Thursday, September 3, 2015

Yanis Varoufakis' Plan for Greece's Recovery & Growth

Ever since I started this blog, I have been urging the need for a Long-Term Economic Development Plan for Greece and I have been criticizing the Greek leadership for not developing such a plan. Occasionally, I was asked what I meant by such a plan. In response, I always referred to McKinsey's "Greece Ten Years Ahead" proposal of mid-2011 which had received only very little attention. One may not like McKinsey and/or one may consider their proposal as being utterly neoliberal. That's fair. But that does not free a leadership from its responsibility to develop its own plan.

Over a month after resigning as Finance Minister, Yanis Varoufakis took issue with the complaint that the SYRIZA/ANEL government never presented a plan. In a respective article in his blog, Varoufakis claimed that Greece had not only made one but, in fact, two separate proposals. They were titled:

A Policy Framework for Greece's Fiscal Consolidation - 11th of May, 2015
Ending the Greek Crisis - 11th of June, 2015

Varoufakis claims that 'they' never paid any attention to his proposals and he subtly suggests that the real reason was that those proposals 'made it hard for them to admit that the real reason they refused to engage with our sensible, sophisticated proposals was that they only cared about humiliating our government and derailing the negotiations'.

Who is 'they'? According to Varoufakis, the first proposal of May 11 was submitted 'to many of my Eurogroup colleagues' and the second proposal of June 11 was sent 'to key Eurogroup members'.

I give Varoufakis the benefit of doubt that these proposals were truly prepared and submitted in earnest (as opposed to an alibi action to be able to claim later that "we made you proposals but you never paid any attention"). And yet: one has to be absolutely astonished at the process which was chosen. Just like it wasn't (and shouldn't have been) the Greek Finance Minister who personally wrote A Policy Framework for Greece's Fiscal Consolidation (Varoufakis says that 'teams of experts from all ministries' worked on the project), no one should expect the other Finance Ministers to personally read A Policy Framework for Greece's Fiscal Consolidation. That's not the way top-level decision-makers behave.

Policy proposals like the above need to be coordinated, streamlined etc. at the technical and administrative level before they get presented to top-level decision-makers. I agree that the primary responsiblity for such proposals lies with the Greek government but once the Greek government has its proposals in line, it needs to build allies. One would have to involve 'teams of experts' from all walks of EU life. That could be the Troika itself; it could be the OECD; it could be the German Council of Economic Advisers, etc. etc. Such proposals need to carry weight!

And --- they need to carry the right kind of weight! Varoufakis' idea of the right kind of weight was to form a Board of International Advisors including well-known economic heavyweights. Well, I think it was a plus not to show Paul Krugman and Joseph Stiglitz as board members but I would suggest that the mere mentioning of academic names like James Galbraith, Jeffrey Sachs or Larry Summers made the stomachs of many conservative European Finance Ministers turn.

Varoufakis does not explain how these proposals were 'submitted to many of my Eurogroup colleagues' or 'sent to key Eurogroup members'. For all I know, he might have dropped a copy on Mr. Schäuble's desk with the comment in passing: "Wolfgang, take a look at this. Would appreciate your opinion!" Well, I doubt that this would have triggered more than a puzzled look on the part of Schäuble.

So if the form of making the proposals was totally inadequate, how was the substance of the proposals?

Neither of the two documents carried the title of Long-Term Economic Development Plan for Greece, and that is good because neither of the two was such a plan. The appropriate title was A Policy Framework for Greece's Fiscal Consolidation because that is what the documents were; for the most part, at least. What is the difference between a plan and a policy framework?

Well, Varoufakis' policy framework talks about fiscal policy and debt sustainablity, about public investment policies, about banking and social security funds reforms, about democratic governance reforms, about public debt management, and so forth. All very important issues but, interestingly, none of these issues found their way into McKinsey's proposal. McKinsey focused exclusively on about a dozen key economic sectors where growth could be unleashed as part of a New National Growth Model.

One almost has to look with a magnifying glass to find something about the real economy and/or the private sector in Varoufakis' policy framework. There is only a small section with regard to product markets and it includes the stunning revelation that "the Greek government is aware that the world economy is highly competitive". Its conclusion is that "Greece will focus on providing advanced tradable services, suited to Greek conditions", and the reader is referred to a 'section (7) below', which section cannot be found.

The section about the services market is a bit more extensive and it begins with poetic prose: "As the birthplace of democracy, a leader in culture, a home to world famous cuisine, a magnet for tourism, and with a competitive edge in many service, Greece aims to promote its service sectors, including green tech, culture, transport, higher education, culinary and other distinctive and high-end services". There are about 10 bullet point headlines about different service sectors and my favorite is that 'Greece proposes to pioneer in the development of retirement communities for middle class retirees from across Europe'. Put differently, the equivalent of a 'Florida for Europe', which I have always thought was an interesting proposal (whether Greeks would like to be overpopulated by middle class retirees from Northern Europe, let alone from Germany, is a different question...).

The original policy framework of May 11 was then reworked by Varoufakis personally and became the document titled Ending the Greek Crisis of June 11. This document has some real meat to it.

It goes in detail into fiscal and structural reforms which Greece intends to make to promote growth and it proposes ways to refinance Greece's public debt without any new monies for the Greek state and without haircuts. Most importantly, is has a large section titled "Homegrown, Investment-led Growth". That section is worth reading!

Those who are eager to hear how Greece plans to unleash growth in the private sector will again be disappointed. The section is primarily about the public sector but it has a revolutionary twist to it: to use state property for the benefit of the country! When I read the proposal, I was not quite sure whether the author was some neoliberal professor from the University of Chicago or the erratic Marxist Yanis Varoufakis. It calls for the creation of a new holding company in order:

"To bundle assets that can be potentially envisages as non-public into a central holding company to be seperated from the govenment administration and to be managed as a private enterprise entity with the goal of maximizing the value of its underlying assets. The Greek state will be the sole shareholder but it will not guarantee its liabilities or debt."

And now get this: "Assets will include: ports, airports, land, real estate, energy assets, utilities assets (water, gas, electricity grid), traffic infrastructure, licences, offhsore and onshore mining rights, state-owned companies and other assets which could potentially be put to private management. The total value of these assets is currently estimated to be in excess of 70 BEUR".

The private management of the state-owned holding company would borrow 30-40 BEUR against the value of its assets in order to restructure and modernize the assets. The investment program would run over 3-4 years and would result in additional spending of 5% per year. It would trigger a growth multiplier for the entire economy assuring annual growth rates in excess of 5% for several years. The primary surplus of the state would achieve 'escape velocity'. But don't stop there yet! After a couple of years, the holding company 'would be granted a banking license, thus turning itself into a fully fledged development bank capable of crowding in private investment to Greece'.

The document takes pains to never mention words like 'profit' or 'profitability'. Instead, one reads about 'maximizing the value of underlying assets' or how 'asset values should increase by more than the account amount spent on modernization and restructuring', about 'boosting the value of the assets according to the probability of future privatization', etc. The fact is, however, that the value of an asset is driven by its real or anticipated profitability. So what we have here is an erratic Marxist emphasizing profitability and that makes the document revolutionary.

The proposal is quite similar to what the consulting firm Roland Berger had published in mid-2011 under the title "EURECA project - Hellenic Recovery Fund - a solution for Greece and Europe!" The difference is that Varoufakis, quite surprisingly, thinks that a private management can work successfully in a state-owned entity whereas Roland Berger proposed to transfer ownership to a private fund from the start. And that is really the key issue/weakness in Varoufakis' otherwise extremely creative proposal: What is the likelihood that a holding company which is owned by the Greek state and which holds the bulk of Greek state assets will be allowed to be managed - like a private company - according to rational objectives and plans, particularly when those objectives/plans have profitability as their ultimate goal?

Varoufakis claims that 'they' (selected Eurogroup colleagues) leaked to the media that his proposals were worthless. Were they worthless?

Not at all! On the contrary, I think both documents could have been excellent discussion drafts to be worked on by teams of experts of all walks of EU life. Some aspects should have been eliminated, others should have been added. Above all, a true National Growth Model for Greece's private sector (along the lines of McKinsey's proposal) should have been added to it. And at the end of this exercise, the final product could have been a plan which investors might have been happy to bet on.


  1. Thank you Taking the time to read the documents as i did,

    I found various "blah - blah" in the plans, as which either is above me or just did not give a me hardcore data to convince me what was being proposed realistically. But indeed there are many good proposals just like the many plans out their.

    My 1st question to you though is if indeed these were presented and indeed there is good merit, why was it leaked that nothing was submitted. I can partially answer. May indeed Varoufakis is right that "they" our creditors and other finance minister indeed want to humiliate the Syriza government. Well maybe they brought it on themselves. From day 1 Varoufakis told everyone in a polite manner to "kiss off." How can either side collaborate when have scorned your opponents/colleagues from day 1.

    2nd question to you is whatever plan agreed do you believ a greek government has the power to make it happen. Or better not the power but the abilities to do so? Unfortunately, i have woken up and i believe no greek government can do nothing other than do what to be told to do. And even that they suck at. Only ND knows how to properly say "yes sir."

    The whole political spectrum on the majority have no clue what a real job is or how the real economy runs. Aside from that their social sensitivities are no more than rhetoric. They are incapable of making impimentation or at least in an efficient manner.

    As you understand from my tone of the last weeks, i have lost all hope in any government. Syriza was to change the old ways. They did very little and too much damage. At least ND implimented some measures that indeed help Greece improve. My hope is that the key pillars of the new program are enforced asap. Which directly/indirectly reduces the size of government. Then we can take it from there.

    PS: 1st Polls came out. ND at 25%. In 2 weeks they will reach 30%. Syriza as i said will go to under 20%. Alex is making mistake after mistake. He said he would not form a coalition with the old memorandum parties and his % dropped. today he said they will make choices which wll be good for society. Basically pool with Pasok and Potami. He doesn't even realize that he went back on his word once again. If Mamarakis plays his rhetoric properly and does not make promises he can not keep he will win with 30%. He is no idiot and he is allowing Tsipras to make a multitude of mistakes without doing anything.

    I hope things will get better with this new program because personally i am getting destroyed.



    1. Question 1: as I said, it is unclear to me whether anything was officially 'presented' or only given to selected Eurogroup members.
      Question 2: I have no doubt that Greece has more than enough leadership competency to make good things happen. Regrettably, the competent people don't seem to find their way into governmental positions nor into politics.

    2. Hi V Many polls have been out now. Do you still think Syria will go to under 20%? ND is on their way up, yes, but Syriza does not seem to be on their way down.

    3. Dear AnonymousSeptember 7, 2015 at 9:41 AM,

      Well the last poll/s showed ND slighty l ahead. The margin of error varies from 1 - 3%, so it seems to be a photo finish. What people do not see is that there is 10-15% undecided vote. It is the undecided vote which spells things out.

      Many pollsters also have other tools which calculate statistically who should win and thus far regardless of the actual poll it shows Syriza will win. The issue is is that Syriza is still on the down slope and ND is growing everyday. Meanwhile everyday people must realize in understanding what they are voting for.

      You have all kinds of rhetoric out there but unfortunately for Tsipras his rhetoric of the past is is still fresh in the mind and likewise what he states now is 100% in contridition. He sees he will lose power and is saying anything to clinge to the chair.

      People are skeptical of votig ND because indeed they fear the old system and that it has not changed. But regardless of the old "old" past as they implimented the program pre elections to some extent, they did manage to get Greece on some kind of a path. Whereas Tsipras is saying even now "i will re negotiate the new agreement" He can not be serious. He is lying and telling the truth simaltaneously meanwhile tormenting Greek society. Most will say can we risk another few months of disasterous negotiations? No. I am even believe that he may be saying these things to loose purposely and go back to being the 2nd party which sits and critisizes. This as to re establish his metamorphed party.

      There are many that will vote potami and i believe that their numbers shown are low. Leventis will get into parliment even though he is saying alot of BS as well. I would consider Leventis vote with what he is saying more of a rebel vote. Meaning i will not give my vote to mainstream.

      I think the majority are upset with our politics but people know we need to go with a the mature vote. I believe out of the 10-15% undecided, half will go to ND. The other half to other parties divided up.

      Tomorrow we have an open debate which i believe Mamarakis will make tsipras ook very bad. Actually Tsipras will be knocked at by all parties.

      After tomorrows debate, Tsipras will go down under 20% and ND will move up slighty. By the 20th of September ND should be close to 30%.

      You See Tsipras is a hypocrit with anything he says. Mamarakis is a straight arrow for a politician. He will shine as he did last night on TV interview by people.

      Lafazanis can barely talk. Theodorakis (Potami) will do well. ANEL will claw to stay in government. PASOK, will make small gains with Fofi Genimata. Koutsoubas of KKE (Communists) just put in the stadard tape and hit rewind and play.


    4. Dear AnonymousSeptember 7, 2015 at 9:41 AM,

      Here is also a very insightful article by Papahelas...


    5. @ V
      Your prediction that ND will move towards 30% and SYRIZA towards 20% sounds so unrealistic as of today that you will deserve a big prize if your prediction indeed turns out correct!

    6. Hi Mr. Kastner,

      Well right now we are head to head at 25%. Tonight is one of the most important debates in greek history. If you sit and view the political position of all parties and forese the rhetoric that they will guage out tonight, normal people will see it for what it is.

      For my prediction to come out stems on this debate and the performance of (ND) Mamarakis, (Syriza) Tsipras, (Potami) Theodorakis. These are core speakers who know how to speak and their specific performances should reshuffle the voting pie.

      I am hopeful that there will be rebuttles because whatever Tsipras will say, any other party leader will be ready to prove his contridictions. Now should tsipras say publicaly in this debate and comes clean and says, yes i did all these things these last 7 months and i am to blame meanwhile support that we need to make the changes aside from that of the what is enforced on us for the better of the future, even though i was an advocate of anti austerity. It will be a problem. He will gain many votes and lose lesser votes. If he follows up with we are new with problems but the only solution to the old system again this will be a problem. Personally I expect political hot air, which people now see right through it.

      In any case regardless of how well he comes clean, the others will smash him. Especially, ND, Potami, actually all parties.

      Now i heard Mamarakis this morning and what he said was quite straight. yes we voted for the new memoradum and yes we will need to move foward to major changes in the public sector, privatizations but we will relook at some points with the creditors following the initial implementations and pick off where we left off to go to positive debt balance.

      Now all greeks know we have no choice other than the memordum and the decision is who the creditors trust. I am sure greeks know that ND is more trusted. So maybe some liniency will be given. Also in regards to the debt issue ND will have a better result.

      I do not want you to get me wrong. I like tsipras as a personality and i truely believe he is a good kid and his intentions were not malicious. But that is the problem he is a kid. I was hoping for a JFK, but he fell far short from my ambitions. He is too immature.

      Another problem is at the debate they did not invite the Golden dawn. Regardless of their fascist stance or that they are in court on charges of murder, we live in a democracy and freedom of speech must be upheld. This will only push many right votes to insist on Golden dawn. It may bring up their numbers even more. That directly hurts ND. ND must also utilize the refugee crisis and how it was handled to gain votes.

      My prediction still stands. ND will win, move towards 30% and tsipras will make many more mistakes to go below 20% or close to it. Tsipras has lost the majority of his smart advisors and with this his immaturity is showing.

      Polls also do not show momentum that we see in our everyday lives. ND has alot of momentum likewise Potami.


    7. Syriza now in 5-points lead according to Bima.

    8. I do not trust the mainstream polls. They have fallen off the mark by far for the last 2 years on every polls. The only one that is quite accurate is the Aristotelius University of Thessaloniki, which showed ND ahead by 1,5 points. They are the only pollsters who forecasted the 60-40 no vote for the referandum.

      It also showed Golden dawn at 11% in 3rd place.



    9. Interesting, V. Thanks.
      Not only Greek polls are unreliable. In the UK everyone was surprised by the victory of the torries, because the polls had shown a lead for Labour.

  2. Thanks for the excellent analysis!
    Also thanks for drawing attention to the McKinsey and Roland Berger studies (both 2011) on the Greek issue.

    The document "Ending the Greek Crisis" presented by Varoufakis to the institutions is similar to the "ultimatum" text (so-called by V.) as proposed by the institutions and voted down in the referendum. Both were provisional texts in the negotiations between the Greek gov't and the institutions, and (AFAIK) were sufficiently known to all involved parties. The Varoufakis text was not acceptable to the institutions mostly (but not only) because it contained debt relief proposals that (at that time) were considered by the creditors as excessive or at least premature.

    quote> Varoufakis claims that 'they' never paid any attention to his proposals and he subtly suggests that the real reason was that those proposals 'made it hard for them to admit that the real reason they refused to engage with our sensible, sophisticated proposals was that they only cared about humiliating our government and derailing the negotiations'.

    I don't understand why Varoufakis is repeatedly using such kind of paranoid language. During negotiations, proposals that are believed to be sensible by one side may be unacceptable to the other sides for a whole variety of rational and fair reasons (here in this case: it's about their money).

  3. kleingut writes "What is the likelihood that a holding company which is owned by the Greek state and which holds the bulk of Greek state assets will be allowed to be managed - like a private company - according to rational objectives and plans, particularly when those objectives/plans have profitability as their ultimate goal?"

    Just to be clear, whilst it may be true that the Greek government couldn't manage a SWF 'properly', that does not mean it cannot be done.

    To wit, Singapore's Temesek Holdings, net portfolio value at S$266 billion, value more than doubled over the last decade, up S$163 billion . And they have another one, GIC Private Limited, US$330 billion, it's funded by Singapore's foreign reserves.

    The board of Temesek makes for interesting reading. Also interesting is that Singapore has four official languages as does Switzerland. Two small countries with limited natural resources, and significant tourism sectors and both are disproportionately wealthy Ψ²


    1. True; exceptions confirm the rule. When I lived in Chile under the Chicago-Boys, I could observe how public sector companies were managed as though they were owned by a financial investor. I am not sure that this can work so well in 'normal' democracies. There will always be political pressure (or rather: party pressure) on managements to do things which they otherwise would object to doing. But if there are public sector companies where the managements succeed in preserving their independence, they cannot be praised enough!

    2. Norway has $1.1 Trillion in its Global Pension Fund, I didn't cite it because it's a resources SWF and it clearly is an outlier - The Economist rates it as the worlds #1 democracy.

      Greece should create its assets fund and outsource its management to SNG for say a 15% fee - that would irritate the creditors no end :) I say SNG rather than NOR because a) its more entrepreneurial and b) it has no formal EU links.

      Silly idea but... fun to speculate on silly ideas amidst the doom and gloom down here.

  4. Hi All,

    Sometimes it take artists to express in just a few minutes how things are exactly. The below is a good depiction of how we as greeks feel inside.

    Unfortunately, there are no sub titles as to understand what is being discussed on the tv or by the politicians, but i believe the expressions say it without words.


    1. Hi V, and thank for that clip. It makes a strong impression. Does that mean that greeks today have an enormous anger inside? Against men with smart suits and ties (maybe that is why Tsipras and YV never put on a tie)?

      The question that remains is: What can come out of this anger?

    2. Hi AnonymousSeptember 5, 2015 at 10:25 AM,

      Unfortunately there are many things you can not understand about the video in not being greek nor living in Greece.

      What I can tell you is there is indeed anger. Especially created by the economical crisis which was developed mainly by politicians, oligarchs and their minions.

      Pangalos an old politicians, once said at the beginning of the crisis, that "we all ate the money." He is quite wise that indeed the majority of our society have a contribution to what lead us here, but the weight of responsibility has fallen mainly on the average person who has paid his share and then some.

      Hence since the start of the crisis till now we have heard political rhetoric of we all need to pay, "we have a stratgeic plan for the country," we all need to suffer alot more, but don't worry we are the new hope. (All garbage rhetoric btw) Then Syriza came, not that people believed that they would achieve what was said but people hoped to at least not get worse. Just stop the unstoppable force which makes us poorer day by day with each new measure. The lower classes suffer the most.

      Syriza then turned. Now we have new rhetoric that we need to change and suffer but we ill be better off again in the future.

      People have lost belief in thewhole political spectrum in Greece. They are all dictated by foreigners because they are useless.

      The specific video is shot in Crete. Cretans especially core cretans where black mainly. And boots. (winter summer) especially in the high altitude villages. They wear black in in repsect and mourning of the fall of Konstantinople. (Istanbul). In WW2 the resistance against the Vermach was extreme hence there were also atrocities made by the German army against Cretans. They are heroic to no end and they sacrifice everything for what they believe in even if it means dying. Aside from this they are quite educated even though they are extreme. The dance you saw is a "war dance" so to say. In the 1400's till 1820 till the revolution for freedom began the cretans resisted all 400 years agianst the Venecians and turks. The dance was created as to keep men strong and trained. It is called pentozalis.

      The says in a few words... i need to find my way to my feet, after being hit so many times... i need to find my way to my feet... i need to get into the dance...


    3. continued....

      The dance is against our political structure. Which sucks from top to bottom. It has jailed us from freedom (butterfly trying to escape), it has seperated our children from us (boy in the room next door), it has left us speachless (dazed stare), it has left us poorer than in the past (the whole surrounding) and it has made us loose our self identity.

      The dance is more symbolic as we need to stamp out that which is killing us and that is the whole political stucture of Greece. In the end it will be the people that will kill the politicians of the past as they can not be fooled anymore.
      And the guy dies and the BMW jeep explodes.

      It has nothing to do or against anybody with or without a tie. People are fed up with the same crap rhetoric from any spectrum of the Greek Political system. It is a hypocracy (left to right) and essentially we have nobody to vote for. Ironically in a country with so many political parties. People vote either out of self preservation, public voting anybody who will protect their meaningless jobs. People vote rebeliously for extremes (not that they believe their rhetoric but out of not wanting to vote mainstream which does nothing for the average person.

      Personally I was finding the new centralist from Northern Greece Leventis which i had some kind of hope something would come of it. He said last week, "with my "connections" in europe if i was elected government in two months we will be out of the debt program. I am curious to see how many people will vote for him. I lost hope for him now as well. More new bullshit.

      The issue is is that nobody sat down to explain in detail what happended to us and what needs to be done. we have heard measure after measure. The poorer people are hit worse and they do not even know why.

      I understand many things and to be honest i believe that the program is a guideline for restructuring the country but nobody locally has any good plan to follow the guideline. Or at least one that is not contridiction of the european road.

      It is why i belive ND is the only party from all of the crap that may help us get somewhere in the future. They are not that great but it is the best we have.

      Hope i helped shed some light.


    4. Thank you V - that is maybe your best ever post, courage brother

    5. Thanks AnonymousSeptember 9, 2015 at 4:03 AM

      Trying to stay courageous.

      Hope for Greece and above all Hope for our beloved EU. Hopefully we will all find our road together once again. We must. Otherwise history shows many dark sides of alternative outcomes.


  5. I saw a video where Herakles Polemarchakis,a greek economist, mentioned that the return on state assets in Greece was 0.02% !!! As long as trade unions exercise co-management of Greek state owned companies and politicians use them for patronage and buying votes, Varoufakis' plan is not worth the paper its written on.

  6. "our sensible, sophisticated proposals"

    Well done Klaus, the problem may well be the ego. And how can anything possibly go wrong, if you have such high profile support?

    There can be only one reason, or someone seriously sinister, like Schäuble and his Masterplan. A passage he and his German Friends censored:

    Varoufakis: Das Interview

    The version he put up on his site is a bit abbreviated for and maybe by his fans. ;)

  7. People who want answers should not miss Tim Sebastian's interview of YV tonight. DW's new program Conflict Zone, at 2030 local time. I have watched a few interviews by Tim Sebastian, he has the true journalists urge to demand answers, and he never let them get away with their pre-written speeches. That ought to be interesting.

    1. Below is the link to the interview. Interestingly, YV published the interview on his blog BEFORE it was shown on TV.

  8. In the words of YV himself, the Plan for Greece's Recovery & Growth was not even endorsed by Greece's PM Mr. Tsipras. Such personal initiatives without due endorsement don't sound like prudent policy in negotiations of such importance for a country's fate. I wonder how long it will take before YV blames the NYT for distorting his text.

    "The document was ready on May 11. Although I presented it to key European finance ministers, including Mr. Schäuble, as the Greek Finance Ministry’s official plan, it never received the endorsement of our own prime minister."

    See the op-ed written by YV in the New York Times.

  9. The interview was disappointing. It was fragmented and shallow, most likely because it only lasted 22 minutes.

    1. I think 22 minutes of Varoufakis is more than enough!