Yanis Varoufakis is being pilloried for doing what had to be done – by Philippe Legrain in The Guardian

01/08/2015 by

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Yanis Varoufakis has few friends in official circles these days. Greece’s outspoken former finance minister has long been loathed by his erstwhile eurozone counterparts, on whom he counterproductively impressed their mediocrity. Since he has been jettisoned by his prime minister, Alexis Tsipras, and criticised Greece’s capitulation to Germany’s iniquitous demands, his former Syriza colleagues are losing patience with him too. He is becoming the perfect fall guy for having devised a daring escape plan in the event that Greece’s creditors shut down its banking system and severed its international economic ties – as they eventually did.

While Varoufakis’s plan to create a parallel payments system based on the country’s tax register was certainly unorthodox, it was completely understandable. Until the recent revelations, Varoufakis was being criticised for standing up to Greece’s eurozone creditors without preparing a Plan B in case negotiations failed. As many experts and commentators, including me, advised, the Greek government needed to prepare for a parallel currency to provide liquidity to the economy in case eurozone authorities turned off the taps. That way it could credibly threaten to default on its debts while remaining in the eurozone – and thus, it hoped, convince its creditors to offer the debt relief that the depressed Greek economy desperately needed to recover.

But now it turns out Varoufakis did have a plan B, he is being attacked for that too. Some criticise the supposed recklessness and duplicity of preparing for a parallel currency that could have become a new drachma, given the government’s official commitment to staying in the euro. But that is disingenuous. Governments should and do prepare for all sorts of eventualities. The Bank of England is right to prepare for the possibility of Brexit, which may happen even though it is not government policy. One hopes that Whitehall has plans for dealing with a nuclear winter or a catastrophic epidemic. Varoufakis was right to prepare for how to cope with an outcome that wasn’t just possible, but likely.

Others object that the plan wouldn’t have worked. But why not? In principle, the idea of setting up a parallel payments system involving people’s tax numbers is ingenious. Since the value of the parallel currency would derive from the fact that the Greek government accepted it as payment for overdue, current and future taxes, it makes a lot of sense. Given that it takes time to print and distribute banknotes, starting with a purely electronic system is also sensible.

Perhaps the biggest objection is that hacking into the tax system is illegal. I am not an expert on Greek law – and I doubt that all the foreign commentators weighing in are either. But if Tsipras had decided to go ahead with the plan after the Greeks’ oxi (no) vote in the referendum, he could surely have obtained parliamentary approval – or indeed invoked a case of force majeure. After all, national emergencies don’t come much greater than creditors threatening to blow up the banking system and, with it, people’s savings and small businesses’ working capital.

What critics are really objecting to is secretly planning such a scheme. But desperate times call for desperate measures.

A century ago, the British empire used to administer China’s customs service, collecting taxes that helped to service the country’s foreign debts. This exploitative quasi-colonial arrangement, which only came to an end after the Chinese revolution in 1949, is a source of resentment even today.

Greece is in a similar situation. The general secretariat of public revenues within the finance ministry is “controlled fully and directly by the troika” – the institutions representing its creditors – according to Varoufakis. As in the Chinese case, the official justification is that foreigners can better ensure the efficient collection of tax revenues. More importantly, it gives eurozone governments control over important aspects of the Greek tax system – and thus over its economic destiny.

In such circumstances, it is understandable that Varoufakis, ostensibly with Tsipras’s approval, kept his plan under wraps and cut corners where necessary. Hacking into the tax system, while deeply regrettable, is proportionate and justified. Varoufakis was hardly plotting a revolution.

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