14 July 2015 — J’accuse Varoufakis
We have a deal, but we do not have a solution. The Eurozone-Summit has agreed after a marathon session to begin negotiations on a third bailout for Greece yesterday morning. In the ugly events of this weekend, the gloves came off. Schäuble asked openly for what he wanted all along (Grexit), France and Italy admitted that Grexit means Euro-disintegration and Tsipras admitted that he failed. Juncker said there were no winners and no losers in this deal. On the contrary, I would say
There are no winners, only losers
An interesting development has also been the emergence of Prof. Varoufakis as a leader-in-waiting of a revamped anti-austerity/anti-memorandum movement. Varoufakis admitted that he wanted to ‘own’ the OXI of the referendum and push for rupture. He told us that there was some Grexit contingency planning at the ministry. Of course there should have been some contingency planning for a Plan B (or Z), it would be silly to suggest otherwise. The problem is that these admissions negate everything Varoufakis has been telling us so far.
Varoufakis has no claim to the anti-austerity mantle
Varoufakis carries such significant responsibility for the disastrous outcome of this government of horrors of the last 6 months, that the idea of him now emerging as a leader of anti-memorandum protests is an affront to every Greek and every thinking person out there. Not everything is due to Varoufakis of course, and his removal at an earlier point may not have fundamentally changed the trajectory of events. What I am arguing here however is that Varoufakis made things worse and does not deserve to come out of this pretending to be some sort of anti-austerity super hero.
Let us take a short trip down memory lane and revisit the Professor’s achievements. Varoufakis met meet Mario Draghi, the ECB president, in Frankfurt on 4.2.15 hoping to persuade him to maintain liquidity to Greece’s banking sector even after the country’s EU bailout programme was due to expire at the end of February. To avoid squeezing Greece’s already tight liquidity situation any further, Draghi needed to agree with Varoufakis not to pull the plug on Greece by changing the collateral rules. In this Varoufakis failed (see here). You could choose to blame Draghi for this, or you could blame Varoufakis.
After the programme was extended with the Eurogroup 20.2.15 agreement, Varoufakis was supposed to send a list of detailed measures that would allow the completion of the review (ending the second bailout agreement) and permit the disbursement of funds. Varoufakis did indeed send a list of proposals. It was the famous document promising tourist tax inspectors and revenues through the taxation of online gambling (see here). This was not accepted (surprise suprise). Who shall we blame for this? I am thinking Varoufakis.
By Mid-March it was obvious we were heading for an impasse. My impression was that Varoufakis would have to face another Eurogroup showing dire fiscal results. The deflationary-recession dynamic seemed intractable. The inability to seriously fund measures to addresses the humanitarian crisis was already making this trend worse. I presumed that the Eurogroup would respond to this in the usual way, by demanding fiscal consolidation measures including pension and wage reductions. I expected that Varoufakis would pull the nuclear card and threaten a referendum on Grexit. Then either the Germans blink or all hell would break loose (see here). All hell did break loose but later on in July!
On 19 March Tsipras had a leaders meeting (see here) that led to the following realisations:
- A significant fiscal gap was developing (primary surplus gone) due to abysmal tax collections and arrears.
- There were no money coming from the Bailout Package till an evaluation took place.
- Greek commercial banks could not draw liquidity from the ECB to purchase Greek Bonds, as they were no longer accepted as collateral by Draghi.
- The Greek commercial banks could not draw ELA liquidity to purchase state Bonds because a) ELA was kept at minimum levels and used to cover losses from a slow motion bank run in progress and b) the ECB was about to formally prevent the BoG from allowing credit lines to be used for the purchase of state bonds.
- The interim bailout extension agreement did not allow Greece to use the bank bailout fund for other purposes (meaning for its liquidity needs).
- There would be no interim aid or credit lines from the ‘ex’ Troika so long as Greece did not present a package of structural reforms.
By the middle of April, I had lost all hope that a ‘good’ deal could be achieved. I urged Varoufaki to finish this protracted negotiation and sign whatever there was on the table before things got worse. It was vital at that point (see here) to secure the release of the bailout money and after the immediate liquidity problems are addressed, I urged the government to resign and call an election. The reason for an election was that Rupture and Grexit needs to be an explicit choice. The people must choose whether to become a German protectorate to maintain a semblance of normality, or to revert to emerging economy norms with living standards akin to 1970s. There were no good choices, but the choice was not Varoufakis’ to make.
There were hints in May that we were heading for a referendum. It turns out that Varoufakis was a supporter of this idea all along. But this referendum was not to be about Euro-membership as one would think (see here). If the referendum would not be about Euro-membership, what would it be on? Alexis Mitropoulos (Parliament’s deputy chair) proposed (in May) a referendum (taking Euro-membership as a given) on whether the Greek public would like continued support from the lenders on their terms, or on Syriza’s terms. Effectively, this is like going to a restaurant and having a poll on whether to pay for your lunch or not. This would be laughable if it were not serious. Mitropoulos’ farcical idea shows why the government was considering a referendum:
A referendum aimed to legitimise rupture and blame the Europeans for the consequences, absolving Syriza.
I said mid-May (see here) that for all the grand rhetoric on Red Lines and Electoral Promises and Mandates, Syriza had managed to back itself into a corner and blackmail itself into submission. Like Mel Brooks’ sheriff, it was threatening to shoot itself in the hope the likes of Schaeuble blink and pay up. They would not, and did not eventually. By that point anyway the liquidity situation had become so critical (see here) that the government had to turn out the pockets of the entire public sector and state sponsored enterprises to get together the funds to pay pensions and public sector salaries. This served to hide the internal default that was taking place. There was anecdotal evidence of state suppliers, contractors, various types of employees going unpaid. While Syriza was preaching against the lenders vowing to default on the ECB and the IMF to protect the Greek workers it was already failing to pay large proportions of people dependant on state disbursements. I wondered, whether it was a good idea to avoid a credit event in May, yet spark a run on the banks if people panic? People did panic of course.
Varoufakis tells us now that he had a team in the Ministry looking at Grexit. Why didn’t he ask Lapavitsas who has been working on the details of a Grexit scenario for years? Perhaps he did not (or is not telling us about it) because as Lapavitsas is bound to have discovered, before Grexit leads to recovery it will entail years of chaos. I kept asking (see here) but got no response: How does the left faction and all those prideful Greeks intend to deal with the effects of Grexit? What will the government do with the banks? How will it buy essentials, how will it pay salaries and pensions post default? It was time to cut the nonsense about Greece’s geopolitical significance and talk specifics. Specifics never appeared.
By mid-June it became clear (after the breakdown of negotiations with creditors) that Athens has planned its strategy taking a page off Abu Bakr al-Baghdadi’s book. The strategy it seems was to blackmail the Europeans by threatening to blow up the Euro. This was less ‘Kougki’ (blowing oneself up, rather than capitulate) and more ISIS, blowing oneself up and everyone around you. The problem was that there would be no happy ever after, rivers of milk and virgins for Greece if this type of grandstanding resulted in a disorderly default and Grexit. I kept saying (see here) that Varoufakis was right to complain that the ‘programme’ was wrong and recessionary. Nonetheless, he was right in his analysis but wrong in his approach. This is not an all or nothing game, a deal would allow improvement in the future. All this kougki nonsense had to stop, I said, unless of course Varoufakis has come to Lapavitsas side and wanted Grexit. His support for the referendum showed that he DID want Grexit.
Varoufakis did manage to do one thing at the end of June. He sent a comprehensive set of measures to the Eurogroup, measures that were rejected by the IMF as being too recessionary (see here)! Why was the package so hard? One could argue that this was because 5 months have been lost haggling, with the result that the economy deteriorated, so that more effort was needed to ensure that the target of a (even reduced) primary surplus is achieved. The end result was that this was a package that was clearly antithetical to what Syriza stands for. A package that could maybe get a deal with the creditors, but it satisfied no-one. Considering Varoufakis comments of the last couple of days, on wonders whether that was a serious proposal, or was it designed to provoke confrontation and a Syriza revolt (as it did)?
On June 26 Tsipras announced his criminal referendum, with the support and encouragement of Varoufakis. This vote was not on Tsipras’ laughable suggestion that we should vote on a non existent, not available, foreign language, unintelligible technical set of documents. The vote was on choosing whether the country should seek its future as part of Europe or whether it should degenerate into some sort of Balkan soviet, run by fanatics and ideologues that set out to exterminate the very people they seek to save. I argued (see here) that
believing Tsipras (about the ‘Greferendum’) is equivalent to joining a cult. You think your pride is winning and your sovereignty is ascertained, while you are being robbed and raped.
I went on TV to decry the farcical referendum and offered a post arguing that (see here) Varoufakis was lying to the people. Greece would not stay in the Euro if the vote is NO. The banking collapse that would follow would necessitate the issuance of IOUs that will fundamentally undermine the country’s position in the Euro. The bank closures were the fault of Mr Tsipras who caused a bank run with his referendum announcement. For Varoufakis, the country’s place in the EU is non-negotiable, yet leaving the EU is the only way to leave the Euro which Varoufakis himself will need to ask for in order to recapitalise the banking system, I said.
The only reason this did not come to pass, was the agreement achieved on Monday. An agreement that is a nightmare for the country, but the only alternative to a chaotic Grexit for which Varoufakis has no preparation at all. Let me reiterate:
Varoufakis did not cause Greece’s problems, but made them worse and risked the destruction of everything. He does not deserve to emerge as the OXI champion of virtue.
The fact that he chose to spend last weekend with his family in Egina, rather than show his face and vote his mind in Parliament further negates any claims to higher-moral ground. I feel personally betrayed by his months in office, believing as I had that he would achieve something sensible and good.
Greeks should listen to Varoufakis no more, he had his chance, he failed us