Advertisement
News by VICE

The Man in the Hot Seat: Greece's New Finance Minister Yanis Varoufakis Has Creditors Rattled

Supporters say the anti-austerity economist is the right man for the job in times of crisis. Critics accuse him of wanting to bankrupt the country, and take it out of the Eurozone.

by Nikolia Apostolou
Jan 28 2015, 6:59pm

Image via Reuters

Some photoshop elf-like ears on his image. Others slam the tight shirts he wears. And many critics of Greece's new Minister of Economics Yanis Varoufakis accuse him of wanting to bankrupt the country, and take it out of the Eurozone.

Still, others say he is the right man for the job, especially in times of crisis.

"He's fearless," said James Galbraith, an economist and professor at the University of Texas at Austin, co-author with Varoufakis on a paper called "A Modest Proposal For Resolving the Eurozone Crisis." "I expect he will prove well-suited to the challenging responsibilities just ahead," he told VICE News.

On Tuesday, following Greece's elections that ushered in anti-austerity Syriza, Varoufakis became the man in the cabinet hot seat, taking over what could be the most despised position in the country — the economics ministry. 

He now faces the monumental challenge of kickstarting the economy, which has been sputtering ever since the global financial crisis hit the country in 2009, with over 25 percent unemployment and an average drop in individual income of 40 percent.

Still, Varoufakis is the first economics minister in years not to hail from one of the dozen political dynasties that usually rule the country, and its ministries. His supporters hope the political upstart will provide relief from the strict austerity policies imposed on Greece by its creditors since 2010 — budget cuts and tax increases that critics say have choked off growth and kept the country in recession for eight years. Others — especially those international creditors — just pray he won't do too much collateral damage.

A Wave of Discontent Is Crashing the Status Quo in Greece. Read more here.

"I am afraid that he is very passionate and because of that, he might overplay his hand," Aristides Hatzis, associate professor of law and economics at the University of Athens, told VICE News.

The electoral victory of the radical anti-austerity party has rattled the so-called Troika — the International Monetary Fund, the European Union and the European Central Bank — which has lent 240 billion euros ($270bn) to Greece since 2010 to keep its economy afloat, imposing swingeing budget cuts and restructuring requirements in return.

The new Greek prime minister, Alexis Tsipras, is expected to promptly embark on a renegotiation of the country's bailout package, insisting that "the end of humiliation has come." EU leaders, meanwhile, have warned that the country must not renege on its commitments to its creditors.

Addressing his first cabinet meeting on Wednesday, Tsipras insisted Greece would not default, but reiterated his intention to renegotiate.

"We won't get into a mutually destructive clash but we will not continue a policy of subjection," he said.

On Tuesday, Euclid Tsakalotos, Syriza's chief economics spokesperson, told the BBC that it was not feasible for Greece to pay back its debts in full. "Nobody believes that the Greek debt is sustainable," he said. "I haven't met an economist in their heart of hearts that will tell you that Greece will pay back all of that debt. It can't be done." 

How Greece Could Change the Future of Europe. Read more here.

Certainly Varoufakis, a staunch opponent of austerity widely described as a radical economist, is unlikely to make such a commitment.  

A visiting professor of economics at the Universities of Texas and Athens, he is known for his best-selling economic books, and his firm belief in Keynesianism with its premise of boosting economies in recession by increasing spending. 

He came to the public eye via appearances on talk shows — where he was one of the few commentators arguing against austerity, explaining in simple language for the average viewer the complicated economic policies being implemented, and why he believed they would not help Greece.

But for years, many in the political and business elite, as well as economists and journalists, have called Varoufakis's views outrageous and exaggerated.

"Varoufakis is a very good game theorist - his statements should be taken as part of the (upcoming) negotiation (with creditors)," said Hatzis. "He is also shunned by mainstream economists who are advising most Eurozone governments. As I said, he is a very good game theorist but I don't know what his experience is in actual negotiations and especially in "hostage" situations."

In the coming weeks, Varoufakis will have to decide how to handle this debt — now standing at 172 percent of the country's GDP, partly due to interest — and how to renegotiate its terms with the Troika. The big question is how Germany — the paymaster of Europe with the biggest influence within the bloc — will react. Berlin has publicly insisted that a deal is a deal, and on Wednesday German Vice-Chancellor Sigmar Gabriel reiterated that stance, saying: "I cannot imagine a haircut (debt reduction)."

Still, the new economics minister has made some attempt to reassure nervous creditors and markets. In an interview last week, Varoufakis clearly said he doesn't believe Greece needs to exit the Eurozone. "Greece is absolutely, irreversibly, committed to staying in the Eurozone," he told CNN. "The problem is that once you're in, it goes just like the Eagle song, "Hotel California," you can check out any time you like, but you can never leave."

Two other Syriza economists will be part of the deciding team: Yannis Dragasakis, a graduate of London School of Economics, with experience in government, and Giorgos Stathakis, a professor of economics at the University of Crete. This should calm worries, say commentators.

"Dragasakis and Stathakis are more moderate and reasonable than a lot of people think," said Hatzis. "Dragasakis is an experienced politician who has previously served as a minister and he knows the constraints. Stathakis is even more cautious in his statements and is a very good economist that understands the problems and what the stakes are."

Whatever Varoufakis's next move is, he will have a lot of delicate and complicated tasks in the months ahead.

Galbraith had some advice to offer: "He'll need to "breathe deeply" and "sleep when (he) can."