July 06, 2015

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Varoufakis quits - the implications

The surprising landslide victory of the No vote was followed this morning by the equally surprising resignation of Yanis Varoufakis as finance minister. The implication is that Tsipras is preparing to make a last-ditch attempt to secure an agreement with his creditors - probably on the basis of what he proposed earlier, which is not all that far from what the creditors had offered. There seems to be a renewed willingness on the Greek side to cut a deal, but we cannot determine as yet whether the move is only tactical, or whether it is part of a real strategic re-orientation. Tsipras is to meet with all party leaders this morning, hoping to strike a national deal, according to To Vima.

Varoufakis announced his decision with a tweet: "minister no more", and a statement on his website. He writes:

"Soon after the announcement of the referendum results, I was made aware of a certain preference by some Eurogroup participants, and assorted ‘partners’, for my… ‘absence’ from its meetings; an idea that the Prime Minister judged to be potentially helpful to him in reaching an agreement. For this reason I am leaving the Ministry of Finance today."

There is some speculation this morning over the potential successor. Paul Mason tweeted that it could be Yannis Stournaras, which would be an attempt to bridge the political divide in Greece. But would Stournaras accept a mandate to carry out Syriza policies? Another suggestion is Euklid Tsakalotos, an Oxford-educated Marxist, who is part of the negotiation team. Tsakalotos would be at least as determined as Varoufakis to press for debt relief, especially after the IMF debt sustainability analysis last week. Reuters report this morning that Tsakalotos is the most likely candidate to succeed Varoufakis, with the replacement to be announced this morning. The reshuffle is also clever in another repect. If the talk fails now, nobody can blame Varoufakis' eccentric personal style. And we presume that Varoufakis will continue to wield influence on Tsipras. Both Stournaras and Tsakalotos will be part of the team of top Greek officials to travel to Brussels today.

Donald Tusk last night convened another eurozone summit for tomorrow night to discuss the options that are available now. Angela Merkel and Francois Hollande will meet today. The negotiation team with Yannis Dragasakis, Tsakalotos, George Chouliarakis and Stournaras stands ready to travel to Brussels, according to To Vima. Tsakalotos said the Greek government wants an agreement. Compared to the last five months, the government has now two new elements to negotiate a lasting deal: 

"The first is that the IMF report shows that debt is unsustainable and second, that there will be a new popular mandate, as evidenced by the outcome of the referendum" .

However a solution within the next 48 hours, as promised by Tsipras, seems wishful thinking at best. And debt relief will be on the table.

The final results last night gave the ‘No' 61.31% of the votes against 38.69% for the ‘Yes' camp, according to the official result page. Once again, the opinion polls had it all wrong. What happened? KT Greece writes that the scaremongering campaigning of the ‘Yes’ camp backfired. The blog says the Yes-propaganda got literally out of control in an unprecedented scare-mongering paranoia, never seen before. Tired of listening to the ‘end is near' type of of commentary, overwhelmed with media reports on the dire effects of the capital controls, and with the sheer endless list of high ranking opposition politicians and officials at home and abroad weighing in on the campaign with their warning that a ‘No' vote could lead to Grexit, Greek voters seem to have reacted angrily and voted against “the system” which, from their point of view, caused the misery in the first place. Even a conservative 'Yes' voter was quoted saying that he considered it 'criminal' to scare people like this. The Greek Journalists’ Union ESIEA condemn mainstream journalists for substituting the journalistic function with undisguised propaganda.

Alexis Tsipras' reassurance that he would get a better deal with a 'No' vote certainly helped, and some do indeed believe him. But they too are not blind to the risk that it can go wrong, and still voted 'No.' 

In his FT column, Wolfgang Munchau cites three reasons why the Yes campaign floundered. The first was an extremely aggressive attempt by foreign politicians like Martin Schulz and Sigmar Gabriel to link a No vote to Grexit. This was clearly intended as a threat, and it backfired badly. The second is sheer economic illiteracy. The Yes campaign was unable to explain how voting for the programme would end the Greek crisis. Whether you follow a Keynesian or neo-classical economic model, there is no case for another round of austerity, given what we know has happened to the Greek economy in the last five years. And the third reason is sheer hubris: overreliance on polls, and overconfidence. One of Munchau's conclusions is a lack of respect for democracy, economic illiteracy and hubris are now the fundamental qualities of what remains of the European project. The only argument in favour of the euro is a scare story of what happens when you drop it. 

What are the reactions from the ‘Yes’ camp other than shock and puzzlement? Antonis Samaras was the first to resign last night. The reaction from the creditors was predicably negative. Jeroen Dijsselbloem said that the ‘No' vote is regrettable and that more hardship for the Greek economy will follow. Nor is it clear whether a change of finance minister or a change in negotiating tactics will make a big difference for the Germans. While the Greeks last night celebrated as though this was a day of liberation, the German reaction was bordering on the hysterical. Sigmar Gabriel doubled up on his Grexit threat he made before the elections by saying that the Greeks had now torn down all the bridges. And CDU parliamentarians are now openenly demanding that Angela Merkel should pull the plug immediately. Bild's headline is: Are the Greeks celebrating their own destruction? This is a useful summary of the political reactions. The only two politicians who gave a moderate and dignified response were Frank Walter Steinmeier and Jean-Claude Juncker. All the CDU and FDP politicians quoted in the article were essentially favouring an immediate Grexit.

What caught the Germans off-guard was the hugely biased press reporting ahead of the Greek referendum. We noted this headline in Spiegel Online three days ago, descibing Tsipras as the future ex-prime minister. The media commentators were all certain that the Yes would win by a large margin, as the polls began to shift in favour of the Yes vote. What they didn't appear to grasp was opinion polls are fairly useless to capture the dynamic of a referendum, which is why there have been so many surprising referendum results in Europe.

Our other stories

Our coverage today focused on what happen last night and why it happened. We also have a story on the implosion of AfD, under new leadership now, and the latest political developments in Spain.

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