In THE CONVERSATION answering to leading academics

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When Yanis Varoufakis was elected to parliament and then named as Greek finance minister in January, he embarked on an extraordinary seven months of negotiations with the country’s creditors and its European partners.

On July 6, Greek voters backed his hardline stance in a referendum, with a resounding 62% voting No to the European Union’s ultimatum. On that night, he resigned, after prime minister Alexis Tsipras, fearful of an ugly exit from the eurozone, decided to go against the popular verdict. Since then, the governing party, Syriza, has splintered and a snap election has been called. Varoufakis remains a member of parliament and a prominent voice in Greek and European politics.

When asked about Tsipras’s decision to trigger a snap election, inviting the Greek public to issue their judgement on his time in office, Varoufakis said:

If only that were so! Voters are being asked to endorse Alexis Tsipras’ decision, on the night of their majestic referendum verdict, to overturn it; to turn their courageous No into a capitulation, on the grounds that honouring that verdict would trigger a Grexit. This is not the same as calling on the people to pass judgement on a record of steadfast opposition to a failed economic programme doing untold damage to Greece’s social economy. It is rather a plea to voters to endorse him, and his choice to surrender, as a lesser evil.

We asked nine leading academics what their questions were for a man who describes himself as an “accidental economist”. His answers reveal regrets about his own approach during a dramatic 2015, a withering assessment of France’s power in Europe, fears for the future of Syriza, a view that Syriza is now finished, and doubts over how effective Jeremy Corbyn could be as leader of Britain’s Labour party.


Anton Muscattelli, University of GlasgowWhy was Greek prime minister Alexis Tsipras persuaded to accept the EU’s pre-conditions around the third bailout discussions despite a decisive referendum victory for the No campaign; and is this the end of the road for the anti-austerity wing of Syriza in Greece?

Varoufakis: Tsipras’ answer is that he was taken aback by official Europe’s determination to punish Greek voters by putting into action German finance minister Wolfgang Schäuble’s plan to push Greece out of the eurozone, redenominate Greek bank deposits in a currency that was not even ready, and even ban the use of euros in Greece. These threats, independently of whether they were credible or not, did untold damage to the European Union’s image as a community of nations and drove a wedge through the axiom of the eurozone’s indivisibility.

Me and my shadow. Tsipras and his finance minister. Alkis Konstantinidis/Reuters

As you probably have heard, on the night of the referendum, I disagreed with Tsipras on his assessment of the credibility of these threats and resigned as finance minister. But even if I was wrong on the issue of the credibility of the troika’s threats, my great fear was, and remains, that our party, Syriza, would be torn apart by the decision to implement another self-defeating austerity program of the type that we were elected to challenge. It is now clear that my fears were justified.


Roy Bailey, University of EssexWas the surprise referendum of July 5 conceived as a threat point for the ongoing bargaining between Greece and its creditors and has the last year caused you to adjust how you think about Game Theory?

Varoufakis: I shall have to disappoint you Roy {Editor’s note: Roy Bailey taught Varoufakis at Essex and advised on his PhD}. As I wrote in a New York Times op-ed, Game Theory was never relevant. It applies to interactions where motives are exogenous and the point is to work out the optimal bluffing strategies and credible threats, given available information. Our task was different: it was to persuade the “other” side to change their motivation vis-à-vis Greece.

I represented a small, suffering nation in its sixth straight year of deep recession. Bluffing with our people’s fate would be irresponsible. So I did not. Instead, we outlined that which we thought was a reasonable position, consistent with our creditors’ own interests. And then we stood our ground. When the troika pushed us into a corner, presenting me with an ultimatum on June 25 just before closing Greece’s banking system down, we looked at it carefully and concluded that we had neither a mandate to accept it (given that it was economically non-viable) nor to decline it (and clash with official Europe). Instead we decided to do something terribly radical: to put it to the Greek people to decide.

Lastly, on a theoretical point, the “threat point” in your question refers toJohn Nash’s bargaining solution which is based on the axiom of non-conflict between the parties. Tragically, we did not have the luxury to make that assumption.


Cristina Flesher Fominaya, University of AberdeenThe dealings between Greece and the EU seemed more like a contest between democracy and the banks, than a negotiation between the EU and a member state. Given the outcome, are there any lessons that you would take from this for other European parties resisting the imperatives of austerity politics?

Varoufakis: Allow me to phrase this differently. It was a contest between the right of creditors to govern a debtor nation and the democratic right of the said nation’s citizens to be self-governed. You are quite right that there was never a negotiation between the EU and Greece as a member state of the EU. We were negotiating with the troika of lenders, the International Monetary Fund, the European Central Bank and a wholly weakened European Commission in the context of an informal grouping, the Eurogroup, lacking specific rules, without minutes of the proceedings, and completely under the thumb of one finance minister and the troika of lenders.

Protest and survive. On the streets of Athens. Yannis Behrakis/Reuters

Moreover, the troika was terribly fragmented, with many contradictory agendas in play, the result being that the “terms of surrender” they imposed upon us were, to say the least, curious: a deal imposed by creditors determined to attach conditions which guarantee that we, the debtor, cannot repay them. So, the main lesson to be learned from the last few months is that European politics is not even about austerity. Or that, as Nicholas Kaldor wrote in The New Statesman in 1971, any attempt to construct a monetary union before a political union ends up with a terrible monetary system that makes political union much, much harder. Austerity and a hideous democratic deficit are mere symptoms.


Panicos Demetriades, University of LeicesterDid you ever think that your message was being diluted or becoming noisy, or even incoherent, by giving so many interviews?

Varoufakis: Yes. I have regretted several interviews, especially when the journalists involved took liberties that I had not anticipated. But let me also add that the “noise” would have prevailed even if I granted far fewer interviews. Indeed the media game was fixed against our government, and me personally, in the most unexpected and repulsive way. Wholly moderate and technically sophisticated proposals were ignored while the media concentrated on trivia and distortions. Giving interviews where I would, to some extent, control the content was my only outlet. Faced with an intentionally “noisy” media agenda that bordered on character assassination, I erred on the side of over-exposure.


Simon Wren-Lewis, University of OxfordMight it have been possible for a forceful France to have provided an effective counterweight to Germany in the Eurogroup, or did Germany always have a majority on its side?

Varoufakis: The French government feels that it has a weak hand. Its deficit is persistently within the territory of the so-called excessive deficit procedure of the European Commission, which puts Pierre Moscovici, the European commissioner for economic and financial affairs, and France’s previous finance minister, in the difficult position of having to act tough on Paris under the watchful eye of Wolfgang Schäuble, the German finance minister.

It is also true, as you say, that the Eurogroup is completely “stitched up” by Schäuble. Nevertheless, France had an opportunity to use the Greek crisis in order to change the rules of a game that France will never win. The French government has, thus, missed a major opportunity to render itself sustainable within the single currency. The result, I fear, is that Paris will soon be facing a harsher regime, possibly a situation where the president of the Eurogroup is vested with draconian veto powers over the French government’s national budget. How long, once this happens, can the European Union survive the resurgence of nasty nationalism in places like France?


Kamal Munir, University of CambridgeYou often implied that what went on in your meetings with the troika (the IMF, ECB and European Commission) was economics only on the surface. Deep down, it was a political game being played. Don’t you think we are doing a disservice to our students by teaching them a brand of economics that is so clearly detached from this reality?

Varoufakis: If only some economics were to surface in our meetings with the troika, I would be happy! None did.

Even when economic variables were discussed, there was never any economic analysis. The discussions were exhausted at the level of rules and agreed targets. I found myself talking at cross-purposes with my interlocutors. They would say things like: “The rules on the primary surplus specify that yours should be at least 3.5% of GDP in the medium term.” I would try to have an economic discussion suggesting that this rule ought to be amended because, for example, the 3.5% primary target for 2018 would depress growth today, boost the debt-to-GDP ratio immediately and make it impossible to achieve the said target by 2018.

Players in the game. Merkel, Lagarde, Juncker, Draghi, Hollande and Tsipras line up. Yves Herman/Reuters

Such basic economic arguments were treated like insults. Once I was accused of “lecturing” them on macroeconomics. On your pedagogical question: while it is true that we teach students a brand of economics that is designed to be blind to really-existing capitalism, the fact remains that no type of sophisticated economic thinking, not even neoclassical economics, can reach the parts of the Eurogroup which make momentous decisions behind closed doors.


Mariana Mazzucato, University of SussexHow has the crisis in Greece (its cause and its effects) revealed failings of neoclassical economic theory at both the micro and the macro level?

Varoufakis: The uninitiated may be startled to hear that the macroeconomic models taught at the best universities feature no accumulated debt, no involuntary unemployment and, indeed, no money (with relative prices reflecting a form of barter). Save perhaps for a few random shocks that demand and supply are assumed to quickly iron out, the snazziest models taught to the brightest of students assume that savings automatically turn into productive investment, leaving no room for crises.

It makes it hard when these graduates come face-to-face with reality. They are at a loss, for example, when they see German savings that permanently outweigh German investment while Greek investment outweighs savings during the “good times” (before 2008) but collapses to zero during the crisis.

Moving to the micro level, the observation that, in the case of Greece, real wages fell by 40% but employment dropped precipitously, while exports remained flat, illustrates in Technicolor how useless a microeconomics approach bereft of macro foundations truly is.


Tim Bale, Queen Mary University of LondonDo you see any similarities between yourself and Jeremy Corbyn, who looks like he might win the (UK) Labour leadership, and do you think a left-wing populist party is capable of winning an election under a first-past-the-post system?

Varoufakis: The similarity that I feel at liberty to mention is that Corbyn and I, probably, coincided at many demonstrations against the Tory government while I lived in Britain in the 1970s and 1980s, and share many views regarding the calamity that befell working Britons as power shifted from manufacturing to finance. However, all other comparisons must be kept in check.

Demo partners? Jeremy Corbyn. Garry Knight, CC BY

Syriza was a radical party of the Left that scored a little more than 4% of the vote in 2009. Our incredible rise was due to the collapse of the political “centre” caused by popular discontent at a Great Depression due to a single currency that was never designed to sustain a global crisis, and by the denial of the powers-that-be that this was so.

The much greater flexibility that the Bank of England afforded to Gordon Brown’s and David Cameron’s British governments prevented the type of socio-economic implosion that led Syriza to power and, in this sense, a similarly buoyant radical left party is most unlikely in Britain. Indeed, the Labour Party’s own history, and internal dynamic, will, I am sure, constrain a victorious Jeremy Corbyn in a manner alien to Syriza.

Turning to the first-past-the-post system, had it applied here in Greece, it would have given our party a crushing majority in parliament. It is, therefore, untrue that Labour’s electoral failures are due to this system.

Lastly, allow me to urge caution with the word “populist”. Syriza did not put to Greek voters a populist agenda. “Populists” try to be all things to all people. Our promised benefits extended only to those earning less than £500 per month. If it wants to be popular, Labour cannot afford to be populist either.


Mark Taylor, University of WarwickWould you agree that Greece does not fulfil the criteria for successful membership of a currency union with the rest of Europe? Wouldn’t it be better if they left now rather than simply papering over the cracks and waiting for another Greek economic crisis to occur in a few years’ time?

Varoufakis: The eurozone’s design was such that even France and Italy could not thrive within it. Under the current institutional design only currency union east of the Rhine and north of the Alps would be sustainable. Alas, it would constitute a union useless to Germany, as it would fail to protect it from constant revaluation in response to its trade surpluses.

Now, if by “criteria” you meant the Maastricht limits, it is of course clear that Greece did not fulfil them. But then again nor did Italy or Belgium. Conversely, Spain and Ireland did meet the criteria and, indeed, by 2007 the Madrid and Dublin governments were registering deficit, debt and inflation numbers that, according to the official criteria, were better than Germany’s. And yet when the crisis hit, Spain and Ireland sunk into the mire. In short, the eurozone was badly designed for everyone. Not just for Greece.

So should we cut our losses and get out? To answer properly we need to grasp the difference between saying that Greece, and other countries, should not have entered the eurozone, and saying now that we should now exit. Put technically, we have a case of hysteresis: once a nation has taken the path into the eurozone, that path disappeared after the euro’s creation and any attempt to reverse along that, now non-existent, path could lead to a great fall off a tall cliff.

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21 Comments

  • Let us explore a bit this comment:

    “…allow me to urge caution with the word “populist”. Syriza did not put to Greek voters a populist agenda. “Populists” try to be all things to all people. Our promised benefits extended only to those earning less than £500 per month. If it wants to be popular, Labour cannot afford to be populist either.”

    Yanis here is being deceptive. Syriza has been the epitome of populism. While heterodox alternatives need not be populist. Tsipras programme was, in the same way that Lafazanes fake alternatives are deeply populist. See for detail here:

    https://iglinavos.wordpress.com/2015/07/19/on-syriza-and-populism/

    • It is not that simple. Because while large parts of the Syriza leadership opted for the referendum as a face saving way to get rid of responsibility, which means that they in fact had no choice to offer, Mr.Varoufakis himself, had a choice to offer, a choice he believed and he believes till today.

  • For those who do not have a deep understanding of current Greek politics, here is a refresher course:

    The german (Schauble) plan has been all along to implicate ALL major Greek political parties with the MOU implementation business. Syriza was the notable holdout and therefore it was imperative that the Syriza resistance be crushed. This was done by allowing Syriza to come to power and then by saddling them with a 3rd most brutal memorandum along with the obligation for its implementation.

    Therefore (and without getting into much detailed analysis) the only reasonable course for the survival of the Tsipras remnants is to allow the 3rd MOU implementation business to become the liability of mostly ND and other lightheaded “Yes” Greek political parties. Obviously the german plan is to have Syriza as part of a unity (aka German collaborationist) government which can not but implement the capitulation deal known as the 3rd memorandum by Quadriga. Schauble’s head would explode unless he has Syriza trapped this way and part of a future Greek coalition government.

    Syriza made a reasonable assault on the Schauble fort, Tsipras decided in the heat of the battle to replace his general and the battle was lost for good.

    Therefore the Art of War dictates that the remaining and defeated Syriza party to splinter into many smaller groups and disappear into resistance territory unknown to the enemy.

    It would be a strategic mistake of the 1st order for Tsipras to seek and maintain a lead role in a future Greek government whose main purpose is to execute Berlin’s orders and therefore implicate itself in the business of compound failure.

    I hope the Greek people, despite liking Tsipras, don’t fall for this trap of having to re-elect Syriza to its death sentence. This would be equivalent of doing Schauble’s job in crushing all Greek resistance and transforming Greece into a vassal german state.

  • “The eurozone’s design was such that even France and Italy could not thrive within it. Under the current institutional design only currency union east of the Rhine and north of the Alps would be sustainable. Alas, it would constitute a union useless to Germany, as it would fail to protect it from constant revaluation in response to its trade surpluses.”

    Exactly, that’s why the German leadership is trying to transform and ‘stabilize’ eurozone according to the big capital interests:

    Poor Mr. Schäuble, who recently surpassed Mrs. Merkel in popularity in Germany, is under extreme pressure, mostly by the German capital, to “restructure” the eurozone through the Greek experiment. The German oligarchy is now in a cruel competition mostly with the US companies to hyper-automate production. It sends continuous signals that human labor will be unnecessary for its big companies and presses the German leadership to finish the experiment in Greece.

    Poor Mr. Schäuble must give “earth and water” to the German oligarchs. He must organize a new Treuhand for the whole Europe to sell-off public property, he must completely dissolve labor rights, bring down pensions and wages, destroy the social state. He must end quickly with Greece and pass all the “Greek achievements” to the whole eurozone.

    “… technically, we have a case of hysteresis: once a nation has taken the path into the eurozone, that path disappeared after the euro’s creation and any attempt to reverse along that, now non-existent, path could lead to a great fall off a tall cliff.”

    If this is the case, then what are Greece’s options Yanis? What do you suggest?

  • Has anyone noticed that TTiP and TISA on the one hand….and the Greek experiment [to be exported throughout EU] on the other…are two roads starting at different ends but designed to join at a midpoint?

    • I suggest the reaI question is who is ScheubIe working for, not onIy IocaIIy but internationally.

    • It’s quite clear that Schauble is working for his country’s own self-interest and nothing further than this. Schauble does not have either the IQ or intelligence to be anybody else’s reliably ally but only a stubborn old German with very limited understanding of modern finance. He is a clerk type. A german clerk working for german interests swallowed in german bureaucracy.

    • I think Mr Schäuble is the true master of applied game theory here. He has created a political win-win situation for himself. Whether what is left of Syriza succeeds in the upcoming elections and then gets slowly withered down under the abrasive forces of the recent MoU or whether it is succeeded by another party destined to suffer the same fate eventually, makes not much difference to Mr Schäuble.
      Either way – in his own and his german admirers’ point of view – he will have proven that Greece cannot be redeemed in the eyes of the creditors, that it should exit the Eurozone and that any attempt to counter the german neoliberal dictate with a ‘soicialist’ agenda is utterly futile – And thus he will have killed not two but three birds with one stone.
      The only flaw in his game is that he seems to have come to believe in his own bluff. But then again, succumbing to one’s own propaganda seems to be a widespread phenomenon among german politicians these days.

      However, wether Schäunle is working for his country’s self-interest is at least a highly debatable subject.
      The sad fact that presumably three quarters of the german population share this notion does not prove that it is actually true. That assumption would only apply if by ‘his country’ one meant exclusively the combined interests of german banks, german corporations and the international community of shareholders who own these companies.
      And even they will not be able to sustain a business model for very much longer that involves making profit out of one’s customers’ debts and at the same time depriving them of the means to sustain themselves and thereby stripping them of their purchasing power.

    • Hubert:

      In such case congratulations to Schauble for being such a master player. Personally I don’t think he is. This a game of raw power where those who have it exercise it with brutality and lack of strategy.

      Schauble has made Greece ungovernable.

  • Look guys, let’s try to put it all together because we are losing the plot here regarding the anxiety of who will govern next in Greece.

    It used to be a time that a Greek political party will take over governance via elections for roughly a 2-4 year period and then pass on the mess created as liability of the next (successor) party. This for years was the political ping-pong between ND and Pasok as we knew it Greek politics.

    This is no longer the case because of the Troika or Quadriga’s presence. In essence (and despite the deep injustice of the whole set up) the government which will take over Greece in 2-4 years from now is guaranteed to have a much better managed economy and a platform to claim future success. Therefore the old model of passing along your mess and poison the well for the successor party does not exist in Greek politics anymore (for as long as Quadriga’s supervision of Greece is on – which for purposes of this analysis let’s assume it will be for a long time).

    The upside of this new Greek political reality is that, at tremendous social and political cost, a sort of financial equilibrium has been achieved. The downside of this new reality is that you don’t want to be the party that implements this austerity model because a.) basically you no longer govern w/ Quadriga breathing down your neck and b.) the damage to your name and reputation is great and impossible to either ignore or absorb.

    Taking all of the above into account the bottom line is that you should avoid (punt at) being the governing party in Greece at this particular point in time because your damages/losses would be far greater than imagined. Therefore (and let’s invoke Game Theory terms for Yanis’ sake) the whole strategy and tactics must ensure how this burden of “high wear and tear governance” mode is taken over by (more likely forced upon) your opposition.

    Therefore it’s quite clear that Tsipras’ best choice is to allow ND to win the next parliamentary election and clearly avoid a catastrophic experience of implementing the Schauble program at his personal and party’s great loss. Another way of thinking about this is that if Schauble insists on an “austerity for cash” program (such is the case with the 3rd MOU) then it’s Schauble responsibility to go and find a suicidal Greek party (or coalition of suicidal Greek parties) to implement such monstrosity because no sane political party could actually do it.

    Summary: Tsipras and Syriza must ensure 2nd place in the upcoming September 20th election provided that they are smart enough to wear down their opposition and then have an exceptionally smooth ride by winning the next elections following the upcoming Greek parliamentary election of next month.

    Do we all get it? Any questions?

    • Dean
      You are assuming that there is enough ‘fat’ Ieft in Greece among the generaI populace – up to and including the profession middIe cIass, say 8O% of the population – to ride out the next MOU, but on conditions of a strict diet. I can assure you that this is no Ionger the case. The only peopIe who are going to make it through the coming MOU3 wiII be a 2O%, of which onIy 5% wi do it in the grand oId styIe.

      You are aIso assuming that the economy wiII be in better shape, ditto the government structures. I reaIIy don’t know how you arrive at that concIusion – a glance at present day Germany [particuIarIy the East] might give you a cIue, keeping in mind that the Iuxurious social benefits they have compared to Greece – even at the best of times – are hugeIy cut back.

      The Greece some future government wiII inherit wiII have Iost aII its profitable sectors and assets. The government wiII effectiveIy have no state assets, these wiII aII be in foreign hands or in the case of part ownership, run by the foreigners and/or in partnership with Greek oligarchs. Our dairy, insurance, and pharmaceuticaI sectors wiII be cIosed and finished. Our ports and airports wiII be foreign owned and controIIed – never mind that in such a fragmented geography as Greece, these are vitaI strategic assets and aIso part of the commons. AIong with the reduction in pensions wiII be the reduction in minimum wage – remember the German Federation of Industry’s pIan from 2O12 onward that as soon as minimum wage hits 32O euros a month [before tax] they wiII set up tax free German SEZs where Greeks wiII work 13 hour days, 6/7 days a week? These have never been off the drawing board.

      To effect these changes the Troika wiII change the constitution and the judiciary. BeIieve me, they are not going to change them in the direction needed, but to reward themselves – and the IocaI oligarchs.

      How the Greek people wiII survive this I reaIIy do not know. By now the ‘treats’ in my wealthy-ish, mixed HiIton neighborhood are a takeaway coffee [1,3O eur] – or – a souvIaki pita [2 eur] – or – the bus to an Attica beach.This wiIi soon be out of the question. That’s the upside. On the downside are you aware that onIy the biggest islands – Kriti, Evia, Iesvos, KefaIonia and a few others – stiII have ANY pubic cIinic or pubIic hospital? They are hanging on by a thread now, do you think this “wasteful” situation wiII continue or improve under MOU3?

      A post-Troika government wiII inherit an impoverished country of impoverished peopIe Iiving Iike mountain AIbanians, ruIed by oligarchs and 6O% owned by foreigners.

      FrankIy, whoever wins the next eIection I suspect that that government wiII not Iast – provided of course that any party or coalition CAN form a government. Syriza is now gutted by defections, the party is essentially [and deservedIy] finished. Not even the name is accurate anymore. The Greek peopIe are way out ahead of the politicians now – most politicians, including Tsipras, seem to inhabit a bubbIe worId of the past, perhaps isolated by their fat saIaries and bodyguards. [And if any troII wishes to jump in and use my comment as further “proof” of Greece’s dastardliness, I suggest they Iook to their even worse politicians at home, where the masks haven’t faIIen yet, corruption hasn’t been exposed and where they are not under fire].

    • “Summary: Tsipras and Syriza must ensure 2nd place in the upcoming September 20th election… ”

      Rather ike the 2OO8 eIection with KaramanIis smiling under a fIashing neon thought bubbIe “VOTE FOR THE OTHER GUY…”

    • Elenits:

      The numbers show that even at the present wretched condition the Greek economy is outperforming expectations based on the generally accepted metrics:

      http://greece.greekreporter.com/2015/08/28/greek-gdp-grows-1-6-in-q2/

      The whole issue with Schauble is to get Greece into a situation that it does not need any further european loans to cover its deficits. This is what the primary surplus is all about. Greece’s only deficit at this point is the debt service of about 7-8 Billion euros a year which must be covered.

      Schauble knows that he will not get another chance at this therefore he wishes total capitulation by the ruling Greek government on reforms (which in his feeble mind equates with insurance towards a Greek relapse).

      As we have discussed here on numerous occasions I disagree with Schauble whom I believe to be an economic amateur but Greece has a problem in his face/existence which must be solved.

      The issue at hand here is neither the justice of the measures imposed nor the remaining “fat” as you put it. I am pretty sure that there is no fat left and we are cutting into bone as well as that the measures asked of Greece are unfair/unjust.

      What we are talking about here is tactics and strategy. IMHO any party that comes in 1st in the upcoming election is as sure as dead. Therefore simple survival tactics dictate that the 1st position needs to go to the party that must be destroyed. And from what I think we all agree here this is the party of the New Democracy.

      My other point is that no real Greek party ought to enable Schauble’s job. Therefore Schauble needs to find other collaborators for his naive plans. Any Greek government seen to enforce the 3rd MOU will be history in a short order. So let ND+Pasok to do this job so that we can retain something beneficial in the end which is the extinction of these 2 parties via german collaboration.