Greek Business confidence decline in 2015: Varoufakis effect or Troika effect?

Yanis Varoufakis, the former and regular blog writing finance minister of Greece defends himself in this piece.

In his end-of-2015 missive, Holger Schmieding of the Hamburg investment bank Berenberg warned his firm’s clients that what they should be worrying about now is political risk. To illustrate, he posted the diagram below, showing how business confidence collapsed in Greece during the late spring of 2015, and picked up again only after my resignation from the finance ministry. Schmieding chose to call this the “Varoufakis effect.”

There is no doubt that investors should be worried – very worried – about political risk nowadays, including the capacity of politicians and bureaucrats to do untold damage to an economy. But they must also be wary of analysts who are either incapable of, or uninterested in, distinguishing between causality and correlation, and between insolvency and illiquidity. In other words, they must be wary of analysts like Schmieding.

Business confidence in Greece did indeed plummet a few months after I became Finance Minister. And it did pick up a month after my resignation. The correlation is palpable. But is the causality?

It was actually the Troika effect:

Consider the following example. Business confidence fell in September 2001 (following the terror attacks on New York and Washington, DC), while Paul O’Neill was US Treasury Secretary. Would Schmieding label a chart showing that decline the “O’Neill Effect”? Of course not: the drop in business confidence had nothing to do with O’Neill and everything to do with fears about global security. The correlation with O’Neill’s tenure was irrelevant.

Similarly, in the case of Greece, the collapse in business confidence happened under my watch. But the cause was that our creditors, the so-called Troika (the European Commission, the European Central Bank, and the International Monetary Fund), made clear that they would close down our banking system to force our government to accept a fresh extend-and-pretend loan agreement.



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