Peak Varoufakis?

I had the chance to read the New Yorker’s profile of Yanis Varoufakis yesterday on a plane ride back from Minnesota. Well, what to say? It didn’t necessarily tell me anything new – I’ve followed the crisis closely, esp. these last few months. But the article does provide (for anyone interested) a detailed overview of SYRIZA’s negotiations with the troika of creditors, mainly from Varoufakis’ perspective. Although the reporter clearly contacted other relevant sources, they were unwilling to speak on the record. Often, they cited various Euro-rules regarding confidentiality or merely issued terse rebuttals via their press offices. Varoufakis, on the other hand, is a man who wants to talk (and talk and talk…). He tells us, for example, that Schäuble dominates the Europgroup meetings and that most look to him for leadership (and that some fall in line behind him once he takes a position). He also notes that, in his opinion, his fellow finance ministers were (on some level) economically uninformed (“Most of them are lawyers,” according to Varoufakis). So, these are some anecdotes, and there are many more.

But if we take a step back, it’s possible to see (I think) where all of this went wrong. Varoufakis clearly thought that he could sway his fellow Europeans solely through economic logic – the force of his arguments. Now, these arguments – which effectively represent Syriza’s central platform – are sound. A majority of economists agree, for example, that Greece requires debt relief (even the IMF has adopted this position), and that further austerity – of the sort envisioned by Greece’s creditors – will have a deflationary effect upon an already battered economy. One need only look at the record over the last five years to see that austerity has not worked as intended. The IMF has admitted as much, noting that Fund’s projections were way off from the start. They predicted a contraction of 5.5%, but the economy contracted by over 25%. But Varoufakis’ mistake was this: he failed to recognize that the Eurozone is not merely some sort of economic database into which one may insert evidence and an argument and get the desired result. It’s a complex political entity – excessively complex, some might say – and neither Varoufakis nor Tsipras seem to have recognized this at any point during the negotiations. Throughout the process, every finance minister in the Eurogroup remained responsible to a national parliament and every PM had a mandate of his or her own, based on domestic politics. Most crucially, they failed to recognize that the Germans simply don’t accept the argument itself (to be understood differently from those countries which do, but cannot act due to political reasons). Merkel and Schäuble promote these policies, it seems, because they actually think that they work economically (even if there is short term pain). When they speak of the rules of the Eurozone and the importance of maintaining them, they mean it. Now, this is not to ignore the obvious: that some in the German government would very much like to see Greece leave the EMU. It is merely to underscore that the German position was so far removed from the basic assumptions of Syriza’s platform that there was likely never the chance that Varoufakis could achieve much based solely on the merits of his argument. As a result, one might reasonably conclude that Syriza’s election promise was a fool’s errand from the beginning.

But what about Varoufakis and the party’s choice of approach? One may legitimately wonder whether his aggressive, antagonistic approach made an already terrible situation much, much worse. He managed to alienate nearly every one of his European partners, and by late April Tsipras had to remove him as point man on the negotiations because he had become so toxic. And, of course, in the aftermath of the pointless, disastrous referendum (one of the worst examples of statecraft in recent memory), he was removed as minister, an apparent effort to help reset relations with Greece’s creditors. Yet he continues to bask in the spotlight and otherwise maintain his particular sort of persona. By the end of the article, one thing was clear to me: I hope we’ve reached Peak Varoufakis. It’s past time for Yanis to fad away and leave high politics to those better suited to it.

So what of Greece now, after 6 months of Syriza? Syriza’s stated goal was to end austerity but remain within the EMU. They chose an aggressive and confrontational approach to achieve this. What have they accomplished? Last year, before Tsipras and Co. brought down the ND-PASOK coalition over the election of a new president (a ceremonial position in Greece), the economy had just started to recover. It was growing, quite marginally of course, but nevertheless growing. The coalition had secured a primary surplus, and there was some talk of exiting the bailout program early. Things had stabilized, ever so slightly. I don’t want to over emphasize the degree of “recovery” here, but one could at least look at the state of affairs and think, “Ok, maybe they can start to turn the corner now.” This no longer holds. The economy is firmly back in recession and likely to be for some time. The EC predicts a recession of 2-4% of GDP this year. The banks were closed for a month and capital controls remain in place, which devastated the manufacturing sector. These are not easy to lift once in place (note Cyprus’ were in place for 2 years and Iceland’s for seven). And the stock market just reopened after being shuttered for 5 weeks. The result? A 16% drop in one day, including 30% for all the country’s banks. The full extent of the economic damage will only become clear with time.

Is there any hope moving forward? I wasn’t optimistic back in January when Syriza was elected – their election platform seemed contradictory and fundamentally unworkable to me even then (basically a pipe dream). And it’s hard to be optimistic now, frankly. Perhaps the IMF’s new position will result in meaningful debt reduction in time – or it will result in the collapse of the third bailout talks entirely and precisely the messy situation Tsipras wanted to avoid after the referendum result came in. And there is so much economic ground to make up…3 years of additional austerity won’t help. Significant divisions are emerging within Syriza, too, which is, in fact, a coalition of (formerly) distinct leftist parties of varying ideologies. If Syriza splits, who governs? The political climate might get much worse before it gets any better.

I am a Philhellene. I have strong attachments to the country, which I regard as a second home. I want to see the country prosper, but it seems to me that, at this point, leaving the EMU provides the only means of doing so. I understand the many reasons – historical, cultural and economic – that prevent a majority of Greeks from supporting this step. But there are many non-EMU EU countries, and they can provide a model for Greece moving forward. The alternative seems to be perpetual austerity and recession, and it offers no hope that Greeks will control their own country’s economic trajectory.

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