A Bad Day For Democracy
By Yanis Varoufakis
Greek Finance Minister
- The Eurogroup Meeting of 27th June 2015 will not go down as a
proud moment in Europe’s history. Ministers turned down the Greek government’s
request that the Greek people should be granted a single week during which to
deliver a Yes or No answer to the institutions’ proposals – proposals crucial
for Greece’s future in the Eurozone. The very idea that a government would
consult its people on a problematic proposal put to it by the institutions was
treated with incomprehension and often with disdain bordering on contempt. I was
even asked: “How do you expect common people to understand such complex
issues?”. Indeed, democracy did not have a good day in yesterday’s Eurogroup
meeting! But nor did European institutions. After our request was rejected, the
Eurogroup President broke with the convention of unanimity (issuing a statement
without my consent) and even took the dubious decision to convene a follow up
meeting without the Greek minister, ostensibly to discuss the “next steps”.
Can democracy and a monetary union coexist? Or must one give
way? This is the pivotal question that the Eurogroup has decided to answer by
placing democracy in the too-hard basket. So far, one hopes.
Intervention by Yanis Varoufakis, 27th June
2015 Eurogroup Meeting
In our last meeting (25th June) the institutions
tabled their final offer to the Greek authorities, in response to our proposal
for a Staff Level Agreement (SLA) as tabled on 22nd June (and signed
by Prime Minister Tsipras). After long, careful examination, our government
decided that, unfortunately, the institutions’ proposal could not be accepted.
In view of how close we have come to the 30th June deadline, the date
when the current loan agreement expires, this impasse of grave concern to us all
and its causes must be thoroughly examined.
We rejected the institutions’ 25th June proposals
because of a variety of powerful reasons. The first reason is the combination of
austerity and social injustice they would impose upon a population devastated
already by… austerity and social injustice. Even our own SLA proposal (22nd
June) is austerian, in a bid to placate the institutions and thus come closer to
an agreement. Only our SLA attempted to shift the burden of this renewed
austerian onslaught to those more able to afford it – e.g. by concentrating on
increasing employer contributions to pension funds rather than on reducing the
lowest of pensions. Nonetheless, even our SLA contains many parts that Greek
So, having pushed us hard to accept substantial new austerity,
in the form of absurdly large primary surpluses (3.5% of GDP over the medium
term, albeit somewhat lower than the unfathomable number agreed to by previous
Greek governments – i.e. 4.5%), we ended up having to make recessionary
trade-offs between, on the one hand, higher taxes/charges in an economy where
those who pay their dues pay through the nose and, on the other, reductions in
pensions/benefits in a society already devastated by massive cuts in basic
income support for the multiplying needy.
Let me say colleagues what we had already conveyed to the
institutions on 22nd June, as we were tabling our own proposals: Even
this SLA, the one we were proposing, would be extremely onerous to pass through
Parliament, given the level of recessionary measures and austerity it entailed.
Unfortunately, the institutions’ response was to insist on even more
recessionary (aka parametric) measures (e.g. increasing VAT on hotels from 6% to
23%!) and, worse still, on shifting the burden massively from business to the
weakest members of society (e.g. to reduce the lowest of pensions, to remove
support for farmers, to postpone ad infinitum legislation that offers some
protection to badly exploited workers).
The institutions new proposals, as expressed in their 25th
June SLA/Prior Actions document, would make a politically problematic package –
from the perspective of our Parliament – into a package that would extremely
difficult to push through our Parliamentary caucus. But this is not all. It gets
worse much worse than that once we take a look at the proposed financing
What makes it impossible to pass the institutions’
proposal through Parliament is the lack of an answer to the question: Will these
painful measures at least give us a period of tranquillity during which to carry
out the agreed reforms and measures? Will a shock of optimism counter the
recessionary effect of the extra fiscal consolidation that is being imposed on a
country that has been in recession for 21 consecutive quarters? The answer is
clear: No, the institutions’ proposal is offering no such prospect.
This is why: The proposed funding for the next 5 months (see
below for a breakdown) is problematic in a variety of ways:
First, it makes no provision for the state’s arrears, caused
by five months of making payments without disbursements and of falling tax
revenues as a result of the constant threat of Grexit that has been wafting in
the air, so to speak.
Secondly, the idea of cannibalising the HFSF in order to repay
the ECB’s SMP-era bonds constitutes a clear and present danger: These monies
were earmarked, correctly, for strengthening Greece’s fragile banks, possibly
through an operation that deals with their mountainous NPLs that eat into their
capitalisation. The answer I have been given by senior ECB officials, whose name
will remain unsaid, is that, if need be, the HFSF will be replenished to cope
with the banks’ capitalisation needs. And who will do the replenishing? The ESM,
is the answer I was given. But, and this is a gigantic but, this is not part of
the proposed deal and, moreover, it could not be part of the deal as the
institutions have no mandate to commit the ESM in this manner – as I am sure
Wolfgang will remind us all. And, moreover, if such a new arrangement could be
made, why then is
our sensible, moderate, proposal of a new ESM facility for Greece that helps
shift SMP liability from the ECB to the ESM not discussed? The answer “we
will not discuss it because we will not discuss it” will be very hard for me to
convey to my Parliament, together with another package of austerity.
Thirdly, the proposed disbursements’ schedule is a minefield
of reviews – one per month – that will ensure two things. First, that the Greek
government will be immersed every day, every week in the review process for five
long months. And well before these five months expire, we shall enter into
another tedious negotiation over the next program – since there is nothing in
the institutions’ proposal capable of inspiring even the faintest of hopes that
at the end of this new extension Greece can stand on its own two feet.
Fourthly, given that it is abundantly clear that our debt will
remain unsustainable by the end of the year, and that market access will remain
as distant then as it is now, the IMF cannot be counted upon to disburse its
share, the 3.5 billion that the institutions are counting as part of the funding
package on the table.
These are solid reasons why our government does not consider
it has a mandate to accept the institutions’ proposal or to use its majority in
Parliament in order to push it through and onto the statutes.
At the same time, we do not have a mandate to turn down the
institutions’ proposals either, cognizant of the critical moment in history we
find ourselves in. Our party received 36% of the vote and the government as a
whole commanded a little more than 40%. Fully aware of how weighty our decision
is, we feel obliged to put the institutions’ proposal to the people of Greece.
We shall endeavour to spell out to them fully what a Yes to the Institutions’
Proposal means, to do the same regarding a No vote, and then let them decide.
For our part we shall accept the people’s verdict and will do whatever it takes
to implement it – one way or another.
Some worry that a Yes vote would be a vote of no confidence in
our government (as we shall be recommending a No vote), in which case we cannot
promise to the Eurogroup that we shall be in a position to sign and implement
the agreement with the institutions. This is not so. We are committed democrats.
If the people gives us a clear instruction to sign up on the institutions’
proposals, we shall do whatever it takes to do so – even if it means a
Colleagues, the referendum solution is optimal for all, given
the constraints we face.
- If our government were to accept the institutions’ offer
today, promising to push it through Parliament tomorrow, we would be
defeated in Parliament with the result of a new election being called within
a very long month – then, the delay, the uncertainty and the prospects of a
successful resolution would be much, much diminished
- But even if we managed to pass the institutions’ proposal
through Parliament, we would be facing a major problem of ownership and
implementation. Put simply, just as in the past the governments that pushed
through policies dictated by the institutions could not carry the people
with them, we too would fail to do so.
On the question that will be put to the Greek people, much has
been said about what it should be. Many of you tell us, advise us, instruct us
even, that we should make it a Yes or No question on the euro. Let me be clear
on this. First, the question was formulated by the Cabinet and has just been
passed through Parliament – and it is “Do you accept the institutions’ proposal
as it was presented to us on 25th June in the Eurogroup?” This is the
only pertinent question. If we had accepted that proposal two days ago, we would
have had a deal. The Greek government is now asking the electorate to answer the
question you put it to me Jeroen – especially when you said, and I quote, “you
can consider this, if you wish, a take or leave it proposal”. Well, this is how
we took it and we are now honouring the institutions and the Greek people by
asking the latter to deliver a clear answer on the institutions’ proposal.
To those who say that, effectively, this is a referendum on
the euro, my answer is: You may very well say this but I shall not comment. This
is your judgement, your opinion, your interpretation. Not ours! There is a logic
to your view but only if there is an implicit threat that a No from the Greek
people to the institutions’ proposal will be followed up by moves to eject
Greece, illegally, out of the euro. Such a threat would not be consistent with
basic principles of European democratic governance and European Law.
To those who instruct us to phrase the referendum question as
a euro-drachma dilemma, my answer is crystal clear: European Treaties make
provisions for an exit from the EU. They do not make any
provisions for an exit from the Eurozone. With good reason, of course, as the
indivisibility of our Monetary Union is part of its raison d’ etre. To
ask us to phrase the referendum question as a choice involving exit from the
Eurozone is to ask us to violate EU Treaties and EU Law. I suggest to anyone who
wants us, or anyone else, to hold a referendum on EMU membership to recommend a
change in the Treaties.
It is time to take stock. The reason we find ourselves in the
present conundrum is one: Our government’s primary proposal to you and the
institutions, which I articulated here in the Eurogroup in my first ever
intervention, was never taken seriously. It was the suggestion that common
ground be created between the prevailing MoU and our new government’s program.
For a fleeting moment, the 20th February Eurogroup statement raised
the prospect of such common ground – as it made no reference to the MoU and
concentrated on a new reform list by our government that would be put to the
Regrettably, immediately after the 20th of February
the institutions, and most of colleagues in this room, sought to bring the MoU
back to the centre, and to reduce our role in marginal changes within the MoU.
It is as if we were told, to paraphrase Henry Ford, that we could have any
reform list, any agreement, as long as it was the MoU. Common ground was thus
sacrificed in favour of imposing upon our government a humiliating retreat. This
is my view. But it is not important now. Now it is up to the Greek people to
Our task, in today’s Eurogroup, ought to be to pave the ground
for a smooth passage to the referendum of 5th July. This means one
thing: that our loan agreement be extended by a few weeks so that the referendum
takes place in conditions of tranquillity. Immediately after 5th
July, if the people have voted Yes, the institutions’ proposal will be signed.
Until then, during the next week, as the referendum approaches, any deviation
from normality, especially in the banking sector, will be invariably interpreted
as an attempt to coerce Greek voters. Greek society has paid a hefty price,
through huge fiscal contraction, in order to be part of our monetary union. But
a democratic monetary union that threatens a people about to deliver their
verdict with capital controls and bank closures is a contradiction in terms. I
would like to think that the Eurogroup will respect this principle. As for the
ECB, the custodian on our monetary stability and of the Union itself, I have no
doubt that, if the Eurogroup takes a responsible decision today to accept the
request for an extension of our loan agreement that I am now tabling, it
will do what it takes to give the Greek people a few more days to express their
Colleagues, these are critical moments and the decisions we
make are momentous. In years to come we may well be asked “Where were you on the
27th of June? And what did you do to avert what happened? At the very
least we should be able to say that: We gave the people who live under the worst
depression a chance to consider their options. We tried democracy as a means of
breaking a deadlock. And we did what it took to give them a few days to do so.
POSTSCRIPT – The day the Eurogroup President
broke with the tradition of unanimity and excluded Greece from a Eurogroup
gathering at will
Following my intervention (see above) the Eurogroup President
rejected our request for an extension, with the support of the rest of the
members, and announced that the Eurogroup would be issuing a statement placing
the burden of this impasse on Greece and suggesting that the 18 ministers (that
is the 19 Eurozone finance ministers except the Greek minister) reconvene later
to discuss ways and means of protecting themselves from the fallout.
At that point I asked for legal advice, from the secretariat,
on whether a Eurogroup statement can be issued without the conventional
unanimity and whether the President of the Eurogroup can convene a meeting
without inviting the finance minister of a Eurozone member-state. I received the
following extraordinary answer: “The Eurogroup is an informal group. Thus it is
not bound by Treaties or written regulations. While unanimity is conventionally
adhered to, the Eurogroup President is not bound to explicit rules.” I let the
reader comment on this remarkable statement.
For my part, I concluded as follows:
Colleagues, refusing to extend the loan agreement for
a few weeks, and for the purpose of giving the Greek people an opportunity to
deliberate in peace and quiet on the institutions’ proposal, especially given
the high probability that they will accept these proposals (contrary to our
government’s advice), will damage permanently the credibility of the Eurogroup
as a democratic decision making body comprising partner states sharing not only
a common currency but also common values.
PRESENTATION IMMEDIATELY AFTER THE 27th JUNE 2015 EUROGROUP MEETING