Michel’s response was that of a brother-in-arms: ‘Your government’s success will be our success. It is important that we change Europe together; that we replace this fixation with austerity with a pro-growth agenda. Greece needs it. France needs it. Europe needs it.’
It was the cue I needed to put forward the basic elements of the Modest Proposal, which Stuart Holland, Jamie Galbraith and I had been working on for years. I explained how the ECB could partially restructure the whole of the eurozone’s public debt without haircuts and without asking Germany to pay for everyone else or guarantee the periphery’s public debt. I outlined how investment-led recovery could produce a new deal for Europe by channelling the ECB’s quantitative easing programme into infrastructure projects or green energy bonds issued by the European Investment Bank. Michel listened intently and, when I had finished, declared that such proposals were the way forward for Europe. We had delayed the implementation of such policies for too long, he said. Together we must restart Europe, he thundered. The only thing that Michel did not do was suggest we join hands and rush out to storm the Bastille singing the Marseillaise!
Our discussion, lengthened as it was by the need for translation, lasted around an hour and a half. It was pleasant and free of any disagreement, and coming as it did after such encouraging conversations earlier that morning, I began to put the confrontation with Jeroen Dijsselbloem behind me and consider a decent compromise agreement as a real possibility.
As Michel and I were making our way from his office to the obligatory press conference – he speaking in French, which I understand, and I responding in English, which he grasped sufficiently – he informed me that Berlin had been in contact. They were very upset that I had come to Paris without also offering to go to Berlin, he told me in a low voice. I was more than happy to go to Berlin too, I told him. The reason I was in Paris and not there was that he had invited me and they had not. My intention was to ask Wolfgang Schäuble to Athens, since he had not invited me to Berlin. Michel smiled. ‘You should go to Berlin immediately after Frankfurt. They asked me to convey this to you.’
‘Sure, happy to oblige. Is this an invitation or a summons?’ I asked only half-jokingly.
‘Just go,’ he replied, patting me on the back.
In the press room two lecterns stood side by side in front of the French, Greek and EU flags. Michel spoke first and began by welcoming me and saying a few words about the great sacrifices the Greek people had made during the past few years. But then, quite suddenly, his tone changed. The joviality and comradeship disappeared and were replaced with a harshness more familiar from the other side of the River Rhine: Greece had obligations to its creditors, and the new government would have to honour them; discipline must be maintained and any flexibility contained within the current arrangements. Nothing about the new Rousseau-inspired social contract that we had agreed upon. Not a word about ending austerity or adopting public-investment-led pro-growth policies for the good of all of Europe.
When my turn came, I stuck to my prepared statement which included the following.
France is for us Greeks not just a partner but also one of our spiritual homes. The very existence of the Greek state owes a great deal to the French Enlightenment that sparked off our own Enlightenment and equipped the Greek national liberation movement with its philosophy and elan. Today, I had an opportunity to outline to Mr Sapin our government’s plans for reforming Greece within a changing Europe that puts an end to the self-reinforcing debt-deflationary cycle damaging everyone in Europe as we speak. It is our view that to accomplish this we must deliberate in the spirit of the great Europeans who, beginning with Jean Monnet, found practical means to forge mutually beneficial unity out of seemingly implacable discord. We shall suggest to our partners across Europe that we resurrect together one of Jean Monnet’s operating principles. Namely, that if parties sit down at opposite sides of a negotiating table and proceed from long-established positions, there will be little chance of success. But if we sit on the same side of the table and place the problem on the opposite side, success is certain in a Europe with so much room for mutual prosperity. Today we sat on the same side of the proverbial table. It is our government’s intention to do the same in every European capital, each time placing the problem on the table’s opposite side. Today, starting here in Paris, let me say that I am guided by a single objective: to promote the interests not of the average Greek but the interests of the average European. To ensure that our economic and monetary union succeeds by succeeding everywhere.
Although I managed to finish my prepared speech lauding solidarity and French idealism, I felt as if I had been punched in the stomach.
As soon as we left the press room, Michel instantly switched back to his amicable joviality, holding my hand as if I were his favourite long-lost cousin. Determined to maintain my exterior poise, I turned to look at him and, faking puzzlement, asked, ‘Who are you and what have you done to my Michel?’
To my great astonishment, not only did he clearly understand what I was saying, he did not seem angered by it in the slightest either. Instead he stopped, held my arm a little more tightly, adopted a sombre expression and, switching to English almost as if he had practised the line, shared an opinion of historic importance and sadness: ‘Yanis, you must understand this. France is not what it used to be.’
Indeed, France is not what it used to be. In the months that followed, the French government and the country’s entire elite proved their inability, as well as reluctance, to deter attacks on our government that were, in the long term, aimed at Paris. While I never expected them to go out of their way to assist us against their interests, I was ill prepared for the French establishment’s abandonment of its own interests, which were not served by reinforcing the surplus countries’ domination of fiscally stressed ones.4 Michel Sapin’s performance that day is an excellent allegory for what is wrong in the French Republic.
In the lift on our way to see Emmanuel Macron, also based at Bercy, Michel confessed that he was not an economist by training and asked me if I knew what his postgraduate thesis had been on. I said I did not. ‘The numismatic history of Aegina,’ he informed me with a smile even broader than the one with which he had first greeted me. My jaw dropped. France’s minister of finance, having just unleashed a surprise public assault on me on Berlin’s behalf, was now trying to bond with me by confessing that he did not know much about economics but was an expert on the ancient coins of the little island off the coast of Attica that Danae and I call home.5 Irony does not even begin to convey what I felt.
France’s minister for the economy was the opposite of its minister of finance. Where Michel Sapin ducked, deferred and simulated, Emmanuel Macron listened actively and engaged directly, his eyes radiant and ready to display his approval or disagreement. The fact that he had good English and a grasp of macroeconomics as well meant we were soon on the same page regarding Europe’s need for a genuine investment programme that would put its trillions of idle savings to work for the collective good. From my first meeting with him, I regretted dearly that it was Sapin who represented France in the Eurogroup and not Macron. Had they swapped roles, things might have ended up differently.
Finally, after a long day, Euclid and I were ready to leave Bercy. As we were walking out, Michel came down to say farewell. It was there that he taught us one thing that we shall always remember and thank him for: how to tie a scarf the French way.
Downing Street
The Eurostar was on time. London beckoned. Not a moment too soon. Before I had even taken over the ministry, €11 billion – amounting to 7 per cent of bank deposits in Greece – had been withdrawn thanks to the Stournaras–ECB bank run. Greek banks were already applying for the ECB’s emergency liquidity assistance.6 The noose was tightening. The purpose of this, the next leg of my journey, was to change the financial climate and buy us time.
Early on Monday, 2 February 2015 I breakfasted with Martin Wolf, economics editor of the Financial Times. Within minutes he had agreed with my broader macroeconomic objectives and debt restructuring proposals, expressing concern only about Europe’s political will to embrace them. Afterwards I met Norman Lamont and several key economists and financiers, an event put together by Norman’s friend David Marsh, head of the Official Monetary and Financial Institutions Forum, a central banking think tank. The purpose was the same: to brief them and win them over to my proposals. It seemed straightforward, given their moderation and common sense.
My appointment with George Osborne was for 11 a.m. Greece’s ambassador to London, a seriously clever man who had served as head of Greek intelligence before Roubatis, accompanied me and Euclid. Downing Street’s iron gate was opened by smiling coppers, and the embassy’s ageing Jaguar pulled up thirty metres or so from the door of Number 11. It was a bright but bitterly cold Monday morning. Should I wear the rather striking leather coat our ambassador in France had lent me, or should I take it off and, wearing only my light black jacket, risk shaking with cold in front of the massed photographers? Preoccupied with more substantive matters, I got out of the car as I was. For days thereafter images circulated throughout the media of a leather-clad finance minister arriving to meet George Osborne.
Before I arrived in London, Norman Lamont, who had acted as something of a go-between, had signalled that Osborne would be grateful if I refrained from criticizing his economic policies in public. ‘We are in a pre-election period and the atmosphere is very sensitive,’ Norman had told me.
‘Given that I’m seeking George’s support, I have no interest in criticizing his policies,’ I replied.
In advance of our meeting, Osborne’s office had explained to the press why he had good cause to hold talks with me: it was the chancellor’s view that Greece’s debt crisis posed the ‘greatest risk to the global economy’.
Thanks to these preparations, the visit went perfectly smoothly. Inside 11 Downing Street the conversation was friendly and to the point. Things got interesting when Osborne began to offer a mildly critical assessment of his own handling of the British economy. I had not expected there to be any expression of self-doubt in front of a left-wing finance minister, and this facility for self-reflection warmed me to him. He acknowledged how important it had been to have the support of the Bank of England ‘every step of the way’, and smiled sympathetically at my predicament, which could not have been more different in that respect. He agreed that the policies imposed on Greece by the troika had given austerity a terrible name. I was tempted to share my view that his own version of austerity would backfire on him too, but good manners and determination not to push my luck stopped me. We turned instead to what we thought should be done with the euro.
Here George Osborne was in a bind. His fellow Tories despised the common currency, even those who wanted Britain to remain in the EU. Osborne had little positive to say about the euro either, but when I ventured to suggest that the disintegration of the euro would be bad for the British economy, he was not slow to agree. I shared my own sense of the dilemma: ‘I find myself in the peculiar situation of constantly proposing policies for shoring up a currency whose design and creation I had opposed. But I do believe that even those of us most critical of the euro have a moral and a political duty to try to fix it, simply because its disintegration will cause so much human pain.’
Osborne’s position on the euro was also something of a paradox. Despite being a Eurosceptic and an opponent of the euro he could also see that its breakdown would cause instability and unleash powerful deflationary forces upon the British economy. The only way of shielding Britain was for the euro to be saved. And the only way of saving the euro was greater integration of the eurozone, which was precisely the kind of thing that the majority of Tories doggedly opposed. By proposing radical steps to fix a currency that neither of us liked, Osborne was losing friends among Britain’s Eurosceptic Right and I was losing friends among my left-wing comrades. Despite the ideological chasm that separated us, the crisis caused by Europe’s ridiculous monetary architecture had put us in the same boat.
With most of the serious stuff out of the way, George, myself and Euclid sipping English breakfast tea, the discussion moved on to more light-hearted topics. Osborne saw fit to compliment me on my English.
‘Thank you, George, but save your compliments until you’ve heard Euclid speak.’ Having been raised in London, Euclid’s English was that of a native. But what truly impressed George was that Euclid was an alumnus of St Paul’s, the public school on the bank of the Thames that George had also attended. Once they got going it sounded like a posh school reunion. Afterwards, whenever Euclid mocked me for my Tory mates, I would remind him of his public school connections.
On our way out, I left my host with a parting thought: it would be splendid if I could have his support in Ecofin, the EU’s Economic and Financial Affairs Council, in my efforts to resist the perpetuation of policies for Greece that we had agreed were absurd. Osborne nodded but when the time came did not help even once, choosing instead the Little Englander approach, never saying anything in Brussels unless it affected narrow British interests, the City’s in particular. Such is its power, the City was where we were heading next, for a series of meetings with London’s financiers organized by my acquaintances at Deutsche Bank. Whether I could win them over or not would be apparent the following morning on Bloomberg screens around the world. In the meantime, as Euclid and I made our way from the door of Number 11 to the Jaguar, the mass of photographers, TV cameras and journalists erupted again.
Back at the hotel for half an hour’s rest before the next leg of the marathon, my mobile phone rang. ‘Where on earth did you pick up that coat?’ asked Danae. She was calling from Austin, where she had been alerted to my fashion statement by friends watching early-morning television.
‘What’s wrong with it?’ I asked. ‘I thought it was rather fetching, wasn’t it?’
Her censure was emphatic and follows me to this day. ‘I need to finish up here in Austin and return immediately,’ she said.
Yes, I thought to myself. I do need her to return as soon as possible, but for reasons that have nothing to do with style.
Wooing the financial genie
More than two hundred representatives of all sorts of financial outfits had assembled in the large room. The Deutsche Bank functionary of Greek origin who had kindly organized the event made a brief introduction. Rather than stand at the lectern on stage, I chose to roam with a hand-held microphone. As I began, I was painfully aware of the challenge expressed so brilliantly by Ambrose Evans-Pritchard, the Daily Telegraph’s economics editor, in one of his columns: ‘Greece’s plight, while terrible, is not tragic in the ancient Athenian sense: its fate is still in its own hands. With a skilful strategy, it can still all end in smiles, not tears.’
My strategy, at least in that room, was simple: tell it as it is, unembellished, complete with an admission of our own government’s weaknesses. Nothing impresses financiers more than a combination of honesty and smart financial engineering.
Honesty meant that I would not beat about the bush on two issues. First, I told them, the Greek state had gone bankrupt in 2010, and no amount of austerity or new loans could change that. I could see from their faces that they were relieved to encounter a Greek finance minister who would not attempt, like all his predecessors, to present the Greek state as illiquid but on the right track towards solvency. These people knew the truth and were encouraged to hear me acknowledge it.
Second, I admitted that we had a divided cabinet; that, yes, there were those who wanted Grexit, who were not interested in negotiating with the EU and the IMF, convinced that nothing good would come of it, and who just wanted out. And then there were those of us around the prime minister whose objective was a negotiated solution within the eurozone. But, I added on a positive note, this division would not affect the negotiations, which would be conducted by my core team. Our Grexiteer colleagues would not get in the way but would be patient and give us a chance to demonstrate that a viable agreement was possible. As long as Greece’s official creditors, the EU and the IMF, were willing to strike a mutually advantageous agreement, the world of finance had nothing to fear from my Left Platform colleagues in government.
Then came the financial engineering proposals summarized in my non-paper. Given the financial expertise of my audience, I spoke about them in far greater technical detail than I had done elsewhere so that they could have been in no doubt that I knew precisely what I was talking about – and that these were the kind of proposals they would have made themselves given the opportunity.
Finally, I turned to a topic close to the heart of neoliberal-minded financiers: privatization. I began by acknowledging the likelihood that many in the room, occupying the opposite end of the political spectrum to me, would disagree with my views on the merits or otherwise of privatization. But what I was sure we would agree on, I said, was that it is silly to sell assets off when prices have fallen through the floor; that fire sales to buyers who had no plans to invest but were only interested in asset-stripping were a terrible idea. Given the dire circumstances in which we found ourselves, I assured them that our government was not going to be ideological about this: if I was asked whether I was in favour of or against privatization, my answer would be, ‘It depends on the asset in question – a port, a railway, a beach, an electricity company?’ Beaches I would never sell, I told them, just as I would never sell the Parthenon. And the privatization of electricity grids reliably leads to environmentally and socially suboptimal outcomes. But when it came to ports and airports, I would form a view based on four criteria: how much the buyer was committing to invest in the asset; the buyer’s commitment to workers’ rights to union representation and decent wages and conditions; environmental standards; and the extent to which the buyer would be obliged to leave room for and encourage the benefit of small and medium local businesses. If these four criteria were met, then I would be more than happy not only to consent to privatization but also to promote it energetically.
A sea of hands was raised when I invited questions. For more than two hours I made my way around the room, answering each and every one of them. Some were hostile, others friendlier. I made a point of dealing exhaustively with them all. Judging by the warm applause at the end of the session, I felt that the job had been done.
As our hosts accompanied Euclid and me on our way out, three or four of the most influential City players in the room approached to say they were impressed. ‘You will see this reflected in the markets tomorrow,’ one of them assured me while shaking my hand cordially.
‘In other circumstances, I would be compiling my report to the Central Committee with a recommendation that you are dispatched to the Gulag,’ joked Euclid.
‘Comrade, I’m happy to be sent to the Gulag for right-wing tendencies as long as the job is done – and if you promise to visit me occasionally so that I can be reminded of the expression of horror on your face just now!’ I retorted.
Later that evening we were treated to dinner at the residence of our London ambassador. Norman Lamont and David Marsh were there, as was my great American supporter and adviser, Jeff Sachs, who arrived straight from Heathrow. I was pleased to have him at my side. Another of the guests was Reza Moghadam. Reza was with Morgan Stanley but, like Jeff Sachs, had previously worked at the IMF. More significantly, he had held Poul Thomsen’s job there until only a year before. My conversation with him was fascinating. He confirmed everything that I had been saying about the Greek programme since 2010 – the IMF’s gross error in participating in the Greek bailouts, the troika’s callousness and, in particular, the sole reason that the IMF and the EU were asphyxiating us: because they did not have what it took to confess the error of their ways. As I remarked to Euclid, who had been listening with incredulity, it was one thing for us lefties to be saying all this, it was quite another to be hearing it from the horse’s mouth – from the guy who had actually been implementing the Greek programme until only a few months ago.
Over coffee and after-dinner drinks I wondered if maybe my proposals had done the trick. London-based financiers, Tory politicians, influential journalists and former members of the IMF all appeared to see my point. Yes, we were a left-wing government, but all we were asking was for some basic common sense to prevail at the centre of European power.
That night the mainstream press coverage of my visits to Paris and London seemed positive. The BBC reported: ‘The economist-turned-finance-minister seeking to renegotiate Greece’s huge debt obligations says his priority is the well-being of all Europeans and has ruled out accepting more bailout cash … He said, “We have resembled drug addicts craving the next dose. What this government is all about is ending the addiction.”’7
The message was getting through at last. But as I turned out the lights for a few hours’ sleep in advance of my flight to Rome, I was anxious what the next morning would bring. Would the Athens stock exchange rebound? I desperately needed a boost in the money markets to provide a signal to investors and other EU governments that we had what it took to create a wave of optimism; to plant the idea in the minds of the EU and IMF that they would benefit from a deal with us.
An inconvenient achievement
At 8 a.m., after the first cup of coffee of the day, I received a phone call with a most peculiar message: my menu of debt-swap proposals had received the enthusiastic approval of the Adam Smith Institute (ASI), the think tank founded in 1977 that paved the way for Margaret Thatcher’s neoliberal project and which to my mind represented everything I had opposed during my years in the UK. The statement by ASI fellow Lars Christensen read:
