Greek Finance Minister Yanis Varoufakis has criticised Greece’s creditors for making “no concessions” and turning the negotiations “into a war”. In an interview with Germany’s Tagesspiegel he explains why a plan for debt restructuring is a Greek prerequisite for an agreement.

Yanis Varoufakis is finance minister of Greece, economics professor and a member of the Left Party Syriza. He spoke to Harald Schumann and Elisa Simantke for the Tagesspiegel.

Mr Varoufakis, the negotiations seem to have reached an impasse. The creditors and in particular the German government are not ready to grant further concessions and the same is true for your government. So what is there still left to talk about with Mr Schäuble?

We need to clarify something: We have not been negotiating with Germany and the European partners. This is the frustrating part of these negotiations. We negotiated with the troika, the representative of the IMF, the ECB and the EU Commission. It is not true that they made concessions and we made concessions and that there is a deadlock. They made no concessions. When we met the first time in February they came up with pretty much what they have now offered. Then we had months of negotiations in the so-called Brussels group. And there was a lot more convergence there.

So why did it not work out?

We sat down and made a record of those areas where there was agreement and of those areas where there was disagreement. We wrote down our position but also further concessions in order to get closer to the other side. This was what we presented as a proposal last week. What was presented by Jean-Claude Juncker to Prime Minister Alexis Tsipras with the support of Angela Merkel and François Hollande, was a return to the starting position as if the negotiations had never happened. This is a proposal you make when you don’t want an agreement. Though we were called not constructive, we have gone against a lot of our promises and we have crossed a lot of our red lines.

Can you give us some examples?

The primary surpluses. We offer them primary surpluses I don’t believe in. Just to come closer to their positions. We offered them an increase of the VAT, which will be problematic for us. They were gestures of good will, that we are genuinely interested in reaching an agreement. I will try to remain optimistic until the last moment, but it is clear that the other side has to come to the party now.

If you compare the figures of both proposals, the creditors demand fiscal measures of about €3 billion and Greece offers €1.87 billion. This does not seem unbridgeable, does it?

But it could be the difference between killing off what is left of the Greek economy and not killing it off. We are in a situation of seven years of continuous shrinkage. If we try to extract through tax and pension cuts more than €3 billion out of this economy there will be a greater deficit next year. It will be like beating a sick cow in order to force it to produce more milk, it will kill it. Even our own proposal of €1.8 billion surplus is excessive. What Greece needs now is a balanced budget.

But this would not be enough to stop the recession.

This is why all these fiscal measures and reforms are only one third of the package we are negotiating. We are very clear: We need a debt restructure to make our debt repayments viable. And we need an investment package. We are proposing it should come from the European Investment Bank (EIB).

Were there any positive signs from the creditors’ side concerning these ideas?

Not more than some positive noises. But what the other side needs to understand is that even the reforms we are proposing have to be part of a bigger plan to end the Greek crisis. This is not just a matter of ending the Greek program, because that is what the bureaucrats want.

But even if the current program is finished and the outstanding €7.2 billion is disbursed, Greece has to pay €30 billion until 2020 to IMF and ECB. So isn’t a third bailout package unavoidable?

We understand the difficulty of this question for the German government. So what we propose is that the conditions which have been negotiated since February become a common conditionality for a successful agreement now and for the next arrangement.

What should this next arrangement look like?

To be very clear: We are not asking for one new euro for the Greek state. What we are proposing is an intra-troika debt swap. We have €27 billion that we owe to the ECB, bonds from 2010 and 2011. They are maturing now very quickly, €6.9 billion alone this summer. These debts are a major problem because they prevent Greece from participating in Draghi’s “Quantitative Easing”…

….the ECB program to buy bonds off the member states.

It is like a rock, preventing Greece from returning to the markets. We should get a new loan from the ESM, the EU rescue fund, which can go directly to the ECB – so it is neutral to the Greek debt. But this would push the €27 billion further to the future and it allows Greece to return to the markets. It is a question of political will.

But additional liabilities for the German taxpayers because we are liable for what the ESM gives.

But you are also liable to the ECB. That is at least what Jens Weidmann thinks, the head of the German Bundesbank – so I will not dare to disagree. And then we should have a look at what will happen in 2022. The debt of more than €200 billion from the first and second program will be mature from 2021 onwards in high sums, from about €20 billion a year. Why? Because they have pushed back the interest payments that far. There is a cliff there. You could say: Why should we care about what happens in six or seven years? But this is wrong because what happens in 2022 changes today. If creditors think that a Grexit is not off the table but just postponed to 2022, they will not invest. This is why I we have to allocate the interest rates and I would like to link them to the growth of our gross domestic product. If we grow faster we will pay more interest, if we grow slower – less so.

All these points are not even mentioned in the creditors’ proposal right now. How should they become part of an agreement?

But they should know: Until we discuss these two options, the debt restructure and the investment programme, all bets are off from us, we will not agree on anything. If we want a comprehensive agreement it can’t leave out the debt situation.

In case a solution is not found, what is going to happen?

You should ask the troika, ask the institutions. We want a solution. What they propose is not a solution. It is a perpetuating of the crisis. We don’t have a mandate to perpetuate the crisis. They just want us to cut pensions and allow mass firings for the last few remaining large businesses we have in Greece.

Did you expect that your job would be so difficult?

I expected it to be hellish, yes. I am not disappointed.

So how did the debate became so personalised about you?

My prime minister said to me after the Eurogroup meeting in Riga: they are trying to get at you, because then the whole government unravels and then they get at me. But the degree of evident lies that have been treated as facts is astonishing. These rumours about what was going on in Riga, that I was forced out of the government, that I will resign… and when none of that happened: That I am not any longer a part of the negotiation team. This all was completely untrue, but it was written everywhere from Brazil to Brussels.

But do you really think this has been deliberately engineered?

It has been a character assassination endeavour, there is no other explanation. There is a saying, when war begins truth dies first. Unfortunately the institutions and our European partners have missed the opportunity that we offered: to look at these negotiations as a deliberation between partners. They turned it into a war against us.

We are talking a lot about your struggle with the creditors. This struggle seems to take up so much of your attention and time, so that the government doesn’t seem to have energy left for domestic affairs– to change some things in the structure of the Greek state you criticised yourself before the elections.

The most frustrating part is that these negotiations are taking up all our energy and time. And moreover: the institutions are telling us, if we legislate before we reached a comprehensive agreement this will be seen as a unilateral action and it will blow up the negotiations. One of the very first things I said to my Eurogroup colleagues was, why don’t we push some of the legislation we agree on – the taxation system, the anti-corruption rules – through parliament and meanwhile continue the negotiations? And I was actually told a number of times if I dare to suggest this again this would constitute reason to settle the negotiations.

This means you haven’t yet pushed through anything you planned?

We introduced a humanitarian bill which provides access to food, shelter and energy for the poorest. We also introduced a tax arrears instalment scheme. We have six million tax file numbers. Of those 3.5 million are in arrears to the state for less than €3,000. Not because they are tax cheaters but because they simply cannot pay. This is a tragedy for them because they can’t get a loan, they can’t start a business without a clearance from the tax office. Now they can pay back little by little. We have been harshly criticised for this law by the institutions.

But wasn’t this also because you did it without a threshold? So now also rich tax avoiders benefit from your generous amnesty…

That is a good point. But this is an emergency. In a normal country we would not have to introduce this instalment scheme. In a normal country we would prosecute the tax cheats. But we also have a broken down judicial system. With the big tax cheaters, if you take them to court they get a court case that will be heard in 2023. And by that time you won’t gain one penny from them. We don’t even have tax officers. The salaries for the tax officers were reduced a lot, so a lot of them went into private practice. The first day I was in office I asked: how many tax inspectors do I have access to? You know what the answer was? 100. 100 for the whole of Greece.

A frequently cited example is the so-called Lagarde list, with more than 2,000 names of potential tax avoiders and tax cheaters. Up to now only 49 have been investigated.

We don’t have the personnel and we are struggling with the banking system to allow us access to the bank accounts. But concerning the Lagarde list, the previous government didn’t do anything for years. So a lot of these cases are too old now. But we have new lists now and we are working very hard towards an algorithmic system of automatic checks of all the movements between bank accounts in Greece and abroad. We are making a lot of progress and we expect good results until September.

You have proposed that Chancellor Merkel should hold a “speech of hope” in Greece. This sounds very naive.

But why? This is what a hegemon needs to do. In 1946 the United States understood the difference between hegemonies and authoritarianism. Germany got a chance so Europe got a chance.

But we Germans don’t see ourselves as a hegemon.

I consider it to be my job to say to German leaders: you have to lead. I have been portrayed as anti-German or very sceptical towards Germany. But this is all false. What I want from Germany is leadership.

You talk about leadership and the Germans understand ‘Varoufakis wants our money’.

My answer is: You have given me your money, you have given me too much of your money. But it was wasted. It vanished into a black hole of unsustainable debt, it never really went to Greece, it went to the banks. The bank bailout was presented as a bailout for Greece. That turned the Germans against the Greeks and the Greeks against the Germans. And Europe could get lost to the hands of the enemies of Europe. Someone has to lead Europe out of that crisis. I can’t, Greece can’t. Germany can do it, but it has to be a hegemon. It has to create a rational solution and this is not to ask Greece to take more of the same medicine that is part of the problem but not of the solution.