Meanwhile, the Samaras government and the international financial press were waxing lyrical over the success of the great recapitalization of the Greek banks effected by the second bailout. And yet in February 2014, months after the money had been received from the troika, asset management company Blackrock reported that the banks were so full of non-performing loans that they required yet more cash. By June 2014, with Schäuble running out of patience with the Samaras government, the IMF was leaking that an extra €15 billion was needed for the banks, a significantly larger sum than the roughly €11 billion left in the kitty from the second bailout loan. By the end of 2014, with Greece’s second bailout running out of time and cash, and the government facing another €22 billion of unfunded debt repayments the following year, the troika could have been in no doubt that a third loan was necessary. In other words, the IMF and Dr Schäuble knew full well that a third bailout loan would be required at the same time as the Samaras government was insisting that, were it to be returned in the next general election, there would be no such loan.
The fairy tale of an emergent recovery – or the promise that one was around the corner – was the perfect definition of one of my favourite English phrases: adding insult to injury. But why add insult? Was the injury not enough? There is an answer, and it is not pretty.
On 21 January 2015, four days before election day, I was on the phone to Jamie Galbraith sharing my deepest fears. Initially, the Greek-covery nonsense had been a strategy to win the election, but now Samaras and his ministers were resigned to losing it, they were redeploying the recovery fairy tale to prepare the ground for winning the blame game instead. By pretending that the third bailout loan was not necessary, when the truth became apparent that it was they could argue that it had only become so as a result of our government’s negotiating stance. Indeed, from the troika’s perspective having a Syriza government introduce the third bailout was politically perfect as it would absolve them of the devastation they had been causing since 2010. All pain thereafter, including the rolling-over of unsustainable debt and new austerity measures, could then be blamed on Syriza’s reckless attempt to confront them – and on one person in particular.
Jamie agreed that if our nerve wavered during the negotiations I would be in trouble, but he was certain that Alexis would remain steadfast till the end. Having been caught up in the electrifying moments at Thessaloniki in June 2013, when the three of us had addressed enthusiastic crowds together, Jamie did not share my doubts in this area, and, with only a few days before the polls opened, we needed all the confidence and enthusiasm we could muster.
Moreover, it was my belief that for years Wolfgang Schäuble, Germany’s finance minister, had favoured Grexit but had been repeatedly frustrated in this ambition by Chancellor Merkel’s opposition. I would not have been surprised if Wolfgang saw a Syriza government determined to clash with the troika as providing him with the ideal opportunity to convince Merkel that it was time to throw the Greeks out of the eurozone. The risk for him was that Syriza might fight to the end, with Mario Draghi and Merkel ultimately relenting and giving Alexis a fair deal. To Wolfgang Schäuble that was the nightmare scenario, as it would open the way for the Spaniards, the Portuguese, the Italians and any other European people to re-establish some control over their economic lives.
The buck would stop with me. But what was the alternative? An historical accident had given us a rare chance to do right, speak truth to power, and work to bring a genuine recovery to our wasteland. It would have been unforgivable to turn it down.
Gree-sterity
While our troubles were legion, the troika had its fair share too. The IMF had been uneasy from the very beginning, dragged into the mire of Bailoutistan by a European leadership for whom the French banks and their personal ties to Germany’s leadership mattered more than the fund’s internal rules and cohesion. Since 2011 the IMF had been making noises that debt relief was essential, had unsuccessfully sought a common front with Athens against Berlin in 2012, had let the cat out of the bag in June 2013 by stating that the Greek banks’ 2012 recapitalization had been grossly inadequate and inept, and as late as May 2014 had issued a report that ‘debt sustainability remains a serious concern’ – polite language for saying that it was at catastrophic levels.9 After years of spectacular analytical and predictive errors, the IMF’s analysts – indeed all the troika’s officials with some economics training – had finally realized that the very basis of their Greek programme was flawed, making it impossible to implement.
Appendix 2 provides a full explanation of the IMF’s flawed analysis, but for a simple demonstration of the self-defeating nature of austerity, take a look at Figure 2.
The horizontal axis depicts the extent of practised (cumulative) austerity over the five years that followed the credit crunch up until just before Syriza’s victory.10 Germany’s total austerity amounted to 2 per cent, Italy’s 3 per cent, Portugal’s 5.4 per cent, the UK’s 6.3 per cent, Spain’s 6.8 per cent, Ireland’s 9 per cent, and Greece’s 18 per cent. The vertical axis, meanwhile, shows the cumulative growth in national income during the same period. Very clearly, the greater the austerity the lower the growth in national income.11 Greece’s position at the bottom right-hand side of the graph is enough to tell its heartbreaking story.
Figure 2: The degree of austerity is measured on the horizontal axis as the reduction in the government’s structural deficit as a percentage of national income. The vertical axis is nominal national income growth over the same period.
As Christine Lagarde would later tell me in person, the conundrum the troika faced was that there was now too much political capital at stake to admit their error.12 The day before the election, a financial journalist told me during a break from our interview that he thought it took a determined disregard for the truth to argue that Greece was recovering. I disagreed: ‘It is not so much that they do not want to tell the truth. They are panicking and making it up as they go along, keen to avoid treading on the toes of bankers first, Mrs Merkel later. Now they fear for their jobs if they tell the truth.’
And yet, as we were about to win that election, the troika, the media and the Greek government were debating not how to end this loop of doom but what level of austerity would suit their political agendas best: too little austerity would make a mockery of the troika’s incoherent arithmetic, too much would undermine the Greek-covery narrative and anyway be impossible to get through a sceptical parliament.13
This is why the people of Greece voted for Syriza, an acronym for the Alliance of the Radical Left. They had not suddenly fallen in love with the radical left, which had hitherto languished on the margins of power. They had no interest in jeopardizing any nascent recovery. They had no ambition to confront Brussels, Berlin, Paris, Frankfurt and Washington. They did not even mind making more sacrifices or tightening their belts further if this would work. No, they voted for us because they had had enough of making sacrifices that achieved nothing, enough of measures that sank them deeper in indignity, insolvency and despair while others celebrated their recovery. That is why we received the votes not just of radicals and factory workers, taxi drivers and farmers, but of decent conservatives, struggling business people, right-wing patriots and monks – from everyone in fact concerned, like Lambros the homeless man who had made such an impression on me, for those people who had not yet fallen into the hole waiting to consume them.
First contact
It was while I was running for election that Germany’s ambassador to Greece invited me to the ugly fortified embassy of the Federal Republic, a stone’s throw from Britain’s equally ugly mission and not far from the graceful neoclassical mansions serving as the embassies of Italy, France and Egypt. A tall, lanky man, the German diplomat treated me to a long and exciting afternoon. Pappas warned me that the ambassador had signalled to Alexis his clear dissatisfaction with the news that I might be appointed finance minister. If he had, it did not show. What did show was his eagerness to take my measure.
I found him intelligent and pleasant to talk to, though intense and bristling with ideas on what we should, and should not, do were we to win the election. Over the course of more than two hours, he inducted me into my forthcoming job with a simulated but comprehensive negotiation involving everything on Greece’s economic agenda: debt, taxation, banks, market reforms, privatization, labour markets. He clearly knew his stuff and did not hide his government’s attitude: in Berlin’s eyes, Greece had forfeited its sovereignty long ago, and its government would be treated as petitioners. But he also showed some understanding of Berlin’s complicity in the Greek disaster, with hints at a readiness to compromise that revealed his sympathy for the SPD (Germany’s Social Democratic Party).
The same day Pappas passed on to me a missive with some advice on what to do after we won office from Jörg Asmussen, a youngish man of some significance in the SPD. Asmussen had started his political career at the finance ministry under Wolfgang Schäuble during the turmoil of 2008, at which time a coalition of Merkel’s Christian Democrats and the SPD was in power. He had been the ministry’s point man in helping to save the German banks, a role that had given him kudos but also a front seat to witness the process by which Greece was incarcerated in its debtors’ prison. His services to the finance ministry were rewarded with a seat on the European Central Bank’s executive board, a position of immense authority for a young man with few banking credentials. In 2013, when his ECB stint ended, Asmussen returned to Berlin as a junior labour minister with a key remit: to introduce a minimum wage for the first time in Germany, a major reform that Chancellor Merkel had agreed with her SPD coalition partners, inciting the wrath of her own party.
The moment I heard that Asmussen had written to us, I pricked up my ears. He punched well above his official weight and was the man I had expected the troika to use as a feeler, a first contact between them and us. He was ideally suited to the role. This was a Social Democrat who had worked closely with arch economic conservative Wolfgang Schäuble as the German banks were collapsing, a man who had been at the helm of the ECB in 2012 when Grexit was on the cards before Mario Draghi put his foot down, signalling to Chancellor Merkel to take it off the table, and one of the very few people to have worked on the ECB’s Plan Z – the scheme by which Greece might be detached from the eurozone at minimum cost to the other member states. What I had not anticipated was that Asmussen would not be coming to us alone. Rather, he had written with the express purpose of introducing us to another functionary of even greater significance, Thomas Wieser.
I knew of Wieser’s official role within the EU bureaucracy. As president of the Eurogroup Working Group, he led the cabinet of deputies whose job it is to prepare the Eurogroup meetings, the forum at which their respective finance ministers make all their key decisions. In theory then Thomas Wieser was the deputy of Jeroen Dijsselbloem, Dutch finance minister and president of the Eurogroup. What I did not know then but came to understand later was that in reality he was the most powerful man in Brussels, far more so than Jean-Claude Juncker, president of the European Commission, or Pierre Moscovici, commissioner for economic and finance affairs (the commission’s finance minister), or even, on occasion, Dijsselbloem himself. At such times he seemed to run the whole show.
In his email Asmussen adopted the posture of a left-leaning potential ally of our new government who wanted to see us succeed. To that end, he asked us to trust and work with Wieser, an Austrian Social Democrat, describing him as a ‘friend’, ‘reliable’, ‘trustworthy’ and ‘a key one in the Brussels machinery’. In addition, Asmussen suggested Wieser would help us carve out the time we needed in which to conduct our negotiations. According to Asmussen, Wieser was proposing a ‘programme extension’ as a ‘good way forward, to have a kind of protection for Greece while deeper renegotiations are undertaken. It might be worthwhile that your economic team gets in contact with him quickly after the elections.’ Asmussen ended with ‘if I can be of any help, just let me know’.
It sounded hopeful. The previous Athens government had negotiated an extension with the troika that would end a month after our election, more a guillotine to cut our heads off than a platform on which to build a new agreement, so yes, we wanted a further extension. And if Wieser and Asmussen wanted to help construct one, that would be splendid. But did they?
Attached to Asmussen’s email was an unsigned ‘non-paper’ – jargon for an unofficial document circulated for negotiation purposes which is wholly unbinding – written by Wieser that began by stating the completely obvious, namely that our government ‘will face a very tight liquidity situation’.14 This was followed by a dry announcement that we should not expect to receive any of the money the ECB owed us (around €1.9 billion profit on those SMP bonds of ours that it held and had agreed to return to us), nor any of the loans agreed under the previous government that Greece needed in order to (pretend to) repay its debts.15 But, Wieser made clear, the troika still expected us to honour Greece’s debt obligations to them.16 The asphyxiation of the Greek government that would be caused by this would lead to ‘liquidity concerns’ and, inevitably, to ‘market tension’. In short, we shall squeeze you so much and so publicly that investors will pull out of Greece, depositors will accelerate their bank run, and your government will suffocate. This was the stick.
After the stick came Wieser’s carrot: the troika might give us an extension to the existing second bailout loan agreement, granting us a reprieve beyond the guillotine deadline of 28 February 2015, and might increase the maximum value, set by the ECB, of short-term Treasury bills (T-bills) we were allowed to issue for the purpose of quick cash loans – essentially our credit card limit – so that we could withdraw some extra cash with which to pay the IMF in March, but this would be conditional on our taking a ‘cooperative approach’ to the troika.17
The message could not have been clearer: we were to be fiscally waterboarded until we agreed to participate in the sick ritual of extending and pretending that we had been elected to put an end to.18 After reading the email I briefed Alexis and Pappas on the situation: as we had expected, they were activating a plan to throttle us. I took the opportunity to reiterate our covenant: we should look to secure the extension beyond 28 February that Wieser was offering in order to give the negotiations a chance, but only if we remained committed among ourselves to defaulting if they refused to negotiate in good faith a different type of agreement. Both reconfirmed their commitment.
I then sat down to pen our response to Wieser. Exuding moderation and a willingness to work with him, I made two crucial points. The first concerned the profit owed to us on our SMP bonds, which Wieser had said we should not expect back from the troika. ‘Not handing back Greece’s own money unconditionally,’ I wrote, ‘is difficult to justify even if previous Greek governments have consented to some such legalism. It is our express view that these funds should be released immediately by the ECB. This way, funding is secured, using Greece’s own rightful assets, through the end of March.’
My second point addressed Wieser’s thinly veiled threat of ‘market tension’, which echoed Stournaras’s incendiary statement of 15 December.19
The expectation of a potential impasse does yield uncertainty which, in turn, may cause liquidity problems. But what causes this expectation of impasse in the first place? It is the insistence of EU and ECB officials that, within days of being elected, the new Greek government must sign on the dotted line of an agreement that it campaigned in favour of renegotiating.
Democratic Europe must give Greece fiscal space to allow its new government to table proposals that will constitute the foundation of a viable agreement. Denying the new Greek government this fiscal space causes the liquidity problems. To then portray these liquidity problems as exogenous constraints is to be in denial of the ECB’s and the EU’s responsibility for having caused them.
After I’d sent the email, just before Danae and I left to attend a pre-election meeting, she asked me what I had been working on.
‘A beautiful new friendship,’ I replied.
Democracy at gunpoint
Two nights before the polls opened on 25 January 2015 my Syriza friends were agonizing only over the extent of our impending victory and whether it would suffice to secure an outright majority in parliament. But my mind was elsewhere.
Three days earlier Glenn had emailed confirmation that the noose was tightening. Since 15 December, when Stournaras accelerated the bank run that Prime Minister Samaras had begun, depositors had withdrawn €9.3 billion from Greek banks, and the rate of withdrawals had hit €1 billion daily. By the time of the election, €11 billion would have found its way abroad or under mattresses.20 To be able to pay out so much money, the banks had had to increase their dependence on the ECB to the tune of more than €60 billion. The threat of Mario Draghi to close down the banks was providing precisely the conditions he needed to justify doing so.21
In the run-up to polling day the only future government colleague with whom I managed to share my fears was Spyros Sagias. Danae and I met him in his apartment in the Athenian coastal suburb where I had grown up. Surprised by the security men stationed under his apartment block, we took the lift to his airy penthouse decorated with a few well-chosen pieces of contemporary Greek art overlooking the marina. Sagias was a pudgy middle-aged man with a reassuringly deep voice who excused himself for being under the weather. He was nursing a heart condition, which did not seem to dull his intelligence or prevent him from demonstrating a perceptive eye.
Sagias was not a politician but, as he introduced himself half-jokingly, a systemic lawyer. (‘Systemic’ is post-2008 jargon for banks that are deemed too big to fail.) There was hardly a large-scale business deal involving private interests and the public sector that Sagias and his successful practice had not been involved in: privatizations, large-scale construction projects, mergers, all were within his ambit. Until recently he had even provided legal counsel to Cosco, the Chinese conglomerate that had acquired part of the port of Piraeus and was eager to take over the whole of it, a privatization that Syriza vehemently opposed. When Pappas informed me that Sagias was destined to become our cabinet secretary, I was surprised but also pleased: at least we would have a legal eagle on the team, a counsellor who knew how to author legislation and moreover where all the skeletons of the ancien régime were buried.
Sagias went straight to the subject that was foremost on my mind, asking how exactly the ECB would try to asphyxiate us. First, I explained, Draghi would cut off the direct flow of liquidity from the ECB to our banks, referring them to Stournaras’s Central Bank of Greece for more expensive short-term loans instead (the so-called emergency liquidity assistance or ELA mechanism, funded indirectly by the ECB). Then, the second stage, the ECB Governing Council would prohibit Stournaras from providing any further ELA to the banks, at which point tellers would run out of cash, depositors would riot and the banks would close down. Already by 21 January 2015, I told Sagias, two of Greece’s four systemic banks had applied to Stournaras’s ELA for liquidity. ‘The scene is set,’ I concluded. ‘They are just waiting for us to come on stage.’22
I then outlined our key deterrence strategy and the essence of the covenant with Alexis, Pappas and Dragasakis that was the basis of my accepting the finance ministry. He agreed with the plan.
‘So, what brings you to this government?’ I asked. ‘Your background doesn’t immediately suggest a reason.’
‘I am only doing it because I believe in Alexis,’ he replied. As a young man he had inclined to the Left, he explained. Even after he shifted to the very heart of the establishment, oiling the cogs of the system, deep inside he always maintained a romantic link with the Left. ‘So when I met Alexis, it struck me that I wanted to put my experience at his disposal. I am not here for Syriza. I am here to protect Alexis. He will need a great deal of protection. And so will you. Make no mistake, Yanis: they will all try to undermine you, from the worst of the bankers to Dragasakis to everyone in Syriza. It’s going to be nasty.’ It turned out I was not the only one ridden with angst as we were about to take over the reins of government.
I decided I liked Sagias. He knew that he was tainted by decades of consorting with the oligarchy and did not care to hide it, but I was more inclined to trust people who had known and worked for the establishment than young zealots, who are prone to becoming its born-again servants. His honesty, the way he personalized his reasons for coming on board, his warnings about Dragasakis and the Syriza evangelists, along with the art on his apartment walls, made me feel at ease with him.
Nevertheless, as we were leaving he confessed that he was having second thoughts. ‘I am still not 100 per cent sure I shall accept the position,’ he told me.
‘You must!’ I urged him. ‘This is a 28 October moment,’ I said, referring to the day the Greek government rejected Mussolini’s ultimatum to surrender in 1940. ‘We cannot duck this.’
‘I will think about it,’ he said in such a way that led me to believe he would accept.
Back at our apartment, an email arrived from Jamie asking, ‘What’s the exact agenda, so far as you know?’
‘Not to be throttled at birth by the troika and local bankers…’ I replied.
Doing my sums with Glenn’s help, it turned out that for 2015 alone the Greek state needed €42.4 billion just to roll over its debts, the equivalent of 24 per cent of national income. Even if the troika were to disburse all the money specified by the second bailout loan agreement, we would still be €12 billion short. For a country with no capacity to borrow from private investors, empty coffers and a devastated population, meeting these debt repayments meant only one thing: the plunder of what was left in the reserves of pensions funds, municipalities, hospitals and public utilities, while going to the troika cap in hand to borrow huge amounts more, pledging to squeeze our pensioners, municipalities, hospitals and public utilities yet further, all in order to give the money back to the troika. Only a lobotomy could have convinced me that doing this was in our people’s interest.
On polling day people would walk up to me in the street, pat me on the back and make me promise I would not go back on my word. We support you, but don’t you dare do a U-turn, because if you do we shall round on you, was the unanimous message.
Partners beyond the pale
