By Yanis Varoufakis, professor of economics at the University of Athens. Originally posted at his blog
This is a stupendous story. Possibly for the first time in its tainted history, the International Monetary Fund had a major change of heart and tried to do the right thing by a ‘program’ country, only to be turned down by that very same country’s finance minister!
The summer of 2012 had just ended and Greece was, once again, facing a ‘funding gap’; a euphemism by which to cover up for the fact that, unsurprisingly, the bankrupt Greek government’s insolvency had not been addressed by new gigantic loans and fresh income-sapping austerity. Around that time, the IMF’s Ms Lagarde was being put under pressure from non-European member-states of the IMF to stop lending more money to Greece until and unless Germany and the European Central Bank came to their senses and accepted the simple premise that Greece’s solvency could only be resolved through a deep debt restructure (or, alternatively, by an enforced exit from the Eurozone).
Ms Lagarde was, in this manner, encouraged to ‘take her leave’ from the European club and to enter the Eurogroup meetings during the latter part of 2012 confrontationally, and with an aggressive agenda of restructuring Greek public debt. Alas, there was a snag: The Greek government, the main beneficiary of the IMF’s change of heart, was unwilling to forge an alliance with the IMF, disinclined to imagine the very possibility of siding with the Washington organisation against the mighty Mr Schäuble. Here is an extract from an article by Peter Spiegel and Kerin Hope from yesterday’s Financial Times:
Indeed, Mr Stournaras said he bucked pressure from Christine Lagarde, IMF managing director, and Poul Thomsen, the IMF’s Greece mission chief, to ask other eurozone leaders – including German finance minister Wolfgang Schäuble – to accept “haircut” losses on their bailout loans. “Poul and Lagarde said I had to [stand] by their side,” he recalled. “I said: ‘OK, but if I come by your side, it is what would really help Greece, but it’s something which is totally out of the question.’ Schäuble told me: ‘Yannis, forget it.’ So it cannot be done, so what can I do?”
Never perhaps in the history of the European Union has a better example seen the light of day of the complete and utter subjugation of proud nations to the tyranny of the leading surplus nation. Never before have we had such a vivid confirmation that the European Union is no longer an association of sovereign nations and that a rational debate is ruled right out. Think about it:
1. Greece’s national interest, as well as the IMF’s, was to effect this restructure as soon as possible.
2. There was no risk to Greece from the IMF’s proposed alliance: Mr Stournaras had nothing to lose by forming the alliance requested by Ms Lagarde so as to push for a restructuring of the Greek debt. The very worst outcome of such an IMF-Greece alliance would be that the joint IMF-Greek position might be rejected by the rest of the Eurogroup and that Greece would end up with the same rotten deal it ended up getting anyway. In other words, under no circumstances would a joint IMF-Greek proposal lead to an outcome worse than the one Greece got after having rejected Ms Lagarde’s overtures.
3. Europe’s collective interest was that the Greek debt is restructured sooner rather than later – since the slow, Chinese-drop-torture-like process guarantees that no sane investor will invest in a country whose public debt remains hopelessly unsustainable (especially in the absence of a banking union), thus ensuring that European taxpayers will have to lend and lend and lend a permanently insolvent government, thus pushing through the roof the eventual costs of the restructure in particular and of the ‘Greek program’ in general.
4. Mr Stournaras, perhaps unwittingly, admitted to the Financial Times that he informed the German finance minister of Ms Lagarde’s and Mr Tompsen’s offer before the crucial Eurogroup meetings, thus voiding any surprise-move advantage that an IMF-Greek common position could have enjoyed. As we all know, from the experience of the past five years, when confronted unexpectedly by a determined large ‘player’ (e.g. the IMF), the German position suddenly becomes more flexible. Thus Greece stood to gain at least some benefits from accepting Ms Lagarde’s overtures. (But as the main beneficiary of the IMF’s readiness to confront Berlin, Greece that is, refused to join in, there was nothing that the IMF could do.)
5. Given the previous four points, it is hard to avoid the conclusion that Mr Stournaras was far more interested in maintaining a cosy relationship with Mr Schäuble than to pursue the interests of both Greece and of the Eurozone.
Epilogue
Yannis Stournaras happens to be a valued colleague and a good friend of mine (see the open letter I sent him upon his appointment as finance minister). It is with great personal sadness that I write these lines. Greece needs a finance minister that will re-negotiate forcefully the terms and conditions of a misanthropic, irrational, unworkable ‘bailout’ package (especially now that a Mk3 version is on the boil). Given the way he, by his own admission, squandered this remarkable opportunity to increase Greece’s bargaining power, he lacks the credibility amongst Greece’s polity to lead these negotiations. He should thus resign. Effective immediately.
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No mention of Angelos Filippides and the latest Greek bank fraud in this article.
It’s all the fault of others. “Proud nation”? Then clean up the corruption. Sorry, but there a different ways to look at things. Stopping to pay out pensions to dead people, for example. And by all means, leave the Euro – but Greece does not want to.
I just want to know what clean country you come from?
Fair enough, but this is Greece we’re talking about. The most corrupt nation in Europe, and for a continent that includes Italy, Romania and bulgaria that’s really saying something.
As this story indicates, the greek elite is shockingly bent.
“Fair enough, but this is Greece we’re talking about. The most corrupt nation in Europe, and for a continent that includes Italy, Romania and bulgaria that’s really saying something.”
And that is the problem. That is what the elites want everyone to be always talking about. Greek corruption. Because it distracts from the real problem.
Well I could care less about what some European corruption agency says or transparency international says. Its all garbage to me the way they go about finding evidence for it.
The only corruption I will worry about is the one that takes away jobs and respectable pay. I will worry about the rest after this is fixed.
Greece could be the cleanest country in Europe and it would still be in the trouble it is in. Because corruption is not the cause or the problem of the crises. The best it could of hoped for is that it is not the weakest in the chain but it would still be next in line.
Corruption when talking about Greece is a convenient tool used by:
German and core country elites to distract from the real problem.
Greek elites who use it to distract from the real problem.
Greek conservatives who are moralists and also want to destroy Greek unions and labour rights. Who are apparently the cause of all of Greece’s problems because if we can get Greeks to work for a dollar an hour and
sell anything Greece owns. Well corruption will be non existent and Greece will be bathing in riches from international investment
Bigots and conservatives from Germany and other northern countries were it plays into their perception of Greeks been corrupt and lazy and untrustworthy and apparently blame their problems on others.
“As this story indicates, the greek elite is shockingly bent.”
Yes this is true the elite is bent in favour of what Germany and any other core country tells it to do.
How fitting that the same corrupt elites who are called corrupt are the ones who call everyone in Greece corrupt and tell the world Greece is corrupt and are the same ones Germany wants in power.
To fight corruption you need to employ people and have infrastructure to tackle it. All that takes money so a poor country becomes corrupt or you can see its corruption a lot easier.
But what about rich countries you think they don’t have corruption on the same level as Greece and others?
They do its just not put as out in the open like Greece’s is and its not put under the spotlight for anyone’s convenience so it can be used as a tool.
I know people who read the German press a lot and see all their own corruption stories and there are alot of them. But you don’t here anyone talking about German corruption. There is a hell of a lot more payouts to dead people in Japan and the yakuza been involved in many things but I don’t hear anyone calling them corrupt like they do about Italy and Greece.
Greece is definitely NOT the most corrupt country in Europe. You my friend have no clue regarding what you are talking about. And you have obviously not lived in any Eastern European country. Those countries are by FAR the most corrupt countries in Europe. Second is Italy. Greece has corruption on par with Spain and Portugal but its not the reason for this Crisis. The real reason is the euro is not controlled by each state but by the Germans. Therefore countries cannot inflate their currency until they get back on their feet. Each eu country should have their own currency. With Greece’s gold mine of tourism it will only take just under a decade to become stronger than it ever was.
I never said Greece was the most corrupt. Reading comprehension fail.
However, one of the complaints made as to why Greece is such a money-sieve is it has a corrupt and badly broken tax collection system, so corruption is a significant component of its financial woes.
At the end of the day, it won’t be money or efficiency that will determine our collective fate. It will be feelings.
For me, the IMF aspect is more interesting here than the Greek. As far as Greece is concerned there’s no surprise: they allowed the EU to throw out their democratically elected government, compared to that this episode is minor.
But the IMF seems to be fast changing for the better. Their research arm is very strong if not too unorthodox, but until recently there’s been a disconnect between research and policy, which it seems is now shrinking fast. I think the IMF has made huge progress since Stiglitz’s times, and if one day they openly challenge their partners in the Troika – or indeed drop out – that can make a lot of difference for Europe.
Assuming that one agrees with the post’s agit-prop points, one needs to know how Y.V. explains the decision of the Eurogroup that “the sustainability of Greece’s debt will be dealt with after Greece achieves primary budget surplus”.