Dressed-down Greece demands a haircut

New Greek finance minister Yanis Varoufakis has taken the relaxed approach to negotiating Greece's way out of its debt crisis.

Emily Hohler
By
published
in Features

Yanis Varoufakis, the new Greek finance minister, turned up at 11 Downing Street this week in black jeans and the "sort of leather coat Putin might wear on a bear hunt", notes Simon Jenkins in The Guardian which conveys exactly the "get real" message that Europe needs right now. His visit was part of a tour of Europe aimed at building support for a new approach to the Greek debt crisis, says the FT.

The best explanation for this approach, and Varoufakis's refusal to deal with the "troika" of the European Central Bank, European Commission and International Monetary Fund (IMF), is that, while the debate over Greece is "couched in highly technocratic language, it is in essence highly political" Greek debt is largely "owed to other EU states. It is their governments that would carry the consequences of Greece defaulting or leaving the eurozone."

It's not as if the troika's approach was successful. The IMF was overoptimistic about growth; more debt should have been restructured. Greece desperately needs reform, but under the troika's "tutelage" very little was done to tackle the dominanceof the oligarchy or "endemic tax avoidance". Syriza should be able to make more progress because it doesn't have the "deep ties with wealth interests" that the traditional parties do.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

But it "needs allies" if it is to push through the necessary reforms. Its European partners must recognise that this is not a simple "creditor-debtor relationship". Greece can only work off its debts if it enjoys sustained growth. It follows that debt repayment should be linked to GDP. And a "menu" of bond swaps rather than a debt write-off is what Varoufakis has now put on the table, though details are "still scarce".

GDP-linked bonds are an "excellent idea, because they offer risk-sharing", says Martin Wolf in the FT. But they must come at the price of "deep and radical reform". If it becomes clear at any point that Greece "cannot or will not" reform, then it should leave the eurozone. "The currency union is a partnership of states" and "can only work if it is a community of values".A "Grexit" would cause huge damage. "But an open sore would be worse."

Emily Hohler
Emily Hohler
Politics editor

Emily has worked as a journalist for more than thirty years and was formerly Assistant Editor of MoneyWeek, which she helped launch in 2000. Prior to this, she was Deputy Features Editor of The Times and a Commissioning Editor for The Independent on Sunday and The Daily Telegraph. She has written for most of the national newspapers including The Times, the Daily and Sunday Telegraph, The Evening Standard and The Daily Mail, She interviewed celebrities weekly for The Sunday Telegraph and wrote a regular column for The Evening Standard. As Political Editor of MoneyWeek, Emily has covered subjects from Brexit to the Gaza war.

Aside from her writing, Emily trained as Nutritional Therapist following her son's diagnosis with Type 1 diabetes in 2011 and now works as a practitioner for Nature Doc, offering one-to-one consultations and running workshops in Oxfordshire.

Latest