Adults in the room by Yanis Varoufakis

by Pat Turnbull 

Early in his book Adults in the Room, Yanis Varoufakis tells of an encounter that haunted him in the 162 days of 2015 when he was Finance Minister of Greece.  It was a week or so before the January 2015 election that brought him to office.  Accompanying a Spanish journalist who had come for an interview was Lambros, an Athens-based Greek-Spanish interpreter.

After the interview, Lambros approached Varoufakis. ‘He shook my hand, refusing to let go while addressing me with the concentration of a man whose life depends on getting his message across: “I hope you did not notice it from my appearance.  I do my best to cover it up, but in fact I am a homeless person.”’

In 2010 Lambros lost his job teaching foreign languages, and when he and his family were evicted from their flat he lost his family.  For the past year he had lived on the street.

Lambros went on: “I know you will win the election … I am finished … But please, please do something for those who are still on the verge … Don’t sign what they give you like the previous ones did.  Swear that you won’t.  Do you swear?” Varoufakis answered, “I swear.”

Varoufakis did not sign the Memorandum of Understanding that would tie Greece for yet more years to the ‘debtor’s prison’ in which the troika of the International Monetary Fund, the European Commission and the European Central Bank held the country.  He resigned rather than do it.  But, even though on July 5th 2015 61 per cent of the Greek people said ‘No’ in a referendum called by the Syriza government themselves, the government did sign, breaking the promises that had led to their election.

For Greece, the rot had set in as soon as they joined the European Economic Community, predecessor to the European Union (EU), in 1981.  They were allowed to join even though the European Commission itself was concerned that once they complied with the requirement to lower trade tariffs, Greek producers would not be able to compete against foreign competition.  As Varoufakis puts it: ‘The deficits of countries like Greece were the reflection of the surpluses of countries like Germany.’

When Greece became a member of the eurozone on January 1, 2001 they also lost control of their currency and their ability to adjust to economic conditions and made themselves vulnerable to economic blackmail by the EU.  To emphasise the contrast, as Varoufakis says: ‘The Bank of England …from the moment the City went through its 2008 credit convulsion had printed billions to refloat the banks and keep the economy “liquid”.’  Greece did not have that option. 

Varoufakis again: ‘While the drachma devalued, these deficits were kept in check.  But when it was replaced by the euro, loans from German and French banks propelled Greek deficits into the stratosphere.’  To make matters worse, a December 2004 audit of Greek fiscal accounts revealed that its deficit when it entered the eurozone was much higher than reported.

So Greece was ill prepared for the world-wide shock unleashed by the collapse of Lehman Brothers in the USA in September 2008.  In Varoufakis’s words: ‘The credit crunch of 2008 that followed Wall Street’s collapse bankrupted Europe’s bankers who ceased all lending by 2009.  Unable to roll over its debts Greece fell into its insolvency hole later that year.  Suddenly French banks faced losses from peripheral debt at least twice the size of the French economy …If only three per cent of that exposure went bad …France’s top three banks would need a French government bailout.’

The fear was that with Greece’s inability to repay its loans ‘money men around the globe would get spooked and stop lending to the Portuguese, possibly to the Italian and Spanish states as well …Overnight, France’s main banks would be facing a loss of 19 per cent of their ‘assets’ when a mere three per cent would make them insolvent.’  And France too was in the eurozone and had no central bank but the European Central Bank (ECB) ‘created with an express prohibition: no shifting of Graeco-Latin bad debts, private or public, onto the ECB’s books…That had been Germany’s condition for sharing its treasured Deutschmark with Europe’s riff raff, and renaming it the euro.’

But Germany too was not immune from the 2008 financial crash. ‘Imagine [Angela Merkel’s] horror when she received a barrage of anxious phone calls: Chancellor, our banks are bust too!  To keep the ATMs going, we need an injection of 406 billion euros …by yesterday!’  They got it – and more a few months later.  The German banks were exposed to US toxic derivatives and their loans to the governments of ‘Europe’s riff raff’.

Varoufakis goes on, ‘Between them the leaders of France and Germany had a stake of around one trillion euros in not allowing the Greek government to confess its bankruptcy.  After a few weeks they figured out their fib: they would portray the second bailout of their banks as an act of solidarity with the profligate and lazy Greeks.’  They brought the International Monetary Fund (IMF) on board so that ‘Europeans could be told that it was the international community, not just the EU, lending to the Greeks for the higher purpose of underpinning the global financial system [not] an EU bailout for German and French banks.’ And so the troika of the IMF, the European Commission and the ECB, the hammer of the Greeks, was born.

And it was the Greek people who were to pay the price. ‘Our 2010 bailout had two pillars: gigantic loans to fund the French and German banks and swingeing austerity…During 2010 to 2012, Greece experienced a stupendous 15 per cent reduction in government spending …Greece’s [national income] fell by 16 per cent.’

In 2012 there was a second Greek bailout - ‘a world record extend-and-pretend loan of 130 billion euros was pushed down the nation’s throat, almost none of which would go to the Greek state per se… The Greek state’s revenues and customs department …head would now need to be endorsed by the troika and could not be fired without the troika’s consent…Privatizations were assigned to an independent authority led by yet another troika-endorsed chairperson, whose motto might best be summarized as “Everything must go!”’

In 2014 Varoufakis made a speech: ‘There are 10 million Greeks living in Greece ...organised in around 2.8 million households with a “relationship” with the tax authorities… 2.3 million [households] have a debt to the tax authorities that they cannot service.  One million households cannot pay their electricity bill in full… For 48.6 per cent of families, pensions are the main source of income …What was the 700 euro old age pension has been reduced by about 25 per cent since 2010 and is due to be halved over the next few years.  The minimum wage has shrunk (on the troika’s orders) by 40 per cent …Unemployment has risen 160 per cent …Of the three million people constituting Greece’s labour force, 1.4 million are jobless …[of them] only ten per cent receive unemployment benefit and only 15 per cent any benefits at all …Household disposable income has contracted 30 per cent since 2010.  Healthcare expenditure was cut by 11 per cent between 2009 and 2011 alone, with significant rises in HIV infections, tuberculosis and stillbirths...’

Before agreeing to become the Syriza government’s finance minister, Varoufakis laid out what his policies would be – Greece needed ‘meaningful debt restructuring.  We had to agree that this was the be-all and end-all of a Syriza government.  Getting Greece out of debtor’s prison was more important than preventing privatizations or any other objective on Syriza’s agenda.  They agreed …we could …finally aim at a small government surplus …at most 1.5 per cent of national income.  This would require sharp reductions in VAT and the corporate tax rate …to energize the private sector.’

With these agreed aims Varoufakis took up his position as Greek finance minister and entered the Ministry ‘that would be my crucible for the next 162 days.  As I entered the building, a cheer rose from the 50 or so women camped outside: some of the ministry’s legendary cleaners, who had been dismissed overnight and without compensation two years before by the previous government.  “Don’t betray us!” they shouted.  “I won’t,” I replied firmly.’ One of his first acts was to give them their jobs back – a move that did not go down well with the troika’s representatives.

His efforts to get agreement with the troika on his aims were doomed from the start.  As he says: “The creditors did not want their money back.  What mattered to them was their authority, and that was being challenged by a leftist government whose success at negotiating a new deal for its country was the creditors’ greatest nightmare, as it might give ideas to other Europeans labouring under the same crisis and the same irrational policies.’

Varoufakis had an early baptism of fire and a taste of what was to come. ‘On Friday, 30 January, three days after I had assumed the ministry, the president of the Eurogroup [of EU finance ministers], Dutch finance minister Jeroen Dijsselbloem, dropped in.  He came with a large entourage that included Thomas Wieser, president of the Eurogroup Working Group and the true power broker within the eurozone…

‘I attempted to melt the ice by sharing the words of optimism with which I had closed my inaugural press conference a few days earlier…

‘What are your intentions for the Greek programme? Are you planning to complete it?” [Dijsselbloem] asked.

‘I repeated the answer I had given him over the phone: our new government…had been elected …to negotiate key elements of this programme.  His response was abrupt and aggressive. “This will not work!” he declared. I reminded him that when I had given the same answer to the same question three days earlier, he had replied, “This is very good.” Jeroen brushed my reminder aside..“ You do not understand,” Jeroen told me, his voice dripping with condescension.  “The current programme must be completed or there is nothing else!”’

In the context of this intransigence, Varoufakis’s ideas for how to solve some of the problems the Greek economy had no chance.  One of them was widespread tax avoidance.  He had a plan – go all out to catch the major tax cheats, combat tax evasion, halt the roll out of 16,000 video battery terminals of the privatised national lottery designed to rob the desperate Greeks of their last euros, empower the government’s anti-corruption ombudsman, and make it possible for people who had dropped out of the tax system to rejoin and pay back taxes in small instalments.  As he says: ‘By offering …a low tax rate with zero penalties, I expected to replenish the empty state coffers.’

He thought he had the approval of the IMF in the form of Poul Thomsen, who had been appointed in 2010 to head its Greek mission and, in Varoufakis’s words ‘as a reward for his unmitigated failure in Greece …was promoted to head the IMF’s entire European department.’  Thomsen’s words could not have seemed more encouraging: “…the one thing we would expect of you, in accordance with your own pronouncements, is that you go after the oligarchs, targeting tax evasion in particular.”’

Varoufakis thought he had the support of Poul Thomsen for his debt-swap proposals.  Thomsen’s words could not have seemed more unequivocal: “This is fine.  But it is not enough.  We need an immediate annulment of part of your debt.  No swaps, no delays.  Just take 53 billion euros and erase it.”

This was just one of many occasions when Varoufakis presented proposals, thought he had approval, spent hours working on them with his highly qualified team, only for those very same individuals to later drop them like a hot brick.

Some of these unnerving volte faces took place within a few minutes.  Take Michel Sapin, France’s finance minister – in private, when Varoufakis presented his ideas, ‘Michel’s response was that of a brother-in-arms: “Your government’s success will be our success.  It is important that we change Europe together; that we replace this fixation with austerity with a pro-growth agenda.  Greece needs it.  France needs it. Europe needs it.”’

Together Varoufakis and Sapin went to their press conference. ‘Michel spoke first …quite suddenly his tone changed.  The joviality and comradeship disappeared and were replaced with a harshness more familiar from the other side of the River Rhine …Greece had obligations to its creditors, the new government would have to honour them…Not a word about ending austerity or adopting public-investment-led pro-growth policies for the good of all Europe… I stuck to my prepared statement…I felt as if I had been punched in the stomach.   As soon as we left the press room, Michel instantly switched back to his amicable joviality.’

There was plenty more of this to follow for Varoufakis.  He had also to endure the humiliating treatment of him and the Greek nation in the powerful Eurogroup of finance ministers.  Again and again he was given the run-around in his search for a solution that would free his country from the grip of the troika.  Crafty politicians played him off against Tsipras and other members of the government 

The troika were determined to cut no slack for the Syriza government, elected to oppose their regime by the rebellious Greeks, in contrast to their behaviour towards previous governments.  In conversation with Benoit Coeure, ‘widely regarded as France’s man on the ECB Executive Board’ (who incidentally said of Varoufakis’s debt-swap proposals, “Yes, this might work”), Varoufakis reminded him ‘of what the ECB had done in the summer of 2012 to help the then freshly elected Samaras government …it had raised their credit card limit (in Treasury bills) from 15 billion euros to 18.3 billion in order to enable them to make the repayment then due to the ECB…Frankfurt’s curious position: officially apolitical but in reality playing a key role in European politics.”  Indeed; the Syriza government was to be allowed no leeway at all. 

Varoufakis is a supporter of the European Union, and his aim was to keep Greece in the EU and the eurozone if at all possible.  But if this meant succumbing to more loans and the accompanying brutal conditions, he insisted that Grexit – a Greek withdrawal from the eurozone at least – was the preferable alternative, one that Greece must rather choose, and must be prepared to implement.  He drew up practical plans for that eventuality.

The party he represented, Syriza, was split on the matter, with some believing it was vital to stay in the eurozone, and others convinced that Grexit was the only realistic choice.  To make matters worse, Syriza’s leader Alexis Tsipras turned out to be a weak and vacillating figure, afraid to make tough decisions and easily swayed by certain charismatic figures, particularly Angela Merkel.  The book makes clear how unfitted Syriza was for the task the Greek people had elected them to fulfil.  The failure to follow the referendum mandate of the Greek people to say no to the so-called Memorandum of Understanding was the final betrayal.

But the real villains of Adults in the Room are the troika and its representatives, and the leaders of the EU countries who, for their own ends, were party to the brutal subjection of the Greek people. 

On 20th August 2018 Greece emerged from eight years of the loans – and the draconian conditions attached – that the troika had forced on them.  However, in January 2019 another round of cuts worth £1.8 billion will be implemented, and Greece remains tied to the troika’s fiscal targets until 2060, under the imposition till that time of budget surplus targets of 2.2 per cent of GDP (gross domestic product) or more.  Greece has surrendered control over public property until 2114.

During the period since May 2010 the country has taken some 288.7 billion euros in loans, most of it instantly going back to creditors in the form of debt repayments.  Greece has lost 25 per cent of GDP. The fiscal straitjacket imposed by the troika has stifled economic growth so that the ratio of debt-to-economic output has risen from 120 per cent of GDP at the start of the crisis to around 180 per cent of GDP now, by far the highest in the European Union.

The Greek people have not given in. Many thousands have joined in demonstrations and strikes. Argiri Erotokritou, one of the leaders of a union representing health care workers in Athens, explained that tens of thousands of workers for public hospitals have been laid off in the last eight years: “…we want to send a message to the government that exiting the memorandum should also mean the end of austerity. If they want to say that the crisis is over, then we want those jobs back.”

A last word from Yanis Varoufakis: ‘Austerity is a morality play pressed into the service of legitimising cynical wealth transfers from the have-nots to the haves in times of crisis.’ 


Jeroen Dijsselbloem