It had been a while since Finance Minister Yanis Varoufakis last blogged, but he came back with a vengeance in Thursday’s on the eve of the Eurogroup meeting. His entrance disappointed journalists expecting one of his usual “titillating” comments, but his lengthy blog post describes exactly how he feels about the negotiations between Greece and its international creditors so far. “Three months of negotiations between the Greek government and our European and international partners have brought about much convergence on the steps needed to overcome years of economic crisis and to bring about sustained recovery in Greece. But they have not yet produced a deal. Why? What steps are needed to produce a viable, mutually agreed reform agenda?” he asks before proceeding to analyze talks so far, assessing that Greece and partners have already agreed on much, such as the need to revamp Greece’s tax system and free revenue authorities from political and corporate interest.
Putting aside consensus, he points to two hurdles. “First, we must concur on how to approach Greece’s fiscal consolidation. Second, we need a comprehensive, commonly agreed reform agenda that will underpin that consolidation path and inspire the confidence of Greek society,” he states before pointing to the “austerity trap” that had been set by the “troika” institutions (EC, ECB and IMF).
“When fiscal consolidation turns on a predetermined debt ratio to be achieved at a predetermined point in the future, the primary surpluses needed to hit those targets are such that the effect on the private sector undermines the assumed growth rates and thus derails the planned fiscal path. Indeed, this is precisely why previous fiscal-consolidation plans for Greece missed their targets so spectacularly,” he states.
After further analyzing his views, he adds that “common ground cannot be achieved immediately,” adding that the Greek government wants a fiscal consolidation that makes sense. “Our task is to convince our partners that our undertakings are strategic, rather than tactical, and that our logic is sound. Their task is to let go of an approach that has failed.”
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