‘The eurozone will not survive very long under the current policy framework’.
As a friend of – and advisor to – former Greek finance minister Yanis Varoufakis, James K. Galbraith has followed the negotiations up close from the start. Here I talk to him about the latest bailout deal, the Greek government’s negotiating strategy and the lessons of the Greek tragedy for the European left.
What do you think of the last-minute deal struck between Greece and the EU?
It wasn’t a deal, it was a rape. And the consent was acquired in a criminal manner. Alexis Tsipras has said correctly that it was done with a knife to its throat. That’s very customary for this kind of thing.
Did the Greek government have any alternative?
The only alternative was to exit the euro.
Tsipras has stated that this agreement is still better than what the country would face in case of an exit.
That’s his judgement to make. And I understand how, with the information available to him, he might feel that way.
Do you think that the information available to him is incorrect?
It’s possible, yes.
So your personal opinion is that at this point an exit would be the desirable option?
I think that the challenges of exit would be substantial, and the question of how to proceed is for the Greek government and the Greek Parliament to make. That’s clear. If I were in it, I would be standing where Yanis Varoufakis is standing now.
As a friend and advisor to Yanis Varoufakis, you’ve followed the negotiations up close from the start. Do you think there was a way of avoiding this outcome? Could Greece have handled things differently?
What became clear as the negotiations proceeded is that the European authorities and the IMF were making no concessions on policy issues and that they were simply waiting for the Greek side to concede all the way back to the original Memorandum, to the original policy program that had been imposed on the previous governments. So the position that one heard from Schäuble at the beginning – that ‘elections make no difference’, which was a position that was extremely hard to take seriously at the time – turned out, after months of negotiations, to be exactly the position that he maintained until the end. And under those conditions the only thing that the Greek government could do was to demonstrate to the world that that was the case. When you have a completely unmoving counterpart in a negotiation, you have to discover that fact and it takes time.
How do judge the behaviour of the ECB?
I would say that the ECB’s decision to act essentially as an enforcer of the creditors – a decision that undermined the Greek economy, destabilised and eventually pulled the plug on the banking system – was an act of remarkable thuggery, which will raise the most profound questions about the integrity of the ECB going forward. The pressure exerted by the ECB on the Greek government was of course what ultimately forced Alexis Tsipras to accept the terms of the agreement.
In light of that, once the Greek side realised that the troika was not interested in reaching a viable agreement for Greece, wasn’t it naive for the Greek government to continue appealing to reason and logic and insisting on debt relief when there was clearly no willingness on the creditor’s behalf to compromise on that or other issues?
I don’t believe that the Greek position was naive in the least. It was based upon the principle that you make your arguments as clearly and logically as you can, you explain them as forcefully and effectively as you can, and you count on the combination of reason and common sense to have some effect on the other side’s position. It seems to me that when you have no other cards to play that’s what you do, and that’s what the Greek government did. I think it had a powerful effect on public opinion in Europe. But of course it had no effect on the power politics. It wasn’t naive – it was the course dictated by the material imbalance of power.
Do you think Greece should have played the ‘Grexit card’ as leverage right from the start?
It’s very unclear that it would have given them any leverage. For two reasons. Firstly, it would have been a breach of faith with the Greek electorate, since SYRIZA did not campaign on an exit platform and never advanced one, and the Greek public clearly didn’t want the exit option. Secondly, on the German side, it’s not at all clear that an exit was a disagreeable option. It was certainly one of two options that Schäuble held very much in his mind. So it’s not at all clear what kind of a threat it would have been and if it would have given the Greeks any leverage. The business of doing backseat strategizing about the situation that the Greek government faced is not very productive. It’s clear that they were in a very difficult situation.
There’s little reason to believe that a policy of outright threats would have gotten them any further or would have changed the material position of the Europeans. Look, this was a test, of whether a reasoned argument about the failure of past economic policies and the need to change could prevail inside the eurozone, given the politics and the ideologies of the other partners in Europe. That was the test, that was the issue that was at stake in this whole exercise. The Greek people elected a government to try and change things within the eurozone’s framework, and the government set out to try and do that. It had very limited tools at its disposal, and it used the weapons it had: common sense, reason and facts. But those tools didn’t make an effect. So this is a conclusion that one should draw not about Greece but about Europe.
The reason I ask whether SYRIZA could have done things differently is because left-wing movements and parties elsewhere in Europe will now have to re-evaluate their strategies based on the Greek experience.
SYRIZA’s entire strategy was, in a way, founded upon the following question: could a country that had suffered the failures of European policy try and change those policies inside Europe? Well, I think the answer to that question is obvious to everyone now. I don’t even need to say it.
Do you think a reform-within-Europe strategy would have a better chance of succeeding if it were attempted by a larger country such as Spain?
It’s up to the Spanish electorate to decide which path it wants to take, whether it wants to test the proposition that a bigger country has a better chance to get a good deal than the Greeks could get. If I were in their position, I would not go down that route. I don’t think it’s going to be a very persuasive argument, because the counterparty’s proposition is very rigid: the creditor countries can’t give anything short of austerity, Memorandums and no cuts on the debt.
How do you think the European establishment would react to the victory of SYRIZA-like party in larger country of the periphery such as Spain?
Practically, when a concrete result appears politically, what will happen is that the European banks of the North will start to cut back their credit lines to the banks in the South in the concerned countries – that’s what happened in Greece – and as that happens the ECB will have to be brought in to provide emergency liquidity. At that point people will start removing their deposits from the banking system, and then you are in what is called a ‘death spiral’: a full-blown banking crisis. So that is something that you can expect to happen in some other country fairly soon. And the horrible sequences of events witnessed in Greece will reappear in different form. Clearly, if this were to happen in a large country such as Spain or Italy the consequences would be much more momentous that what happened in Greece.
This puts European progressive parties and movements in a very difficult spot: on one hand getting elected on a reformist platform risks settings in motion the sequence you just described and which we have already witnessed in Greece; on the other hand, if one were to campaign on an exit platform, those dynamics would probably manifest themselves even before getting to the elections. It’s really a Catch-22 kind of situation.
Yes, there’s a very interesting interaction between political and banking dynamics that will no doubt play out in other places as well.
There are still many obstacles to the conclusion of the new MoU for Greece. What chances do you think it has to get approved by all parties?
I think it’s entirely possible that the financing will actually fall apart as a result of the Greek parliament’s approval of the bailout conditions, because the IMF will be unwilling to participate without a haircut, and without the IMF it will be very difficult to get the agreement approved by the German parliament.
What do you think the implications are for the future of the eurozone?
I don’t think the eurozone will survive indefinitely or even all that long under this policy framework. What’s going to happen very clearly is that you will see a continuation of the popular discontent, which will show up in election results. Maybe in Spain, maybe in Ireland, maybe in Portugal, maybe in France, maybe in some other place – but the point is that people do not react well to a European Union based on coercion and blackmail. So one can count on that.