A while back, I had dinner with an old friend who works in the Wellington beltway. He had recently gained a small amount of publicity for a study into the then government’s 90 day “fire at will” employment policy. The Tories sold this to the public under the guise that it would create jobs by encouraging employers to take a chance on people.
My friend’s research showed that the policy failed to increase the hiring of workers. We then joked about how then Prime Minister John Key tried to dismiss his findings by using anecdotal evidence!
I also remarked that it was fascinating that academic economic research tended to support many left-wing policy viewpoints in contrast to the right-wing framing of concepts presented at the level of ECON101. I saw it as a sign of the validity of the political left, much to the amusement of my friend who would never deal in such broad generalities.
This attitude explains my interest in Yanis Varoufakis, the academic economist-turned Greek Minister of Finance following the 2015 election victory of the left-wing SYRIZA party. In principle, having an academic as a government minister to implement evidence-based policy is ideal. Varoufakis’ 2017 book, titled Adults in the Room explores his time as Minister of Finance, and reveals that things aren’t so simple.
The book makes clear the horror of the debt repayment/austerity regime imposed by the EC/ECB/IMF troika. Austerity has eliminated Greece’s ability to repay its debts, and despite the sacrifices made by the Greek people, the repayment bill keeps growing. As Minister of Finance, Varoufakis seeks to reverse this disastrous course of action. But he has an almighty struggle ahead against intransigent EU functionaries.
Perhaps Compromise isn’t so Bad After All…
Moderation and compromise formed the backbone of Varoufakis’ negotiation strategy with the troika. However, he was clear to highlight the difference between compromise and being compromised. When the troika refused to budge, the answer was not to make more concessions, but to be prepared to proceed with a deterrent preferable to staying in the debtor’s prison.
This approach simultaneously confirms and challenges my uncompromising attitude to politics. I now appreciate that compromises may be necessary as part of reaching a very specific end goal. Similarly, I felt vindicated in my belief that genuine compromise with authoritarians is impossible since total acquiescence is what they are looking for. Credible threats against their own interests are required to progress.
Varoufakis knew this and had a strategy in place to haircut SMP bonds held by the ECB, a move that would have legal ramifications for the ECB in its attempt to save the Euro by purchasing debt. A parallel currency would also be introduced to buy time should Greek banks close. Varoufakis has a great capacity for self-reflection and even identified when he should have put this plan into action (following the teleconference ambush on 24 February 2015).
We Haven’t had Enough of Experts!
The strength of having an academic as Minister of Finance was evident in some of the innovative plans that Varoufakis drew up to counter tax evasion, contingencies in the event of Grexit and reassuring Chinese investment in the Port of Piraeus.
If Varoufakis represents one side of the expertise coin, then the other Eurogroup ministers, the ECB, and the IMF belong on the other side. As I see it, these functionaries were able to mask their lack of expertise by stonewalling, or by instantly dismissing all of Varoufakis’ proposals.
Some interesting examples of troika incompetence include the German double act of Angela Merkel and Wolfgang Schäuble. Schäuble is impervious to reason, sees Grexit as inevitable, and ultimately wants the troika in France. Merkel is more focused on progress being seen to be made and makes disjointed interventions for the sake of seeing progress. She was able to win the confidence of Prime Minister Tsipras, which eventually caused SYRIZA to surrender to the troika.
Varoufakis relays one instance which beggars belief. The troika used the outputs from an economic model to justify their demands for austerity (in this case increasing VAT). The problem was that they failed to account for price elasticities. A superior model was developed by Varoufakis’ team that incorporated this assumption, arguing that VAT should be reduced to discourage tax evasion. Of course, it’s not enough to be correct when you are arguing with the troika and Greece was imposed with a VAT rate that made its tourism sector less competitive at a time where tourism revenues are crucial to the Greek economy.
Whose Side is the Troika on?
The demands that Greece should prioritise debt repayments over pension payments to it’s citizens, and the Bank of Greece engineering a bank run in anticipation of SYRIZA’s election win were just two examples to show that the troika was not on the side of the Greek people. The troika’s loyalites are made clear when one spectacular act of economic self harm was committed following Varoufakis’ resignation:
To combat the endemic tax evasion that was hindering Greece’s recovery, Varoufakis introduced a scheme where electronic transactions were analysed to flag up undeclared income. Following Varoufakis’ resignation, the MoU for a third bailout loan included the elimination of the algorithmic hunt for evasion, which was about to net billions in revenue for the Greek government.
Hanlon’s razor comes to mind: Never attribute to malice that which can be adequately explained by stupidity. Given that the counterproductive actions of the troika always benefit the Greek oligarchy at the expense of European citizens, it is fair to describe the troika as not only incompetent, but also malicious.
Even though Varoufakis is no longer an MP, he is still campaigning to bring about constructive change as a co-founder of the Democracy in Europe Movement 2025 (DiEM25, which regular commenter Old Deuteronomy has mentioned before). Opposing the ascendant far-right does not require alignment with an uncaring establishment, instead left-leaning collectives such as DiEM25 offer a participatory approach for citizens to reclaim the dignity of all their European compatriots. Adults in the Room perfectly illustrates the need to take action to secure economic and social justice for Europe.