In… my defence – by Mohamed El Erian

In Defense of Varoufakis

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LONDON – From blaming him for the renewed collapse of the Greek economy to accusing him of illegally plotting Greece’s exit from the eurozone, it has become fashionable to disparage Yanis Varoufakis, the country’s former finance minister. While I have never met or spoken to him, I believe that he is getting a bad rap (and increasingly so). In the process, attention is being diverted away from the issues that are central to Greece’s ability to recover and prosper – whether it stays in the eurozone or decides to leave.

That is why it is important to take note of the ideas that Varoufakis continues to espouse. Greeks and others may fault him for pursuing his agenda with too little politesse while in office. But the essence of that agenda was – and remains – largely correct.

Following an impressive election victory by his Syriza party in January, Greece’s prime minister, Alexis Tsipras, appointed Varoufakis to lead the delicate negotiations with the country’s creditors. His mandate was to recast the relationship in two important ways: render its terms more amenable to economic growth and job creation; and restore balance and dignity to the treatment of Greece by its European partners and the International Monetary Fund.
These objectives reflected Greece’s frustrating and disappointing experience under two previous bailout packages administered by “the institutions” (the European Commission, the European Central Bank, and the IMF). In pursuing them, Varoufakis felt empowered by the scale of Syriza’s electoral win and compelled by economic logic to press three issues that many economists believe must be addressed if sustained growth is to be restored: less and more intelligent austerity; structural reforms that better meet social objectives; and debt reduction.

These issues remain as relevant today, with Varoufakis out of government, as they were when he was tirelessly advocating for them during visits to European capitals and in tense late-night negotiations in Brussels. Indeed, many observers view the agreement on a third bailout program that Greece reached with its creditors – barely a week after Varoufakis resigned – as simply more of the same. At best, the deal will bring a respite – one that is likely to prove both short and shallow.

In part, the criticism of Varoufakis reflects less the substance of his proposals than the manner in which he approached his interlocutors. Eschewing the traditional duality of frank private discussions and restrained public commentary, he aggressively advocated his case openly and bluntly, and did so in an increasingly personal manner.

Whether deemed naive or belligerent, this approach undeniably upset and angered European politicians. Rather than modifying a policy framework that had failed for five years to deliver on its stated objectives, they dug in their heels, eventually resorting to the economic equivalent of gunboat diplomacy. And they evidently also made it clear to Varoufakis’s boss, Tsipras, that the future of negotiations depended on him casting aside his unconventional minister – which he did, first by assigning someone else to lead the negotiations and then by appointing a new finance minister altogether.

Now that he is out of office, Varoufakis is being blamed for much more than failing to adapt his approach to political reality. Some hold him responsible for the renewed collapse of the Greek economy, the unprecedented shuttering of the banking system, and the imposition of stifling capital controls. Others are calling for criminal investigations, characterizing the work he led on a Plan B (whereby Greece would introduce a new payments system either in parallel or instead of the euro) as tantamount to treason.

But, love him or hate him (and, it seems, very few people who have encountered him feel indifferent), Varoufakis was never the arbiter of Greece’s fate. Yes, he should have adopted a more conciliatory style and shown greater appreciation for the norms of European negotiations; and, yes, he overestimated Greece’s bargaining power, wrongly assuming that pressing the threat of Grexit would compel his European partners to reconsider their long-entrenched positions. But, relative to the macro situation, these are minor issues.

Varoufakis had no control over the economic mess that Syriza inherited when it came to power, including an unemployment rate hovering around 25% and youth joblessness that had been running at more than 50% for a considerable period. He could not influence in any meaningful manner the national narratives that had sunk deep roots in other European countries and thus undermined those countries’ ability to adapt. He could not counter the view among some of the region’s politicians that success for Syriza would embolden and strengthen other non-traditional parties around Europe.

It also would have been irresponsible for Varoufakis not to work behind closed doors on a Plan B. After all, Greece’s eurozone destiny largely was – and remains – in the hands of others (particularly Germany, the ECB, and the IMF). And it is yet to be established whether Varoufakis broke any laws in the way he and his colleagues worked on their contingency plan.

When push came to shove, Varoufakis faced the difficult choice of going along with more of the same, despite knowing that it would fail, or trying to pivot to a new approach. He bravely opted for the latter. While his brash style undermined outcomes, it would be a real tragedy to lose sight of his arguments (which have been made by many others as well).

If Greece is to have any realistic chance of long-term economic recovery and meeting its citizens’ legitimate aspirations, policymakers must recast the country’s austerity program, couple pro-growth reforms with greater social justice, and secure additional debt relief. And if Greece is to remain in the eurozone (still a big if, even after the latest agreement), it must not only earn its peers’ respect; it must be treated with greater respect by them as well.

Read more at http://www.project-syndicate.org/commentary/varoufakis-agenda-defended-by-mohamed-a–el-erian-2015-07#33CQHjCfHLWkXYFb.99

7 Comments

    • “…dreaming of a Europe that never existed (nor will ever exist) seems like a lapse of judgement on your part.”

      Fully agree with you, it was a catastrophic base for any negotiations with the Huns!

      If Yanis and/or his negotiation team were trained/experienced in the Harvard negotiation method they would have acted completely different. The game theory didn’t suffice in this case.

  • It seems obvious to me that you, Yanis, are being scapegoated by (much of) the bourgeois media largely to serve as distraction from the real problem and the real people in charge of the wrong decisions, which are the Greek government and the former “opposition”, no dedicated to sustain Tsipras in place while he does what the Troika demands.

  • Yani, many people inside Ellada are on your side from right across the political spectrum. Also, Zoe’s, Lafazani’s etc. This is not a partisan issue, the future of our beloved country is much bigger than that. Keep strong. Your fellow countrymen are way out ahead of the politicians.

  • Agree that EU neo-colonialism in Greece is deplorable. Colonialism is very expensive, economically inefficient and politically unstable.

    I do not put all the politicians in the same category. There are a few honorable MP’s like Zoe Konstantopoulou and the Golden Dawn MP’s who have consistent and principled positions for Greek national sovereignty and proper parliamentary procedures as opposed to the present circus where Greek MP’s are reduced to mail men under orders of EU Creditors. What can I say about those large majorities who vote these massive bills in total violation of normal parliamentary procedure. Are these MP’s worthy of any respect??? Hell no! They should be barred for life from public office for these flagrant misdeeds.

    Yanis has been straddling on these matters. Unlike Zoe K, he succumbed and voted in favor of the recent 900 page shameful legislation. That was a black mark on Yanis.

    It is time that Greeks took back possession of their country! EU bootstrapping has been a disaster. The Eurozone has hollowed out the Greek economy and destroyed much of the local productive base. The process has left Greece with unsustainable debt. EU incompetence and more recently blackmail has decimated the Greek banking system, which was never properly recapitalized and now needs again fresh recapitalization.

    The EU insistence on structural changes as the sole panacea for restarting the Greek economy and excuse for their dismal failures is nothing but a bad joke and shows how amateurish they really are on these matters. It really nothing but a new form of Soviet-style central planning!