Greek Meltdown Watch: Yanis Varoufakis Resigns as Finance Minister

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As Greece breaks apart on the rocky shores of the European Union, the man who did so much to run his nation’s finances aground has decided to call it quits. The New York Times sees the sudden resignation of “combative” Finance Minister Yanis Varoufakis as a gesture of “conciliation” between the socialist Syriza government and a thoroughly fed-up European Union, but it might be premature to talk about Greece making peace with its creditors.

The meltdown currently leaving Greeks unable to withdraw more than a few euros from banks teetering on the edge of collapse could just be a particularly intense phase of Prime Minister Alexis Tsipras’ plan to weaponize his debt and shake the EU down for cash.

According to The New York Times:

Mr. Varoufakis’s announcement came as leaders around Europe sent conflicting signals about whether they would continue to support Greece and whether a compromise could still be possible on a new bailout program or on debt relief–a question with implications not only for Athens but for the broader euro currency union.

It does not sound like Varoufakis’ scalp is mollifying Greece’s creditors very much:

In Germany, the eurozone country to which Greece owes the most money and the one that has tended to take the hardest line in the debt talks, a spokesman for the Finance Ministry said Berlin saw no new basis for negotiations with Athens at this point. The spokesman for Angela Merkel, Germany’s chancellor, said that while Greece was still in the eurozone, it was up to Athens to determine whether the country would stay.

The Times further quotes European Commission Vice President for Euro Affairs Valdis Dombrovskis saying that voting to reject the austerity measures demanded by the EU has “dramatically weakened” Greece’s negotiating position and made the situation “more complicated.” However, Dembrovskis held out hope that “if all sides are working seriously it’s possible to find a solution, even in this very complicated situation.”

It remains to be seen if Dombrovskis is right about Greece’s position being “dramatically weakened.” Brinksmanship always becomes more exciting when the actual brink is reached and only hours are left on the clock.

Varoufakis’ departure might be a bit of carrot offered to Greece’s creditors, but they’ve still got plenty of stick left. Cashing out the hard-line Finance Minister with a penchant for referring to those his country owes money to as “terrorists” is a rather faint signal, compared to the deafening thunder of 61% of Greeks voting “no” on the supposedly last-ditch, non-negotiable austerity demands of the Europeans. The most obnoxious and clearly unqualified Greek negotiator is gone; Varoufakis became Finance Minister through political and ideological connections, not because he knew anything about finance, but the rest of the Syriza gang is only marginally more cooperative.

Although it is widely reported that Prime Minister Tsipras pushed Varoufakis into leaving, the latter says on his blog that he left because shortly after the referendum returned a “no” vote, he 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.”

But Varoufakis still thinks Greece will be holding the upper hand in negotiations after his departure. He portrays himself as a heroic martyr and thinks Greece’s looting its creditors is an expression of “democratic rights.”

Varoufakis writes:

Like all struggles for democratic rights, so too this historic rejection of the Eurogroup’s 25th June ultimatum comes with a large price tag attached. It is, therefore, essential that the great capital bestowed upon our government by the splendid NO vote be invested immediately into a YES to a proper resolution–to an agreement that involves debt restructuring, less austerity, redistribution in favour of the needy, and real reforms.

“I consider it my duty to help Alexis Tsipras exploit, as he sees fit, the capital that the Greek people granted us through yesterday’s referendum,” the former Finance Minister declares. “And I shall wear the creditors’ loathing with pride.”

None of that sounds very conciliatory. The Wall Street Journal warns that many Greeks see things the way Varoufakis does: “Greek Prime Minister Alexis Tsipras claimed a ‘no’ vote would help him extract better terms–by which he means even higher growth-killing taxes in return for fewer pension cuts. The Greeks chose the Tsipras ultimatum strategy, so they can’t blame the Germans for what comes next.”

Oh, yes, they can because, as the WSJ goes on to predict, the hell about to be unleashed on Greek citizens will be dumped on German Chancellor Angela Merkel’s doorstep:

Yet as the Greek government runs out of money this month, Mrs. Merkel and the European Central Bank will come under considerable pressure to bend. This pressure will increase if there are bread lines or violence in the streets.

Mr. Tsipras and his ministers will also try to use the leverage of their European Union membership. The EU typically operates by consensus, and the Syriza Party government is likely to play the spoiler on Russian sanctions and other policies until it gets its way. Greek ministers are already musing about letting Greece become a thoroughfare for migrants from Africa and the Middle East into the EU. Expect more nasty threats and political blackmail.

But if Mrs. Merkel and her allies cave to Mr. Tsipras, the costs will be even more severe. The message will be that Europe’s other debtor nations can also use political extortion to block pro-growth reform. Parties of the left in Italy, Portugal and Spain will have a new argument to make against the reforms that have begun to show some progress: Vote to reject the reforms that creditors demand, and the creditors will reward you anyway. This could doom the center-right Spanish government of Mariano Rajoy as it goes to the polls later this year.

Greece is ready to hold itself hostage in a last-ditch play to squeeze concessions out of the European Union, and if it succeeds, it could very well touch off a cascade of “me, too!” irresponsibility that threatens to bring the economy of Europe–and very possibly the fragile kinda-sorta “recovery” we’re enjoying here in the U.S.–crashing down, unless they pay up.

Varoufakis agrees with The Wall Street Journal that default brinkmanship could go viral. “The superhuman effort to honour the brave people of Greece, and the famous OXI (NO) that they granted to democrats the world over, is just beginning,” he writes on his blog.  He might not be the Finance Minister anymore, but he’s still good at leveling ominous threats against those who cannot afford to let Greece default on the debts it never should have been allowed to rack up. If Greece ends up winning its long showdown with the Eurozone, the Western world will belong to the irresponsible.


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