The moment of truth in Europe

The majority secured by the “no” vote in the Greek referendum left no room for doubt about what most Greeks now expect from their elected government. Yet Alexis Tsipras immediately obliged Yanis Varoufakis to resign as finance minister and entered into talks with the opposition political parties that it had just defeated. What should we make of this?

Some commentators in the financial press were quick to welcome these moves, as evidence that Tsipras wanted to make negotiations easier, given the EU side’s strong antipathy to Varoufakis, and as signs that Tsipras was continuing to move in a pragmatic direction that would amount to forming a kind of “government of national reconstruction” embracing most parties (except the communists and Golden Dawn). Tsipras presented his actions as efforts to maximise the strength of a Greek negotiating position that would continue to press the EU to recognise that Greece’s debts were unmanageable, and Varoufakis’s successor, Euclid Tsakalotos, is not seen as a potential soft touch. Yet just before the referendum Tsipras had already shown willingness to accept further austerity measures that would involve crossing earlier “red lines” in return for debt restructuring. Further concessions on the lines demanded by the creditors would hardly be consistent with the big “no” majority in the referendum.

The German response to the overwhelming “no” vote was to tell the Greek government that it had to come up with new proposals in order to restart negotiations at all, which either suggests that they do expect further concessions, whatever the wishes of the majority of the Greek people, and however much social misery this creates, or that Germany actually wants to drive Greece out of the Eurozone.

Refusing to compromise is what anyone would expect Germany to do after reading Yanis Varoufakis’s book The Global Minotaur: America, Europe and the Future of the Global Economy, to use the subtitle of the second edition (Zed Books, 2013). According to this analysis, first published in 2011, the original design of the Eurozone was fatally flawed, disproportionately benefitting Germany as an export-orientated surplus country which successfully kept the squeeze on wage costs, but also a reflection of broader movements within capitalism. What Varoufakis argued about financialised neoliberal capitalism, the transatlantic economy, and power relations within Europe itself, left scope for further debate about whether any structural reform could really solve the problems of the Eurozone, as several critics pointed out. Yet it was at least clear that such reform would be an essential minimum if the social consequences of crisis and the imposition of austerity policies in Southern Europe were to be alleviated and growth with at least minimal social equity achieved. It is not clear yet how much and how far Varoufakis pressed the need for structural reform of the Eurozone in the negotiations, although the fact that his academic reputation preceded him can hardly have endeared him a priori to the Germans and Dutch. It also remains to be seen whether the Greeks are going to press this point without him. But if nobody presses it, then even if some sort of fudge can be organised in the remaining hours before Grexit becomes inevitable, the Greek crisis will not be the Eurozone’s last. It is not just Portugal and Spain that have an ongoing interest in the question of how much should be conceded to the Germans, but Italy and France as well.

So now that the Greek people have spoken, much depends not simply on the determination of their government, but on what, if anything, other European leaders are willing to do to alleviate the political dilemma created by the fact that the German public mostly believes a very different story to the one that Yanis Varoufakis tells. I see from the latest reports this evening that France, Italy and Spain have been trying to persuade persuade Germany and the European Commission to make concessions. If they fail, then I suspect that this will soon become a debate about the future of “Europe” itself rather than the Euro, and rightly so.