Syriza’s new finance minister is not the socialist firebrand which one might expect
published at The Telegraph
By Peter Spence, Economics Correspondent
Syriza, a hard left party, that outrightly rejects EU-imposed austerity, has given Greek politics its greatest electoral shake-up in at least 40 years.
You might expect the man who now occupies the role of finance minister to be a radical zealot, who could throw Greece into the fire.
He is not.
Yanis Varoufakis, the man at the core of the coalition Syriza has forged, is obviously a man of the left.
Yet through his career, he has drawn on some of the most passionate advocates of free markets.
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While consulting at computer games company Valve, Mr Varoufakis cited nobel-prize winner Friedrich Hayek and classical liberal Adam Smith, in order to bring capitalism to places it had never touched.
He clocked that there was an irony to market-based economies. We have markets for land, sheep, labour and even money itself. But inside companies themselves, exist “market-free zones”.
“Firms can be seen as oases of planning and command within the vast expanse of the market,” Mr Varoufakis has written.
His work at the tech company helped it in “trying to become a vestige of post-capitalist organisation within capitalism”.
Yet while Greece’s finance minister is a fan of markets in many contexts, it is apparent that he remains a leftist, and one committed to the euro project.
Speaking to the BBC on Monday, he said that it would “take an eight or nine year old” to understand the constraints which had bound Greece up since it “tragically” went bankrupt in 2010.
“Europe in its infinite wisdom decided to deal with this bankruptcy by loading the largest loan in human history on the weakest of shoulders, the Greek taxpayer,” he said.
“What we’ve been having ever since is a kind of fiscal waterboarding that have turned this nation into a debt colony,” he added.
Greece’s public debt to GDP now stands at an eye watering 175pc, largely the result of output having fallen off a cliff in the past few years. Stringent austerity measures have not helped, but instead likely contributed.
Despite this, the Greek government faces a €2.3bn (£1.7bn) revenue shortfall in 2015. It will likely be Mr Varoufakis’ job to make the best of an impossible situation.
The first thing he will seek to tackle is Greece’s humanitarian crisis. “It is preposterous that in 2015 we have people that had jobs, and homes, and some of them had shops until a couple of years ago, that are now sleeping rough”, he told Channel 4.
The party may now go after multinationals and wealthy individuals that it believes do not pay their way.
Born in Athens in 1961, he moved to England to study mathematical economics at Essex. From there, he went on to earn his PhD in Mathematics and Statistics, taking university appointments at Cambridge, East Anglia, Sydney, and Glasgow.
He has since become a visiting professor at both of the University of Athens and the University of Texas. It is at the latter than he co-authored “A Modest Proposal for Resolving the Eurozone Crisis”, along with prominent left-wing economist James Galbraith.
There is no question that Mr Varoufakis has an awareness of Greece’s precarious situation. Speaking to Bloomberg TV after Syriza’s win, he made it clear that there was “a deep sense … of fear of what’s coming ahead”.
Greece’s economic pain has an almost ludicrous cause – a shortage of demand. If the country had entered the crisis with its own central bank then a monetary response could have been forthcoming.
Instead, political obstacles have prevented the euro area’s central bank from doing its work, and Greece has paid a heavy toll.
Years on from the Lehman collapse Greece now endures a jobless rate of 25.8pc, according to Eurostat estimates. More young Greeks are unemployed than in work.
The single currency project has fallen under heavy criticism. The economies that formed it were poorly harmonised, and no amount of cobbling together could make the end result appear coherent.
Michael Cembalest, of JP Morgan, calculated in 2012 that a union made up of all countries beginning with the letter “M” would have been more workable.
The same would be true of all former countries of the Ottoman Empire circa 1800, or of a reconstituted Union of Soviet Socialist Republics, he found.
Yet now a euro exit is almost certainly not an option, nor is it Mr Varoufakis’ preference.
A disorderly break up would likely result in a merciless devaluation of whatever currency Greece launched, and in turn a default on debt obligations. The country would likely be locked out of the capital markets, unable to raise new funds.
As an economy, Greece has only just begun to see output growth return. GDP still remains more than 26pc below the country’s pre-crisis peak. A fresh default is not the lifeline that Greece needs.
Instead, it will be up to a Syriza-led government to negotiate some sort of debt relief, whether that be in the form of a restructuring, a deal to provide leeway on repayment timings, or all out forgiveness.
It will be up to Mr Varoufakis and newly sworn in Prime Minister Alex Tspiras to ensure that this can be achieved without Greece getting pushed out of the currency bloc in the process.