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 dominance of 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.
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.”