2 AUGUST 2015 LM DLe Monde diplomatique

SpeciaL REPORT

‘COMMISSION MUST DEFER TO EUROGROUP’S PRESIDENT’

The defeat of Europe

The Eurogroup – which has no legal standing – is anti-democratic, disdainful of the European Commission,

which it now commands, and internally fractured. This is what it did to Greece

In 2010 the Greek state lost the capacity to service its debt. Put simply, it became insolvent and thus lost access to capital markets. To prevent a default on fragile French and German banks that had irresponsibly lent billions to irresponsible Greek governments, Europe decided to grant Greece the biggest loan in world history on condition of the largest ever fiscal consolidation (better known as austerity) which, naturally, resulted in a world-record loss of national income – the greatest since the Great Depression. And so began a vicious cycle of austerity-driven debt deflation, spearheading a humanitarian crisis and a complete inability to repay the nation’s debts.

For five years the troika of Greece’s official lenders (the International Monetary Fund, European Central Bank and European Commission, representing creditor memberstates) were committed to this dead-end strategy that financiers label “extend and pretend”: lending to an insolvent debtor more and more money in order to avoid having to write off a bad debt. The more the creditors insisted on this strategy, the greater the damage to Greece’s social economy, the less reformable Greece became, and the larger the creditors’ losses.

This is why our party, Syriza, won last January’s election. Had the electorate believed that Greece was on the mend, we would not have won. Our mandate was straightforward: to stop the “extend and pretend” loans and the associated austerity, which were driving Greece’s private sector into the ground. And to lift the fog of doom in which it was impossible to carry the people with us along the road toward the crucial, deep reforms that Greek society needed.

Yanis Varoufakis is Greece’s former finance minister and a member of the Greek parliament

BY YANIS VAROUFAKIS

In my first Eurogroup meeting (1), on 11 February, I delivered a simple message: “In our government you will find a trustworthy partner. We shall strive for common ground with the Eurogroup on the basis of a threeplank policy to tackle Greece’s economic malaise: deep reforms to enhance efficiency and defeat corruption, tax evasion, oligarchy and rent-seeking; sound state finances based on a small but viable primary budget surplus that does not impose too heavy a burden on the private sector; and a sensible rationalisation, or re-profiling, of our debt structure so as to allow for the viable primary budget surpluses consistent with the rates of growth necessary to maximise the true value of our repayments to our creditors.”

A few days earlier, on 5 February, I paid my first visit to Dr Wolfgang Schäuble, the German finance minister. I reassured him that he could expect from us proposals aimed not at the interests of the average Greek but at the interests of the average European – German, French, Slovak, Finn, Spaniard, Italian, etc.

But none of our noble intentions were of any interest to Europe’s powers-that-be. We were to find this out the hard way during the five months of ensuing negotiations.

On 30 January, a few days after I became finance minister, the president of the Eurogroup, Jeroen Dijsselbloem, paid me a visit. Within minutes he asked me what I was planning to do vis-à-vis the Memorandum of Understanding (MoU) that the previous government had signed up to. I explained to him that our government was elected to re-negotiate that MoU; that is, we would be asking for an opportunity to re-visit the blueprint of fiscal and reform policies that had failed so spectacularly over the past five years, having diminished national income by one third and turned the whole of Greek society against the very notion of reform.

Dijsselbloem’s response was immediate and crystal clear: “That won’t work. It is either the MoU or the programme crashes.” In other words, either we would have to accept the failed policies that were imposed on previous Greek governments, and which we were elected to challenge, or our banks would be shut down – for this is what a “crashed programme” entails in the case of a member state that has no market access: the European Central Bank removes financing of the banks, whose doors and ATMs then shut down.

This blatant attempt at blackmailing an incoming, democratically elected government was no one-off. At the Eurogroup meeting that followed 11 days later, Dijsselbloem’s disregard for democracy’s most basic principle was confirmed, and enhanced, by Schäuble, who spoke immediately after Michel Sapin, the French finance minister. Sapin had just argued in favour of discovering common ground between the validity of the existing MoU and the right of the Greek people to mandate us to re-negotiate crucial parts of the MoU. Schäuble lost no time in giving short shrift to Sapin’s reasonable point: “Elections cannot be allowed to change anything,” he said, with a large majority of finance ministers nodding along.

At the end of that same meeting, while negotiating the joint statement to be released, I asked that the word “amended” be added in front of “MoU” in a sentence that was meant to commit our government to the latter. Schäuble vetoed my proposed phrase, saying that the existing MoU was not to be negotiated just because the Greeks had elected a new government. After a few hours of the resulting standoff, Dijsselbloem threatened me with an imminent “programme collapse” (which translated into bank closures by 28 February) if I insisted on adding “amended” in front of “MoU”. On instructions from my prime minister, Alexis Tsipras, I left the meeting without a communiqué being agreed to, ignoring

Dijsselbloem’s threat. Although the threat proved empty, it soon returned with a vengeance.

Time and again we would be threatened with bank closures when refusing to endorse a programme, the MoU, which had so demonstrably failed in every possible way. The creditors and Eurogroup refused even to engage with our economic arguments. They demanded that we capitulate. They even accused me of daring to “lecture” them on economics!

And so it was that Greece’s negotiations with its creditors were conducted – under a dark cloud of threat. That the threat was credible we knew from the outset, even though we were not prepared to stand down or to lose hope that Europe would change tack.

A month before we were elected, the previous Greek government, in cahoots with the governor of the Bank of Greece (who had previously served as that same government’s finance minister), had already sparked off a mild bank run. After our election, the ECB began to signal that it would steadily switch off the flow of liquidity to Greece’s banking system, reinforcing the deposit flight that, at a time of the Eurogroup’s choosing, would “justify” the closing down of the banks – as Dijsselbloem had threatened.