Varoufakis refuses any bailout plan that would send Greece into ‘death spiral’

Finance minister continues war of words with eurozone policymakers, saying he wished Greece still had the drachma and had not entered monetary union

Greece’s embattled finance minister, Yanis Varoufakis, stepped up his war of words with eurozone policymakers on Thursday, saying he wished his country still had the drachma, and would not sign up to any bailout plan that would send his country into a “death spiral”.

With Greece facing a severe cash crisis as it struggles to secure a rescue deal from its creditors, Varoufakis – who has been officially sidelined from the debt negotiations – told a conference in Athens that he would reject any agreement in which “the numbers do not add up”.

Greek GDP figures, published on Wednesday, revealed that the economy has already returned to recession.

“I wish we had the drachma, I wish we had never entered this monetary union,” Varoufakis said. “And I think that deep down all member states with the eurozone would agree with that now. Because it was very badly constructed. But once you are in, you don’t get out without a catastrophe”.

He also warned that a mooted proposal for a bond swap, to ease Athens’ cash-crunch, was likely to be rejected, because it struck “fear into the soul” of European Central Bank president Mario Draghi.

Despite his comments Greece on Thursday offered a concession to its international lenders by pushing ahead with the sale of its biggest port, Piraeus.

Greece has asked three firms to submit bids for a majority stake in the port, a senior privatisation official told Reuters, unblocking a major sale of a public asset as creditors demand economic reforms from Athens.

Draghi, who was in Washington on Thursday to deliver a lecture on monetary policy, pointedly failed to mention the ongoing Greek crisis.

He received a rapturous welcome from Christine Lagarde, the managing director of the International Monetary Fund, who introduced him as “maestro” – the nickname once given to Federal Reserve chairman Alan Greenspan.

“Those who know you understand that you are a man of outstanding insight, fierce determination, and above all, courage. You can call a spade a spade without putting any of your cards on the table,” she said.

While skirting the thorny subject of Greece, which has repeatedly drawn on emergency funds from the ECB through its Emergency Liquidity Assistance scheme, Draghi issued a strong defence of the bank’s quantitative easing policy.

“Faced with an environment of unprecedented complexity, the ECB has taken a series of unconventional measures to prevent a too prolonged period of low inflation and deliver its mandate. Those measures have proven so far to be potent, more so than many observers anticipated,” he said.

He also stressed that the ECB expects to continue the €60bn a month bond-buying programme for the forseeable future, despite the recent sell-off in the bond markets, which some analysts had suggested could prompt the ECB to stay its hand.

“After almost seven years of a debilitating sequence of crises, firms and households are very hesitant to take on economic risk. For this reason quite some time is needed before we can declare success, and our monetary policy stimulus will stay in place as long as needed for its objective to be fully achieved on a truly sustained basis.”

However, as Draghi was spelling out the benefits of his approach, the scale of the opposition he faces within the ECB was laid bare, as his fellow governing council member, Jens Weidmann, gave a strongly-worded interview condemning QE and questioning the support being offered to Greece.

“The question remains whether the QE programme was really necessary given our primary aim of price stability and how we should assess the risks and side-effects that inevitably come with such a scheme,” he said. Much of Draghi’s speech was given over to dismissing the argument that QE creates risks.

Weidmann, the head of the Bundesbank, also hit out at the ECB’s approach to Greece. The rules of the single currency prevent the central bank from directly bailing out member states, and many in Germany feel that by repeatedly increasing the ceiling for Emergency Liquidity Assistance to Athens, the ECB is breaking that rule.

“Given the ban on monetary financing of states, I don’t think it’s OK that banks which don’t have access to the markets are being granted loans which then finance the bonds of their government, which doesn’t have access to the markets itself,” he said, in an interview with German newspaper Handelsblatt.

The fact that Draghi and his colleagues are rehearsing their differences in public underlines the challenge facing the ECB president in forcing through his policies. Weidmann warned that the public should not be fooled into thinking the ECB was “omnipotent”.

With fraught talks continuing between Greek officials and the “Brussels Group” of creditors – the renamed “troika” of ECB, European commission and IMF – Greece’s hand may be strengthened by separate data showing that the government ran a primary budget surplus – excluding its debt repayments – in the first four months of the year.

Lagarde warned that monetary policy would not be enough to prevent the emergence of “the new mediocre”: a prolonged period of weak global growth. She called for structural reforms, continued fiscal consolidation, and a boost to women’s employment levels, to help kickstart recovery.


Heather Stewart

The GuardianTramp

Related Content

Article image
Greece bailout talks – the main actors in a modern-day epic
The Syriza-led coalition’s long fight to end years of austerity by striking a deal with the troika is nearing its end. Here are the main players of the eurozone crisis

Phillip Inman in London, Ian Traynor in Brussels and Helena Smith in Athens

09, Jun, 2015 @9:03 PM

Article image
Greece pushed a step closer to eurozone exit after IMF snub
Christine Lagarde’s refusal to allow any delay in bailout repayments heightens fears that the US and Europe are preparing for Greece to leave the euro

Phillip Inman in Washington

16, Apr, 2015 @5:54 PM

Article image
Alexis Tsipras defends Yanis Varoufakis over secret Grexit plan
PM objects to mounting criticism of controversial ex-finance minister as Greece meets quartet of creditors for bailout talks

Heather Stewart and Julia Kollewe

31, Jul, 2015 @5:13 PM

Article image
Greece signals growing optimism over bailout deal
Deputy PM Yannis Dragasakis says upcoming eurozone meeting could herald agreement with creditors and end months of stalemate

Helena Smith in Athens

07, May, 2015 @5:37 PM

Article image
Greece bailout deal: Angela Merkel expects IMF involvement
German chancellor tries to reassure sceptical MPs ahead of Bundestag vote by saying IMF will take part in €86bn bailout

Ben Knight in Berlin

16, Aug, 2015 @5:20 PM

Article image
Greece tells IMF it wants early exit from rescue programme
Largest such programme in global financial history had aimed at preventing debt crisis from spreading through the eurozone

Helena Smith in Athens

12, Oct, 2014 @9:53 PM

Article image
Greece can still put together finance deal before money runs out, eurozone says
Ministers privately believe deal is possible, but point at which Syriza must either capitulate to Brussels or leave euro growing closer

Phillip Inman Economics correspondent

23, Apr, 2015 @8:02 PM

Article image
Greek bailout extension refused: a panel of leading economists give their verdict
With the country edging closer and closer towards default, our panel examines the current stalemate, and what Greece can do next

Vicky Pryce, David Blanchflower and Mariana Mazzucato

27, Jun, 2015 @9:16 PM

Article image
IMF steps up Greek bailout criticism over debt relief package
Christine Lagarde’s comments echo earlier concerns that proposals will fail unless measures go far beyond what the eurozone has offered so far

Jennifer Rankin in Brussels

17, Jul, 2015 @9:41 AM

Article image
Greece threatens new elections if eurozone rejects planned reforms
Athens’ finance minister Yanis Varoufakis says referendum or new election on fiscal policy is possible if deadlock remains

Helena Smith in Athens

08, Mar, 2015 @6:02 PM