‘But what happens if you do not get elected?’ Alexis insisted.
‘Then the people will have said that they do not want me to represent them in the Eurogroup. Simple! The idea of technocrats negotiating economic treaties on behalf of the ignorant masses is repugnant to me and deserves to be buried.’
‘Which constituency do you want to contest?’ asked Dragasakis.
‘Greater Athens is the one that I have been voting in all my life, so Greater Athens it is.’ This seemed the obvious answer to me.
‘Greater Athens is brutal, Yanis. Are you sure?’ Alexis asked.
‘So be it,’ I replied.
Most constituencies in Greece elect more than one member of parliament each. Greater Athens is the largest constituency in the country, with more than 1.5 million registered voters, electing 44 of the parliament’s 300 members. I was fully aware that it was also Pappas and Dragasakis’s constituency.13
Seeing my determination, Pappas weighed in positively: ‘He will get elected easily,’ he said, ending the discussion but not my disquiet.
Not wanting me to join Syriza as a member made some sense. Resisting my election to parliament was altogether more disconcerting as it heightened the disturbing possibility that my utility to Alexis was inversely proportional to my autonomous political legitimacy. Still, it could equally have been that Alexis was simply concerned that I would not do well enough with the voters on polling day. This thought plus the covenant we had just agreed upon made it impossible to turn the offer down, despite my sea of doubts.
As we were walking to the front door, a thoughtful Alexis said to me, ‘You will need to put together a team to prepare in case they push us out of the eurozone. Start working on this soon.’
‘I will, Alexi,’ I replied. This was the birth of what became known as Plan X – to be activated only if and after Berlin and the ECB activated their own Plan Z for pushing Greece over the cliff of Grexit.14 ‘But know this, Alexi,’ I added. ‘The best and only way of securing our place, long term, in the eurozone is to shower the creditors with moderation while simultaneously signalling to them our unwavering determination to activate our deterrence strategy if they try to crush us.’
Alexis nodded in agreement. Dragasakis, looking very tired, smiled faintly and asked me to keep him in the loop. I promised him I would.
Chronicle of an ambush foretold
Time went into overdrive after that late-November morning in 2014. Danae and I immediately began to plan our move back to Athens by the end of January, in good time for a possible election in March. However, Prime Minister Samaras had a different plan.
On 8 December he announced that he was bringing the presidential election forward, with the first – essentially ritual – vote to be held nine days later, on 17 December, the second ritual vote on 22 December, and the third – decisive – vote on 27 December.15 On hearing the news, I assumed that he must somehow have found the numbers he needed to secure another two years in government. Why else would he bring forward a vote that could shorten his government by two whole months?
The following day I began to question my theory. On 9 December the Greek finance minister applied to the Eurogroup for a two-month extension of the second bailout agreement, which was due to expire on 31 December 2014. Why only two months when the troika had proposed a six-month extension? If Samaras had the numbers and could hold on to office for another two years, he should have wanted at least six months before pushing through parliament the third bailout loan agreement that the troika’s policies necessitated. Why cut himself such a short rope? The only explanation I could come up with was that he was not cutting it for himself – he was cutting it for us.
Speaking to Pappas and Alexis from Austin, I gathered that this was indeed the case. Samaras knew he did not have the numbers, was resigned to a late-January election that he knew he would lose, but was counting on the troika to close down Greece’s banks on expiry of the bailout agreement, which would now fall on 28 February 2015, thus snuffing out a four-week-old Syriza government. This would clear the way for a technocratic administration, just as had taken office in 2012, to pass the third bailout loan agreement, followed by his triumphant return to Maximos. Among ourselves we began to refer to this as Mr Samaras’s ‘left intermission’ ploy.
Our theory was confirmed by two developments. First, in response to the opinion polls, which were predicting a Syriza victory, Samaras and his ministers began to brief that their fall would be followed the next morning by bank closures. This was tantamount to a sitting government inciting a bank run. Then, on 15 December, Stournaras, until the previous June Samaras’s finance minister but now in charge of the country’s central bank, included in an official speech a phrase unique in the annals of central banking.
In the context of my duties as governor of the Bank of Greece, and in my capacity as a member of the Governing Board of the European Central Bank, I must note that the crisis of the last days is becoming serious, that liquidity in markets is diminishing at a high rate and that the risk not only of the reduction in economic growth that recently restarted but also of an irreversible impairment of the Greek economy is large.16
Never before had a central banker violated so blatantly his mandate to maintain financial stability. Central banks were created in order to prevent bank runs at times of shrinking liquidity by reassuring the markets that liquidity would remain plentiful. With his statement Stournaras had done the opposite, accelerating the bank run that the sitting government had begun in order to undermine a future Syriza government.
On 20 December the Samaras government pushed through parliament the two-month extension to the second bailout loan agreement, casting 28 February in stone as the date on which the banks would close if no new agreement with the EU–IMF were reached. A week later, Prime Minister Samaras’s candidate for the presidency failed to secure the necessary majority. An election was called for 25 January 2015. The die had been cast. I would have to rush back to Athens with only days to contest my first ever election in a country I had not lived in for three years.
Watching all this unfold from Austin, I saw quite clearly the ambush that awaited me. Nor did it come as a surprise. And yet there are times in life when, however expected the malice may be, observing it transpire fills one’s heart with sadness. I recalled an old joke: two golfers exchange their life stories as they move from one hole to the next. The first one confesses that he made his fortune when his ailing factory burned down and he was able to claim the insurance. The second golfer then confesses that he also made it big when his own business was destroyed by a flood, netting him a nice cheque from the insurance company. The first golfer looks puzzled. ‘But how did you start the flood?’ he asks.
Prime Minister Samaras and Governor Stournaras had started a fire on our home front, in the form of a bank run, that we would need to put out while at the same time negotiating with powerful foreign creditors who did not really want their money back. Meanwhile, our own central bank, Europe’s central bank, Greece’s oligarchy and indeed the media would be pouring fuel onto that fire. Our only ally against such an alliance would be a battered, fed up but hopefully determined demos.
Truth without fear
Ever since Greece had been imprisoned within its cage of unpayable debt, I had been portrayed as a fool. The establishment called me one because I refused to acknowledge that saying no to their bailout meant ejection from the euro. In a show of touching bipartisanship, many leftists also called me a fool for precisely the same reason: they saw my aim of emancipating Greece within the eurozone as a pipe dream.
This unlikely right–left consensus told Greeks they faced a simple choice: suffer in silence in your debtors’ prison to keep the few euros left in your pocket, or get out of the euro, possibly of the European Union. While disagreeing over which of the two options was preferable, the troika and its Greek cheerleaders, the Greek communist party and the members of Syriza’s Left Platform all agreed: Varoufakis is at best a useful idiot, leading Greece’s rebellious populace into a horrid defeat (the intransigent Left’s allegation), and at worst a dangerous narcissist, possibly an agent of satanic forces, wishing to destabilize Europe in association with George Soros and other American–Jewish foes of the euro (the establishment’s insinuation). These two schools of thought managed the impossible: simultaneously to portray the same person as an enemy of Greece’s place in Europe and as an agent of Brussels.
Mindful of the real dangers posed by this powerful consensus, in early 2014 I sat down and wrote a book, published in Greek only and entitled The Genesis of Bailout Greece. In it I restated the argument I had been making for years: Greece should never seek Grexit but should demand a viable agreement within the eurozone. Such an agreement was feasible, though far from certain, provided we were not intimidated by the threat of enforced Grexit.
A week before the general election of 25 January 2015 I launched the book at the Athens Megaron Music Hall in front of hundreds of attendees and another two hundred thousand viewers via a live video stream. This was to be my one and only pre-election campaign event, so I used it to present to the voters my negotiation aims and strategy, just as I had done to Alexis, Pappas and Dragasakis, concluding as follows.
The only conclusion that can be drawn here is that, unless we disdain surrender more than Grexit, there is no sense in negotiating with the EU–IMF. If Syriza, deep down, thinks that Grexit is worse than another bailout, it might as well surrender at the beginning – or even better avoid winning the election. This does not mean that we should want Grexit or that we should be working towards it. It means that the only way of securing a viable agreement within the eurozone is to table moderate proposals to our creditors regarding a compromise new deal while being determined not to capitulate at the threat of Grexit.
Turning to our creditors’ likely preferences, I truly believe that Grexit is an empty threat, as it will cost the EU around one trillion euros in written-off public and private debt as well as a chain reaction of bankruptcies within Europe’s financial labyrinth. Interestingly, the very same people who in 2010 were admonishing me for daring to say that the Papandreou government had the leverage to say no to Berlin and Brussels because Grexit in 2010 would have blown up France and Germany’s banks, are now scolding me for proposing today, in 2015, a strategy that could have worked in 2010. Well, I have news for them: I was right then, as they now acknowledge, and I may very well be right today: Grexit will still, despite all the things they have done to ring-fence themselves from its shock waves, cost them an arm and a leg – and this is why I still believe it is an empty threat.
Of course I may be wrong. They may fear a compromise with us more than they fear Grexit. But even if I am wrong, ask yourselves: despite the undoubtedly sharp cost of Grexit, is continued membership of the euro under permanent debt bondage and the eternal recession it brings better?
Ladies and gentlemen, just like a peace-loving people do not want war but will not surrender their freedom because they are threatened with war, it is perfectly rational to disdain Grexit, as I do, but not be prepared to live in a state of permanent great depression because we are threatened by it.17
As the election approached and the rumour spread that I might be the next minister of finance, I was walking a tightrope. Traditionally, finance ministers are economical with the truth. Indeed, it is considered their duty to deny planned changes, such as to interest or exchange rates, even while they are preparing them, in order to prevent any damaging pre-emptive reaction in the markets which will undermine the changes’ desired effect. In my case I had to tell the Greek people the truth about our creditors’ forthcoming financial aggression without encouraging the bank run that undermined my capacity to negotiate a decent deal on their behalf.
I chose a strategy of telling it as it was, peppered with optimism for the good outcomes that would follow if only we remained committed to our covenant. Interviewed on commercial television one morning, I said, ‘If Syriza is not determined to respond to Mario Draghi’s threats to close banks and ATMs by putting the phone down on him after reminding him that his aggression violates the European Union’s treaties and spirit, there is no purpose in our being elected. Our people must be ready for such threats coming from an ECB that behaved that way towards the Irish and the Cypriots.’
Not exactly soothing words from someone rumoured to be heading for the Ministry of Finance, but as the people were our only ally, I could not afford to keep them in the dark. They had to be prepared for the worst. At the same time I had to keep their spirits up. Asked in another television interview if the ECB would close down our banks, I replied tactically: ‘If we play our cards right, there is just as much of a chance that this will happen as there is that the sun will not rise from the east tomorrow morning.’
In an article I published the day after that television interview I was more candid, warning that during our negotiations the stock exchange, share values and all financial variables would go into spasm, while trying to balance frankness with optimism: ‘While these negotiations last, apoplexy will consume markets and speculators. But when the negotiations conclude, with Greece emerging as a solvent country, then the markets will start dancing harmoniously to our tune.’18
Striking the right balance – how to inform without alarming, how to warn without fuelling fear – was an agonizing dilemma.
Some others were much simpler.
Rejecting the enemy’s weapons
Many of my economist friends – who suspected that I was about to land the worst job in the universe – wrote to me, emailed and phoned to lend support. Some suggested that on my first day in office I should introduce capital controls. That is, rather than wait for the ECB to close down our banks and ATMs on the grounds of halting the very bank run that they had begun, why not pre-empt them by slapping restrictions on how much cash depositors could withdraw from their accounts or wire abroad? The idea was that by slowing the bank run we could buy more time before the banks were closed in which to negotiate under calmer circumstances. There were three reasons for rejecting this counsel.
