I’m glad I was not the only one who was disappointed to hear that Yanis Varoufakis had been sidelined in Greece’s ongoing negotiations with the group formally known as the Troika. Mohamed El-Erian writes (HT Ann Pettifor)
“Varoufakis was a breath of fresh air in this protracted and exhausting Greek economic drama, which involves alarming human costs in terms of unemployment, poverty and lost opportunities. Backed by considerable economic logic and a desire to do better, he pressed for more realism in the policy conditions demanded by Greece’s creditors. And he never tired of reminding people that Greece's recovery wasn't that country's responsibility alone.”
I have also never met him, although we once commented on each other’s views on the Eurozone before he became finance minister, and we may even have linked to each other’s blogs. Although I am no Marxist (whether ‘erratic’ or any other kind), Yanis has is a sensible macroeconomist’s view of the world. That alone may have made him the wrong kind of person to negotiate with Eurozone finance ministers.
The other economists who get a look in during these negotiations are at the IMF. Their position has always been problematic. It was they, partly through an inexplicable under estimation of the fiscal multiplier, who allowed the Troika to trash the Greek economy with austerity on an epic scale. They also foolishly allowed the rest of the Troika to believe that partial rather than full default would allow Greece to regain solvency. (For the details, see this short guide.) However, unlike their Troika colleagues, the IMF can admit and learn from its mistakes, rather than trying to cover them up. It is now reported to be telling the Eurozone finance ministers that they must write off more of Greece’s debt before the Fund will release more money.
Will the IMF force Greece’s creditors to see some sense? The problem is that we have been here before, and the IMF backed down. It may be full of economists, but it is ultimately run by politicians who may have too many ties to those in the Eurozone. But as Ashoka Mody says, the IMF’s credibility is at stake. It should stop trying to pressurise the new Greek government into making reforms that contradict its election platform, and instead focus its efforts on getting the rest of the Troika to be realistic. Above all else, Greece must be helped out of its depression as quickly as possible. Sensible macroeconomists, including those at the IMF, know that makes sense. If Yanis Varoufakis could not achieve this, perhaps the economists at the IMF can do better.