Tuesday, August 8, 2017

Book Review: “Adults in the Room: My Battle with Europe’s Deep Establishment” by Yanis Varoufakis

I recently read the UK version of former Greek finance minister Yanis Varoufakis’s new book: Adults in the Room: My Battle with Europe’s Deep Establishment. The U.S. version will be available for purchase on October 3. It has a different subtitle, apparently to attract American readers: “My Battle with the European and American Deep Establishment.” I assume it is the same book with perhaps some punctuation, spelling, and some words changed to reflect American usage. Also, I should mention that the U.S. title is somewhat misleading since, while U.S. officials play a role in the book, most of it concerns negotiations with European and IMF officials and disagreements among Greek officials. 

Yanis Varoufakis writes that many of his counterparts agreed that the austerity measures imposed on Greece were counterproductive, but were not willing to say that publicly. The reason is that too much austerity slows growth, and therefore the ability to pay down the country’s external debt. Moreover, in support of his negotiating stance, Varoufakis says he was not willing to play the hypocritical game of his predecessors and Greece’s creditors, which at this point, were the European Union, the European Central Bank, and the IMF.  He calls it “extend and pretend.” The loans the so-called troika (the above-named creditors) made to Greece were essentially used to service the debt and refund maturing debt. The money was not Greece’s to spend on development. But the debt burden did not go down; actually it increased as a percentage of Greek’s GNP, as growth rates became negative. Because of this, Varoufakis argues, Greece was essentially always having to take orders from the troika, because there was no way out of the debt. 

Another problem is that Greece could not devalue its currency because it had joined the Eurozone, and consequently did not have a helpful central bank. In fact, as Varoufakis says, Greece’s adopting the euro was a mistake, but he contends that it does not follow that Greece should exit the euro and establish its own currency. The pain would be too great. However, Varoufakis was prepared to do that if he could not get debt relief of some sort from the troika. It was not his preferred outcome. 

Varoufakis is surprisingly somewhat sympathetic to his chief antagonist, Wolfgang Schäuble, the formidable German finance minister. At one point, in a private meeting, he asked Schäuble whether he would sign the agreement the Eurogroup, which is composed of the finance ministers of the Eurozone countries, was pressing him to sign if he were in Varoufakis’s position. Schäuble said no, because it would hurt the Greek people, but he had no real solution for the impasse the two were in. Schäuble’s preferred solution was for Greece to leave the Eurozone and for Germany and likely other European countries providing substantial financial resources to ease the transition. Varoufakis was willing to discuss this, but Schäuble could not, because he did not have the authority to propose this from German Chancellor Angela Merkel.

Ultimately, Varoufakis was not able to pursue his negotiating strategy to the end, which included setting up a parallel payment system using the Greek tax authority and threatening to haircut the bonds governed by Greek law held by the ECB, which would cause the ECB legal problems with some of its other activities. The Greek prime minister, Alexis Tsipras, decided on holding a referendum on whether to accept the terms of the troika for a new loan. In Varoufakis’ telling, Tsipras and others in his cabinet were hoping for an affirmative vote in order to have an excuse to accept the terms. The Greek voters, though, provided a convincing no in the referendum. The Greek government then decided to ignore the voters and proceeded to accept the troika’s terms. Varoufakis resigned as finance minister.
There is a lot of interesting detail in the book. One that particularly stands out to an American reader concerns a telephone call between Varoufakis and Jeffrey Sachs, an American economist who, among others, was providing advice to Varoufakis. In the call, Varoufakis told Sachs that he thought “Alexis means it this time. The next payment to the IMF will not be made [if the troika did not “release some liquidity].”  A half hour after the phone call ended, Sachs called Varoufakis back, “laughing uncontrollably. ‘You will not believe this, Yanis…Five minutes after we hung up, I received a call from the [US] National Security Council. They asked me if I thought you meant what you said! I told them that you did mean it and that, if they want to avert a default to the IMF, they’d better knock some sense into the Europeans.’” As Varoufakis comments, it is amazing that U.S. officials were this brazen in admitting that they were tapping Varoufakis’s phone.
Varoufakis’s book is more candid, some would say indiscreet, than most books by senior government officials. He does not hold back in this criticisms of many of his counterparts in European governments and in the Greek government. He does have some nice things to say about Emmanuel Macron, then French economic minister and now the President of France. However, Macron, while sympathetic to what Varoufakis was trying to do, could not convince then French President François Hollande to be more helpful.
Future writers about this period, especially the government and international officials involved in the Greek debt negotiations, will have to address Varoufakis’s narrative and analysis. When they do, we may have a more complete understanding of what happened. In the meantime, those interested in Greece, international monetary affairs, or the future of the European project should read this engrossing and well-written book.