Greece’s New Finance Minister Is Brilliant. So Why Does He Make Everyone So Nervous?
Is the new finance minister putting his game-theory skills to work, or does he just have trouble holding his tongue?
by Carol Matlack published at Bloomberg
February 2, 2015
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Yanis Varoufakis, Greece’s new finance minister, is a brilliant economist. His first steps onto the political stage, though, didn’t seem to go very smoothly.
Before joining the Syriza-led government, Varoufakis taught at the University of Texas and attracted a global following for his blistering critiques of the austerity imposed on Greece by its international creditors. Among his memorable zingers: Describing the Greek bailout deal as “fiscal waterboarding” and comparing the euro currency to the Hotel California, as in, “You can check out any time you like, but you can never leave.”
His social-media followers seem to love the fiery rhetoric—but investors and European Union leaders are clearly less enthusiastic. Greek stock and bond markets tanked on Jan. 30 after Varoufakis said the new government would no longer cooperate with representatives of the troika of international lenders who’ve been enforcing the bailout deal. At an awkward Jan. 30 meeting with Jeroen Dijsselbloem, head of the Eurogroup of EU finance ministers, Varoufakis appeared to make things worse by calling for a conference on European debt. “This conference already exists, and it’s called the Eurogroup,” an obviously irritated Dijsselbloem told reporters afterwards.
The reaction from Berlin was even frostier, with Finance Minister Wolfgang Schaeuble saying Germany “cannot be blackmailed” by Greece.
Prime Minister Alexis Tsipras appeared to be scrambling to contain the damage. “Despite the fact that there are differences in perspective, I am absolutely confident that we will soon manage to reach a mutually beneficial agreement, both for Greece and for Europe as a whole,” he said on Jan. 31.
But Varoufakis stayed on the offensive, with blog posts accusing news media organizations of inaccurate reporting and a BBC interview in which he blasted an anchorwoman for “rudely” interrupting him. “He may need some tips on how to handle himself on TV,” Steen Jakobsen, chief investment officer at Denmark’s Saxo Bank, wrote on his blog after watching the broadcast.
Is this really the guy Greece is counting on to negotiate a better deal with its creditors? Yes—and Varoufakis’s admirers say he shouldn’t be underestimated. “Yanis is the most intense and deep intellectual figure I’ve met in my generation,” says James K. Galbraith, an economist at the University of Texas who has worked closely with him.
“Yanis knows far more about the current situation than some of the people he will be negotiating with,” adds Stuart Holland, an economist and former British Labour Party politician who has co-authored a series of papers with Varoufakis on the euro zone debt crisis.
What’s more, Varoufakis’s academic specialty is game theory, the study of strategic decision-making in situations where people with differing interests try to maximize their gains and minimize their losses. Varoufakis knows as much about this subject “as anyone on the planet,” Galbraith says. “He will be thinking more than a few steps ahead” in any interactions with the troika.
Market analyst Nicholas Spiro, of Spiro Sovereign Strategy in London, says Varoufakis might be stirring things up on purpose. Syriza’s leaders are “trying to establish their anti-austerity credentials, to show the Greek electorate that their vote was not in vain,” Spiro says. “They will play this game as long as they possibly can. This will give them political cover to climb down” and compromise later.
That’s one possibility. Another is that Varoufakis, a self-described “libertarian Marxist,” simply can’t hold his tongue. He wrote on his website that he was advised to stop blogging after joining the cabinet but had decided “to defy such advice … even though it is normally considered irresponsible for a Finance Minister to indulge in such crass forms of communication.” And he seems to love a good fight: “It was fun!” he blogged after the bruising BBC interview.
Varoufakis is now making the rounds of European capitals. He got a friendly welcome on Feb. 2 in Paris, where Finance Minister Michel Sapin called Greece’s concerns “legitimate” and offered to broker a new debt deal. His upcoming meeting with Schaeuble is sure to be tougher. And Varoufakis will need to mend fences with the leaders of Ireland, Portugal, and Spain. He has previously called them “treacherous” for having imposed austerity programs on their citizens.
Galbraith, his University of Texas colleague, says Varoufakis understands perfectly well that he’ll need to make compromises. But, Galbraith says, the new finance minister “is not prepared to reach an agreement, as previous governments did, at any price.”