Whatever the Cost

On the night​ of 3 July 2015, Alexis Tsipras, prime minister of Greece and leader of the Coalition of the Radical Left, or Syriza, addressed a large crowd that had gathered in front of the Greek parliament in Syntagma Square. Since the beginning of the country’s debt crisis six years earlier, Syntagma Square had been the frequent site of angry anti-austerity demonstrations, many of which dissolved into street battles between riot police and anarchists slinging chunks of marble hammered from the paving in the square. Now, however, the mood was jubilant. There was music and dancing. People waved Greek flags. Someone held a sign that said ‘Unfuck Greece’, and the crowd yelled in ecstatic unison: ‘Oxi! Oxi! Oxi! Oxi!’ By this point, anyone following the Greek government’s stand-off with its creditors from the EU and the IMF knew that ‘Oxi’ is Greek for ‘No’.

Six days earlier, Tsipras had announced a referendum on whether the government should accept the onerous conditions demanded by its creditors in return for a bailout that would allow it to continue paying off loans due that summer. Without the new loans, Greece would be forced to default and leave the Eurozone. It had already defaulted on the IMF. The European Central Bank had frozen the emergency funding that was keeping banks open during a massive run, and the government had been forced to institute capital controls. Despite all this, the people gathered in Syntagma Square seemed to believe a successful rebellion against the creditors was within reach. The referendum was set for two days’ time. ‘Today we are celebrating,’ Tsipras declared, his voice barely audible over the shouting. ‘Today, democracy is celebrating.’

Tsipras announced that he was willing to accept the outcome of the referendum, but reaffirmed his party’s support for a ‘No’ vote. Syriza had been elected with a promise both to reject creditor-mandated austerity and to remain in the euro. Until Syriza came along, Greeks had been told that they must either submit to the creditors’ terms or face the potentially catastrophic consequences of Grexit. Over the previous five years, the troika of official creditors – the European Commission, the ECB and the IMF – had given Greece two massive bailouts (in 2010 and 2012), contingent on a comprehensive overhaul of the country’s public administration, liberalisation of product and labour markets, tax hikes, and deep cuts to state pensions and pay. Changes of all kinds were demanded, from the customs procedures for feta cheese exports to a reduction in the size of the civil service. As is now abundantly clear, the ‘rescue’ plan deepened Greece’s recession into a depression. By the time of the ‘Oxi’ rally, the country’s economic output had dropped by a quarter. The unemployment rate hovered at around 25 per cent, more than three times the pre-crisis level. About 22 per cent of the population suffered from what the European statistics agency defines as ‘severe material deprivation’ – the inability to pay mortgage or rent payments, or to afford things like a washing machine or a car. (Within the EU, only Bulgaria and Romania fared worse.) Greece’s debt load was near its peak in relation to the size of its economy, despite the fact that the second bailout included the largest debt restructuring in the history of sovereign defaults, reducing the face value of the debt by €107 billion at the expense of private holders of Greek government bonds.

Tsipras tapped into a wellspring of national pride and resentment at financial rule from abroad. This resentment was aimed mainly at Germany, Greece’s most powerful creditor. Though Syriza presented itself as a pro-European party, its populist rebellion against the European establishment was supported by far-right nationalists at home and abroad, including Marine Le Pen. Syriza’s leftist supporters also overlooked the fact that the party chose to govern in coalition with the right-wing populist Independent Greeks, whose leader threatened to ‘flood’ Europe with migrants, including ‘jihadists of the Islamic State’, unless European leaders lifted Greece out of the crisis. This coalition now seems a portent of a more general political shift: a similar populist marriage has just emerged in Italy. Syriza’s leftist nationalism didn’t scapegoat immigrants, but it was problematic in other ways. During the election campaign Tsipras often invoked the Nazi occupation of Greece, and promised to seek reparations. Immediately after he was sworn in as prime minister, he visited a site in Athens where the Germans had executed hundreds of Greek partisans. The use of ‘Oxi’ itself was a deliberate echo of the wartime resistance: when, in October 1940, Mussolini demanded Greece surrender to Italian troops, the prime minister is said to have responded with one word, ‘Oxi’. Greek soldiers repelled the Italians and every year, on 28 October, Greeks celebrate ‘Oxi Day’. Syriza claimed that a new refusal would spark a rebellion not only against the German-imposed austerity regime but against the neoliberal character of the EU itself. Together with Podemos in Spain, they would usher in a new era of social justice across Europe.

Yanis Varoufakis, Greece’s finance minister and the personification of the rebellion, was in Syntagma Square that night. In Adults in the Room, his book chronicling his five months in office, Varoufakis gives his impression of the crowd:

We were pulled into its depths by a forest of arms: tough-looking men with moist eyes, middle-aged women with determination written all over their faces, young boys and girls with boundless energy, older people eager to hug us and shower us with good wishes … People from different generations saw their distinct struggles coalesce on that night into one gigantic celebration of freedom from fear. An elderly partisan from the Second World War pushed into my pocket a carnation and a piece of paper bearing the phrase ‘Resistance is NEVER futile!’ Students forced to emigrate by the crisis who had returned to cast their votes begged me not to give up. A pensioner promised me that he and his sick wife did not mind losing their pensions as long as they recovered their dignity. And everybody, without a single exception, shouted at me: ‘No surrender, whatever the cost!’

Of course, it didn’t work out that way. Within a few days of the rally, Varoufakis had resigned, and shortly afterwards Tsipras agreed to a third bailout deal on worse terms than those his party had resisted. Syriza had been promising something it wasn’t in its gift to deliver. The original plan had been to pressure the creditors for better terms by the threat of mutually assured destruction. Grexit, Tsipras believed, would ruin not only Greece but the whole Eurozone, giving his country considerable leverage. This had long been his thinking. When I met him in the spring of 2012, with Syriza rapidly rising in the polls, he told me the country’s ‘big weapon’ was that ‘the European banking system will collapse if the Greek financial system collapses.’ This would perhaps have been true before the first bailout, when French and German banks were among the biggest international holders of Greek sovereign debt and the global financial crisis was in full swing. But by the time Tsipras took office at the start of 2015, Greece had been ring-fenced: the country’s debt had been socialised; its creditors were no longer ailing private banks but international taxpayers. At the same time, the ECB had announced a plan to buy unlimited quantities of Eurozone government bonds, greatly stabilising the currency union and shielding it from the market panic Grexit might have induced. While the repercussions of Grexit were still difficult to predict, international stock markets and the German government appeared much less worried by it. Wolfgang Schäuble, Germany’s finance minister, went so far as actually to favour it: before the third bailout, his department floated the idea that the country should take a ‘time out’ from the euro, a proposal intended to put pressure on the Greek government.

Varoufakis suggests that by the time of the Syntagma Square rally, Tsipras had already decided to capitulate. His advisers believed that the Greeks would vote ‘Yes’, allowing Syriza to back down with honour intact. ‘We need an emergency exit,’ Varoufakis reports the deputy prime minister saying. However, Tsipras clearly underestimated the fervour of the revolt his party had led. The ‘No’ vote was a decisive 61 per cent. ‘Our No is a majestic, big Yes to a democratic Europe,’ Varoufakis told journalists after the vote came in. ‘It is a No to the dystopic vision of a Eurozone that functions like an iron cage for its peoples.’ Later, he went to Maximos Mansion, the seat of the prime minister, which felt ‘as cold as a morgue, as joyful as a cemetery’. While waiting to meet Tsipras dressed in his usual jeans and a T-shirt, Varoufakis noticed that the prime minister’s staffers had ‘shed the rough Syriza look and resembled accountants’. In other words, he suddenly realised that everyone around him had sold out. ‘It felt a little like being in one of those sci-fi movies in which body-snatching aliens have quietly taken over.’ Tsipras was in a fretful mood. They had screwed up badly, he said.

Varoufakis tried to persuade Tsipras to allow him to activate his ‘deterrence plan’: the government would launch ‘electronic IOUs backed by future taxes’ to replace cash transactions, and unilaterally ‘haircut’ tens of billions of euros’ worth of Greek government bonds held by the ECB – which would mean Greece deciding not to pay back much of what it owed the bank. This, according to Varoufakis, would have undermined the legal foundation of the bond-buying programme the ECB had devised to stabilise the Eurozone. Angela Merkel and Mario Draghi, the head of the ECB, would have been forced to ‘come to the table very quickly with a decent deal. Then the banks will open the next day.’ Tsipras wasn’t convinced; he seemed to fear a military coup. It became clear to Varoufakis that the government was set on ‘unconditional surrender’. (In an interview with the Guardian in July 2017, Tsipras said that Varoufakis was attempting to ‘write history in a different way’.) Later, Tspiras urged Syriza members to support the third bailout, arguing that the creditors’ ‘blackmail’ – the threat of Grexit – was ‘real’ and they had no choice. Varoufakis derides this argument as Thatcher’s ‘Tina’ doctrine: ‘There is no alternative.’

Much has been made, not least by the man himself, of Varoufakis’s unconventional style – the motorcycle, the leather, the open-necked shirts – and his boldness (he has been described in the international press as ‘flamboyant’, ‘combative’, a ‘maverick’, a ‘rock star’, a ‘rebel’, a ‘warrior’, and a ‘Greek Mad Max’). When Varoufakis talks about the economics of the Greek crisis, though, he hardly comes across as a leftist insurgent. His assessment of the futility of excess austerity is hard to argue with, and he is right to criticise the ‘extend and pretend’ nature of bailouts that have kept a massive debt hanging over Greece. In fact, his strategy, as he explains it, was to reject austerity and new bailout loans, while at the same time trying to ‘shower the creditors with moderation’ when it came to debt relief proposals. But his analysis of his opponents is less persuasive. Varoufakis depicts his antagonists as either blinded by their ‘insider’ status or as one-dimensional villains willing to engage in ‘lies and distortions that would make Joseph Goebbels proud’. Eurozone finance ministers found Varoufakis hard work. Thomas Wieser, the former head of the Eurogroup Working Group, an advisory body to Eurozone finance ministers, recently told a Swiss newspaper that during meetings Varoufakis kept up long monologues, delaying real negotiations in the hope that a last-minute panic would allow Greece to ‘get a lot of money without conditions’. Varoufakis portrays Wieser as a representative of the deep establishment – a callous technocrat wielding excessive power. On the day of his resignation, Varoufakis wrote that he would ‘wear the creditors’ loathing with pride’.

Varoufakis thinks of the ‘Oxi’ vote as the ‘Greek Spring’ but there’s a more prosaic interpretation available. The voters simply opted for the more attractive option, even if it was based on a false promise. Most of the 61 per cent were not actually in favour of a ‘no surrender’ approach, and did not give Syriza a mandate to bring about Grexit. Varoufakis himself believes that Grexit would have been bad, but not as bad as keeping Greece in ‘debt bondage’. He claims he had repeatedly sought assurances from Tsipras that the government was really prepared to leave the Eurozone. ‘Win power only if you are not intending to bluff because you are convinced that capitulation is even worse than a terrible Grexit,’ he told Tsipras before Syriza came to power. ‘Only then will Greece get a chance to stay sustainably in the Eurozone and to put Grexit behind it once and for all.’ But before his election win, Tsipras repeatedly said that Grexit was not on the cards. ‘There is no issue with the currency,’ he said on TV.

Greeks’ commitment to the euro may seem perplexing. Around 70 per cent of the population, according to polls around the time of the referendum, wished to stick with the currency, despite the hardship that came with the bailouts. This was a similar level of support for the euro as in Germany, its greatest beneficiary. Greeks, on the other hand, arguably have good reasons for wanting to leave the euro, which is too strong for their economy, making it very difficult for Greece to boost growth through exports. The country’s inability to devalue its own currency necessitated the troika’s strategy of ‘internal devaluation’ – cuts to wages in order to make Greek exports cheaper.

The euro is primarily a political project, part of Europe’s post-1945 effort to make war between its nations all but impossible. Though Greece can technically stay in the EU even if it exits the euro, the majority of Greeks do not want to undermine their place in that project. Greece has frequently depended on the intervention of greater powers for its survival in the past, while at the same time resenting their influence: full independence from the Ottoman Empire was won in 1830 with the military and financial help of the European powers, which later provided a Bavarian teenager as the country’s first king (the Greek parliament sits in what was his palace); Greece’s first political parties were aligned with English, Russian and French interests. After the Second World War, the US ensured that Greece wouldn’t fall under Soviet influence by enlisting it as a client state, though American meddling in Greek affairs – which included support for the seven-year military dictatorship which ended in 1974 – was a source of great resentment. After the dictatorship, Konstantinos Karamanlis’s government lobbied hard for Greece to join the European Community as a way of ensuring the stability of its democracy. European leaders worried that Greece was too economically undeveloped to join, but conceded on account of its strategic importance on the edge of the Iron Curtain, the expanded market it represented to French and German companies, and its symbolic significance as the cradle of democracy. Membership proved immensely beneficial. Between joining the euro in 2001 and the global financial crisis of 2008, Greece grew on average nearly four per cent a year, one of the fastest rates in the Eurozone. Since the crash, Greek resentment has been directed at Germany, and attitudes towards the EU are overwhelmingly negative. But this must be balanced against the perceived alternative. Greeks profoundly distrust their own institutions too, and largely cling to the idea that ‘Europeanisation’ is the best way for the country to overcome its problems. Grexit for many symbolised an irredeemable political and economic regression.

Stathis Kalyvas, a political scientist at Oxford, views the Greek debt crisis as part of a boom and bust cycle that has defined much of Greek history. The country, he argues in Modern Greece (2015), is a ‘late moderniser’ that emerged from an economically backward corner of the Ottoman Empire and became arguably the most successful post-Ottoman state because it repeatedly embarked on ambitious projects like EU membership. Yet, at the same time, it has often been a victim of its ambitions, experiencing downturns only mitigated by the involvement of foreign powers. From the early 19th century, ‘ambitious cosmopolitan elites launched a series of grand modernising projects that inevitably clashed with the underlying reality, overtaxing the country’s human and material resources.’ Still, Kalyvas concludes that ‘when the dust cleared, Greece almost always found that its net benefit from such ventures exceeded the cost.’

Will​ Greece ultimately be better off for having joined the euro? Another boom is very hard to envision. The Greek economy has begun growing again, though slowly – GDP grew 1.4 per cent in 2017, a year when the Eurozone overall grew at its fastest rate in a decade, 2.4 per cent. The Syriza government has abided by its fiscal targets, and, in fact, has far surpassed them, achieving a budget surplus two years in a row. Greece now takes in more tax revenue than it spends, a dramatic turnaround from the big deficits it was running before the crisis. But there remains a pervasive sense that the country is adrift. There is still no convincing plan for economic recovery. Unemployment has fallen, but is still close to 20 per cent. Banks, heavily burdened by bad loans, are extremely reluctant to make new loans, impeding the fledgling recovery. Inevitably, many of the country’s most talented young people are moving abroad in search of decent jobs. Between 2008 and 2013, more than 400,000 people emigrated from Greece, the third mass migration since the start of the 20th century.

After agreeing to the third bailout, Tsipras justified Syriza’s continued rule by arguing that its version of austerity would be gentler than the opposition’s. Syriza promised to enact a ‘parallel programme’ that would run alongside the bailout and mitigate some of its effects; it has provided health insurance to vulnerable citizens and municipal jobs for some of the unemployed. Pensioners got a Christmas bonus, even as more cuts to pensions were pushed through. Tsipras also promised to fight corruption and patronage, though by most accounts nothing much has changed on that front: Syriza politicians have been dogged by allegations of nepotism and the government has sold off state assets to the oligarchs of the kind it promised it would fight in the name of the people.

The overall effect of the mandated reforms to the state bureaucracy is also ambiguous. As Peter Siani-Davies writes in Crisis in Greece, the ‘general tendency seems to have been for form to change more often than content, as institutional structures and patterns of behaviour have frequently reproduced themselves in different shapes and guises. This has created a curious mixture of change, stagnation, and at times reversion.’* Serious problems that existed before the crisis remain, and some have got worse. Courts often take several years to adjudicate cases. Many schools are inadequate, and parents who want their children to pass university entrance exams have to pay for private tuition – a long-standing and widespread practice that greatly disadvantages the poor. The executive editor of the Kathimerini newspaper summarised the situation: ‘We have reached a fiscal balance after much effort and pain. But the country’s foundations, its institutions, are still rotten.’

In the long run, Greece’s debt is unsustainable, even if one believes the very optimistic assumptions for growth its European creditors are forecasting. They have refused to give Greece any face-value debt relief on official loans – reducing the principal to be repaid – and have instead agreed to extend repayment deadlines and defer interest payments. But that won’t be enough. In an independent report published in March, a group of senior economists made the case for face-value debt relief, arguing that ‘any number of economic or political disturbances’ could throw the debt repayment schedule off track: ‘The likelihood of such disturbances is high when the programme is scheduled to extend over more than forty years … It is hard to avoid the conclusion that any solution to the Greek debt crisis that does not fall on the shoulders of taxpayers several generations removed will require conditional face-value debt relief.’ In Germany, such a move would amount to an uncomfortable admission: that German taxpayers were picking up the tab. Greeks celebrated Schäuble’s departure from the German finance ministry last October and his replacement by a social democrat, Olaf Scholz, but there’s no prospect of a sea change in German policy. ‘A German finance minister is a German finance minister,’ Scholz said.

In June, Eurozone finance ministers agreed to give Greece an additional decade to repay nearly €100 billion of loans and to defer interest payments again, along with other debt relief measures. The agreement came ahead of the end of Greece’s third bailout – the one Tsipras agreed to a week after the ‘Oxi’ vote – and was intended as something of a reward for the Syriza government’s compliance with the conditions. The debt relief measures were more generous than many expected, and they buy Greece more time, but they were also more of the same. The IMF – which has been pushing the European creditors to grant more debt relief – expressed continued ‘reservations’ for the long term. In the meantime, the debt deferments are contingent on Greece sticking to several decades of exceptional fiscal parsimony (a primary surplus of 3.5 per cent of GDP until 2022 and then an average of 2.2 per cent a year until 2060). The creditors will continue to monitor compliance with quarterly inspections. The end of the bailout, in other words, is hardly the end of the bailout.

Tsipras, of course, tells another story. In his version, Syriza has fought hard on two fronts – dealing with creditors abroad and tackling corruption at home – and the Greek people have emerged victorious. He has pinned his political hopes on the bailout’s expiry, depicting it as the re-establishment of Greece’s national sovereignty. On 21 August, a day after the bailout officially ended, he gave a televised address to the nation from Ithaca, declaring the end of Greece’s ‘modern-day odyssey’. ‘Today,’ he said, ‘our country regains its right to define its fortunes and its future. Like a normal European country. Without outside coercion. Without further extortion.’ This, he added, was ‘a day of redemption’.

Should they so choose, Greeks will be able to confront the creditors again. Ahead of an election scheduled for next year, Varoufakis has established a new party, the European Realistic Disobedience Front, a ‘Greek patriotic front of responsibly disobedient Europeanists’. The party is not against Europe, Varoufakis says, it’s against ‘this Europe’; it wants to wrest power from the technocrats and restore democratic accountability across Europe, which it sees as the only way to address the rise of far-right populism. In his book, Varoufakis links the surge in the far-right vote in Europe and the US with the crushing of the Greek Spring. This treatment dismayed some voters in the UK, he claims, contributing to Brexit, and Brexit helped make Trump possible. There is no causal connection between these events, though there is a point to be made about the corrosive effects of a politics that deprives people of a meaningful choice. Populism, after all, as the political scientist Cas Mudde has put it, is ‘an illiberal democratic response to undemocratic liberalism’. But by offering a choice it had no power to realise, Syriza did not reinvigorate democracy so much as make a farce of it.

Many Greeks appear to understand this. Syriza has lost a great deal of support, and is currently polling behind the conservative New Democracy party, whose leader, an American-educated former banker, presents himself as naturally fitted for implementing the free-market reforms insisted on by the creditors. It’s unlikely that large numbers will opt for Varoufakis’s new party (it barely registers in the polls). He tends to be more admired abroad than at home, where he is blamed for the failed stand-off and the economic fallout. Greeks now rightly recognise that their country can’t change Europe or fix its own problems through brinksmanship. The country’s salvation – as well as the survival of the EU and the regeneration of the ailing European left – depends on parties offering genuine alternatives and incremental progress within the system as it exists. A dialectic that pits the ‘centrists’ of a monolithic EU against populists who purport to offer the only chance of real change ends up leaving voters vulnerable to pedlars of false redemption.