Adults in the Room
Insider account of the 2015 Eurogroup negotiation by the finance minister; partisan but primary.
Summary
Varoufakis served as Greek finance minister from January to July 2015, during the negotiations between the Syriza government and its creditors. He wrote a memoir of those months, drawing on his own notes and on recordings he made of meetings, which became a controversy in itself.
His argument has two parts. The first is analytical: he holds that the Greek debt was unpayable, that the 2010 and 2012 programmes were bailouts of French and German banks conducted through Greece, that austerity conditional on an unpayable debt shrinks the economy and raises the debt ratio, and that restructuring was the only solution consistent with arithmetic. He says the International Monetary Fund's own staff shared this view privately while the institution's board did not act on it.
The second part is the account of the negotiation. Varoufakis describes the Eurogroup as a body with no legal existence, no minutes and no formal decision procedure, dominated by Wolfgang Schauble and by the institutions' negotiators. He argues that the creditors' objective was not repayment but preventing any government from successfully renegotiating, because a Greek success would have opened the question elsewhere. He describes his own strategy, which was to prepare a credible threat involving a parallel payments system and a haircut on European Central Bank-held bonds, and the refusal of Alexis Tsipras to authorise it. The book ends with the July referendum, in which voters rejected the creditors' terms, and Tsipras accepting harsher terms days later.
The account is one-sided by design and its central characterisations are disputed by nearly every other participant. Varoufakis is an unreliable narrator about his own conduct, and the recording of confidential meetings damaged his standing. His economic analysis of debt sustainability, however, has been substantially vindicated, including by later IMF assessments that the debt was unsustainable without relief.
Key takeaways 7
- The 2010 Greek programme transferred private bank exposure to European taxpayers rather than restructuring an unpayable debt.
- Austerity conditional on an unpayable debt raises the debt-to-output ratio because it shrinks the denominator faster than the numerator.
- The Eurogroup makes decisions binding on member states without legal existence, formal procedure or published minutes.
- Creditor governments prioritised preventing a successful renegotiation over maximising recovery on the debt.
- A negotiating position without a credible threat of exit or default has no leverage, regardless of the argument's merit.
- The European Central Bank's control of liquidity to Greek banks functioned as the decisive instrument of political pressure.
- International Monetary Fund staff assessed the debt as unsustainable while the institution continued to lend against a sustainability finding.
Who should read it
Anyone negotiating with institutional creditors, and readers who want the debtor's account of the eurozone crisis alongside the creditor accounts.
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