2 AUGUST 2015 LM DLe Monde diplomatique
‘COMMISSION MUST DEFER TO EUROGROUP’S PRESIDENT’
The defeat of Europe
The Eurogroup – which has no legal standing – is anti-democratic, disdainful of the European Commission,
which it now commands, and internally fractured. This is what it did to Greece
In 2010 the Greek state lost the capacity to service its debt. Put simply, it became insolvent and thus lost access to capital markets. To prevent a default on fragile French and German banks that had irresponsibly lent billions to irresponsible Greek governments, Europe decided to grant Greece the biggest loan in world history on condition of the largest ever fiscal consolidation (better known as austerity) which, naturally, resulted in a world-record loss of national income – the greatest since the Great Depression. And so began a vicious cycle of austerity-driven debt deflation, spearheading a humanitarian crisis and a complete inability to repay the nation’s debts.
For five years the troika of Greece’s official lenders (the International Monetary Fund, European Central Bank and European Commission, representing creditor memberstates) were committed to this dead-end strategy that financiers label “extend and pretend”: lending to an insolvent debtor more and more money in order to avoid having to write off a bad debt. The more the creditors insisted on this strategy, the greater the damage to Greece’s social economy, the less reformable Greece became, and the larger the creditors’ losses.
This is why our party, Syriza, won last January’s election. Had the electorate believed that Greece was on the mend, we would not have won. Our mandate was straightforward: to stop the “extend and pretend” loans and the associated austerity, which were driving Greece’s private sector into the ground. And to lift the fog of doom in which it was impossible to carry the people with us along the road toward the crucial, deep reforms that Greek society needed.
Yanis Varoufakis is Greece’s former finance minister and a member of the Greek parliament
BY YANIS VAROUFAKIS
In my first Eurogroup meeting (1), on 11 February, I delivered a simple message: “In our government you will find a trustworthy partner. We shall strive for common ground with the Eurogroup on the basis of a threeplank policy to tackle Greece’s economic malaise: deep reforms to enhance efficiency and defeat corruption, tax evasion, oligarchy and rent-seeking; 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 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.”
A few days earlier, on 5 February, I paid my first visit to Dr Wolfgang Schäuble, the German finance minister. I reassured him that he could expect from us proposals aimed not at the interests of the average Greek but at the interests of the average European – German, French, Slovak, Finn, Spaniard, Italian, etc.
But none of our noble intentions were of any interest to Europe’s powers-that-be. We were to find this out the hard way during the five months of ensuing negotiations.
On 30 January, a few days after I became finance minister, the president of the Eurogroup, Jeroen Dijsselbloem, paid me a visit. Within minutes he asked me what I was planning to do vis-à-vis the Memorandum of Understanding (MoU) that the previous government had signed up to. I explained to him that our government was elected to re-negotiate that MoU; that is, we would be asking for an opportunity to re-visit the blueprint of fiscal and reform policies that had failed so spectacularly over the past five years, having diminished national income by one third and turned the whole of Greek society against the very notion of reform.
Dijsselbloem’s response was immediate and crystal clear: “That won’t work. It is either the MoU or the programme crashes.” In other words, either we would have to accept the failed policies that were imposed on previous Greek governments, and which we were elected to challenge, or our banks would be shut down – for this is what a “crashed programme” entails in the case of a member state that has no market access: the European Central Bank removes financing of the banks, whose doors and ATMs then shut down.
This blatant attempt at blackmailing an incoming, democratically elected government was no one-off. At the Eurogroup meeting that followed 11 days later, Dijsselbloem’s disregard for democracy’s most basic principle was confirmed, and enhanced, by Schäuble, who spoke immediately after Michel Sapin, the French finance minister. Sapin had just argued in favour of discovering common ground between the validity of the existing MoU and the right of the Greek people to mandate us to re-negotiate crucial parts of the MoU. Schäuble lost no time in giving short shrift to Sapin’s reasonable point: “Elections cannot be allowed to change anything,” he said, with a large majority of finance ministers nodding along.
At the end of that same meeting, while negotiating the joint statement to be released, I asked that the word “amended” be added in front of “MoU” in a sentence that was meant to commit our government to the latter. Schäuble vetoed my proposed phrase, saying that the existing MoU was not to be negotiated just because the Greeks had elected a new government. After a few hours of the resulting standoff, Dijsselbloem threatened me with an imminent “programme collapse” (which translated into bank closures by 28 February) if I insisted on adding “amended” in front of “MoU”. On instructions from my prime minister, Alexis Tsipras, I left the meeting without a communiqué being agreed to, ignoring
Dijsselbloem’s threat. Although the threat proved empty, it soon returned with a vengeance.
Time and again we would be threatened with bank closures when refusing to endorse a programme, the MoU, which had so demonstrably failed in every possible way. The creditors and Eurogroup refused even to engage with our economic arguments. They demanded that we capitulate. They even accused me of daring to “lecture” them on economics!
And so it was that Greece’s negotiations with its creditors were conducted – under a dark cloud of threat. That the threat was credible we knew from the outset, even though we were not prepared to stand down or to lose hope that Europe would change tack.
A month before we were elected, the previous Greek government, in cahoots with the governor of the Bank of Greece (who had previously served as that same government’s finance minister), had already sparked off a mild bank run. After our election, the ECB began to signal that it would steadily switch off the flow of liquidity to Greece’s banking system, reinforcing the deposit flight that, at a time of the Eurogroup’s choosing, would “justify” the closing down of the banks – as Dijsselbloem had threatened.
The negotiations, once they commenced at the “technocrat” level, confirmed our worst fears. The creditors publically proclaimed their concern for getting their money back and for reforming Greece. In truth, however, they only cared about humiliating our government and forcing us to choose between resignation and capitulation, even at the cost of ensuring that creditor nations would never get their money back and jeopardising a reform agenda that only our party could convince Greeks to adopt as their own.
Time and again, we proposed that legislation should be passed on three or four areas that we agreed with the institutions – measures to tackle tax evasion, shield the tax authority he Europe we don’t want Continued from page 1
suspensions. Relations between members of the same union, who belong to the same institutions, return representatives to the same parliament and use the same currency, should preclude such machinations. Yet the Eurogroup countries, with Germany at their head, safe in the knowledge of their superiority, imposed a diktat on a weakened Greece which everyone acknowledges will worsen most of its problems. This whole episode exposes just how deep the cracks in the EU go (1).
When Syriza won January’s election, it was right on almost every single count. Right to link the collapse of the Greek economy to the austerity programme administered for five years by both socialists and the right. Right to argue that no state with a crumbling manufacturing sector would be able to rebuild itself if it had to devote increasing sums to paying off its creditors. Right to point out that in a democracy sovereignty belongs to the people and that if a policy is imposed on them despite what they decide, it constitutes an act of dispossession.
Syriza appeared to have an unbeatable hand, but success depends on who you are playing with. In the EU, Syriza’s aces were turned against it; Syriza was compared to southern Marxists, so out of touch with reality that they dared question the economic assumptions that underlie German ideology (see Germany’s iron cage, pages 4-5). The weapons of “reason” and conviction are useless in such circumstances. What’s the good of pleading your case in front of a firing squad? During the months of “negotiations”, the Greek finance minister Yanis Varoufakis noticed his European counterparts stared at him as though they were thinking: “You’re right in what you are saying, but we are going to crush you anyway” (2) (see The defeat of Europe, pages 2-3).
However, the success (for now) of Germany’s plan to relegate Greece to the status of a Eurogroup protectorate is also the result of failed gambles by Greece’s leftwing majority, in the over-optimistic hope of changing Europe (3). The gamble that the leaders of France and Italy would help Greece overcome the German right’s monetarist taboos. The gamble that other European peoples, overwhelmed by austerity policies, would pressure their governments into a Keynesian reorientation (Greece thought it was the torchbearer for this). The gamble that this change would be conceivable within the eurozone; no exit scenario had been envisaged or prepared. And the gamble that intermittent hints of a “Russian option” would, for geopolitical reasons, contain Germany’s temptation to punish Greece and encourage the US to stay Germany’s hand. At no point did any of these gambles seem likely to pay off. It’s not possible to hold off a tank with violets and a catapult.
Greece’s leaders, guilty only of being too innocent, thought that creditors would heed the democratic will of the Greeks, especially the young. The legislative election of 25 January and the referendum of 5 July, however, provoked dumbfounded outrage among the Germans and their allies. They had only one remaining aim: to punish the rebels, and anyone who might be inspired by their bravery. Capitulation was no longer enough; there had to be apologies (Greece has admitted that its economic choices caused a breakdown in confidence with its partners) and even reparations: public assets, capable of being privatised, to a value equal to 25% of Greek GDP are to be pledged to the creditors. Everyone claims to be relieved: Greece will pay.
‘I say to Germany: that’s enough. Humiliating a European partner is unthinkable’ – Matteo Renzi, Italian prime minister
“Germany will pay” was the phrase French finance minister Louis Klotz whispered to President Clemenceau at the end of the first world war. It became the watchword of French savers who had lent to the Treasury during the conflict. They had not forgotten that in 1870 France paid the whole of the tribute demanded by Bismarck, though the sum was higher than Germany’s costs. This precedent inspired French prime minister Raymond Poincaré when, frustrated at not receiving the reparations stipulated in the Treaty of Versailles (4), he decided to occupy the Ruhr in 1923.
John Maynard Keynes had already grasped the vanity of such a policy of humiliation and seizure of securities: Germany did not pay because it could not pay, and the same goes for Greece now. Only through time, with a positive balance of payments, could Germany have paid off its massive debt. France refused to allow its rival’s economic rebirth, which would have enabled it to pay, but also to finance an army, risking the possibility of a third bloody conflict. The economic success of the Greek left would hardly have had such dramatic repercussions for Europeans, but it would have scotched eurozone leaders’ justifications for austerity.
After a year, Poincaré had to raise taxes by 20% to fund his occupation, a cruel paradox for a rightwing leader opposed to taxation who had insisted Germany would pay. He lost the next election and his successor evacuated the Ruhr. No one has yet imagined such consequences in any of the countries that have crushed Greece to make it settle a debt that even the IMF admits is “totally non-viable”. Yet the Eurogroup countries’ fixation on punishment has already obliged them to commit three times the sum (around €86bn) required had funds been released five months earlier; in the meantime the Greek economy had collapsed through lack of liquidity (5). So the price of German finance minister Wolfgang Schäuble’s inflexibility will be almost as high as Poincaré’s. But Greece’s humiliation will serve as an example for other potential offenders. (Spain, Italy, France?) It