Eight months after his abrupt resignation as Greece's finance minister, Yanis Varoufakis is back in the thick of things, leading a new pan-European political movement and promoting a new book about the origins of the euro zone crisis. Trim, tanned and fashionably dressed, he looks younger than his 55 years and the crushing failure of his five months as finance minister appears to have done little to dampen his determination to transform the economic conversation in Europe.
The former economics professor's hard-charging approach to the troika and the Eurogroup came to a halt last August when Greek prime minister Alexis Tsipras caved in to EU pressure and accepted a new memorandum of understanding. Varoufakis wanted to hang tough, threatening to default on a €27 billion debt to the ECB if the troika refused to ease the terms of Greece's bailout.
Varoufakis's book And the Weak Suffer What They Must?, traces the origins of Europe's crisis to the United States's decision to pull the plug on the Bretton Woods system in 1971. The system, which had maintained exchange-rate stability since the second World War, had become unsustainable for the US, which unilaterally decided to break the link between the dollar and the price of gold.
In the book, Varoufakis suggests Europe might have prevented the collapse of Bretton Woods by trying to reform the system through negotiation. Instead, he writes, “Europe’s leaders overplayed a weak hand against a bold hegemon. They would now have to suffer the consequences.”
Might not the same be said about his dealings with the troika? "No, not at all. We had a weak hand, there's no doubt about that. But we also had a couple of weapons which made our weak hand sufficiently strong to aim for the absolute minimum that we had to," he said. "It was completely realistic. I wasn't expecting Michael Noonan to help me. Or [Italian economy minister] Pier Carlo Padoan. I was expecting [ECB president Mario] Draghi to call [German chancellor Angela] Merkel and say, 'They're asking for something sensible. If we don't give it to them and crush them, they can inflict enormous damage on us. Let's find an accommodation.'
“And I think Merkel would have said okay. I have no doubt she would, like she did in 2012. Merkel is a very adaptable, very rational politician.”
Varoufakis claims he adopted a flexible approach to negotiations and was prepared to compromise on important parts of the Syriza government's platform, including privatisation and pensions. But the atmosphere in the Eurogroup was such that, after German finance minister Wolfgang Schäuble made clear there was no room for compromise with Greece, all substantive discussion of policy options ceased.
"Michael Noonan could not be seen even talking to me about these matters because then he feared that Ireland would suffer more harshness from the troika. I'm not criticising him for that. This is not making a cheap point against Michael Noonan. We've come to a situation in Europe, it's a dire situation where sensible discussion about policies that could allow our economies to revive are simply not allowed," he said.
Varoufakis derides Ireland’s approach to the troika as that of the “model prisoner” who does what he is told in the hope of a later reprieve. And he dismisses as “a terrible deal” the Government’s most loudly trumpeted concession from the troika, the renegotiation of the promissory notes.
“These promissory notes should have been restructured. Instead, they were slightly elongated without allowing the Irish State to benefit substantially from this elongation. It’s going to go down in history as a pretty bad deal,” he said.
Varoufakis acknowledges that Ireland is in much better economic shape than Greece, although he points out that many of our best and brightest have been lost to emigration and argues that the jobs that have replaced those lost since 2008 are often of poorer quality. He also claims that Ireland was a beneficiary of the brutality of the first Greek bailout, as the troika recoiled from the impact of its actions and imposed softer terms on Ireland and Portugal.
Ireland was always going to face a recession after the financial crash but Varoufakis believes that the timidity of both successive governments in the face of international lenders increased the hardship.
Short, sharp shock
“The question is, do you opt for a short, sharp shock and a short-term cost which then leads to recovery or do you mutualise the private losses which then leads to the loss of a whole generation? And I think that is what the two governments have been responsible for.
“You should have said no to [Jean-Claude] Trichet. His threat was not credible. His threat of Armageddon if the government did not accept the transfer of the Anglo-Irish losses onto the books of the public sector was simply not credible. He did not have the capacity to maintain the euro zone if he had carried through with his threat. And your governments are complicit to having succumbed to a non-credible threat.”
Varoufakis has not spoken to Tsipras since shortly after his resignation last August, although he says he maintains warm feelings for the prime minister. The transcript of a conversation between IMF officials released by WikiLeaks this month suggests that the fund was considering triggering an “event” to shock Greece into further reforms, something Varoufakis views as confirmation he was right and Tsipras was wrong about how to deal with the lenders.
“I think he’s in a dead end. Personally, I think he doesn’t really have anything to say to me because I was telling him that this was not going to work. And now with the WikiLeaks revelations regarding the IMF discussions you can see that unfortunately, I was right. The fact that the government want to be model prisoners hasn’t made any difference,” he said.
Despite his misgivings about how the EU operates, Varoufakis believes a British vote to leave on June 23rd would be a disaster for Britain, Europe – and especially for Ireland. “It will create awful deflationary forces that will eat Britain up. If Britain thinks that it’s removed from Europe, it is not. Ireland is caught up between Britain and Europe. You’re too close to Britain in terms of trade and physically, and you’ll be split up between a disintegrating Europe and an imploding Britain,” he said.
“So it is imperative, independently of whether we’re on the right or on the left, as long as we’re democrats and we believe that there’s a rational, common sense way of stabilising Europe in order to stabilise our own countries, to keep Britain but at the same time to confront the mindset of Brussels without being model prisoners.”
For his part, Varoufakis is devoting his time to writing, speaking, advising Labour leader Jeremy Corbyn and leading the Democracy in Europe Movement 2025 (DiEM25). The movement aims to reinvigorate the EU as a union based on democratic consent rather than technocratic governance within the next decade.
“It’s a wholly utopian project of creating a pan-European conversation, a political movement which is pursuing the agenda I outlined to you. But then again, all good things that change the world in a good way begin as utopias,” he said.
And the Weak Suffer What They Must? by Yanis Varoufakis is published by The Bodley Head at £16.99.