The first was that imposing capital controls would have been the obvious first step of a party that intended to return to the national currency in order to devalue it and thus gain competitiveness: in that case, introducing capital controls would be essential to prevent the outflow of money caused by the expected devaluation. In other words, introducing capital controls would have been the right move only if we were intending to leave the eurozone – to opt for Grexit – and would therefore have contradicted both my negotiating aims and my strategy for signalling credibly what these aims were. Moreover, even if we managed to convince Brussels of our sincere desire to remain within the euro, capital controls would signal a willingness to become second-rate citizens of the eurozone, as stragglers who had euros but who could not do as they pleased with them. My intention was to signal the precise opposite.
The second reason was that the time available for negotiations was fixed by our debt repayment schedule, so capital controls would not actually buy us any time. These repayments were due to begin in April 2015 and continue until August, which demanded a new agreement by June 2015 at the very latest. Even if I could have waved a magic wand to stop the bank run dead, the negotiations would still have to be completed within four to five months at the very most. Capital controls would not change this one iota.
The third reason was that capital controls are inconsistent with monetary union, whose spirit and reality they violate. The whole point of the eurozone or any common currency area is that money is free to move unimpeded. If I were to introduce capital controls on day one of our administration, how could I censure the ECB for threatening us with them? The moment I did so, all the accusations against me and the Syriza government – of being anti-European, of preparing Greece for Grexit, of undermining the indivisibility of the eurozone – would be vindicated. Moreover, our own people would be puzzled: why is a government that is pressing for a good agreement within a common currency area stopping us from getting our money out of our own bank accounts and from sending it to other countries in the same monetary union? The blame game would have been lost before the negotiations even started.
Another suggestion for helping a Syriza government buy time during the negotiations came from, among others, Thomas Mayer, formerly chief economist at Deutsche Bank. His idea was to introduce a second currency parallel to the euro within Greece in order to create more liquidity and space for us to manoeuvre. It was an interesting idea but one I had actually considered and rejected in 2010 as a solution to the euro crisis.19 Its gist was that wage rises, aimed at reversing austerity, be awarded in a new currency backed by government debt. The new currency would of course devalue immediately in relation to the euro. Thus, while Greek workers’ pay packets and pensions would increase a little, Greek labour, as measured in euros, would devalue in relation to German, French or Portuguese labour, making Greece more competitive.
I gave Thomas Mayer two reasons why I could not endorse a parallel currency. First, ‘Parties and interests opposed to us are already creating an atmosphere of terror by claiming that we have a hidden agenda to bring Greece out of the euro, plunder people’s savings and put Greece on the road to becoming a new Argentina. Your proposal’s propaganda value to our opponents would tend to infinity.’ Second, there was no need for it because the parallel payments system that I was working on provided us with the flexibility we required.
Months later it struck me that these two measures – capital controls and a parallel currency – would be wielded by Germany’s finance minister, Dr Wolfgang Schäuble, against me. The early decision to reject the enemy’s own weapons was thus vindicated, and yet, soon after I resigned the finance ministry I was accused of devising diabolical plans to introduce them both.
C’est la vie in Bailoutistan.
Moderate single-mindedness
As the election approached, it was imperative to send two signals to Mario Draghi and the rest of the EU–IMF officialdom, one of moderation, the other of single-mindedness: you can trust me to propose a debt restructuring that combines substance with finesse, that does the job of giving Greece a chance but does not clash with the ECB’s rules and, importantly, can be sold to fidgety Bundestag politicians by Angela Merkel as her own wunderbar idea. But make no mistake: we shall not be beaten back into our pen even if you close down Greece’s banks.
On 17 January 2015, a week before the election, I issued a press release in my now official capacity of parliamentary candidate for Greater Athens, in which I outlined my proposals for restructuring Greece’s public debt. First, we should split it into its four main constituent slices:
1. Money owed to the ECB in the form of the bonds it had purchased in 2010/11 (the so-called SMP bonds that would have been haircut by 90 per cent in 2012 had they not done so).20
2. The largest slice (60 per cent of our total debt), owed to the rest of Europe from the two bailouts.
3. A smaller slice owed to the IMF (about 10 per cent of our debt mountain).
4. Money still owed to private investors after the 2012 haircut (around 15 per cent of total debt).
This is what I proposed we do with each of these slices. Our debts to the IMF (3) and to private investors (4) would be honoured in full. The latter was too small for it to be worth opening a front against hedge funds, which might lead to an Argentina-style international dispute with few potential benefits. Besides, they had already swallowed a haircut of 90 per cent of what they were owed in 2012. As for the IMF, despite its complicity in enabling Brussels and Berlin to impose debt bondage upon Greece by peddling economic forecasts they knew to be false, we would not want to antagonize the United States (which considers the IMF one of its own) in addition to Berlin. Moreover, a haircut of the IMF loans would also hit non-European countries such as Malaysia and Japan that had nothing to do with Europe’s internal squabbles and which might otherwise lend a sympathetic ear to our government.
The money we owed the ECB (1), the Trichet Legacy as I called it after the then president of the ECB who bought the SMP bonds, was an absurd debt. We only owed it because of the ECB’s error in buying Greek bonds after Greece had become insolvent at around 70 per cent of their face value when their market value was not much more than 10 per cent of face value. Since then we had been engaged in the pathetic ritual described fully in Chapter 3 (see ‘Success story’) of borrowing from the ECB in order pay the ECB to redeem these bonds while pretending not to do so. This shenanigan had to end.
In a rational Europe this absurd debt would simply be written off. Alas, the ECB’s charter does not allow for this. To accommodate the ECB’s charter, I took a leaf from the British Treasury’s book. The British government had long practised the issue of open-ended, or perpetual, bonds. These yield interest, but the government may repay the principal at a time of its choosing, if ever. Indeed, perpetual bonds issued at the time of the South Sea Bubble in the 1720s and by Neville Chamberlain and Winston Churchill during and just after the Great War were only repaid by the British Treasury in late 2014 and early 2015. I proposed the following: our government would issue new perpetual bonds, with the same face value as the bonds the ECB owned, bearing a small interest rate but with no expiry or redemption date. These bonds would then be swapped for the ECB’s ones, to be parked neatly and for ever on the ECB’s assets books, bearing a trickle of interest in perpetuity, thus allowing Mario Draghi to respect his charter, since at no point would the Greek debt be written off or even down.
Finally, regarding the largest slice of debt (2), accrued in the two bailouts and owed to Europe’s taxpayers, I proposed another type of swap. Existing debt obligations to Europe’s bailout fund would be swapped with new Greek government thirty-year bonds, again of the same value as the existing debt (so no formal haircut) but with two provisions: first, annual payments were to be suspended until the country’s income recovered to beyond a certain threshold; second, the rate of interest would be linked to the rate of growth of the Greek economy.21 That way, our creditors would become partners in Greece’s recovery and have an incentive to see the pie from which they would get their money back grow.
These debt-swap proposals, tabled before the election, would be the basis of my actual proposals to Greece’s creditors once I was in office. They were moderate and politically palatable to the creditors, as they included no outright haircut. They signalled to the public and to potential investors that the EU was accepting a new role: no longer the harsh creditor of an insolvent state, it would become a partner in Greece’s growth, as its own returns would be proportional to Greek nominal income growth. They would have been enough to cause an influx of investment into an investment-starved Greece. They would have ended the Greek recession with winners all round, the only exceptions being the cockroaches that flourish in the filth caused by prolonged misery.
Not once did any official of the EU or the IMF articulate a criticism of the logic behind these proposals. How could they? As the CEO of one of America’s largest investment banks remarked after hearing them, ‘You are offering them a deal that a Wall Street bankruptcy lawyer could have come up with.’ Quite. It took the election of a radical Left government in Greece for Athens to bring to Brussels, Frankfurt and Berlin moderate debt proposals – an indication of the organized folly that the European Union had descended into after the euro crisis hit it.
However, not for a moment did I believe, back then in January 2015, that the unquestionable logic and obvious moderation of my proposals would win our creditors over. As I had been telling Alexis since 2012, any proposal from us that contradicted the troika’s Greek programme would be met with naked aggression and the threat of shuttered banks. Logic hardly mattered. Mutual economic advantage was irrelevant. The creditors did not want their money back. What mattered to them was their authority, and that was being challenged by a leftist government whose success at negotiating a new deal for its country was the creditors’ greatest nightmare, as it might give ideas to other Europeans labouring under the same crisis and the same irrational policies.
Modest, reasonable, technically competent debt-swap proposals were important, but they were not enough. It was imperative that, before crossing the threshold of the finance ministry, I should signal to the other side that their aggression would cost them; that the moment they moved to close down the banks, I would activate our key deterrent and the parallel payments system, as per my informal covenant with the Syriza leadership. My signal took the form of a statement made in January 2015 during a BBC interview.
My advice to the next finance minister [of Greece] is this: if the ECB threatens to close down the nation’s banks, you should respond instantly by haircutting the Greek government bonds that the ECB still owns. They are still ruled by Greek law, so the ECB would have to sue Greece in the Greek courts, not in London or Luxembourg. Simultaneously, he or she should put in place a payments system that can function in parallel to the banks so as to create euro-denominated, homegrown liquidity and, importantly, allow the economy to function if the ECB do decide to close down the banks.
As I was to establish later, the message was received. The battle lines had been drawn.22
5 Raging against the dying of the light
As the election approached, a strange mix of togetherness and loneliness overcame me. On the streets, at public meetings, in taxis and at Syriza’s headquarters, where I would meet Alexis and the rest of the team, I experienced solidarity, warmth, sympathy and immense support. But deep inside I knew I was institutionally isolated, resource-poor, entirely on my own. Not having been a member of parliament before, not even a party member, and having lived in Austin for the previous three years, I had no support network, as Alexis had remarked.
My colleagues aspiring to enter government had secretaries, drivers, private offices, important connections. In contrast, I had Danae’s moral support, my motorcycle and our apartment at the foot of the Acropolis, where I gave interviews, held meetings, composed my blog posts and conducted all the business of the campaign. At one point I received a call from Syriza HQ telling me that as a parliamentary candidate the law required me to open a special bank account in which to deposit all contributions to my campaign and from which to draw all campaign-related expenses. I opened the account, since it was mandatory, but deposited precisely nothing in it as I neither sought nor received any contributions, had no staff and spent precisely zero on promotional material. My only campaigning device was a Greek-language blog I created myself, using a free blogging platform, as an addendum to my existing English-language blog. That was it.
But while I did not need any of the trappings of conventional political campaigning to get elected, I was troubled by the prospect of walking into the finance ministry without a team, relying entirely on civil servants who had until then been faithful servants of Bailoutistan, with additional staff provided exclusively by Dragasakis and Syriza HQ. So I used the few weeks I had in the run-up to the election to gather the best team around me that I could.
To help me identify a deputy finance minister for the key position of overseeing the Treasury, I had coffee with Alekos Papadopoulos, a 1990s-era former PASOK finance minister whom I had known for years, trusted for his probity and considered the only finance minister to have had his finger on the state’s financial pulse during his tenure. While Alekos remained an opponent of Syriza, he was personally supportive and promised to come up with a name. The same night he texted me the name of Dimitris Mardas, whom I had never heard of but who my experienced friend insisted was capable and above board. Next morning I called Mardas with an offer he had never imagined.1
Even more crucial was the post of president of the Council of Economic Advisers. In the eurozone heads of government cannot achieve anything without the close collaboration and loyalty of the finance minister who represents them in the Eurogroup. Likewise, finance ministers cannot succeed without a similarly close relationship with the president of their ministry’s Council of Economic Advisers, who represents them in the so-called Eurogroup Working Group. Supposedly this is where preparations are made for Eurogroup meetings, but in reality it operates as the shadowy crucible in which the troika forges its plans and policies.
However, this position had been filled on my behalf by Dragasakis even before I set foot on Greek soil. Dragasakis had selected George Chouliarakis, a thirty-something economist who had taught at Manchester University before being seconded to the Central Bank of Greece. ‘He is a good lad and has been preparing the ground for us, working informally with people inside the Council of Economic Advisers,’ Dragasakis told me when we first met after my arrival in Greece, a few weeks before the election. While my close friend Wassily was appalled, always sceptical of Dragasakis’s intentions and choices, I was happy that someone was already on the ground, preparing it.
Upon meeting Chouliarakis I took a liking to him, despite evidence of a severely circumscribed capacity to engage and an excessive tendency to keep his cards close to his chest. My concerns were allayed though when he told me that as an undergraduate at the University of Athens his mentors had been two progressive, highly intellectual economics professors very dear to my heart, one of whom was my dear friend and colleague Nicholas Theocarakis, a member of the academic quartet that had formed immediately after my arrival at the university in 2000 which also included Stournaras.2 This news was also a boost in view of my plan to appoint Nicholas general secretary for fiscal policy.
In putting together my team, I was troubled by the thought that none of us had any experience of actually dealing with the troika – with the technocrats who were used to coming to Athens on behalf of the EU, the ECB and the IMF, entering its ministries, interrogating its ministers of state and imposing their will on them like bailiffs – although this was to be expected of a group of people who had never served Bailoutistan and whom civil servants and troika officials alike treated like mortal enemies. Fortunately, one day I came across Elena Panariti, someone who knew the troika’s language and their modus operandi.
Elena had worked for years in Washington, primarily at the World Bank, where she forged excellent connections with powerful people associated with the institutions behind the so-called Washington Consensus (the package of reforms that the US prescribed for economies in crisis), including former Treasury Secretary Larry Summers, to whom she would later introduce me (recall Chapter 1), and David Lipton, second-in-command at the IMF. Her work in Peru on behalf of the World Bank in collaboration with the despotic regime of President Fujimori had made her a figure of hatred among the Left in Greece and elsewhere. Her defence was that, whoever it was for or with, the work itself was important and progressive, getting people living in shanty towns title deeds to their shacks, allowing them to invest in these dwellings, to live within them with peace of mind and to use them as an asset that gave them access to the formal marketplace.
As a member of parliament under George Papandreou, who had appointed her via the party list, it was true that Elena had voted in favour of the first bailout, but she never bought the lie that the bailout was going to work financially and Greece would soon be out of the woods. As she told me at the time, she voted in favour because of the immense psychological pressure that Papandreou and his people had exerted upon her. And to her credit, Elena subsequently turned into one of the bailout’s strongest critics. In a remarkable moment of parliamentary theatre she stood up during a crucial select committee meeting in 2011 and in her trademark Greek, which is not her first language, her voice breaking with emotion, she slated her own ministers and their acquiescence in Greece’s conversion into a debt colony.3 So when I met her again a few days before the election I did not hesitate for a moment to ask her to join my team, for there is no better person to fight the devil than one who has served him and, through that experience, become his sworn enemy.
The same applied to Natasha Arvaniti, a former student in the economics PhD programme that Nicholas Theocarakis and I had set up in 2003 at the University of Athens. Natasha had since joined the civil service before being seconded to Brussels, where she worked for the troika. As a European Commission technocrat, she had been sent to Nicosia to enforce the Cyprus bailout. Having seen first hand the devastation that the troika leaves in its wake wherever it goes, Natasha was a very welcome member of my team. With the help of people like her and Elena, I would be able to decipher the troika’s mood and signals more accurately and plan our negotiating tactics accordingly.
The downside of such recruits was that within Syriza and Alexis’s inner circle those keen to pull the rug from under me had plenty of ammunition with which to argue that I was preparing our surrender.
‘We’re going to have problems within the party, Yanis,’ Alexis warned me one day. ‘Do you really need people like Elena and Natasha? They’re tainted by their association with the bailouts. Our people are livid.’
‘Alexi,’ I replied, ‘do you realize how fierce our confrontation with the troika is going to be? They take no prisoners, these people. I need to have staff on my team who know them, who know what’s in their box of tricks, whom they will recognize as worthy opponents.’ There was something else too, I explained: I trusted Elena and Natasha because, unlike our own people, they had guilty consciences. They had experienced the indignity of the troika’s activities for themselves; they had been toughened by them, and for that reason I was certain they were less likely to be co-opted by their opponents than some of our wet-behind-the-ears troika-slayers.
Unperturbed by Alexis’s discomfort, I went on to enlist the help of other troika defectors, some of them from abroad. One was Glenn Kim, who came on the recommendation of an ally in the media. Glenn was a banker, had been involved in many of the big bond deals between Greece, the eurozone and Germany, and was now working independently on contract for various European governments. He was ‘quite an expert’, I was told, on the GDP-linked bonds that I intended to propose as part of Greece’s debt swap. I contacted Glenn right away.
A few days later, ten days before the election, Glenn and I were sipping coffee at a café very close to Stournaras’s Bank of Greece. He came clean, confessing to having played a leading role in designing not just the Greek bailout but the eurozone’s bailout-funding institutions on a retainer from, among others, the German finance ministry.4
‘What we did to Greece in 2011 and 2012 was appalling,’ he admitted.
I asked him what he was up to currently. He told me he was working for the government of Iceland, helping to restructure its public debt and work towards lifting the capital controls that had been imposed in the wake of its own financial collapse in 2008.
‘Your idea of GDP-indexed bonds is good,’ he told me, ‘and I think I can help you refine it. It will be my way of making amends for the long-term damage that we, and people like me, did to Greece.’
Never one to look a gift horse in the mouth, I agreed and asked him to be ready to come to Athens on 26 January, if we won the election of the previous day.
A cynic might say that professionals like Glenn were in it for the money and for their own career purposes. Possibly. But having people such as Glenn on my side, who knew where all the skeletons were buried, was a priceless weapon. (When the troika’s apparatchiks saw him among my team, they almost had a stroke.) But I also suspected that in Glenn’s case I could rely not only on his professionalism but on something beyond enlightened selfishness. Two days before the election, Glenn seemed to confirm this in an email to me in which he wrote, ‘Yanis, if all goes to plan, the good folks of Greece (and in fact Europe as a whole) will have charted a new course for their future … in thinking about this weekend, I am reminded of Homer’s words: “Εἱ̑ς οἰωνὸς ἄριστος, ἀμύνεσθαι περὶ πάτρης.”’ This is from Homer’s Iliad and means, ‘There is no better omen than fighting for our country.’
Another foreign powerhouse also offered its services to our cause: the French investment bank Lazard, led by Daniel Cohen and Matthieu Pigasse. Like Glenn, Lazard had acted as a consultant and facilitator of the second second bailout, charging the struggling Greek state tens of millions of euros for its services. So, when Daniel and Matthieu asked to see me, I was puzzled, guarded and sceptical. But they won me over with a frank account of their complicity, an equally frank apology and an offer to help get Greece back on its feet by providing their considerable services pro bono.
With these illustrious defectors on our side, our technical strength was bolstered no end. No one in Syriza or known to the party had access to such expertise. They would be my heavy artillery. Of course, my association with them was used to suggest a variety of sins. It was no coincidence that on the very same day Glenn shocked the troika with his presence in Brussels, an opposition member tabled a question in parliament asking why the Greek government needed to have a ‘Korean’ on its team and what his links with me were, implying some sordid relationship with American, Asian or other dark forces.5 Meanwhile, Syriza people, often well meaning and genuine in their concerns, warned the party faithful that I was preparing to make a Faustian bargain with the troika.
In fact, Elena, Natasha, Glenn and the good people of Lazard stood tall against the troika even after Syriza’s young zealots fell. Together with some other former students and graduates of the University of Athens doctoral economics programme, these troika defectors backed our cause selflessly, producing splendid economic modelling, putting indefatigable legwork into the negotiations and giving me mammoth moral support before each meeting with the Eurogroup, in Maximos or any of the other rooms where adults behaved very, very badly.
