Greece's Firebrand Finance Minister Deserves to Be Heard

MAY 4, 2015 2:00 AM EDT

By Mohamed A. El-Erian

Bloomberg view

I have never met or spoken to Yanis Varoufakis, Greece's finance minister. Yet I feel I have gotten to know him through his writing and interviews, and by reading about his interactions with both the official and private sectors in Europe. That's why -- though I understand the rationale for the decision -- I was saddened last week when Prime Minister Alexis Tsipras sidelined Varoufakis from Greece’s complicated and consequential negotiations with its European creditors and the International Monetary Fund.

Varoufakis was a breath of fresh air in this protracted and exhausting Greek economic drama, which involves alarming human costs in terms of unemployment, poverty and lost opportunities. Backed by considerable economic logic and a desire to do better, he pressed for more realism in the policy conditions demanded by Greece’s creditors. And he never tired of reminding people that Greece's recovery wasn't that country's responsibility alone.

His approach to substance came with an unusual negotiating style – one that attracted quite a bit of attention but understandably proved unpalatable to his European partners.

Having spent the bulk of his career in academia, Varoufakis erred toward open public discussion and discourse. Diplomatic niceties were set aside in favor of candid debates. Flowery introductions gave way to laser-like focus on areas of disagreements.

Having also been part of a government that was elected on the promise to restoring Greece's dignity, he had no hesitation about speaking to other European finance ministers as an equal. And because his meetings were closely covered by the media -- in particular those with his German counterparts -- the world was often treated to a level of drama that hardly ever emerges from European negotiations: accusations and counter-accusations, rebukes and unusual physical postures.

Varoufakis is impatient, and understandably so. Having observed the suffering of his people for so many years because of what he believes were unguided policies, he was ready to shake things up. Yet in his keenness to deliver a big bang solution, he neglected the small confidence-building steps that were required.

It was Varoufakis’s style that forced Tsipras to sideline him in response to growing European exasperation. The final straw was the unusual level of acrimony at the April 24 Riga Summit that spilled over into the public domain.

Tsipras had little choice but to replace Varoufakis as chief negotiator. His government is running dangerously low on money, having failed to secure the release of any financing from the European Union and the IMF. The situation is so dire that he was forced to pass an unpopular decree enabling the government to grab the idle official funds of local governments that aren't deposited at the central bank. Meanwhile, the government’s payments obligations are mounting, including those for pensions and an upcoming debt obligation to the IMF; and nervous citizens are withdrawing more of their deposits from domestic banks, adding to the pressures that could push a sputtering economy to a further implosion.

Varoufakis's move to the background will increase the probability that a chilly stalemate will give way to another Band-Aid arrangement that allows Greece to muddle along for a little longer. But unless this time is used by the country’s creditors to accept a truth that Varoufakis consistently tried to impose -- that Greek economic reforms, no matter how bold, won't succeed unless the budget austerity conditions are relaxed and there is further debt relief -- the finance minister could return to the front line.

This time, he would have a different mission: that of seeking to restore order after a “Graccident,” a big economic and financial accident that makes the country’s continued membership of the euro zone almost impossible.

To contact the author on this story:

Mohamed El-Erian at melerian@bloomberg.net

To contact the editor on this story:

Max Berley at mberley@bloomberg.net