Yanis Varoufakis and the Greek Debt Crisis

Former Greek Finance Minister Yanis Varoufakis

Memoirs of an erratic Marxist

by Michael Roberts

Yanis Varoufakis once described himself as an ‘erratic Marxist’.  This heterodox economist became the finance minister in the Syriza-led Greek government during the most intense period of the Greek debt crisis when the Greeks were trying to avoid severe austerity measures being imposed by the Troika of the EU group, the IMF and the ECB back in 2015 and stay in the eurozone.

Varoufakis was sacked by PM Tsipras when Tsipras decided to capitulate to the Troika demands, despite the Greek people voting to oppose Troika austerity in an unprecedented referendum vote called by Tsipras himself.  Since then, the Syriza government has agreed to a succession of further fiscal austerity measures including cuts to wages and jobs in the public sector, pension reductions and privatisations in return for handouts by the EU in loans to repay previous debts – in a never-ending circle.

Now Varoufakis has published his memoirs of his time as finance minister and what happened in the discussions and negotiations with the EU leaders and others over managing Greek public debt.  According to Paul Mason, reviewing the book, “Varoufakis has written one of the greatest political memoirs of all time.”  Well, to me this stands as hyperbole compared Trotsky’s My Life or for that matter, Churchill’s political memoirs.  But no doubt the book is interesting, as Mason puts it, as “the inside story of high politics told by an outsider.”  According to Mason, Varoufakis shows graphically that “Elected politicians have little power; Wall Street and a network of hedge funds, billionaires and media owners have the real power, and the art of being in politics is to recognise this as a fact of life and achieve what you can without disrupting the system.”

Varoufakis makes the point that “not only was Greece bankrupt in 2010 when the EU bailed it out, and that the bailout was designed to save the French and German banks, but that Angela Merkel and Nicolas Sarkozy knew this; and they knew it would be a disaster.”  The aim of the Euro leaders back in 2010, when the Greek crisis mushroomed in the wake of the Great Recession and the global financial crash was to ensure that the German and French banks did not suffer severe losses from any default by the Greek.  These banks had bought huge amounts of Greek public debt to make profits and now in the crisis Greek bonds were worth nothing.  The EU leaders came up with a solution: the banks would take a small ‘haircut’ (no more than 10% on their bond holdings) and the rest of the debt would be shifted onto the books of the EU, ECB and the IMF to be paid off over the next decade or so.  The Troika would then squeeze and sweat the money they lent to pay off the banks out of the Greek people.

Eventually, the leftist Syriza won a famous victory in the Greek election on a programme of rejecting the debt burden and refusing austerity measures.  This is what I wrote at that time: “The alternative to grasp the nettle: demand the cancellation of the euro and IMF loans (the original demand of Syriza) or default; impose capital controls, take over the Greek banks and appeal to the Greek people for support and the European labour movement. Let the Euro leaders make the move on Eurozone membership, not Syriza. The problem is that now the Greek people have been led to believe that there is only one way out: a deal with the Eurogroup on increasingly bad terms. The alternative of a socialist plan for investment and a Europe-wide appeal is not before them.”

After months of negotiations with the Euro leaders, Tsipras called a referendum to refuse any austerity deal, expecting to lose the vote (as did Varoufakis apparently).  Losing the vote would have got Tsipras off the hook as he could have agreed to the Troika measures because the Greeks accepted them.  But he and Varoufakis got a shock.  Despite a massive media campaign by the Euro leaders and conservative forces within Greece; despite the Germans and ECB forcing a credit squeeze and a run on and closure of Greek banks for weeks, the Greek people said no.

Nevertheless, Tsipras decided to ignore that vote and opted to capitulate.  Mason says this was the right thing to do.  “I continue to believe Tsipras was right to climb down in the face of the EU’s ultimatum…. For Tsipras – and for the older generation of former detainees and torture victims who rebuilt the Greek left after 1974 – staying in power as a dented shield against austerity was preferable to handing power back to a bunch of political mafiosi backed by a mob of baying rich-kid fashionistas.”  Is Mason serious?  Was the right-wing Mafiosi the only alternative?  Instead of building a movement of support for the government and proposing an emergency plan for the Greek people and its economy, the best solution was to give in?

Back in July 2015, I considered the options for Syriza.  There was the neoliberal solution being demanded by the Troika. This was to keep cutting back the public sector and its costs, to keep labour incomes down and to make pensioners and others pay more. This was aimed at raising the profitability of Greek capital and with extra foreign investment, restore the economy. Then maybe the Eurozone economy would eventually start to grow strongly and so help Greece, as a rising tide raises all boats.

The next solution was the Keynesian one, advocated by the left-wing within Syriza (but not by Varoufakis, who remained silent and left for America – apparently because of death threats to his family, according to his memoirs). This meant boosting public spending to increase demand, cancelling part of the government debt and for Greece to leave the euro and introduce a new currency (drachma) to be devalued by as much as was necessary to make Greek industry competitive in world markets.

The trouble with this solution was that it assumed Greek capital could revive with a lower currency rate and that more public spending would increase ‘demand’ without further lowering profitability.  But the profitability of capital is key to recovery under a capitalist economy. Greek exporters may have benefited from a devalued currency, but many Greek companies that earn money at home in drachma would be decimated. And rapidly rising inflation that would have followed devaluation would only raise profitability precisely because it will eat into the real incomes of the majority as wages failed to match inflation. Indeed, that is what is happening since the Brexit vote in the UK.

The third option was a socialist one – something not adopted then by either Tspiras, Varoufakis or the Syriza left (or it seems, could ever be viable, according to Mason). This recognised that Greek capitalism would not recover to restore living standards for the majority, whether inside the euro in a Troika programme or outside with its own currency and with no Eurozone support. The socialist solution would be to replace Greek capitalism with a planned economy where the Greek banks and major companies are publicly owned and controlled and the drive for profit is replaced with the drive for efficiency, investment and growth. The Greek economy is small but it is not without an educated people and many skills and some resources beyond tourism. Using its human capital in a planned and innovative way, it could grow. But being small, it would need, like all small economies, the help and cooperation of the rest of Europe.

This solution would have required Syriza mobilising the latent support of the people through workplace committees to discuss an emergency plan for change.  It would have entailed immediate nationalisation of the major banks to ensure payment of people’s deposits (despite the ECB) and the takeover of the major companies (reversing privatisations) in order to institute a plan for production and investment.  That would have meant approaching the labour movement and progressive forces within the major EU countries to force their governments to stop austerity on Greece or make it leave the euro and instead relieve them of this ‘odious debt’ just as the Germans were in the 1950s relieved of their reparation debt (still not paid to Greece for the destruction and death by the Nazis).

This socialist option was the only one that would have got Greece out of its hell.  But of course, it would be hugely difficult to implement.  Yes, the conservative forces within Greece would mobilise; yes, the Greek military may rear its head; and yes, the Euro leaders would try to strangle a tiny socialist Greece and kick it out of the euro and EU.  But the battle for a socialist transformation always poses these sorts of obstacles; and only the unity of the class across Europe and a determined Greek leadership could have overcome them.  But the Syriza leaders, including Varoufakis (the erratic Marxist), never considered this option as viable, and Marxist Paul Mason agrees with them. 

For them, there was no alternative but to accept the Troika impositions – which have continued to this day.  And Mason admits that “Tsipras’s government has proved a not very effective shield for the Greek working class” even if (as he claims) it was “an effective protection for the million-plus Syrian migrants who landed on Greek shores in the weeks following the economic surrender.”

Mason reckons Tsipras’ achievement of building Syriza and getting it into government is greater than that of maverick ‘Marxist’ Varoufakis who kept ‘clean’ from the capitulation in July 2015.  But apparently if the ‘global left’ is recover than it “needs leaders like Tsipras and to find thinkers and doers like Varoufakis, and to nurture them.”  Well, Varoufakis’ memoirs and Tsipras’ actions hardly seem to justify Mason’s admiration.  Only this week, the Syriza-led Greek government signed up to another round of severe austerity measures in order to get the next tranche of so-called bailout funds from the EU.  The government agreed to adopt another €3.6bn ($3.8bn) in cuts in 2019 and 2020 and have conceded fresh pension (9% cut) and corporate tax breaks in return for permission to spend an equivalent sum on poverty relief measures.

The Syriza government has done everything it has been asked of by the Troika in making the Greek people pay for the failure of Greek capitalism. And yet the EU leaders have still not agreed to ‘debt relief’. Indeed, they are talking of only considering it once the austerity measures in the latest bailout have been implemented in full and the programme comes to an end in 2018. In the meantime, the Greek government is supposed to run a budget surplus (before interest payments on loans) of 3.5% of GDP a year for the foreseeable future. That is a level way higher than any other country in the EU and way higher for so long than any other government has achieved ever!

No wonder the IMF considers this approach as unsustainable.  “Even if Greece, through a heroic effort, could temporarily reach a surplus close to 3.5% of GDP, few countries have managed to reach and sustain such high levels of primary balances for a decade or more, and it is highly unlikely that Greece can do so considering its still weak policy making institutions and projections suggesting that unemployment will remain at double digits for several decades.” IMF.

For Greece, there is no escape from the penury of public debt owed to the IMF and Eurogroup.  There is a new and detailed study of the plans of the Troika (EU, ECB and IMF) to force the Greek government to run a primary (excluding interest payments) budget surplus of 3.5% of GDP from 2018 onwards.  It shows that it will be impossible for Greece to deliver this level of austerity and, even if it did, it would not stop the debt burden rising even more.  “Past experience suggests the fiscal policy expected – a budget surplus before interest payments worth 3.5 per cent of GDP, sustained for 16 years — has literally no chance of happening even if Greece were able to start generating a 3.5 per cent primary surplus by 2018, as per the targeted schedule”.  It goes on: “Greece’s debts to the EFSF would more than double to about €278 billion in 2050, when interest deferral is assumed to end, and then begin a slow decline, but the outstanding amount in 2080 would still be higher than it is today.”  That’s 70 years since the crisis began!  The paper says that the EU should offer more bailout money from next year to “tide Greece over”. But the debt would remain and keep on rising, even if yet more austerity measures (already unprecedented in fiscal history) were applied. The only solution is to write the debt off.

So, while Varoufakis publishes his memoirs of his time as finance minister during the debt crisis, exposes the rotten and cruel policies of the Troika, and goes around Europe in seminars to demand a better Europe, the Tsipras-led Syriza government continues trying to meet the demands and targets of the Troika in the vain hope that European capitalism will recover and grow and so allow Greeks to get some crumbs off the table. There may eventually some deal on ‘debt relief’. But it will still mean that Greece has an unsustainable burden of debt on its books for generations to come, while living standards for the average Greek household fall back below where they were before Greece joined the Eurozone. A whole generation of Greeks will be worse off than the last and another global recession is still to come.