Yanis Varoufakis teaches us that unless we are willing to walk, the EU will not take us seriously

Yanis Varoufakis teaches us that unless we are willing to walk, the EU will not take us seriously

Yanis Varoufakis’s memoirs of negotiating with the EU were published in March and Austin Mitchell gave his views of some warnings for the Brexit process shortly afterwards. Here Andrew Allum looks closely at his account of how the EU behaved during those negotiations.

Yanis Varoufakis’s book comes alive with one astonishing quote: “Elections cannot be allowed to change economic policy”. So said Wolfgang Schauble, German Finance Minister on 11th February 2015 at the first Eurogroup (meeting of euroland finance ministers) according to Yanis Varoufakis, attending his first such meeting as the newly elected Greek finance minister.

When the Greek election and bailout were happening in the drama of 2015, I recall being fascinated by the before and after images of Alexis Tsipras, Greece’s Syriza left-wing Prime Minister. His strutting, demagogical, proud persona reduced to, well, doing as he was told. At the time it seemed like one key night in Brussels. His body language changed. What on earth did they say to him in those rooms all night? What threats? Maybe I have watched too many movies, but reading Varoufakis I was agog as he told the inside story and I turned the pages faster and faster, hurtling towards the answer. Varoufakis writes very well, fluently and engagingly in English refined from years working in the language in East Anglia and Texas. His cultural references are also appealing to Anglophones (Monty Python‘s Four Yorkshiremen sketch gets a mention). He places some great hooks, to keep the suspense flowing (for example ending a chapter thus: “What I had no inkling of was that the knife would be wielded first from within my ministry …”) even though we all know that Greek attempts to negotiate with the EU ended in failure.

But why? Why did Tsipras and his team give up? He had won an election on a mandate of standing up to the EU. He then went on to win a referendum to reject the EU’s offer.

They started with a simple negotiating strategy that comes straight from MBA class: Aim high. Be ready to walk. Work on your BATNA (“best alternative to a negotiated agreement”). Don’t bluff.

The crux of the issue between Greece and its creditors was whether continued austerity, aiming for a large primary government surplus, would allow Greece to service its existing debts to the so-called troika (the IMF, ECB and European Commission). The Syriza government was elected on a mandate of insisting that such a programme would not work. Their BATNA was to default on the loans, leading to a liquidity crisis as the ECB would, in response, stop providing short-term support to Greek banks. Then, to avoid Greeks starving or freezing to death, the government would launch an alternative currency to allow internal payments to be made, i.e., Grexit.

But the Syriza government did not have enough time to create its own currency. Varoufakis talks often of a credit/debit system he tried to bring in where effectively every transaction would be cashless and the Greek government would stand behind the system.

Bankers may conclude that it was all fanciful and Grexit was a starve and freeze option all along. But as Varoufakis writes, the troika’s ‘programme’ was ‘fiscal waterboarding’ whereby Greece was perpetually on the brink of asphyxiation (yes, he writes like this) and a chaotic Grexit was the inevitable eventual consequence. Greek GDP had fallen by 45% from 2008 to 2015. This process Varoufakis refers to as ‘extend and pretend’ financing. During this, Greece had become ‘Bailoutistan’ he says.

Initially in February 2015, just after Syriza’s election victory, Varoufakis had been elected an MP and brought into the cabinet as finance minister, his first political role, to lead the negotiations with the troika. He records that the inner cabinet of six were signed up to the BATNA. Just about. Five yeses and a nod.

But this score fell over time. During April 2015, Varoufakis noted a shift in the inner cabinet from 4-2 in favour of the BATNA to 2-4.

By the end of June 2015 and the Greek referendum on the proposed deal with the troika creditors, we see Varoufakis isolated in cabinet. Then Syriza ‘won’ the referendum with over 60% voting against the deal, but Tsipras did not follow through and went on to do as he was told by the EU and creditors. Varoufakis resigned.

The EU won by grinding Syriza down over about five months from February to summer 2015. Varoufakis’s story shows some of the negotiating techniques used by the EU to break Syriza’s resolve.

1. Technocrats fronting up, just applying the rules

Technocrats were sent to meet ministers as a sign of power. Varoufakis also seems highly sensitive to status, complaining when the Troika (ECB, EC and IMF) sent technocratic functionaries into discussions with, in his view superior status, elected ministers. This echoes Tony Benn’s complaint about the EEC from his days as a minister in the 1970s: “here was I, an elected man who could be removed, doing a job, and here were these people with more power than I had and no accountability to anybody”.

Behind the technocrats though, throughout Varoufakis’s story, you can hear and sense just two elected ministers: Schauble as the enforcer of the rules and Merkel as the only hope of getting him to bend. Everyone else on the EU side, everyone, seems irrelevant in Varoufakis’s portrayal. Almost everyone else he encounters reportedly wanted to help Greece get to a compromise, but could not because they were less powerful than these two players.

These politicians were so powerful that they can deny their power, directing Varoufakis to go to ‘the institutions’ (ie the troika) for relevant decisions, in the full knowledge that the institutions are going to hold the line.

2. Interfering in personnel

The EU side interfered in Greek negotiating personnel. They arranged for an EU loyalist to be governor of the Bank of Greece shortly before Syriza was elected. They forced a change in Varoufakis’s assistant at the Eurogroup. Also, interestingly, after he compared the Greek deal with the Versailles Treaty, Emmanuel Macron – then Economy Minister under President Hollande – was banned by Germany from taking part in the Greek negotiations.

At one point in March 2015, after the troika had “campaigned unashamedly” for the reinstatement of a deputy that Varoufakis did not want, you had “a farce featuring a troika appointee negotiating with the troika on behalf of a government elected to oppose it”.

3. Phone tapping

Varoufakis says “[the other side] had no compunction whatsoever about revealing they were tapping my phone!”

4. The Penelope strategy

There are also plenty of references in Varoufakis’s book to Greek myths, and this means ancient stories rather than any joke about mythical Greek taxpayers. In the Homeric tale, Odysseus’s faithful wife tells suiters she will only give them a decision of which one she will marry once she has finished weaving a burial shroud for her father-in-law. She toils hard on the shroud to keep them keen, but at night undoes her day’s work in secret. For the shroud, read technocrats developing a financial model of a new compromise programme for Greece. The troika thought they had time on their side, and they used this.

5. Obtuseness

Varoufakis seems to be the Bernie Grant of international finance. Like the late left-wing London politician, he claims to be very radical, has one or two radical policies, but then espouses quite a lot of centrist compromise. ‘Even Bernie Grant says’ was for a long time a Tory line, and these days we can say that ‘even Yanis Varoufakis believes that lower tax rates would raise more funds’. Varoufakis recommends cuts in corporation tax and VAT (comparing Greek rates with just 7% on Turkish hotels). He accepts the free market idea of the Laffer curve whereby they would raise more money from lower tax rates.

Varoufakis finds common cause with many familiar figures, including British politicians. Norman Lamont is quoted sending supportive messages all through. George Osborne was ‘in the same boat’ as regarding the Euro’s financial crisis. Martin Wolf of the FT ‘agreed with my debt restructuring proposals’ within minutes of them meeting. Reading Varoufakis you could end up thinking that all of Europe to the west or south of the Rhine agreed with him. And a few from beyond as well. But, crucially, they only agreed very privately (Schauble, Macron, Sapin, Lagarde, Muscovici, Dijsselbloem, Spanish and Italian finance ministers are all quoted in this way by Varoufakis).

But this private agreement is of no value when it comes to open meetings or public support and the system is at stake. Many times Varoufakis reports meetings where his points are met with blank, even stony, silence and then a point of order or tea break. He calls this sort of obtuseness “the Swedish national anthem treatment”: he might as well have been singing it.

6. Working with EU allies within Greece

How much of the Greek establishment including bankers and media owners had actual financial interests in failure of the “Athens Spring” and the continuation of Greece’s programme with the EU of what Varoufakis called “extend-and-pretend” austerity and bailouts? Varoufakis accuses the EU of working with oligarchs and the establishment in Greece, against their people.

7. True aims were not what you would think

Varoufakis often refers to the creditors not wanting their money back and their actions as he reports them often support this. Schauble, Draghi and EU colleagues’ aim in the negotiations was to prove that the system cannot be beaten. This did not require getting repayment from Greece.

8. Never compromise

Despite the complexity of Greece’s debt situation, and therefore the ample room for negotiation, the EU did not offer Varoufakis compromises. They insisted that Greece signed up to ‘the programme’, i.e. austerity and bailouts, without an agreement on a complete package containing any of the elements Syriza were elected to seek.

Implications for Brexit?

When you hear EC officials say that Brexit can never be a success you sense a certain ill-will against the UK’s decision to leave the EU. You sense that they will work to make it clear to other member states that the UK will be demonstrably worse off by leaving; that the package the EU wants to offer is so bad that the UK government will do a Tsipras (or a ‘Cameron’) and say, ‘oh well never mind, let’s do as the EU says after all’. And that would be to overturn the referendum and 8th June electoral mandate and Remain after all – but no longer the second power in the EU, the UK would be a laughing stock, weakened and embarrassed, having cried wolf. We tried to stand away from the table, but the effort or risk was too much and we sat back down. No-one will listen the next time we say we don’t like the agenda. Surely not even Gina Miller and her colleagues would like such a scenario, after all they have said about sovereignty, or would they just shrug and say ‘it’s good for business’ and never mind about democracy? For the EU, this would be victory in the negotiations. Schauble would be proved right. Votes would not have changed anything.

With Dijsselbloem and Schauble insisting that Greece signed up to ‘the programme’ (of austerity and bailouts) before any discussions on debt relief, they were in effect doing what all federal authorities must do: prevent one region or state from getting its way for fear of losing discipline over the others. They did not offer any compromise to Greece in all of Varoufakis’s story. There is an echo here of Donald Tusk in February 2016 stating that his deal with Cameron conformed to the treaties.

A period of time may be necessary with the UK under World Trade Organisation and Trade In Services Agreement (WTO/TISA) for all involved to accept that the UK is no longer a member state being unruly, but is a sovereign nation seeking co-operation. A better deal may emerge from this. This would imply a BATNA where the UK does not pay a penny, goes for WTO/TISA and then holds out the hand of friendship with billions in it.

Alternatively, imagine the announcement that the EU might make, the morning after hammering out a deal with Mrs May, something along the lines of: “we are sorry to see the UK leave but the EU goes on and will progress with further integration and co-operation. The purpose and intent of the EU, and the rules we have built over the past 60 years, are unchanged”. Varoufakis’s book suggests the EU will go to extreme lengths to be able to say this, and to stare down any member state government that quietly thinks they can bend the rules by reference to the UK. The Brexit team need to be listing and promoting all the reasons why the UK is different and a successful exit is not an existential threat to the EU.

The Prime Minister’s Lancaster House speech set a high tone and showed admirable ambition. In the end though, we need to work on our BATNA and make sure that all the Cabinet are publicly and privately ready to do it. Otherwise, like Varoufakis in Greece’s inner cabinet, Messrs Hammond, Davis, Fox and Johnson (they have all, as well as the Prime Minister, said in terms that no deal is better than a bad deal) may watch the dwindling count of those willing to walk. In that way lies failure. The strategy should be: Aim high. Be ready to walk. Work on your BATNA. Don’t bluff.

Greek debt was back in the news recently and I thought I had fallen back into Varoufakis’s book. The IMF apparently endorses debt relief for Greece whilst Schauble was quoting saying something that was called by the Telegraph journalist “optimistic” but was actually about “enabling Greece to repay” – this would sound to Varoufakis like another turn of the broken record two years on from the dramas of spring 2015.

Dijsselbloem was quoted as saying that “concrete decisions on debt relief” will come next year, i.e. 2018.

You learn from reading Varoufakis to treat such statements very carefully because they are not written with the aim of clarity or compromise. At a quick read, you may think that Dijsselbloem is offering debt relief in 2018. But no, he is only offering a decision then. So Greece makes more cuts within ‘the programme’, without debt relief. The EU’s order of things will be maintained.