The Defeat of Europe – my piece in Le Monde Diplomatique

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  1. The trouble with 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 largest loan in world history on condition of the largest ever magnitude of fiscal consolidation (also 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, the European Central Bank and the European Commission representing creditor member-states) were committed to this dead-end strategy that financiers label ‘extend-and-pretend’; that is, lending to an insolvent debtor more and more money in order to avoid having to write off a bad debt. The more creditors insisted on this strategy the greater the damage on Greece’s social economy, the less reformable Greece became, and the larger the creditors’ losses.

Year after year, the IMF and the Commission would issue hyperbolic prognoses of imminent recovery, even to the extent of pre-announcing ‘Greek-covery’ in 2013. They were, of course, clutching at straws. For instance, in 2014, creditors and a compliant Greek government rejoiced at the fact that real GDP rose a little for the first time in seven years. Closer inspection, however, confirmed that the reported ‘turnaround’ was a statistical mirage; that what had really happened was that GDP, as measured in market prices (i.e. nominal GDP), continued to fall by 1.1% but, at the same time, average prices were falling even faster by 1.8%. So, what was essentially a clear sign of a deepening depression, with both incomes and prices falling, appeared confusingly as a boost in real GDP (which is the ratio of nominal GDP growth and the rate of inflation; a ratio that becomes positive in terrible circumstances when both the numerator and the denominator are… negative)!

This is why our party of the radical left, 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.

In my first Eurogroup meeting I delivered a simple message to the gathered Eurozone finance ministers: “In our government you will find a trustworthy partner. We shall strive for common ground with the Eurogroup on the basis of a three-plank policy to tackle Greece’s economic malaise: (i) Deep reforms to enhance efficiency and defeat corruption, tax evasion, oligarchy and rent-seeking. (ii) 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 (iii) 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 5th February, I paid my first visit to Dr Wolfgang Schäuble, the German finance minister. I re-assured him that he could expect from us proposals aimed not at the interest of the average Greek but at the interest of the average European – the average German, French, Slovak, Finn, Spaniard, Italian etc.

Alas, 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…

  1. Threats

On 30th January, a few days after I had assumed the Ministry of Finance, the President of the Eurogroup, Mr 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 which had failed so spectacularly over the past five years, having diminished national income by one third and having turned the whole of Greek society against the very notion of reform.

Mr Dijsselbloem’s response was immediate and crystal clear: “That won’t work. It is either the MoU or the program 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 program’ 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. In the Eurogroup meeting that followed eleven days later, Mr Dijsselbloem’s disregard for democracy’s most basic principle was confirmed, and enhanced, by Dr Schäuble who spoke immediately after M. Michel Sapin. The French Minister of Finance had just argued in favour of discovering common ground between (A) the validity of the existing MoU and (B) the right of the Greek people to mandate us to re-negotiate crucial parts of the MoU. Dr Schäuble lost no time to give short shrift to M. 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 Eurogroup 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. Dr Schäuble vetoed my proposed phrase of an “amended MoU” saying that the existing MoU is not to be negotiated just because a new government was elected by the Greeks. After a few hours of the resutling stand-off, Mr Dijsselbloem threatened me with an imminent “program collapse” (which translated into bank closures by the 28th of February) if I insisted on adding “amended” in front of “MoU”. On that night, on instructions from my Prime Minister, I left the meeting without a communiqué being agreed to, ignoring Mr Dijsselbloem’s threat. On that occasion the threat proved empty. But it was not long before it returned with a vengeance.

Time and again we would be threatened with bank closures when refusing to endorse a program, the MoU, that had so demonstrably failed in every possible way – macroeconomically, in terms of enhancing microeconomic efficiency, socially, politically. Creditors and Eurogroup finance ministers refused even to engage with our economic arguments. They demanded that we capitulate. They even accused me of daring to “lecture” them on economics in the Eurogroup; i.e. in the body comprising the Eurozone’s finance ministers!

And so it was that Greece’s negotiation with its creditors were conducted: in a dark cloud of threats that our banks would be shut down if we insisted on straying from the MoU. 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.

Even 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 sparked off a mild bank run a month before the election that brought us to power.

After our election, the ECB began to signal that it would steadily switch off the flow of liquidity to Greece’s banking system, thus reinforcing the deposit flight that, at a time of the Eurogroup’s choosing, ‘justified’ the closing down of the banks – as Mr Dijsselbloem had threatened.

  1. Stonewalling, Propaganda and Fragmentation

The negotiations, once they commenced at the level of ‘technocrats’, confirmed our worst fears. The creditors publically proclaimed their concern for getting their money back and for reforming Greece. In truth, however, they only cared about humiliating our government and forcing us to choose between resignation and capitulation, even at the cost of ensuring that creditor nations would never get their money back and jeopardising a reform agenda that only our party could convince Greeks to adopt as their own.

From the beginning, time and again, we proposed that legislation should be passed on three or four areas that we agreed with the institutions – e.g. measures to tackle tax evasion, to shield the tax authority from both political and corporate influence, to address corruption in procurement, to reform the judiciary etc. Their reply was: “No way!” Nothing should be legislated before a ‘comprehensive review’ was complete.

During the Brussels Group negotiations, we would be asked to present our plans for VAT reform. Before we could pin down an agreement on VAT, the troika representatives would shift to pension reforms. They would immediately rubbish our proposals before moving on to, say, labour relations. Once they rejected our proposals on that, they would shift to privatisations. And so on, ensuring that the discussions moved from one topic to another, before anything was agreed, without any serious negotiation on any of topic, creating a process that resembled a cat chasing its tail. For months the troika representatives stonewalled, insisting that we should talk about everything, which is equivalent to negotiating on nothing at all.

Meanwhile, without having put forward any proposals of their own, and while threatening us with a cessation of talks if we dared publish our proposals, they would leak to the press that our proposals were “weak”, “ill-thought” “not credible”. In hope that they would, at some point, meet us halfway, we went along with this impossible process.

Perhaps the greatest impediment to holding a sensible negotiation was the fragmentation of our interlocutors. The IMF was close to us on the importance of debt restructuring but insisted that we should remove any rights that organised labour retained while destroying the surviving protections of middle class professionals. The Commission were far more sympathetic to us on these social issues but forbade any talk of a debt restructure. The ECB had its own agenda. In short, each of the institutions different red lines, which meant that we were imprisoned in a grid of red lines.

Even worse, we had to deal with our creditors ‘vertical disintegration’, as the bosses of the IMF and the Commission had a different agenda to their minions or as the German and Austrian finance ministers had an agenda totally at odds to that of their Chancellors.

  1. Defeated friends, Defeated Europe

Perhaps the most dispiriting experience was to be an eyewitness to the humiliation of the Commission and of the few friendly, well-meaning finance ministers. To be told by good people holding high office in the Commission and in the French government that “the Commission must defer to the Eurogroup’s President”, or that “France is not what it used to be”, made me almost weep. To hear the German finance minister say, on 8th June, in his office, that he had no advice for me on how to prevent an accident that would be tremendously costly for Europe as a whole, disappointed me.

By the end of June, we had given ground on most of the troika’s demands, the exception being that we insisted on a mild debt restructure involving no haircuts and smart debt swaps. On 25th June I attended my penultimate Eurogroup meeting where I was presented with the troika’s ‘take it or leave it’ offer. Having met the troika nine tenths of the way, we were expecting them to move towards us a little, to allow for something resembling an honourable agreement. Instead, they backtracked in relation to their own, previous position (e.g. on VAT). Clearly they were demanding that we capitulate in a manner that demonstrates our humiliation to the whole world, offering us a deal that, even if we had accepted, would destroy what is left of Greece’s social economy.

On the following day, Prime Minister Tsipras announced that the troika’s ultimatum would be put to the Greek people in a referendum. A day later, on Friday 27th June, I attended my last Eurogroup meeting. It was the meeting which put in train the foretold closure of Greece’s banks; a form of punishment for our audacity to consult our people.

In that meeting, President Dijsselbloem announced that he was about to convene a second meeting later that evening without me; without Greece being represented. I protested that he cannot, of his own accord, exclude the finance minister of a Eurozone member-state and I asked for legal advice on the matter.

After a short break, the advice came from the Secretariat: “The Eurogroup does not exist in European law. It is an informal group and, therefore, there are no written rules to constrain its President.” In my mind, that was the epitaph of the Europe that Adenauer, De Gaulle, Brandt, Giscard, Schmidt, Kohl, Mitterrand etc. had worked towards. Of the Europe that I had always thought of, ever since I was a teenager, as my point of reference, my compass.

A week or so later, the people of Greece, despite the closed banks and the scare mongering of the corrupt Greek media, delivered a resounding NO in the referendum. On the following day the Euro Summit responded by imposing on our Prime Minister an agreement that can only be described as our government’s terms of surrender. And the Euro Summit’s weapon of choice? The illegal threat of amputating Greece from the Eurozone.

Whatever one thinks of our government, this episode will go down in European history as the moment when official Europe, using institutions and methods that no Treaty legitimised (e.g. the Eurogroup, the Euro Summit, the threat of eviction from the Euro Area), dealt a major blow at the ideal of an ever-closer democratic union.

Greece capitulated but it is Europe that was defeated.


No European people should ever again be put in a position of negotiating in fear. For that to happen, Europeans must not fear to negotiate a European New Deal that restores the dream of shared prosperity within a democratic polity. If we fail, barbarism will rise up from within. For a continent that has generated the best and the worst humans are capable of, this ought to be a sobering thought.


  • nao quero mais receber e-mail ..obrigada De: Yanis Varoufakis Para: [email protected] Enviadas: Quinta-feira, 30 de Julho de 2015 16:58 Assunto: [New post] The Defeat of Europe – my piece in Le Monde Diplomatique #yiv1621335184 a:hover {color:red;}#yiv1621335184 a {text-decoration:none;color:#0088cc;}#yiv1621335184 a.yiv1621335184primaryactionlink:link, #yiv1621335184 a.yiv1621335184primaryactionlink:visited {background-color:#2585B2;color:#fff;}#yiv1621335184 a.yiv1621335184primaryactionlink:hover, #yiv1621335184 a.yiv1621335184primaryactionlink:active {background-color:#11729E;color:#fff;}#yiv1621335184 | yanisv posted: “Click on the image above for the LMD site. Or… The trouble with GreeceIn 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 fragil” | |

  • The moral of the story is “you don’t negotiate with a bureaucracy”. And, patently, this is what Eurozone economic governance has become. This is most clearly seen in the way Tsipras’ attempts to negotiate at the highest political level were always pushed down to the technical teams or the Euro Working Group, while the functionnaries at the technical level had (naturally) no mandate to negotiate anything but just carry out pre-programmed goals.

    • I suppose the parallel here at the individual level is civil disobedience, escalating to “nonviolent direct action”. What is the equivalent of this for an EU member state? An empty chair policy?

      The problem with bureaucracies is that they have no choice but to operate within their political mandate. If the mandate leads to inhumane consequences individual bureaucrats have no choice but to carry them out anyway, unless they are willing to resign or be individually disciplined for failing to carry out their function. And so there is a selection pressure on bureaucrats selecting for those who agree with the political mandate or are not morally bothered by the consequences of their actions. Or who can double-think.

  • Yani sorry to say this but the Europe you had in mind never existed nor will ever exist in the future. You chose to disregard all available evidence and wanted to get a personal confirmation on this very subject. And I believe you got it with an exclamation.

    • @Dean:

      I completely agree with you on this:

      “The Europe you had in mind never existed nor will ever exist in the future”

      I warned Yanis that their (leftist)) romantic pro-Europeanism would proof dangerous and catastrophic for our nation but nobody was listening at that time!!!

      And Tsipras and Yanis were just hoping that good reason, solidarity and fairness would prevail.

      I have lived for more than 45 years in Germany so I know Europe a little bit and I am completely against European integration.

    • I agree 100%. It was exactly the Left love affair and support for a Europe that never existed – neither before 1989 nor from 1989 onward when the Treaties carved in stone a future for Europe that was in every detail opposite to the Left fantasy of Europe…
      ….that left me a political orphan. Nine years in the corruption cesspit of Brussels was the capstone on my own negative experience, where horror of Brussels and extreme allergy is now carved in my bones.

      Thus “Integration” of EU nations is the equivalent (in left terms) of destroying every union, leaving the great mass of people without any representation whatsoever and completely at the mercy of the Merciless.

      Here in Greece, after a roller coaster of 6 months of hope – and pride in our resistance – we find ourselves once again sacrificed to “Europe”. This time blindsided by an inane ideological adherence to an Illusory Europe [an Ideology of Europe] which has zero basis in fact or evidence. Before, under Right wing parties it was collaboration with the Realpolitick of “Europe” whose only European element is the consolation of money/private profit.
      So once again allegiance to “Europe” has taken precedence over allegiance to Hellas, and the future of our country. A sorry, sad and bad outcome.

      And “Europe”? so many lies – a feast of laughable, worthless propaganda:

      – Starting with the name: the EU “Europe” is not a geographical description synonymous with our continent, but a club of’ random states defined by allegience to the Atlantic Alliance.
      – ‘No more war in Europe’ blithely ignores the EU’s destruction of Yugoslavia and the slaughter and depleted uranium “we” were proud to impose there under a sickening label of “humanitarianism’. It ignores the present horror of Ukraine, deliberately set in motion, supported and propagandised by ourselves.
      – ‘Social Europe’ deliberately ignores that EU ‘rules’ are skeletal and inadequate to purpose, that welfare apparatuses are not distributed equally across EU nations and that the social welfare EU nations do have in every case originated nationally and through the democratic will of various sovereign peoples. The fact that any social welfare is still in place is because the remaining shreds of national sovereignty protects it. For now.
      – ‘Equality of nations’ ?!!
      – The containment of Germany likewise has no historic logic, as is finally admitted – and on flagrant display today.
      – As for “European Values” these are a dreadful genocidal joke, not only inside the continent but outside of it [Libya, Syria, Iraq, Afghanistan…]. What is meant in such a context by ‘democracy’? Ditto ‘human rights’?

      The EU is essentially an organisation of signed-up Atlanticist European nations whose purpose is to secure the US foreign policy aims / territory on our continent. While the backbone of this is NATO / SHAPE, the invention of the EU / bureaucracy simplifies administration of this strategic space by limiting its members ability to dissent. Thus talk of leaving “Europe” is extremely dangerous at this point in time in that it is not actually ‘ours’ to leave. And any mature discussion of Greece’s future [and other EU members ditto] must be 300% based on assuring Washington of uninterrupted fealty inside this strategic framework – but – outside the eurozone.

    • Aristoteles:

      I am not a person who lets others down once I made a commitment. Yanis asked me in gest in this blog – a few months back, I think December 2014 – whether I was with him and I said yes Sir. So, that’s it as far as I am concerned. I can offer no particular critique to Yanis except observation. My intention was not to criticize him but rather to offer a lesson going forward. As you said, I also never believed is European pseudo-solidarity either because it’s too naive of a proposition given that states have to pursue their own self-interest.

      However, the one fellow who begins to worry me a bit is Tsipras. Tsipras is showing clear signs of love of office and this becoming bothersome to me. I am beginning to think that this is not the guy we have been hoping for. It also looks that Berlin is now settling down with the idea that Tsipras is the “go to” guy for whatever plan they have for Greece (and this is uber alarming to me because history tells us that every Greek political party which collaborated with the Schauble Ayatollah and his Talibans got decimated in the process). And I mean completely destroyed. So this obvious German flirting with Tsipras is actually a sign of great national distress for our country:

  • Yanus, I’m following the Greek agony, and I feel, the Greek people became the scapegoat of the European process of integration. The half cooked integration process of Europe seems to be unedible, but at least everyone is sitting next the table expecting for improvement. Greece was and is victimized by the process it’s aim is hopefully not to starve and not to punish the Greek people, but to show to all the anti-integration spirits in European, there is no other way than full integration. Surprisingly a “Greece” was needed to bring the European public opinion to understanding, that European integration process is not a children’s game, that can be stopped because small majority of 4 million Irish people decided to play a different game. Europe has no luxury to disintegrate. The only chance, that it’s cultural heritage and identity, that played so dominant and crucial role in modern history, will be preserved is with total political integration. There is no place anymore to kind of economic sovereignty, that brought Greece and some other states to bankruptcy.

  • This document is something extremely rare in the history of politics. You, Yanis, acted unlike 99,99% of politicians who resigned or were forced to resign. It must be some unwritten law that all of those politicians remain silent. So this time we can read about what actually happened. Like it should always be in all democratic areas.

    The sad thing still is that it is not grim Wolfgang Schäuble alone, well supported by Merkel. The whole process would have had a little small chance, as Mrs. Merkel is a mixture of an opportunist and a neoliberal, concerning foreign politics US-follower right wing politician at the same time. Only a real mass of people waking up in Europa, especially in Germany, directly after January 2015 ( which means after 5 years of catastrophic failure of Merkel’s Schäubles Dijsselbloem’s Juncker’s etc. austerity) could have changed, so it seems if one reads your LMD article, have changed a bit. With a big gesture opportunistic Angela Merkel could have forced Schäuble to step down, and of course Schäuble would have resigned, he is a ‘party soldier’ like so many long-time politicians (and not only them) are. But there was no uproar, besides some few and sparse and in the end sadly enough unimportant internet-groups like I saw at facebook. (This “generation facebook” is nearly always only used by the media if the facebook-online-uproar matches well with the interests of states. In fact it is made silent that way, by the media).

    Nobody should ask herself in all this why politicians, male and female, said “he lectured us”. A from the heart not really democratically built Europe, with Dijsselbloems or Schäubles who held many positions but can’t compete with Yanis Varoufakis, could have well needed “lectures”. That media use this as another kind of accusation – well…that was to be expected, but says a lot about these media.

    Ideas, alternatives, were not wished, as you describe en detail here. The question is, and it is not one for politicians this time, why did all those intellectuals, also the art scenes like postmodern art scenes since around 1990, always claim we were such a well-informed, most intelligent, sensitive majority in the arts, at universities, Europe-wide? How can it be possible that 5-6 years of Merkel’s+Schäuble’s et al. austerity-catastrophes left such a huge majority also at universities, art-scenes nearly totally silent? Or, if I overrate intellectuals and the self-declared “subversive” philosophers and artists, why was there no help at all? Only that, with a small chance, as Merkel knows well whom she serves, she was and is a neoliberal person who has neoliberal people like Schäuble to work for her government – could have helped. Politicians, suddenly forcing politicians like Schäuble to resign, and with a grand gesture starting to re-negotiate.

    With this worthwhile report we know now, what we usually never learn – how it went, how the Schäubles and Dijsselbloems threatened and how democracy functions at the moment within the Eurozone. Maybe the most important article since January 2015.

    So even if it’s so sad it is a wonderful exception, just that we don’t know how a vast majority in Europe, beginning with Germany, can be so quiet and clueless. Uninformed. We see the results, but as per usual it’s a hundred of things playing a part. If one ZEIT commentator some day around 2005 said the students were so, well, uninformed and not rebellious, and instantly a theater-chef, a lady from Hamburg kampnagel, blurs his valid ideas by stating how “subversive” all were and how wrong accusations were, – well, then all could go on with their sleep, with their cool self-righteousness. So they did. And some day it is too late, like it was for an uproar to help Greece after such 5 horrible years this time. It is shocking beyond words how silent it was. Of course, mainstream media were loud, but with their distortions any better informed, not self-righteous majority should have started to fight austerity and the own government’s shock-doctrine.

    It is of course Schäuble, and the same with Dijsselbloem. They could have decided differently, they had the power (well, Merkel). But there are so many walking around, now maybe even saying “I am against this politics against Greece”, that, for whatever reasons in each case, led to this silence, this low niveau of information, this sarcasm and halfheartedness, insensibleness.

  • Restating this in a more measured way:

    1- the European Union is an extension of the Bretton Woods institutions – the World Bank, International Monetary Fund (IMF), and General Agreement on Tariffs and Trade (GATT) – founded at the end of World War II. Their stated purpose was global economic integration in order to avoid another depression and to avert war. But the result was a form of economic development that has systematically favored corporate interests while hollowing out local economies worldwide. Sadly, many people still idealistically embrace the Bretton Woods institutions, as well as the European Union.

    2 – the European Union is a US dominated strategic space created by US post-war military (“defense”) and foreign policy that has successfully expanded its territory over 2 generations. NATO is its security arm and SHAPE its military arm. Alongside the NATO bases in the various EU countries, the US also maintains over 200 facilities and bases on EU territory.