It is just over a year since the referendum that nearly took Greece out of the euro, when voters rejected the austerity required of them to secure a new bailout. It was the culmination of a tempestuous six months. Syriza’s election victory in January had ushered in the EU’s first government of the radical left, but it was followed by months of deadlock with creditors, a run on the banks and the imposition of capital controls as a crucial payment deadline approached without agreement.
Then came capitulation. Faced with the immediate prospect of Greece’s bankruptcy, Prime Minister Alexis Tsipras ignored the referendum result and ceded to most of the creditors’ demands — overcoming the resulting split in his party by calling and winning snap elections.
James Galbraith, an economics professor at the University of Texas, watched this drama close up. As a friend of Yanis Varoufakis, Syriza’s unorthodox finance minister at that time, he offered informal advice. He also led secret work on a plan B:
contingency measures for a forced exit from the euro.
This book, a collection of opinion articles and memos written in the heat of the moment, serves as a running commentary on the crisis. Its gives Syriza’s take on a story often seen in the anglophone press through the eyes of Brussels officials (Galbraith notes his hope that Financial Times editors “fry in hell” for this failing).
It charts the euphoria of the election, when Mr Varoufakis was mobbed by admirers; the sense of possibility that a stable government of the left might “spark a larger discussion of austerity’s failure and inspire a continent-wide search for better solutions”; frustration at creditors’ intrusive and inflexible demands (from the size of the primary surplus to the sell-by date of milk); bitterness at eventual submission to “technocratic dictatorship”, and rejection of a “gridlocked, reactionary, petty and vicious” Europe.
Always a forceful critic of economic orthodoxy, Galbraith is even more savage in his indictment of the political calculations that shaped the creditors’ position. While it was always clear Greece could not pay its debts, there was no restructuring in 2010 because European powers did not want to force their fragile banks to realise losses. Instead, they imposed austerity on a scale that drove Athens deeper into debt.
Galbraith’s judgments are now fairly widely accepted. It is less clear whether Syriza’s own policies, or its confrontational negotiating tactics — described here as “stating raw truths in rooms full of self-serving illusions” — were ever going to achieve results.
It is also unclear whether Syriza had any real alternative to capitulation.
Plan B was, of necessity, something of an academic exercise — any hint that Greece was planning to leave the euro could have triggered panic so Galbraith could make only the most discreet inquiries about practicalities. Yet the memorandum he drew up gives a sense of the enormous risks Syriza would have run if it had acted on the referendum result and defied Germany’s ultimatum.
He assumed a state of emergency would be declared, as well as nationalisation of the banks and the creation of a parallel currency to help the economy function until new drachma were available. There would have been a need to impose capital controls and new taxes, to assure fuel supplies and reassure tourists. And there was a “daunting” potential for hoarding, profiteering and crime.
Galbraith now believes he overstated the difficulties, and that abandoning the euro is a real option. But it is no surprise that Mr Tsipras pulled back from the brink. A year on, he is still in power; Greece is still mired in debt and all concerned are still playing for time, with decisions on debt relief deferred until after the next German elections.
Yet Syriza’s failure has affected other leftwing parties. Podemos, another advocate of anti-austerity policies within the euro, has lost support in Spain. Many Labour supporters in the UK voted for Brexit. Those who blame Brussels for economic malaise are growing more likely to look to the far right. For Galbraith, the treatment of Greece is a symbol of what Europe has become — and why it is at increasing risk of fracture.
The reviewer is an FT leader writer
Welcome to the Poisoned Chalice: The Destruction of Greece and the Future of Europe by James K Galbraith (Yale University Press, £18.99/ $26)