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.
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.