How I would have loved a different speech from Alexis Tsipras, one beginning with the question ‘Why vote for us?’ before proceeding to answer it with ‘Because we are promising you only three things: blood, sweat and tears!’

Blood, sweat and tears, which Winston Churchill promised the British people in 1940 as he was assuming the helm of government, in return for their support and help to win the war.

Blood, sweat and tears, which will earn all Europeans, not just us Greeks, the right to hope for an end to the muted but ruthless war against dignity and truth.

Blood, sweat and tears, which we should be ready to shed to put the country back on track, something that today is impossible if we continue to behave like model prisoners hoping for early release from debtors’ prison and to borrow more while cutting the incomes from which we must meet our repayments.

Indeed, if you want to vote for us, you must do so only because you agree that the blood, sweat and tears that we are promising you are a fair price to pay to hear the truth from the lips of government ministers and to have representatives in Europe who will neither beg nor bluff but instead adopt a strategy no government has hitherto adopted, the strategy of speaking

Truth to power.

Truth to our partners.

Truth to the citizens of Europe.

Truth regarding the sorry state of our banks.

Truth about our ‘surpluses’.

Truth about non-existent investment.

And finally, the most painful, Truth about the zero prospects for recovery while the death embrace continues between a bankrupt state, bankrupt banks, bankrupt firms and bankrupt institutions.

Lastly, before you vote for us, know that we dread an electoral victory more than we fear defeat, that we are scared stiff at the thought we may win. But if you decide to vote us in to deliver the blood, sweat and tears we are promising in exchange for truth and dignity, if you overcome your fear, then we promise to overcome our fear to govern this country and to steer it to emancipation from hopelessness.1

On its publication, friends and foes alike thought this marked the end of my brief affair with Syriza’s leadership. I thought so too until Pappas called a few days later, sounding chipper and as if nothing had happened. I put it to him that my article changed everything.

‘It changes nothing,’ he retorted light-heartedly. ‘You will get to shape the actual economic programme. The Thessaloniki Programme was a rallying call for our troops. That’s all.’

Exasperated, I gave him a piece of my mind, stressing that the support of our troops was essential and lying to them was hardly the way to ensure it. Unabashed, he assured me ominously, ‘There is party policy and there is government policy. You will author the latter and leave the former to us.’

I asked who was behind the Thessaloniki Programme. Pappas said Dragasakis had overseen it, assisted by Euclid. Dragasakis’s hand did not surprise me but Euclid’s involvement was disappointing. I expected more from my friend. ‘Whoever wrote that monstrosity,’ I said, ‘it throws a spanner into any sensible negotiating strategy.’

I put the phone down with a mouth so dry and bitter I had to drink several glasses of water before talking things over with Danae. The leadership were telling each other one story while the party faithful were being served a completely different one. It was a recipe for confusion, division and defeat against adversaries who were united, mighty and determined. The narrative we gave our people and the troika officials, the EU and IMF leadership, Berlin and Washington, indeed the international press and the markets, should be one, indivisible, credible, unbending message. Upon hearing my view that Pappas and Alexis’s tactics were bound to wreck any future negotiation, Danae reacted sharply: ‘You cannot be part of this.’

I agreed.

The decision to keep my distance brought instant relief, but my peace of mind lasted only a couple of months. In late November 2014, as I was preparing to fly to Florence to address a conference, the call came once again. It was Pappas. When he discovered I was on my way to Italy he implored me to make a side trip to Athens before returning to Austin. ‘It is urgent that you come,’ he said. Reluctantly I changed my ticket.

In Florence I addressed a gathering of worried Italian officials, bankers and academics, presenting a newer version of the Modest Proposal, a set of policies that could be implemented instantly within Europe’s existing rules to stop the euro crisis in its tracks everywhere, not just in Italy or Greece.2 The next morning I caught the train to Rome and from there the short flight to Athens, wondering along the way what Alexis and Pappas had in store for me. The newspapers at the airport were abuzz with rumours of an early election. Had my Syriza friends absorbed the message in my article?

The taxi dropped me off at our empty flat. I dumped my suitcase and was pleasantly surprised at my motorcycle’s willingness to start despite three months of idleness. A quarter of an hour later I was parking it under Alexis’s apartment block, where I was greeted by two sentries at street level. The lift took me to the top floor, where Alexis, Betty and their two delightful young boys live. Pappas and Dragasakis were there too. It was early in the evening.

It wasn’t until the early hours of the following morning that I finally emerged, drove back to our flat to collect my suitcase and caught a taxi to the airport for my flight to Austin.

‘What happened?’ asked Danae on the phone.

‘I’ll tell you when I see you,’ I replied. Holding my tongue on the phone for fear of eavesdroppers had begun.

A full and frank exchange

The mood in Alexis and Betty’s apartment had been cheerful. Samaras’s government had plummeted in the polls, elections now looked imminent, and they wanted to discuss strategy in the event of Syriza’s now probable victory.

I was not in the mood to share their excitement. The Thessaloniki Programme had heightened my fears that Alexis was about to waste what might well be our generation’s last chance to get Greece out of its prison of debt, so I made a point of emphasizing the hardships and risks ahead, reiterating the points I had tried to impress upon them at our meeting in June. It was all well and good to pray for the ‘good scenario’ that Dragasakis liked to invoke, but we urgently needed to prepare for a more probable, and far nastier, one.

‘Let me tell you what I think you will face on day one of your administration,’ I began once we had all settled down in the living room. ‘Expect a bank run to begin the Monday after your election.’3

Rumours that the ECB might close the banks would cause depositors to withdraw their euros to store under their mattresses or wire abroad, I explained, just as had happened in 2012 and in Cyprus the following year. EU and IMF officials would be in no hurry to negotiate with a government they wanted to undermine. They would sit on their hands, bide their time and wait for Alexis and his team to come face to face with the first of the impossible repayments to the IMF and the ECB due from March 2015 onwards.4 As we had discussed in June, a Syriza government therefore had to be prepared to signal from the very beginning that if the EU and IMF refused to negotiate in good faith it would simply not make those repayments. If that happened, the EU and IMF would undoubtedly respond that the ECB was no longer able to provide liquidity to the Greek banks, as their IOUs were backed by a government in default, a threat tantamount to switching off their emergency liquidity assistance, thus shutting them down.

The mood in the room darkened.

‘I hope none of this transpires. Maybe it won’t. But it would be foolish not to prepare for it,’ I said. ‘If they choose this belligerent path, their purpose will be to work out what you are made of, whether you are bluffing and what your true priorities are.’

‘What do you think Merkel wants?’ said Alexis. ‘I cannot believe she thinks it’s in her interests to stir up another crisis.’

‘Berlin will not dare upset the markets by closing Greece’s banks down,’ interjected Pappas. ‘Greece is not Cyprus. They cannot push us around like that without consequences.’

I begged to differ. In my view Merkel and Schäuble had no intention of going to their parliament to support debt relief for Greece, a move tantamount to confessing that the first two bailouts had been given under false pretences. The only way Berlin could avoid such a confession was to arrange a third bailout loan, keeping Greece in debtors’ prison but officially not in default. But as each bailout required the sacrifice of a Greek prime minister (Papandreou for the first, Samaras for the second) and a fresh government to push it through parliament, they would try either to win Alexis over to their side or to create such chaos that his government fell, allowing for its replacement with a compliant technocratic administration, just as they had had in 2012.

Alexis looked grim. ‘But what about Pappas’s point?’ he said. ‘Are they not scared of tumult in the markets?’

‘They are,’ I explained, ‘but just when you might be moving into Maximos, the ECB will be unleashing a torrent of money with which to stabilize the eurozone.’ Such a ‘quantitative easing’ programme involved the mass purchase of government bonds using the digital printing presses of the ECB. This would push down interest rates in key states such as Italy, Spain and France. Two years in the planning, it was Mario Draghi’s strategy to buy time for the euro.

‘It would be idiotic to think of this as a coincidence,’ I said. ‘Merkel may well feel that the moment the markets are flooded by ECB money, an ECB-led enforced Greek bank holiday will go reasonably smoothly for her and Europe’s financiers.’

‘How do we upset their plan then?’ asked Alexis.

‘To extract from them a half-decent agreement,’ I said, ‘you must give the ECB good cause to hesitate before shutting down the banks.’

Key deterrent: the ECB’s remaining Greek debt

The strategy for deterring a bank shutdown that we had discussed in June – based on the Five-Pronged Strategy I had presented at my first meeting with Alexis’s economic team in May 2013, itself based on the initial paper I had presented in June 2012 – hinged on the legal battle between Mario Draghi at the ECB and the Bundesbank under Jens Weidmann. Draghi had promised to buy vast amounts of government bonds from Europe’s shaky economies in order to prop up the eurozone. The Bundesbank had taken him to court over this, claiming it violated the constitution of the ECB. In February 2014 the German courts had referred the matter to the European Court of Justice, which ruled in favour of Draghi, but their judgment included caveats – caveats that in my analysis gave a future Syriza government considerable leverage. My reading of them was that Draghi’s power to continue buying government debt was conditional on protecting the ECB from any write-down of government debt the ECB already owned. This included the so-called SMP bonds: Greek government bonds it had acquired from private investors as part of what it had branded the Securities Market Programme.

The sum that the Greek state still owed the ECB in the form of these outstanding bonds came to $33 billion. From Greece’s perspective it was a lot of money, especially given that repayments of $6.6 billion were coming up in July and August 2015. But from the ECB’s perspective it was financially insignificant when compared to the one trillion euros and more that the ECB was planning to release. Nonetheless, those few billions of Greek debt to the ECB were legally momentous: any haircut of that sum or delay in its repayment would open Draghi and the ECB up to legal challenges from the Bundesbank and the German Constitutional Court, undermining the credibility of its overall debt-purchasing programme and causing a rift with Chancellor Merkel, who would never take on both the Bundesbank and the German Constitutional Court at the same time. Facing their combined might, Draghi was sure to find his freedom drastically curtailed, thus undermining the markets’ faith in his hitherto magical promise to do ‘whatever it takes’ to save the euro – the only thing preventing the currency’s collapse.

‘Mario Draghi is about to unleash a major debt purchasing programme in March 2015, without which the euro is toast,’ I said. ‘The last thing he needs is anything that will impede this.’5 A Syriza government had therefore to signal to Draghi that it wanted a mutually advantageous deal with the EU, the ECB and the IMF and was willing to compromise to get this. But it must also signal, discreetly but firmly, that if Draghi were to shut down Greece’s banks in response to a Syriza victory, it would consider this a casus belli and would immediately legislate to postpone redemption of the Greek government bonds owned by the ECB by, say, two decades. I had no doubt that if a Syriza government signalled early on its intention to retaliate by haircutting the Greek SMP bonds held by the ECB in this way, it would deter the ECB from closing down the banks.

‘Draghi is too wise a central banker to risk this simply in order to allow Berlin to steamroller you,’ I told Alexis. ‘Of course, on the other hand, if you fail to convince him that you are serious about haircutting those SMP bonds, he will have no reason to antagonize Berlin by refusing its request that he crush you with an enforced bank holiday.’

As in 2012, so again in Alexis’s apartment that night, I was at pains to stress one simple thing: in this and in every aspect of the negotiation they faced, Syriza could not afford to bluff. Even if Draghi did shut down the banks, Alexis’s government had to be ready to keep the economy ticking over for several weeks. If he continued to stand his ground even then – signalling to Berlin and to Frankfurt that, while his government’s aim was an honourable agreement, it nonetheless preferred a costly and unwanted Grexit to the nightmare of capitulation to debt bondage – then the real negotiations would begin.

Was this a battle they were prepared to see through to the end?

Pappas seemed offended that I should ask. Alexis, more restrained, said with an air of resignation, ‘We have no alternative.’ Dragasakis said nothing.

It was imperative then that they had a plan for buying time, I told them; a way of getting through several weeks so that they would not have to choose between Grexit and surrender the very moment the ATMs closed. This would also give Merkel and Draghi the chance to step back from a terminal rupture once it became clear that Syriza meant business. To do this, they would need a payments system ready to kick in the moment the banks closed.

A parallel payments system