Yanis Varoufakis comes to town. But did he help Greece?
Every year I make a point of attending the Dalkey Book Festival in Co Dublin, writes RTÉ’s Business Editor David Murphy.
Run by economist David McWilliams and his highly-motivated wife Sian Smyth, the event has broadened from its literary origins to include a range of interesting speakers from the world of politics and economics.
This year, one of the big name guests is the former Greek finance minister Yanis Varoufakis next Thursday.
He is engaging, smart and controversial.
This time last year he led his country in a nail-biting showdown with the European Union and the IMF.
12 months on, it is worth reflecting on whether his contribution was beneficial to Greece.
It turns out he was right. This assessment by the IMF last month shows that the country’s debts are still far too high and the forecasts for growth are hopelessly optimistic.
While Mr Varoufakis was an adroit economic analyst, he was politically clumsy and won no support from other European politicians.
He needed them onside if Greek debts were to be restructured.
Instead, he frightened the life out of other EU politicians, hoping they would buckle. It was a risky strategy and it didn’t succeed.
In June of last year Greece was offered a new bailout, which did not include debt forgiveness.
Rather than accept it and try to renegotiate from within a bailout, Mr Varoufakis and Prime Minister Alexis Tsipras said they would put the aid package to a referendum.
Without the assurance that Greece would receive another bailout, the European Central Bank restricted funding to the country’s banks.
That prompted the immediate introduction of currency controls, closure of bank branches and restrictions on ATM withdrawals – which were capped at €60.
This was economically corrosive. Many retailers were reluctant to deposit their takings in the banking system because they did not know when or how they would be able to retrieve the money.
Greeks voted by a clear majority to reject the bailout terms on 5 July last year. Mr Varoufakis lauded the courage of the Greek people and then suddenly announced he was resigning.
“I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings – an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement,” he said.
The seven-month political career of Yanis Varoufakis was at an abrupt end.
Despite weeks of political pyrotechnics, Greece had come full circle and had made no difference to the terms of the rescue package. Meanwhile, its economic circumstances were worsening.
Now, after seven years of bailouts, Greece remains on life support smothered by debt.
That is not to suggest Greece’s problems are caused solely by the Troika. They are not. Tax evasion is rampant and the steps to address it are not effective.
According to the IMF, “35% of the labour force is self-employed, compared to a European average of 14%. This is mainly driven by tax avoidance and evasion schemes, as self-employed carry a lower tax burden and find it easier to hide their income.”
It is easy to dodge tax in Greece and if you get caught the sanctions aren’t sufficient deterrents.
On his visits to Ireland, Mr Varoufakis usually has a swipe at Finance Minister Michael Noonan.
While Ireland’s problems were not as acute as those of Greece, it is sometimes forgotten that the Irish State had a tough job to renegotiate parts of its bailout.
Among them was a reduction in the interest rates on our EU loans of 2.5%, extending the repayment period from seven to 15 years, and scrapping the onerous Promissory Note used to finance the cost of Anglo Irish Bank.
These concessions were struck by signing up to a bailout and then renegotiating the terms of the deal without creating a political showdown.
Fixing Greece requires political agreement from other EU countries.
Mr Varoufakis made a bad situation worse, despite correctly diagnosing it.
So when people flock to see him in Dalkey this weekend, where no doubt he will be entertaining and articulate, they should remember this. It is not enough to call it right.
You have to work towards setting it right, too.
Comment via Twitter: @davidmurphyRTE (see Twitter thread below)
Following publication of the above blog, Yanis Varoufakis tweeted:
— Yanis Varoufakis (@yanisvaroufakis) June 11, 2016
— Yanis Varoufakis (@yanisvaroufakis) June 12, 2016