Greece's finances Yanis Varoufakis: Debt, Deals, Dogmatism

Greek Finance Minister Yanis Varoufakis talked with Handelsblatt about an intelligent restructuring of debt, a growth package and how well he gets along with his German colleague Wolfgang Schäuble.
Yanis Varoufakis holds dual citizenship of Greece and Australia and studied economics in the U.S. and U.K.

Over the weekend, Greek Finance Minister Yanis Varoufakis talked with Handelsblatt's Gert Hoehler about Greece's debt, the negotiations so far and what he hopes will happen next. Mr. Varoufakis is something of a celebrity economist. He is known for being analytical, an original thinker and an expert in game theory. In jeans and a sweater, his weekend gear of choice, he talked about economic theory and his rock star status.


Handelsblatt: Mr. Varoufakis, it seems as though the international media is more interested in the way you dress than your policies. Does that annoy you?

Yanis Varoufakis: Very much so. But celebrity culture has always annoyed me throughout my life, even when I wasn’t part of it.

Are you happy with your media image?

To tell you the truth, I haven’t had much time to think about it. People tell me that I am part of the star system. All I have to say is that I wish that wasn’t the case.

You’ve been in office for five weeks now. Do you have many friends in the eurogroup?

The eurogroup isn’t a place where people go to make fast friendships. But despite what many journalists are saying, my relationship with all my colleagues is very civil, even friendly.

Does that also apply to Wolfgang Schäuble?

I’ve spoken with Mr. Schäuble three times. Once was in his office where we had a very pleasant and useful exchange for an hour and a half, and after that we spoke two or three times in the context of the eurogroup. I personally find him interesting, he’s a fascinating figure and I genuinely feel privileged to have made his acquaintance and to have these frank exchanges.

In all honesty, does Greece need a third aid package?

We don’t want more money. What Greece needs is investment for its economy to recover. I don’t want the state to accumulate more debts. The new agreement that we are to negotiate by the end of June needs to be a growth package based on private sector investment. Then our economy can grow again and we won’t need to keep asking European tax payers for more loans.

What's next for Greece?


Greece still has €7.2 billion from the old program. Couldn’t that help solve a few problems?

You’re right. But I’m not interested in this money when the price is the continuation of the previous prescription which led to the debt and deflation spiral. Why would new loans make sense on these conditions if we can’t even pay back the old ones?

Do you believe a compromise is possible for you to get the loan installment?

We’re working on that. I’m optimistic.

After four weeks of struggle, you’ve finally reached an agreement with the eurogroup. Some people say you could have achieved that after your first couple of days – maybe even with better conditions.

What we could have done is simply sign on the dotted line and keep the existing program, which was what we were under pressure to do. But the reason why we were elected was because this program failed, that’s how we see it. We told our partners “this program needs to be rethought.” It took a while before we were able to convince them of that.

You say that this agreement is characterized by “creative ambiguity.” What do you mean?

We wanted to rethink the program but we met a lot of opposition at the start. This is why we had two eurogroup meetings without a shared agreement. In the third one we managed to find common ground. When you try to find agreement, it’s always extremely helpful to use this creative ambiguity. That means instead of using words that will create discord, use words that are more ambiguous but which can accommodate different interpretations on both sides. I read in the press, especially the German press, that this was a way we tried to defraud our partners. Not in the slightest. It was about finding a common ground and a text that would build a bridge between us.

There seems to be some disagreement on the details, the fiscal vault for example. Mr. Schäuble is talking about a 4.5 percent primary surplus for next year. You don’t go along with that.  

Look at the text we agreed upon. It says the primary surplus target will depend on economic circumstances as they evolve. That clearly means a 3 percent commitment has been waived and what has replaced it is coming up with a figure which is consistent with the developments in the economic situation. For the future, if you look at the wording it says appropriate fiscal target. The idea of setting a God-given number is bad economics. Appropriate could be 4.5 percent, it could be 6 percent, or 3. What it will depend on is how our economy develops, the deficit, on the difference between investment and savings.

Are you still optimistic you will have a balanced budget this year given that tax revenue is way below target?

Yes I am. It’s our commitment, we are going to have a balanced budget. It's a question of national dignity. Never again shall we fall back into primary national deficits.

How do you want to make that happen?

What’s decisive is that we can stabilize the economy to produce healthy primary surpluses and not continue with a downward spiral. That will depend on whether we’re given enough leeway, enough breathing space.

Looking for new approaches.


What does that mean?

We have an obligation towards the IMF in March and April. We suggest that money which is owed to Greece by the European Central Bank will be used in order to partially repay the IMF from the interest on Greek bonds of €1.9 billion to get over the cash flow hump that we have.

The old budget based on the assumption of 2.9 percent GDP growth, is that realistic?

These numbers don’t say much. There’s been a great celebration that real GDP has gone up in the latter part of 2014. That doesn’t say much. Because nominal GDP is coming down, it hasn’t stopped. All that has happened is that real GDP has been pushed up by deflation. In an economy where incomes in euros are falling and prices fall further, this is the sign of a great depression. What we need is growth of nominal GDP.

Are you sure you can service your debt?

We want to. As long as nominal GDP is going down, our debts are going up, even with low interest rates. We need to reverse this. What is important is investment, hopefully through the involvement of the European investment bank and the Juncker plan to increase private investment. I don’t want this government to have more money. I want the private sector to have access to more credit. Then we can return to growth. With some smart rescheduling of our debt, we can restructure it in a way that it doesn’t change the nominal value.

You have payments of €2.5 billion coming up, where’s that money going to come from?

This is what we are discussing with our partners and the institutions, the E.U. the ECB and the IMF. We hope our partners will sit down with us in the next two weeks to find ways of ironing out this cash flow hump we have.

It will be much more difficult in the summer month of August with obligations of almost €11.5 billion between June and August.

It will be impossible if we don’t come to a new agreement.

This new agreement, does it include a haircut?

No. “Haircut“ is a dirty word, just like in Greece the word "troika" is a dirty word. I understand that. There are more intelligent solutions, like swaps. If you take part of the debt that we have from the EFSF and convert it into nominal GDP indexed bonds, then suddenly you have incentive in the euro zone to help Greece’s economy grow.

There seems to be some confusion about privatization: can you give us some clarity?

We have a very eclectic, undogmatic approach; we don’t treat our privatizations in the same way. There have been some terrible privatizations in this country in the last few years that deserve the name fire sales. If you look at the way the national lottery was given away for almost nothing, I don’t think the German government would have contemplated that! If you look at a positive example, the concession for Cosco that operates the port at Piraeus, we shall encourage a lot more of that kind of investment. If you look at the railways, the railway network in Greece dates back to the 19th century, I would lease it for 100 years for €1 as long as there is commitment for a major investment.


Handelsblatt's Gerd Höhler is a correspondent working in Greece. To contact the author: [email protected]