It took the collective wisdom of Europe’s great and good to create Europe’s first ponzi austerity scheme… As in Ponzi growth schemes, where more and more investments are required to maintain the pretence of growth, in the case of Greece, Portugal, Ireland, Spain and Cyprus more and more loans were necessary in order to maintain the pretence of debt reduction.

Yanis Varoufakis1

… the European Union’s genes were geared from the outset — from 1950 — towards the depoliticisation of political decisions. Europe’s elites wanted a mega-bureaucracy in cahoots with large, oligopolistic business without the vagaries of federal democratic politics.

Yanis Varoufakis2

Surely there is no room for small sovereign countries in this globalised world”, I was told by a finance minister during a break in a Eurogroup meeting. “Iceland can never truly be sovereign’’, he concluded, satisfied that he had made his point. Except that hispoint was hollow. To claim that Iceland’s sovereignty is illusory because it is too small to have much power is like arguing that a poor person with next to no political clout might as well give up her vote.

Yanis Varoufakis3

At the very end of July 2018, conveniently into the holiday season, the IMF’s Independent Evaluation Office (IEO) quietly issued a devastating report on the conduct of the IMF in respect of the three Greek bailouts since 2010. The IEO is the watchdog of the overarching board of the IMF (i.e. including Asians and Latin Americans), but in the case of the Greek debacle it had found its functions exceptionally difficult to carry out. Key records proved mysteriously unobtainable and the deliberations of secretive ad hoc task forces lacked documentation. Nevertheless the officials found enough to reveal the way the IMF’s European members had managed to use the fund (against its constitution) for a political project: the protection (at the cost of European taxpayers and the people of Greece) of European monetary union. Greece was the sacrificial lamb, its “bailouts” a “holding action” to save the euro from the consequences of its design flaw — and northern European banks from the consequences of their greed and malfeasance.

Greece, which had joined the euro at its inception by fiddling its national statistics with the help of Goldman Sachs and with the connivance of the European Union, was bankrupt by 2010. Since the euro was not backed by fiscal union, the only known way of resolving its situation with any prospect of success would have been simultaneous debt restructuring and devaluation, the latter only achievable by dropping out of the euro. However, as Forbes magazine put it in 2016: “The politics of the euro, of that project of ever-closer European integration and union, simply could not allow this to happen. For it was just not politically possible, given those goals, that anyone should leave the euro. Given that there could be no bounce from a devaluation, there was no chance at all of (the Greek government) being able to return to market financing. This in turn meant that the debt had to be (or at least was) taken over by varied governmental and EU organisations rather than busting the other European banks that had lent most of the money with a haircut. There was a haircut of some of those bonds (in fact, private bond holders eventually suffered a 59—65 per cent haircut, this according to the detailed study by Zettelmeyer, Trebesch and Gulati),4 but the vast majority of the debt was shifted off bank books and onto public ones.”5

Ambrose Evans-Pritchard in the Daily Telegraph spelled out the consequences for the Greek people of the above decisions made by the infamous Troika — the IMF, the European Union and the European Central Bank:

A sub-report [by the IEO] on the Greek saga said the country was forced to go through a staggering squeeze, equal to 11 per cent of GDP over the first three years [26 per cent over eight years, N. P.]. This set off a self-feeding downward spiral. The worse it became, the more Greece was forced to cut — what ex-finance minister Yanis Varoufakis called “fiscal waterboarding”.

The attempt to force through an “internal devaluation” of 20 per cent to 30 per cent by means of deflationary wage cuts was self-defeating since it necessarily shrank the economic base and sent the debt trajectory spiralling upwards. “A fundamental problem was the inconsistency between attempting to regain price competitiveness and simultaneously trying to reduce the debt to nominal GDP ratio”, [the report] said.

The injustice is that the cost of the bailouts was switched to ordinary Greek citizens — the least able to support the burden — and it was never acknowledged that the true motive of EU—IMF—ECB Troika policy was to protect monetary union [Emphasis N. P.]. Indeed, the Greeks were repeatedly blamed for failures that stemmed from the policy itself. This unfairness — the root of so much bitterness in Greece — is finally recognised in the report.6

The Forbes commentary is even more brutally candid:

… Debt forgiveness or a haircut [that is, on the EU/ECB loans] were not politically possible, because … European politicians could not admit to their own voters that theyd just lost a hundred billion euros or two in pursuit of [the] European ideal. People tend to go off such ideals when they find out how much they cost, and that would just never do.

So now it is official. The European Union is prepared to sacrifice the welfare of entire populations of member states in pursuit of its vainglorious political aims. A pragmatic and well-tried solution to the Greek problem was available, but it was rejected in favour of an ideology that is fundamentally at odds with the interests of the nation-state. It was the unethical bankers who had caused the worldwide financial crash, and now it was an unholy alliance of dubious bankers and mendacious politicians who were to engineer a solution whereby the fall-out from their incompetence and malfeasance was to fall squarely on the shoulders of the victims, not the perpetrators.

No one has been clearer, nor more vindicated, in his analysis of this scandal than former Greek Finance Minister Yanis Varoufakis, most notably in his account of his negotiations with the Troika entitled Adults in the Room. Varoufakis is no off-the-shelf Eurosceptic (indeed he campaigned for Remain in the British referendum), but a fierce critic of the way vested interests (global finance, big business and neo-liberal political establishments) have hijacked power at national and international level (in this case the EU), leaving the ordinary citizen at the mercy of their self-interested policies. As he puts it in Adults in the Room, “As the so-called liberal establishment protests at the fake news of the insurgent right, it is salutary to be reminded that in 2015 this same establishment launched a ferociously effective campaign of truth-reversal and character assassination against the pro-European, democratically elected government of a small country in Europe.”7 He points out that this sort of behaviour fuels anti-EU sentiment and the “populism” so disdained by Liberals. Vladimir Putin, he thinks, must be rubbing his hands with glee.


Yanis Varoufakis was an unusual figure in the international corridors of power when he became the Finance Minister in the left-wing Syriza government of Greece in January 2015 (though he did so as an independent expert economist and not a Syriza party member). That he was a maverick (in the sense of putting intellectual integrity ahead of personal advancement) rapidly became apparent from the interviews he gave or the articles he wrote; that he was an internationalist may be gleaned from his explanations of the necessity of maintaining economic equilibrium and stability in the global world order.8 However the fact that he was obviously a Greek patriot immediately aroused the suspicions of the unelected officials deciding on Greece’s fate in tandem with the increasingly duplicitous European Finance Ministers and leaders. Even more inconvenient was the fact that he was always ready to engage intellectually with the issues under discussion, was extremely fluent both in economic theory and practice, and was able to persuade political opponents to think again (though having done so, they immediately reneged on any private undertakings as soon as formal sessions recommenced). Unfortunately for the forces arrayed against him, he kept detailed notes or recordings of his discussions and of Troika meetings, the substance of which would certainly give any honest or rational enthusiast for the political expansion of the EU pause, but will doubtless not worry those who regard the European Union as a form of religion (do not all religions have a way with heretics?).

In a chapter entitled Bailoutistan, Varoufakis gives a coruscating summary of how the Greek saga was set in train. The French and German banks’ reckless lending to Greece was part of a potentially catastrophic exposure to other countries such as Portugal, Spain and Italy. Fresh from a speech castigating the Anglosphere’s profligate bankers, whom she compared unfavourably with the prudent Swabian housewives, Angela Merkel suddenly discovered in 2008 that the saintly German banks needed an immediate injection of 406 billion euros to avoid going belly up, shortly after receipt of which they asked for another similar cash injection. With about 1 trillion euros at stake, the French and German leaders saw the political impossibility of openly asking their taxpayers to bail out unpopular and rapacious banks, but they could not risk the imminent contagion that might be caused by Greece being allowed formally to declare bankruptcy. Instead it was decided to portray the rescue of the banks as the rescue of Greece (cynically described as “solidarity”), which however could not be done directly by the EU because of a clause forbidding such in the founding treaty of the Eurozone. So the bailout was to be organised as bilateral loans, chiefly from European countries, each according to her economic capacity. They handed over money to Athens, which in turn handed much of it to the French and German banks. As Varoufakis drily comments, of every 1,000 euros handed to Athens, Germany would guarantee 270 euros, France 200 euros with the remaining 530 euros guaranteed by the smaller and poorer countries. “This was the beauty of the Greek bailout, at least for France and Germany: it dumped most of the burden of bailing out the French and German banks onto taxpayers from nations even poorer than Greece, such as Portugal and Slovakia.”9 To compound its disingenuousness, the EU managed to corral the IMF into the bailout, requiring it to “bend” a cardinal rule, namely that no IMF loan shall be made to a bankrupt country without prior debt restructuring (i.e. a “haircut” on all the debt held by the banks).

Haircuts are indeed the most vexed question of this unsavoury saga. According to Varoufakis, the first “bailout” allowed French and German banks to reduce their exposure to Greek public debt from 102 billion euros to less than 795 million by March 2012, while the French banks had disburdened themselves of all their Greek government bonds by December of that year. Unsurprisingly this did little to help the Greek economy as it lurched ever downwards and for the second “bailout” (2012) the Troika did a U-turn on the “debt restructuring” it had hitherto so vehemently opposed and imposed on Greece a 100 billion euro default coupled, however, with a 130 billion Euro loan. Varoufakis points out that very little of that went to the Greek state: “a large chunk… went to the Greek bankers (to overcompensate them for money they had lost on the haircut of government bonds), a second chunk went to Greece’s private lenders (as an incitement to make them accept the haircut), and the third chunk went to service the EU’s and IMF’s loans from the first bailout agreement”.10 By the time the inevitable third “bailout” loomed, Varoufakis himself was Finance Minister and determined inter alia to end the Potemkin city of previous restructurings, or, as he put it “borrowing from the ECB in order to pay the ECB to redeem these [Greek] bonds, while pretending not to do so”.11

Varoufakis’s obduracy was the first time the Troika had encountered really determined resistance to its machinations and a stand-off ensued. Mario Draghi, President of the European Bank, threatened to remove the “waiver” (which allowed him to accept the Greek [and other] banks’ junk collateral in return for cash) and thereby render the Greek banks inoperative. Varoufakis countered that in that case he would order a massive haircut on the SMPs (Greek bonds held by the ECB, which he could do as they were written under Greek law). His colleagues in government lost their nerve and after a vain rearguard action Varoufakis resigned. Greece was condemned to three more years of what Varoufakis has called “asphyxiation” in a banker-friendly political environment he terms “bankruptocracy”.


In late August 2018, the liberal media trumpeted the end of the Greek bailouts after eight long years. BBC World News reported it according to the EU script, as if the bailouts had been to “save” Greece; the ever-spluttering CNN business reporter, Richard Quest, even had the gall to speak of the unparalleled “generosity” of Greece’s donors. The moderator of his show for that evening promised an interview with Yanis Varoufakis, who would explain, she said, that in reality “nothing had changed”. However the news editors of the very pro-EU CNN evidently had second thoughts: mysteriously Varoufakis never appeared, but instead we were treated to a blizzard of platitudes from the former Greek Prime Minister, George Papandreou (who was replaced by an EU technocrat after trying to hold a referendum on the demands of the Troika), and the former PASOK Finance Minister, Papakonstantinou (three of whose relatives had mysteriously disappeared from a list of rich Greeks with tax-dodging Swiss bank accounts that the IMF had rashly handed to the then Greek government. At his trial he successfully claimed he had been framed by political enemies — beware of Greeks bearing USBs — and was convicted only of a “misdemeanour”).

A chorus of EU politicians, including the gagged and bound Greek government itself, celebrated the supposed end of Greek vassalage. Not untypical of the official fatuities was Germany’s Socialist Finance Minister, who was positively lyrical as he surveyed the magnificent results of his country’s policies, which include a Greece with a debt burden of 320 billion euros, 180 per cent of a GDP that had fallen by 26 per cent since 2010 (it has been pointed out that the Weimar Republic “was saddled at birth with state debts roughly proportionate to those of Greece (c. 175 per cent of GDP)” — something which you might think would at least have impressed the German negotiators.12 Then there was the 20 per cent unemployment, of which youth unemployment is at 43 per cent — obviously a cause for rejoicing and champagne!

It was left to the Financial Times to courageously jump over its pro-EU shadow and introduce a little realism. Greece, it said, had been turned “from an acute problem into a chronic one”, albeit with the benign effect that the “rest of the Eurozone economy and financial system [had] largely been insulated from its travails”. Although the immediate deficits had “painfully” been fixed, “the underlying challenges remain: an unproductive economy with poor tax collection locked into a currency union that makes many of its producers uncompetitive”. A few days later another Editorial referred to the “politically uncomfortable position [of the ECB] helping to dictate fiscal and even structural policy to an EU member state government”.13 Quite so. The FT Editorial likewise pointed out that Greece is still sitting on a huge pile of debt, chiefly incurred through the bailouts, but ameliorated by what are euphemistically known as “concessional rates” (what the trade calls extend andpretend). It is still, after eight years, under the control of its creditors with requirements to meet future fiscal surpluses that the IMF believes are wholly unrealistic. One recalls Varoufakis’s trenchant analysis in arguably his best book, And the Weak Suffer What They Must? He describes how he resigned his government office in 2015 when it became clear that “Greece would be locked into the debtor’s prison… [and] the European Union would again pretend it had solved a crisis by throwing new debt into the bottomless pit of unpayable older debts”.14

Varoufakis is not entirely alone in his courageous and principled stand against “fiscal waterboarding”. The former British Chancellor of the Exchequer, Norman Lamont, is a Conservative ally who bears the scars of trying to deny an economy the oxygen it needs to devalue when devaluation is inevitable. Powerful support also came from the American economist Bill Black, who memorably and accurately characterised the US banking crisis of 2008 as the collapse of a big Ponzi scheme, whereby the “liar loans” and other financial tricks were essentially illegal frauds earning triple-A ratings, all part of a criminal cover-up. “Varoufakis’s views on the self-destructive nature of austerity as a response to the Great Recession are mainstream economic views”, he wrote. “He is certainly a leftist, but his policy views arise from different ideological traditions most people find antagonistic (to left-wing thinking).” The Troika, on the other hand, are “exceptionally bad economists and exceptionally indifferent to the human misery they inflict on the workers of the periphery that they despise and ridicule”.15 This judgement dovetails with that of the IEO that the Troika’s whole approach to the Eurozone was characterised by “groupthink” and intellectual capture.

Of course Varoufakis’s book is an apologia for himself and his conduct in office, but the fact that his observations and objections have been echoed by a number of other informed sources suggests that he cannot be written off as an embittered lefty, which is what the smooth Brussels propaganda machine and its most servile cohorts in the western press would have us believe. Party ideology is largely irrelevant to this issue, which is one of power and its abuse. The Greek saga is a foretaste, for those with eyes to see, of how the European state dreamed of by Europhiles would be likely to act. Indeed Brexit has already given us a taste of this, illustrating the EU’s contempt for referendums, its determination to exact retribution on a country that decides to reassert its national sovereignty, and its vindictive attitude to those who fall foul of the Brussels mafia.

Varoufakis describes himself as an “erratic Marxist”, and for that reason conservatives might limit their enthusiasm for him to two cheers rather than three. Yet, in the horrible car crash of the Greek bailouts, he showed himself to be courageously on the side of the angels, speaking truth to power, trying to protect his fellow countrymen from the Troika juggernaut and unafraid to expose the shabby dealings of unscrupulous officials and politicians. His obvious integrity was widely recognised by ordinary Greeks, fed up with the shabby, ρουσφέτι-driven clientelismo practised by most of their elected representatives. Perhaps Varoufakis too generously overlooks their long-standing complicity in this (why pay tax if it simply goes into somebody’s pocket, unless that somebody will do something for you personally?); but what counts is that he is genuinely on the side of the powerless and the exploited.

Finally, though a committed European, he is clear-eyed about the direction the EU project seems to be heading, namely towards an incipiently undemocratic and authoritarian bureaucracy under the economic and even political hegemony of Germany (there are press reports that Angela Merkel is currently plotting to install a German as the next head of the European Commission). Varoufakis’s gallant failure nevertheless resonated far beyond Greece and indeed he has become the “rock star economist” internationally in demand. He rattled the bars of the debtors’ prison into which Greece had been cast and the rattling was heard across the western world.


The EU finds itself between a rock and a hard place, but its own actions have put it there. It is notable how often it finds itself having to circumvent its own rules in pursuit of political aims. Of course this does not worry the two largest EU countries, France and Germany, who were the first to infringe the Maastricht criteria, naturally without sanction. When it came to the financial meltdown, a succession of vehicles was wheeled out to give a veneer of legitimacy to actions that were technically forbidden. These had impressive-sounding names such as the Securities Market Programme (SMP), the Long-Term Refinancing Operation (LTRO), the Outright Monetary Transactions (OMT) and the European Financial Stability Facility (EFSF) (not to), mention their toxic American cousins in economic theory: Efficient Market Hypothesis (EMH Rational Expectations Hypothesis (REH) and Real Business Cycle Theory (RBCT). Although some of these acronyms sounded like obscure sexual practices, the ECB ones were all basically devices to buy up the sovereign bonds of struggling EU countries in a way that got round the rules of the Eurozone. The ECB, remarks Philip Coggan, described as the “soup kitchen” for Europe’s banks, “was starting to resemble one of those problem drinkers, who started off life teetotal. One day they try a small sherry, then before you know it they are on the scotch, and they end up sleeping on a park bench with a bottle of lighter fluid.”16

All this manoeuvring, as Varoufakis points out, is to bolster the pretence that there are technocratic solutions to what are political problems. “The notion that money can be administered apolitically, by technical means alone, is dangerous folly of the grandest magnitude”, he writes. “The fantasy of apolitical money was what rendered the gold standard in the interwar period such a primitive system whose inevitable demise spawned fascist and Nazi thugs with effects we all know and lament.” And he cites what he calls Mrs Thatcher’s “astute point” that “controlling interest rates and the supply of money is a quintessentially political activity which, if removed from the purview of a democratically elected parliament, would occasion a steady descent into authoritarianism”.17Perhaps he deserves three cheers after all.


1 Yanis Varoufakis: And The Weak Suffer What They Must? (Vintage, 2016), p.162. The title (without the question mark) is a grim quote from Thucydides’ Peloponnesian War, when the Athenian generals explain to the helpless Melians that “rights” are only pertinent between equals in power.

2 Varoufakis: op. cit., p. 101.

3 Varoufakis: op. cit., p. 222.

4 Jeromin Zettelmeyer, Christoph Trebesch and Mitu Gulati: Working Paper WP13-8: “The Greek Debt Restructuring: An Autopsy” (Peterson Institute for International Economics, August 2013). This thorough and nuanced study does not contradict the facts adduced by Varoufakis, though its interpretation and emphasis may sometimes differ. It does state that “we show that the buyback of December 2012 did result in some debt relief for Greece, despite the significant rise in bond market prices after its announcement. However, the debt relief effects were small both due to the voluntary approach that was chosen and the small scale of the operation.” And further that: “Perhaps the only important sense in which the February proposal did not differ from the [never executed] July plan is that it excluded the bond holdings of the ECB — Greece’s single largest bondholder by far, with €42.7 billion (16.3 per cent) of holdings in February 2012 — national Central Banks (€13.5 billion of Greek bonds, about 5 per cent of the total), and the EIB (€315 million).” These two observations are also at the core of Varoufakis’s argument.

5 Tim Worstall: “The IMF’s Disastrous Response To Greece: Giving In To Political Pressure”. Forbes, 29 July 2016.

6 Ambrose Evans-Pritchard: Daily Telegraph, 29 July 2018.

7 Yanis Varoufakis: Adults in the Room: My Battle with Deep (The Bodley Head, 2017), p. 2.

8 His analysis of the global aspects of capitalism in crisis since the demise of the post-war settlement for currency stability made at Bretton Woods in 1944 is lucidly set out in The Global Minotaur: America, Europe and the Future of the Global Economy (Zed Books, 2011, New Edition with an Introduction by Paul Mason, 2015).

9 Adults in the Room, p. 27.

10 Varoufakis: op. cit., p. 46.

11 Varoufakis: op. cit., p. 114.

12 See James Hawes: The Shortest History of Germany (Old Street Publishing Ltd., 2018), p. 154.

13 Financial Times, Editorials, 21 and 24 August 2018.

14 Yanis Varoufakis: And The Weak Suffer What They Must? (Vintage, 2017), p. x.

15 Quoted in Varoufakis, op. cit., pp. 256-257.

16 Philip Coggan: The Last Vote. The Threats to Western Democracy (Penguin Books, 2014), pp. 186-189.

17 Varoufakis: op. cit., p. 97.

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