Thursday

19th Jul 2018

Schaeuble and Varoufakis: worlds apart

An audience at an influential think tank in Washington got a snapshot of eurozone politics when the two protagonists in the Greek bailout impasse presented them with two thoroughly opposing world views - one after another.

First up was German finance minister Wolfgang Schaeuble. He gave listeners at the Brookings Institute a long introduction on how increased debt was not the answer to advanced economies' quest for growth.

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Europe is not in the grip of austerity he said, but is "trying to keep a tap on debt", and has three priorities - that government spending should not be higher than GDP; to undertake structural reforms; and to boost investment.

"Debt relief and permanent transfer" would not solve anything, he said in a clear nod to Greece. Another nod came in the form of: "We will not help a country if it refuses to help itself".

He spoke of the moral hazard of making sure that European solidarity does not weaken a country's motivation to "take responsibility".

He was dismissive of questions whether Germany, with its large current account surplus, should do more to help the eurozone as a whole.

As the session went, on he increasingly lived up to his reputation for being blunt. Entering at times into the thoroughly undiplomatic.

He noted that in his long experience - he is 72 years old - countries never took an uncomfortable decision unless they had to. So France - which for years has been grappling with undertaking reforms - would be "happy" to have something like the troika (the trio of international creditors) to force it to take difficult decisions.

Meanwhile, if Greece could find someone to lend them €200 billion in Washington, Beijing, or Moscow, then "OK" - they should take it.

He refused to countenance a debt haircut for Greece, noting that it has low interest rates for debt repayment, saying "the problem [for Greece] is regaining competitiveness."

Why, he asked, does the country still have a minimum wage that is higher than some members of the eurozone? And why is the ratio of those in public administration higher than in every euro state?

He showed some flexibility by noting that the creditors only have to say Athens has "broadly" done what it is asked to do, "Not 100 percent. We never ask for 100 percent".

On Greece exiting the euro - something seen as increasingly likely the longer the impasse with creditors continues - Schaeuble said "No", he doesn't think the eurozone is strong enough to take the loss, but he added that this "is only a decision for the Greeks".

"Solidarity in Europe is our duty, but solidarity is not a one way street," said Schaueble.

Long winter of discontent

For Varoufakis, speaking half an hour later to largely the same audience, "historical record will show that there was no solidarity" between countries of the eurozone.

The reform programme - the strings attached to the bailout - that Schaeuble had said was delivering results under the previous conservative Greek government - had, for Varoufakis, a "sorry track record".

Varoufakis referred to "Greece's great depression - our seven-year old, long winter of discontent".

He said his country had been the "champion of fiscal consolidation", with its economy having contracted by 11 percent since the start of the crisis.

His also said his country is an "experimental lab" for badly thought out strategies and that negotiations should have started "afresh" rather than continuing where they had left off with the old government.

The Greek government wants time to be "heard" without the pressure of payment deadlines.

For Varoufakis it is all about principles. The Greek finance minister could easily and quickly have signed up to the reforms being demanded by creditors but that would have been the "wrong" thing to do.

"I would enthusiastically accept any terms offered to us if they made sense."

"We will compromise. We will compromise. We will compromise. But we will not be compromised," he said.

Amid the big statements there was something to grasp. On privatisation - urged by creditors - Varoufakis said a "firesale" would not help the country.

Greek negotiators want minimum investment, labour and environment levels attached to any sales.

More generally, they want debt repayment linked to economic growth; more investment by the European Investment Bank.

According to Varoufakis, European integration is being negatively affected by "centrifugal forces" and the bad feeling inspired by the crisis.

Schaueble, for his part, noted that if "integration was at stake, you would see huge majorities" come out in favour of the EU.

For the Washington audience it hardly looked like a deal between Greece and the rest of the eurozone is in the offing.

Greece risks default in mid-May, S&P warns

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Eurogroup closes Schaeuble era

Eurozone finance ministers bade farewell to their longest-serving and most influential colleague, while preparing to also replace its chairman at the end of the year.

Greece raids public sector coffers to pay pensions

The Greek government is forcing the transfer of public sector money to the central bank so it can pay pensions and salaries as the impasse with its international creditors continues.

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