Is Greece moving towards an exit? Not perhaps an exit from the euro for the country, but an exit from the government for its controversial Finance Minister, Yanis Varoufakis (currently a front runner in Prospect’s World Thinker’s poll)? Over the weekend, Varoufakis threw down his latest challenge to the European political establishment by warning in an Italian newspaper that Syriza could, if necessary, call a referendum or general election to reaffirm clear democratic support for its policy of defying European Union austerity programmes. Alexis Tsipras, the increasingly emollient Greek prime minister, seemed to understand that, for other European leaders, this would be the ultimate provocation, since the precedence of bureaucratic rules over democratic mandates is one core principle on which the EU could never compromise. On Monday morning he slapped down Varoufakis, urging his finance minister to rely on ”fewer words and more action”.
This rebuke was quickly followed by a statement from the Finance Ministry, pointing out that Varoufakis had never called into question the Greek government’s absolute commitment to stay within the euro. But therein lies the essence of the Greek problem: the economic policies for which Syriza has won a democratic mandate—raising pensions and wages, re-hiring sacked public servants, reversing privatisations—appear to be compatible with the euro membership, at least under rules laid down and interpreted by the present leadership of the EU.
This is a genuine Greek tragedy, because many of Varoufakis’ reflationary policy proposals make good sense and would probably benefit the whole of Europe if they set an example for other depressed economies, such as Spain and Italy. But it is mathematically impossible for the Greek government to implement these policies unilaterally while staying within the euro, unless Tsipras and Vaorufakis can win explicit permission and financial support from the rest of the EU. This is because the government does not have the money in its Treasury to fulfil its promises and it cannot turn to the European Central Bank for the newly printed euros that are now being made available to all the other governments in the euro zone.
Further reading:Yanis Varoufakis: Germany’s nemesis
World Thinkers 2015: Yanis Varoufakis
To have any chance of success, Tsipras must therefore persuade other EU leaders that he will behave “responsibly”, which means meekly and cooperatively accepting whatever policies the hated “Troika” of economic inspectors from the ECB, European Commission and IMF decide to impose on Greece.
The irony is that the Troika was ready to soften its austerity demands very substantially, in response to the Greek election. In fact, some of the Syriza substantive proposals, ranging from tax reforms to easing of fiscal targets and modest adjustments in some wages and pensions, were quietly welcomed within all three Troika institutions. But to save face for the Troika and for other EU governments under pressure to ease austerity in their own countries, such concessions to Greece could only emerge at the end of long negotiations, in which the new left-wing government was also seen to be compromising some of its cherished symbolic demands.
But instead of launching such long technical negotiations, which would normally be conducted for months among Finance Ministers and only endorsed at the last moment by heads of government, Varoufakis immediately threw down the gauntlet last month by refusing even to talk to the Troika or appearing to reject the principle of an EU-supervised economic programme. After retreating two weeks later on both these economically unimportant but symbolically potent issues, Varoufakis seemed to return this weekend to full-blown provocative mode.
The question now is whether the Varoufakis himself could become the symbol of the Greek government’s obeisance to the Troika and the EU. By replacing Varoufakis with a more emollient technocratic finance minister, Tsipras could offer other EU leaders the scapegoat they need. In exchange for this symbolic sacrifice, the Troika could go ahead with the softening of austerity demands that was anyway in prospect before Varoufakis overplayed his hand last month. This would certainly be a better outcome for Greece and for Europe than the obvious alternative: removal of the entire Syriza government, led by Tsipras, and its replacement by EU-approved technocrats, as in Italy three years ago.
