On Monday 13 July, Greece finally reached an agreement with its creditors. The deal was more punitive and demanding than the one that its government had spent the past five months desperately trying to resist.
The accord followed 48 hours in which Germany demanded control of Greek finances or Greece’s withdrawal from the euro. Many observers across Europe were stunned by the move. Yanis Varoufakis was not. When I spoke with Greece’s former finance minister a few days before the deal, I asked him whether any compromise reached in the days ahead would be good for his country.
“If anything, it will be worse,” he said. “I trust and hope that our government will insist on debt restructuring, but I can’t see how the German finance minister [Wolfgang Schäuble] is ever going to sign up to this. If he does, it will be a miracle.”
Varoufakis, who resigned from the government on 6 July, a day after the referendum in which his fellow Greeks overwhelmingly rejected more austerity, has been criticised for not signing an agreement sooner. But he said the deal that Greece was offered was not made in good faith – nor was it one that the so-called Troika (the IMF, the European Central Bank and the European Commission) even wanted completed.
In an hour-long telephone interview with the New Statesman, he called the creditors’ latest proposals “absolutely impossible, totally non-viable and toxic . . . the kind of proposals you present to another side when you don’t want an agreement”.
New Statesman What was it like [to negotiate with the Eurogroup – the club of 19 finance ministers whose countries use the euro]? Did you like any aspect of it?
Yanis Varoufakis Oh well, a lot of it.
But . . . to have “the powers that be” speak to you directly, and it be as you feared: the situation was worse than you imagined!
NS What are you referring to?
YV The complete lack of any democratic scruples on behalf of the supposed defenders of Europe’s democracy. The quite clear understanding on the other side that we are on the same page analytically . . . [And yet] to have very powerful figures look at you in the eye and say, “You’re right in what you’re saying, but we’re going to crunch you anyway.”
NS You’ve said creditors objected to you because “I try and talk economics in the Eurogroup, which nobody does”. What happened when you did?
YV It’s not that it didn’t go down well – it’s that there was point-blank refusal to engage in economic arguments. 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.
NS When you first arrived, in early February, this can’t have been a unified position?
YV Well, there were people who were sympathetic at a personal level – so, you know, behind closed doors, on an informal basis, especially from the IMF. But then inside the Eurogroup, a few kind words and that’s it – back behind the parapet of the official version.[But] Schäuble was consistent throughout. His view was: “I’m not discussing the programme – this was accepted by the previous government and we can’t possibly allow an election to change anything. Because we have elections all the time, there are 19 of us [countries in the eurozone, and] if every time there was an election and something changed, the contracts between us wouldn’t mean anything.”
So, at that point I had to get up and say, “Well, perhaps we should simply not hold elections any more 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 to do. So you either sign on the dotted line or you are out.”
NS And [Angela] Merkel?
YV You have to understand I never had anything to do with Merkel. Finance ministers talk to finance ministers, prime ministers talk to chancellors. From my understanding, she was very different. She tried to placate the prime minister [Alexis Tsipras] – she said: “We’ll find a solution. Don’t worry about it, I won’t let anything awful happen. Just do your homework and work with the institutions, work with the Troika; there can be no dead end here.”
This is not what I heard from my counterparts – both from the head of the Eurogroup and Dr Schäuble, they were very clear. At some point it was put to me very unequivocally: “This is a horse and either you get on it or it is dead.”
NS So why hang around until the summer?
YV Well, one doesn’t have an alternative. Our government was elected with a mandate to negotiate. So our first mandate was to create the space and time to have a negotiation and reach another agreement . . .
The negotiations took ages, because the other side was refusing to negotiate. They insisted on a “comprehensive agreement”, which meant they wanted to talk about everything. My interpretation is that when you want to talk about everything, you don’t want to talk about anything. But we went along with that.
And look, there were absolutely no positions put forward on anything by them . . . Let me give you an example. They would say, “We need all your data on the fiscal path on which Greece finds itself; we need all the data on state-owned enterprises.” So we spent a lot of time trying to provide them with all the data and answering questionnaires and having countless meetings providing the data.
So that would be the first phase. The second phase was where 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 with them, they would shift to another issue, like privatisation. They would ask what we want to do about privatisation, we put something forward, they would reject it . . . So it was like a cat chasing its own tail.
Look, my suggestion from the beginning was this: “This is a country that has run aground, that ran aground a long time ago . . . Surely we need to reform this country – we are in agreement on this.” Because time is of the essence, and because during negotiations the Central Bank was squeezing liquidity [of Greek banks] in order to pressurise us, in order to [make us] succumb, my constant proposal to the Troika was very simple: “Let us [settle] on three or four important reforms that we agree upon, like the tax system, like VAT, and let’s implement them immediately. And you relax the restrictions on liquidity from the ECB. You want a comprehensive agreement – let’s carry on negotiating; and in the meantime, let us introduce these reforms in parliament by agreement between us and you.”
NS Did you try working together with the governments of other indebted countries?
YV The answer is no, and the reason is very simple: from the very beginning, those particular countries made it abundantly clear that they were the most energetic enemies of our government. And the reason of course was that their greatest nightmare was our success. Were we to succeed in negotiating a better deal for Greece, that would of course obliterate them politically. They would have to answer to their own people why they didn’t negotiate like we were doing.
NS What is the greatest problem with the general way the Eurogroup functions?
YV There was a moment when the president of the Eurogroup [the Dutch finance minister, Jeroen Dijsselbloem] decided to move against us and effectively shut us out, and made it known that Greece was essentially on its way out of the eurozone . . . There is a convention that communiqués must be unanimous, and the president can’t just convene a meeting of the eurozone and exclude a member state. And he said, “Oh, I’m sure I can do that.” So I asked for a legal opinion . . . Eventually some official, some legal expert, addressed me, and said the following words, that: “Well, the Eurogroup does not exist in law. There is no treaty which has convened this group.”
So what we have is a non-existent group that has the greatest power to determine the lives of Europeans. It’s not answerable to anyone, given it doesn’t exist in law; no minutes are kept; and it’s confidential – so no citizen ever knows what is said within . . . These are decisions of almost life and death, and no member has to answer to anybody.
NS And is that group controlled by German attitudes?
YV Oh, completely and utterly. Not attitudes – by the finance minister of Germany. It is all like a very well-tuned orchestra and he is the director. Everything happens in tune. There will be times when the orchestra is out of tune, but he convenes and puts it back in line.
NS Is there no alternative power within the group? Can the French counter that power?
YV Only the French finance minister [Michel Sapin] has made noises that were different from the German line, and those noises were very subtle. You could sense he had to use very judicious language, to be seen not to oppose. And in the final analysis, when Doc Schäuble responded and effectively determined the official line, the French FM in the end would always fold and accept.
NS So there were two options as far as I can see – an immediate Grexit, or printing IOUs and taking back control of the Bank of Greece [potentially but not necessarily precipitating a Grexit]?
YV Sure, sure. I never believed we should go straight to a new currency. My view was – and I put this to the government – that if they dared shut our banks down, which I considered to be an aggressive move of incredible potency, we should respond aggressively but without crossing the point of no return.
We should issue our own IOUs, or even at least announce that we’re going to issue our own euro-denominated liquidity; we should haircut the Greek 2012 bonds that the ECB held, or announce we were going to do it; and we should take control of the Bank of Greece. This was the triptych, the three things, which I thought we should respond with if the ECB shut down our banks.
NS Would you be shocked if Tsipras resigned?
YV Nothing shocks me these days – our eurozone is a very inhospitable place for decent people. It wouldn’t shock me, either, [if he stays] on and accepts a very bad deal. Because I can understand he feels he has an obligation to the people that support him, support us, not to let this country become a failed state.
But I’m not going to betray my own view that I honed back in 2010, that 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 on to the have-nots, creating a humanitarian crisis. It’s something I’m not going to accept, I’m not going to be party to.
The full transcript of this interview is here
This article appears in the 15 Jul 2015 issue of the New Statesman, The Motherhood Trap