Yanis Varoufakis Provokes Greek Drama with Bailout Stance
The country’s charismatic new Finance minister has vowed to keep Greece in the euro area while scrapping most of its debt obligations.
On his first visit to Berlin as the new Greek Finance minister, Yanis Varoufakis got a chilly reception from his German counterpart, Wolfgang Schäuble. The German said the two men agreed to disagree over Greece’s demand for fresh debt relief. Varoufakis was much more blunt: “We didn’t even agree to disagree, from where I’m standing.”
But Varoufakis struck a more sympathetic chord with the broader German, and European, public. Sporting an untucked shirt, leather jacket and chiseled good looks on a whirlwind tour of European Union capitals, the 53-year-old economist won rock star–like reviews. The German daily Die Welt called him “a sex icon,” gushing about “his balding head, cool style and muscular Yamaha motorcycle.”
Varoufakis will need plenty of cool in the weeks ahead. Appointed by Prime Minister Alexis Tsipras late last month after the left-wing Syriza party swept to power on an antiausterity platform, Varoufakis aims to pull off the seemingly irreconcilable: Tear up much of Greece’s €240 billion ($273 billion) bailout program while keeping the country in the 19-nation euro area.
He’s well prepared for the task. Varoufakis obtained a doctorate from the University of Essex in 1987, writing his thesis on game theory and industrial strikes. He has taught at universities from Glasgow, Scotland, to Sydney to Austin, Texas, and written on everything from game theory to reforming the international financial system. “I don’t know anybody who has quite the intellectual range that Yanis does,” says James Galbraith, an economist at the University of Texas at Austin who co-authored a 2013 paper with Varoufakis that called for resolving the euro area’s debt crisis with bank recapitalizations, a partial mutualization of government debts and greater EU spending on infrastructure and social programs.
Varoufakis gained notoriety at home, and the attention of Tsipras, by decrying the bailout program from the beginning back in 2010, calling it folly to pile more debt on a shrinking Greek economy. Over the past five years, public sector debt has soared to an estimated 175 percent of gross domestic product while the economy has shrunk by a quarter and unemployment stands at about 25 percent. Varoufakis won more votes than any other parliamentary candidate in the January 25 election even though he is not a member of Syriza.
To his EU partners, Varoufakis proposes a new strategy involving bridge financing for up to six months to let the new government get its plans in order, replacing some of Greece’s debt mountain with obligations linked to GDP, or its ability to repay, and cutting Greece’s primary budget surplus target (that’s before interest payments) to finance wage hikes and social spending. He also wants to junk the economic reform requirements in the bailout program in favor of reforms drawn up by the Organization for Economic Cooperation and Development. That last point reflects the toxic nature of the so-called troika of the EU, the European Central Bank and the International Monetary Fund, which dictated the terms of the existing bailout.
“We are not negotiating the bailout,” Tsipras declared in the Greek parliament on February 11 before winning a confidence vote on the government’s program. “It was canceled by its own failure.”
Finance ministers rebuffed Varoufakis later that day in Brussels at the first meeting of the euro group since Syriza took power. The two sides couldn’t even agree on a statement after the meeting, underscoring the tense atmosphere. Talks resumed two days later. The two sides don’t have much time. The existing bailout program expires at the end of February, the government is running short of funds, and the ECB said it would cut off a major source of liquidity for Greek banks without a new program.
The gap between the two sides, although wide, should be bridgeable, analysts say. The EU was prepared to ease surplus targets for the previous government and extend fresh financing in the near term. Banishing the words “bailout program” and substituting the OECD for the dreaded troika is a matter more of semantics than substance. And German Chancellor Angela Merkel doesn’t need an internal EU crisis when she’s trying to prevent the Ukraine conflict from erupting into a full-scale war. Yet time is tight, and the Greeks’ harsh rhetoric didn’t help, even if it was aimed mainly at Syriza supporters at home. Varoufakis didn’t win any friends in Germany when he compared the existing bailout program to waterboarding in an interview with Der Spiegel.
Does the game theorist have a secret negotiating plan up his sleeve? Judging by his comments to the Guardian newspaper, it might be that old Cold War strategy, mutually assured destruction.
“We constantly hear, ‘If you don’t sign on the dotted line, there is going to be Armageddon,’” he was quoted as saying. “My answer is, ‘Let it happen!’ There is no fallback plan. That is my plan B.”
Follow Tom Buerkle on Twitter at @tombuerkle.