too little. It was that we were lent too much in order to throw it into a black hole.
- In what sense Syriza can compromise with Brussels and the ECB to avoid market volatility and risk of default?
YV: In a variety of ways! However, SYRIZA will, and ought not, compromise on one thing: Striking a new agreement that lifts the veil of depression over its social economy, over innocent people that are suffering indignity for no reason at all.
- In 2015 do you expect Greece to exit the Euro, or a political change inside the Eurozone?
YV: It would be a disaster if Greece were to be forced out of the euro. For Greece and for the euro, and Europe at large. There is no need for that. If the Eurozone cannot survive intact the democratic election of a government that seeks to put an end to its people’s suffering, it is doubtful whether a United Europe is still possible.”
Those were extracts from an interview done with Jorge N. Rodrigues, a Portuguese journalist on 11 December 2014.
Next we have some extracts from an interview that Yanis V. had with a Spanish journalist, J. Luis Martin. The article was titled “Greece will neither want to leave the euro nor threaten to do so” and it was published on the OpenDemocracy website on 12 January 2015.
“There are no guarantees of success,” Varoufakis says. “The reason I accepted the challenge was that I did not have the right to turn it down. When the leader of a political party about to win government offers you the opportunity to implement policies you have been advocating for years, it is pure cowardice to shirk the task. Will I succeed? I shall only know if I try.”
“If it is in my power to determine,” he explains, “Greece will neither want to leave the euro nor threaten to do so. We should not have entered the euro – this is crystal clear, but once in, it is disastrous to remove one’s-self from the Eurozone voluntarily.”
“That does not mean we should lower our heads and do as we are told lest we are thrown out. No, we should veto misanthropic policies within the euro, demand debt restructuring within the euro, and never give them the opportunity to claim that we opted out of the euro voluntarily. If they want us out, they should kick us out with no help from us. In so doing, however, they will be bringing down their own houses too…”
“The Eurozone is at a very advanced stage of decomposition and unless we do something quickly, it may be too late.”
On 10 July 2015, The Guardian newspaper published an article, written by Yanis V., in their Opinion section titled, “Germany won’t spare Greek pain – it has an interest in breaking us“. On his blog, Yanis wrote the following preface:
“Tomorrow’s EU Summit will seal Greece’s fate in the Eurozone. As these lines are being written, Euclid Tsakalotos, my great friend, comrade and successor as Greece’s Finance Ministry is heading for a Eurogroup meeting that will determine whether a last ditch agreement between Greece and our creditors is reached and whether this agreement contains the degree of debt relief that could render the Greek economy viable within the Euro Area. Euclid is taking with him a moderate, well-thought out debt restructuring plan that is undoubtedly in the interests both of Greece and its creditors. (Details of it I intend to publish here on Monday, once the dust has settled.) If these modest debt restructuring proposals are turned down, as the German finance minister has foreshadowed, Sunday’s EU Summit will be deciding between kicking Greece out of the Eurozone now or keeping it in for a little while longer, in a state of deepening destitution, until it leaves some time in the future. The question is: Why is the German finance Minister, Dr Wolfgang Schäuble, resisting a sensible, mild, mutually beneficial debt restructure? The following op-ed just published in today’s The Guardian offers my answer. (Please note that the Guardian’s title was not of my choosing. Mine read, as above: “Behind Germany’s refusal to grant Greece debt relief”).
Here are some extracts from The Guardian Op-Ed:
“Greece’s financial drama has dominated the headlines for five years for one reason: the stubborn refusal of our creditors to offer essential debt relief. Why, against common sense, against the IMF’s verdict and against the everyday practices of bankers facing stressed debtors, do they resist a debt restructure? The answer cannot be found in economics because it resides deep in Europe’s labyrinthine politics.
In 2010, the Greek state became insolvent. Two options consistent with continuing membership of the eurozone presented themselves: the sensible one, that any decent banker would recommend – restructuring the debt and reforming the economy; and the toxic option – extending new loans to a bankrupt entity while pretending that it remains solvent.
Official Europe chose the second option, putting the bailing out of French and German banks exposed to Greek public debt above Greece’s socioeconomic viability. A debt restructure would have implied losses for the bankers on their Greek debt holdings. Keen to avoid confessing to parliaments that taxpayers would have to pay again for the banks by means of unsustainable new loans, EU officials presented the Greek state’s insolvency as a problem of illiquidity, and justified the “bailout” as a case of “solidarity” with the Greeks.
To frame the cynical transfer of irretrievable private losses on to the shoulders of taxpayers as an exercise in “tough love”, record austerity was imposed on Greece, whose national income, in turn – from which new and old debts had to be repaid – diminished by more than a quarter. It takes the mathematical expertise of a smart eight-year-old to know that this process could not end well.
Once the sordid operation was complete, Europe had automatically acquired another reason for refusing to discuss debt restructuring: it would now hit the pockets of European citizens! And so increasing doses of austerity were administered while the debt grew larger, forcing creditors to extend more loans in exchange for even more austerity.
Our government was elected on a mandate to end this doom loop; to demand debt restructuring and an end to crippling austerity. Negotiations have reached their much publicised impasse for a simple reason: our creditors continue to rule out any tangible debt restructuring while insisting that our unpayable debt be repaid “parametrically” by the weakest of Greeks, their children and their grandchildren.
In my first week as minister for finance I was visited by Jeroen Dijsselbloem, president of the Eurogroup (the Eurozone finance ministers), who put a stark choice to me: accept the bailout’s “logic” and drop any demands for debt restructuring or your loan agreement will “crash” – the unsaid repercussion being that Greece’s banks would be boarded up.
Five months of negotiations ensued under conditions of monetary asphyxiation and an induced bank-run supervised and administered by the European Central Bank. The writing was on the wall: unless we capitulated, we would soon be facing capital controls, quasi-functioning cash machines, a prolonged bank holiday and, ultimately, Grexit.
With Grexit reinforcing the ECB-induced bank run, our attempts to put debt restructuring back on the negotiating table fell on deaf ears. Time and again we were told that this was a matter for an unspecified future that would follow the “programme’s successful completion” – a stupendous Catch-22 since the “programme” could never succeed without a debt restructure.”
The following extract is from an article titled, “The Defeat of Europe” written by Yanis Varoufakis that was published in the August 2015 edition of Le Monde Diplomatique. It is a very well written summary of the Greek economic crisis, from the beginning in 2010 to where we are today. In particular, the article describes in detail the efforts of Yanis V. to negotiate an end to the austerity measures in Greece and to achieve a new deal for the future:
“In my first Eurogroup meeting I delivered a simple message to the gathered Eurozone finance ministers: “In our government you will find a trustworthy partner. We shall strive for common ground with the Eurogroup on the basis of a three-plank policy to tackle Greece’s economic malaise: (i) Deep reforms to enhance efficiency and defeat corruption, tax evasion, oligarchy and rent-seeking. (ii) Sound state finances based on a small but viable primary budget surplus that does not impose too heavy a burden on the private sector. And (iii) a sensible rationalisation, or re-profiling, of our debt structure so as to allow for the viable primary budget surpluses consistent with the rates of growth necessary to maximise the true value of our repayments to our creditors.”
Here are some extracts, taken from an interview that he had with Claudi Pérez, a journalist with the Spanish El Pais newspaper. This was published on 2 August 2015 as a post on Yanis’ blog and was titled “In conversation with El Pais (Claudi Pérez), the complete (long) transcript”:
“YV: I suspect journalists assume that I am somehow downhearted now that I am not in the ministry. But I didn’t enter politics as a career. I entered politics to try to change things. There is a price to pay if one tries to change things.
CP: What is the price?
YV: The disdain of the establishment. The deep feelings of loathing by the vested interests one must dislodge to make a difference. They felt threatened. If you enter politics with an uncompromising position, you cop it.
CP: You say that you have to change things. In these 6 months, do you have the feeling that you did?
YV: Absolutely. Why are you here? You are here because something changed. There was a government that was elected to negotiate hard on the basis of a line of argument that wasn’t considered acceptable in the Eurozone. At the same time, history necessitated it. So you have an unstoppable force striking an immovable object. The immovable logic is the irrationality of the Eurogroup and the unstoppable force is history. The result is a great deal of heat and noise… Hopefully there will be some light too.
YV: The previous government was adopting increasing degrees of authoritarianism, shutting down the state’s own radio and television stations. This self-defeating austerity drive, which leads to further losses in income, further debt in order to keep fueling this beast of austerity, can only be kept going by curtailing democracy. So what alternative did we have?
YV: The Greeks voted for us not because they didn’t know we would be treated in a hostile way, but because they had had enough. Whatever happens in Spain, in France, in the Baltics, in Portugal, we had a duty to our people to say: We believe in Europe and we’re going to say to Europeans that we owe them money, we want to repay, but we cannot repay from incomes that keep shrinking. “If you keep squeezing us in this inhuman, irrational manner, you will lose your money and we will lose our country.”
YV: Now, there comes a time when you simply need to say and do what is right, and if Europe as a whole chooses to punish us for it, because it is not ready to accept the truth, then we have no alternative but to say to them: “We are doing our best and we hope you find it in yourselves to do your best too!”
CP: I think that is a uncontroversial: your ideas about austerity and debt relief, everybody says you are right.
YV: If you were talking to me in January it would not have been so. The only reason why now this is not controversial anymore is because we struggled for six months. For those who say to me we failed, these six months were in vain, I say “No we did not fail”. Now we have a debate in Europe which it’s not just about Greece, it’s about the continent. A debate we would have not had otherwise. A debate which is worth Greece’s, our continent’s, weight in gold.
CP: But politics is about results. You called the first and second bailout like the Versailles Treaty. How would you define the third?
YV: The Eurozone began life in 2000. It was badly designed and we realized that, or we should have realized that, in 2008 when Lehman Brothers collapsed. From 2009-2010 we have been in complete denial as official Europe has been doing precisely the wrong thing. This is a European phenomenon, it is an Europe-wide problem. Little Greece, 2% of Eurozone’s GDP, elected a government that raised issues crucial for all of Europe. After 6 months of struggles we had a major setback, we lost the battle. But we won the war of changing the debate. And this is a result!
CP: But can this plan B still being implemented?
YV: Let’s separate two things. There was a Plan B, which, in fact, we called Plan X, in contrast to the ECB’s 2012 Plan Z, as reported in the Financial Times some time ago. Plan X was a contingency plan for responding to aggressive acts by the ECB, the Eurogroup and so on. Then there was a quite separate design for a new payments system using the tax office’s interface. This system, as I explained in a recent article in the Financial Times, is something that should have been implemented anyway. I think Spain might benefit from implementing it to, or Italy for example. Countries lacking a central bank can potentially benefit from this efficient way of creating more liquidity, and more effectively dealing with multilateral extinguishment of arrears between the state and its citizens, but also among citizens.
YV: So, let’s keep these two ‘plans’ separate. The payment system could, and should, be implemented tomorrow. Plan X is now, I think, part of history because it was intended as a response to aggressive acts that would have as their objective to make us surrender during the negotiations. Now that we have surrendered, it has become part of economic history.
CP: In the Eurogroup, some ministers portrayed you like difficult to predict, luxurious way of life, many photos… What do you think when you hear this type of portrait?
YV: It is not true. Nobody said anything like that in the Eurogroup. They may very well have said such things outside the Eurogroup, I would neither know nor care. Everybody, in the end, gets judged by the quality of their public narratives. I will leave you and your readers to pass judgment on their demeanor. We all need to be judged by our voters, by the people of Europe. In my case, I have a clear conscience. After the third Eurogroup, I posted on my website my interventions in all three meetings. Read them and tell me if I was unpredictable, impolite, whatever. In my estimation, my interventions were clear, economically beyond reproach, and constructive. Readers can read them and judge.
CP: What are you going to do about your political career?
YV: Politics should not be a career. I am a member of the Parliament and extremely honored by the trust vested in me by voters. My commitment to them when I entered politics last January was that I will stand my ground and fight along their side for democracy and prosperity in Greece but also throughout Europe. I’m here for the course, I´m not going anywhere.
CP: You are an academic, a professor and author of really good books like the Minotaur. Did you like the politics, what you saw in Brussels?
YV: I certainly didn’t like what I saw in Brussels and I don’t think any European would like it if they had the chance to see it for themselves. But this is what we have, that is the EU we have, and we have to fix it. The worst enemy of democracy is citizens who say this is a terrible system but I’m not prepared to do anything to change it.
CP: Why don’t you have allies in the Eurogroup? I mean, nor France, nor Italy, Spain, Ireland… Countries that at the beginning, with Syriza, had positive thinkings [thoughts] and at the end there were 18 against 1.
YV: What you have to understand is that this 18-1 balance in the Eurogroup is an illusion. The 18 are divided very significantly in three groups. The very tiny, tiny minority who believe in austerity. The largest group of countries don’t believe in austerity but imposed austerity on their own people. And then there is another group of countries that neither believe in austerity nor practice it – e.g. France. But they fear that if they support us openly then austerity and the troika will come their way.
Wow! There were some enlightening insights given in that interview. But largely missed by all and sundry.
Lastly, just in case the reader is still unsure whether the Greeks want to buzz off without settling their bill, here is an entire article titled, “A New Approach to Eurozone Sovereign Debt” written by Yanis Varoufakis that was published on 17 August 2015 on the Project Syndicate website:
“ATHENS – Greece’s public debt has been put back on Europe’s agenda. Indeed, this was perhaps the Greek government’s main achievement during its agonizing five-month standoff with its creditors. After years of “extend and pretend,” today almost everyone agrees that debt restructuring is essential. Most important, this is true not just for Greece.
In February, I presented to the Eurogroup (which convenes the finance ministers of eurozone member states) a menu of options, including GDP-indexed bonds, which Charles Goodhart recently endorsed in the Financial Times, perpetual bonds to settle the legacy debt on the European Central Bank’s books, and so forth. One hopes that the ground is now better prepared for such proposals to take root, before Greece sinks further into the quicksand of insolvency.
But the more interesting question is what all of this means for the eurozone as a whole. The prescient calls from Joseph Stigltiz, Jeffrey Sachs, and many others for a different approach to sovereign debt in general need to be modified to fit the particular characteristics of the eurozone’s crisis.
The eurozone is unique among currency areas: Its central bank lacks a state to support its decisions, while its member states lack a central bank to support them in difficult times. Europe’s leaders have tried to fill this institutional lacuna with complex, non-credible rules that often fail to bind, and that, despite this failure, end up suffocating member states in need.
One such rule is the Maastricht Treaty’s cap on member states’ public debt at 60% of GDP. Another is the treaty’s “no bailout” clause. Most member states, including Germany, have violated the first rule, surreptitiously or not, while for several the second rule has been overwhelmed by expensive financing packages.
The problem with debt restructuring in the eurozone is that it is essential and, at the same time, inconsistent with the implicit constitution underpinning the monetary union. When economics clashes with an institution’s rules, policymakers must either find creative ways to amend the rules or watch their creation collapse.
Here, then, is an idea (part of A Modest Proposal for Resolving the Euro Crisis, co-authored by Stuart Holland, and James K. Galbraith) aimed at re-calibrating the rules, enhancing their spirit, and addressing the underlying economic problem.
In brief, the ECB could announce tomorrow morning that, henceforth, it will undertake a debt-conversion program for any member state that wishes to participate. The ECB will service (as opposed to purchase) a portion of every maturing government bond corresponding to the percentage of the member state’s public debt that is allowed by the Maastricht rules. Thus, in the case of member states with debt-to-GDP ratios of, say, 120% and 90%, the ECB would service, respectively, 50% and 66.7% of every maturing government bond.
To fund these redemptions on behalf of some member states, the ECB would issue bonds in its own name, guaranteed solely by the ECB, but repaid, in full, by the member state. Upon the issue of such an ECB bond, the ECB would simultaneously open a debit account for the member state on whose behalf it issued the bond. The member state would then be legally obliged to make deposits into that account to cover the ECB bonds’ coupons and principal. Moreover, the member state’s liability to the ECB would enjoy super-seniority status and be insured by the European Stability Mechanism against the risk of a hard default.
Such a debt-conversion program would offer five benefits. For starters, unlike the ECB’s current quantitative easing, it would involve no debt monetization. Thus, it would run no risk of inflating asset price bubbles.
Second, the program would cause a large drop in the eurozone’s aggregate interest payments. The Maastricht-compliant part of its members’ sovereign debt would be restructured with longer maturities (equal to the maturity of the ECB bonds) and at the ultra-low interest rates that only the ECB can fetch in international capital markets.
Third, Germany’s long-term interest rates would be unaffected, because Germany would neither be guaranteeing the debt-conversion scheme nor backing the ECB’s bond issues.
Fourth, the spirit of the Maastricht rule on public debt would be reinforced, and moral hazard would be reduced. After all, the program would boost significantly the interest-rate spread between Maastricht-compliant debt and the debt that remains in the member states’ hands (which they previously were not permitted to accumulate).
Finally, GDP-indexed bonds and other tools for dealing sensibly with unsustainable debt could be applied exclusively to member states’ debt not covered by the program and in line with international best practices for sovereign-debt management.
The obvious solution to the euro crisis would be a federal solution. But federation has been made less, not more, likely by a crisis that tragically set one proud nation against another. Indeed, any political union that the Eurogroup would endorse today would be disciplinarian and ineffective. Meanwhile, the debt restructuring for which the eurozone – not just Greece – is crying out is unlikely to be politically acceptable in the current climate.
But there are ways in which debt could be sensibly restructured without any cost to taxpayers and in a manner that brings Europeans closer together. One such step is the debt-conversion program proposed here. Taking it would help to heal Europe’s wounds and clear the ground for the debate that the European Union needs about the kind of political union that Europeans deserve.”