I won't waste time going over the immediate background to Greece's capitulation. By now anyone reading this will surely know the negotiations' essentials. In the aftermath, much of the financial press is relishing a possible reaction by unsettled "über-Keynesians" and "neo-Marxists" in Syriza's ranks. By this they presumably mean anyone not intellectually shackled to neoclassical economic assumptions and angry at a looming return to austerity as supervised by the troika. From the look of the deal Varoufakis has made, a reaction of some force is deserved.
The deal betrays not only Syriza's commitment to democracy, but also the coherent economic critique developed by Syriza intellectuals like Costas Lapavitsas and Varoufakis himself. This critique, which gave Syriza real intellectual novelty, focused on the structure of the eurozone and the role of German surpluses in creating vast peripheral debt. The short of it is that Germany has tended to keep wage growth below productivity, undercutting ECB inflation targets and sustaining its export competitiveness to the detriment of importers like Greece. Huge German profits from exports were then recycled into finance, which was then leant back to households in the peripheral economies. The likes of Greece could not compete with German exports, couldn't help but get in debt to Germany, and because of the shared currency couldn't devalue to reanimate their export sectors. When banks inevitably went under after the US mortgage crisis in 2007-08, liquidity seized up, leaving households mired in unpayable debt. Banks were bailed out and in turn started speculating against the sovereign debt of those peripheral states which had recently paid for their bailouts. Thus the sovereign debt crisis broke out because of the structure of the EMU, the role of Germany in the eurozone, and the volatility of financialised economies.
What were the policies that logically followed from this critique of the euro crisis? In short, the critique suggested that peripheral economies like Greece should: reinvigorate domestic demand; encourage investment on the basis of this demand; aim for productivity increases on the basis of this targeted investment in key sustainable industries; then increase wages on the basis of rising productivity, thus contributing to demand and further growth. This could be a classic virtuous Keynesian circle of demand management, deficit be damned. The problem was always that, in order for such a strategy to work in the periphery, Germany would have to sustain competitive losses. It too would have to let unit labour costs increase in line with productivity. It would have to get over its terror of inflation. It would have to accept that its enormous trade and current accounts surpluses were not necessary for future European development. The suggestion that Greek politicians could impose this reversal of ends in the German "discursive formation" is deeply misguided.
What then did Varoufakis want and why is his retreat so devastating for the democratic hopes of Greece? Put succinctly, Varoufakis believes in the progressive potential of the euro. He believes in a hegemonic Germany in Europe, a smart currency union equipped to tackle fiscal imbalances, and a future where European prosperity is vouched for by the ECB. Although plausible, in practice, Greek political pursuit of this pro-euro outcome takes an increasingly pro-German form. Pursued safely within the confines of EMU precedent, any future form of fiscal integration will accord with German power. De facto Varoufakis is willing to trade off all Greek democratic aims in order to keep open the long-term goal of EMU reform from within. But he cannot win by fighting the battle on the terms of German power. His limitations are analogous to the structural subordination of Greece in the union. The export orientation of Germany is presently being universalised as a simple, self-evident moral good by a very strong Germany "moral economy." Austerity as an impetus to thriftiness has become an absolute - regardless of austerity's damaging effect on demand. In negotiations Varoufakis appears to have accepted all the moral assumptions of German power, despite a long academic career of challenging them. The reality of German surpluses is peripheral deficits. This much is obvious. Varoufakis can no longer publicly state this - along with the need for cuts to Greek debt and serious reversals to austerity in Greece - because he is wedded to the euro.
The reasons for the Greek retreat are not simply a matter of weakness. Varoufakis really believes that European leaders can be made to believe in a Keynesian plan for growth. However, Germany will not risk its trade surpluses because of the extraordinary role played by thriftiness in its moral make up. Add to this any risk to the euro's world currency chances and the rejection becomes total. Without any kind of concession of this kind possible in Germany (short of a sudden, utterly remarkable landslide for Die Linke), no Greek government can really tackle systemic Greek weakness. The same is true of Italy, Spain, Portugal, and France. Yet their alliance alone could not permit the defeat of German capital.
What then could defeat German power as embodied in EMU? The answer is obvious: default, exit, devaluation and a new round of public investment. Committed to increasingly distant and conservative reform of the euro from within, Varoufakis has refused to countenance this. To the detriment of Greece and Europe, Syriza has lost a vital bargaining tool as a result. Welcome back, then, austerity.