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.
