Thankfully, today I did not just visit the finance minister of Europe’s powerhouse economy. Above all else, I visited a European statesman for whom European unity is a lifelong project and whose work and efforts to unify Europe I have been following with great interest since the 1980s. Today, my message to Minister Schäuble was that in this government he has a potential partner in the search for European solutions to a variety of problems afflicting not only Greece but the union more broadly.
Turning to my host, I said,
From our government you can expect a frenzy of reasonableness. You can expect proposals that are aimed not at the interest of the average Greek but at the interest of the average European – the average German, Slovak, Finn, Spaniard, Italian. You can expect from us an unwavering commitment to telling it as it is, without tactical stratagems or subterfuge. These are our commitments. What we request is perhaps the most precious of commodities: time. A short space of time during which our government can present to our partners, to the IMF, to the ECB, to the European Commission, comprehensive proposals and a road map for the very short term, for the medium term, and for the long term.
On the challenges facing the EU more generally, I suggested that we respect established treaties and processes without crushing the delicate bud of democracy. When I visited Paris, I said, I had told the French minister of finance that it had felt like a homecoming, that I was returning to one of Greece’s spiritual homes. In Berlin I expressed the same feeling and described how for almost two centuries the land of Goethe, Beethoven, Hegel and Kant had been a source of inspiration to Greeks across the political spectrum. But there was something more that bound Greece and Germany together, I continued.
As finance minister in a government facing emergency circumstances caused by a savage debt-deflationary crisis, I feel that the German nation is the one that can understand us better than anyone else. No one understands better than the people of this land how a severely depressed economy combined with ritual national humiliation and unending hopelessness can hatch the serpent’s egg within one’s society. When I return to Athens tonight, I shall find myself in a parliament in which the third-largest party is a Nazi one. When our prime minister laid a wreath at an iconic memorial site in Athens immediately after his swearing-in, that was an act of defiance against the resurgence of Nazism.14 Germany can be proud of the way Nazism has been eradicated here. But it is one of history’s cruel ironies that Nazism is rearing its ugly head in Greece, a country which put up such a fine struggle against it in the 1940s. We need the people of Germany to help us in the struggle against misanthropy. We need our friends in this country to remain steadfast in Europe’s postwar project; that is, never again to allow a 1930s-like depression to divide proud European nations. We shall do our duty in this regard. And I am convinced that so will our European partners.
The next day the German press lambasted me for having dared to mention the Nazis in front of the German finance minister in Göring’s old Air Ministry building. Meanwhile Greek nationalists were praising me for having called Schäuble a Nazi. I was not sure whether I should be more appalled by the praise or by the reproach.
Siemens
After our statements Wolfgang and I took questions. One of them concerned Siemens, the German conglomerate, and a man called Michael Christoforakos who used to head their operations in Greece. Some years earlier a scandal had occurred when an investigation initiated in the United States suggested that Christoforakos had been bribing Greek politicians to secure government contracts on behalf of Siemens. Soon after the Greek authorities began investigating the matter, Christoforakos absconded to Germany, where he was arrested. But the German courts were preventing his extradition to Athens.
‘Did you, Minister,’ asked a journalist, ‘impress upon your German colleague the German state’s obligation to help the Greek government snuff out corruption by extraditing Mr Christoforakos to Greece?’
I tried to provide a balanced and reasonable answer: ‘I am sure that the German authorities will understand the importance of assisting our troubled state in its struggle against corruption in Greece. I trust that my colleagues in Germany understand the importance of not being seen to have double standards anywhere in Europe.’
And what did Dr Schäuble say in reply? Looking put out, he mumbled that this was not a matter for his finance ministry. Maybe it was not. But the Siemens case and Schäuble’s willingness to wash his hands of the problem illuminate the underlying challenge that Greece and all Europe faces.
As I have frequently observed, there is a widespread belief in Europe’s north that the continent is populated by hard-working law-abiding ants on the one hand and lazy tax-avoiding grasshoppers on the other, and that all the ants live in the north while mysteriously the grasshoppers congregate in the south. The reality is much more muddled and sinister. Corruption takes place across borders, in both north and south. It involves multinational corporations whose connections to the deep establishment are not contained by national boundaries either. Part of what prevents us from tackling this mighty network is a refusal on the part of the establishment to acknowledge its true nature. When Christoforakos was indicted for stuffing bribes into politicians’ pockets, I was not surprised: by a remarkable coincidence, my own uncle resigned from the same post at Siemens in the late 1970s when he found himself being pressurized to do precisely the same thing. Along with millions of Greeks, I was outraged that the German authorities refused to extradite Christoforakos so that he could face charges in Greece. I was even more horrified that in Athens Stournaras, my former friend who was then minister of finance, tabled in Parliament on 28 August 2012 an out-of-court settlement with Siemens that ended all prosecution of the company and paved the ground for not just Christoforakos but also the Greek politicians whose pockets he had been accused of lining to escape trial.
My press conference with Schäuble turned out to be the beginning of a hostile media campaign. Especially in Germany, I was portrayed as an anti-German, reform-denying, narcissistic defender of Greek graft and inefficiency. Eventually, through sheer repetition, the mud stuck. Months later, after my resignation, Euclid would be portrayed as the sensible, responsible, understated minister who put the negotiations back on the rails and saved Greece from my amateurish recalcitrance. But Euclid and Alexis were actually being rewarded for the end of any serious challenge not only to Bailoutistan but also to the network that binds companies like Siemens to banks and politicians in both Greece and Germany.
As these lines are being written, Michael Christoforakos continues to live freely in Germany, Stournaras continues as governor of Greece’s central bank, the Siemens scandal has still not resulted in a single politician facing charges, Dr Schäuble and Euclid continue the non-negotiations that confine Greece ever more securely in its debtors’ prison and, amazingly, a charge of high treason is pending in Greece’s parliament – against me.
Social democracy’s Waterloo
After Wolfgang Schäuble it was the turn of Sigmar Gabriel to host me at his Economy Ministry. Almost everyone expected this to be my soft landing, the agreeable social democratic vice chancellor and leader of the SPD consoling me after what was always going to be a bloody affair at the Ministry of Finance. But I harboured no such expectations, and not just because of the previous night’s set-up involving Gabriel’s envoys, Jörg and Jeromin.
The meeting at Gabriel’s office, with Jörg, Jeromin, Euclid and our Berlin ambassador also present, went splendidly. It was almost a carbon copy of my meeting with Michel Sapin a few days earlier in Paris. The same platitudes were aired, the same vows of undying solidarity. ‘Your success will be our success,’ Sigmar told me early on in the meeting. He added, without my prompting, that what had been done to Greece was sinful and would stigmatize Europe for a long time, blaming it on the Christian Democrats’ domination of EU politics at the time of the 2010 euro crisis. When I suggested that our government’s election was an opportunity for Europe to get its act together, not just in the context of the Greek drama but by redeploying existing institutions to procure the macroeconomic stability necessary to fend off the rise of nationalism, right-wing populism and xenophobia, Gabriel looked positively overjoyed. He even listened intently while I explained the basic elements of our Modest Proposal, promising to look into them in detail.
Then the conversation moved to matters specifically Greek. I made my pitch for debt-swap operations, handing over my non-paper. He seemed well disposed and even went so far as to say that a debt restructuring was long overdue. But his preference was to focus on tax evasion and industrial development. That was fine by me, as it gave me the opportunity to explain what I was trying to do with my team of untouchables and their algorithmic pursuit of tax cheats, as well as my plans for a development bank that would use Greece’s remaining public assets to elicit homegrown investment as part of an industrial policy targeting Greece’s most promising sectors.
Gabriel seemed satisfied with the direction of the conversation but wanted to raise a practical point. While yachting in Greece the previous summer he had been appalled at how difficult it was upon mooring his yacht in almost any of the island harbours to pay his mooring fees. He would approach the coastguard officer in charge only to be told, ‘It’s OK. There’s no hurry – give me whatever you wish,’ with no receipt for payment or indeed any sign of due process.
I agreed that informality used to cover up petty corruption, which cumulatively affects the economy and society as a whole, was a major problem that my ministry simply had no resources to address. I also related to Gabriel how in the summer of 2014 the number of people arriving in Mykonos and Santorini, the two Cycladic islands most popular with tourists, had doubled, and yet during the same period VAT receipts had declined by 40 per cent. When I put this scandalous situation to the man heading my ministry’s Economic Crime Fighting Unit, I was told that as a result of years of austerity cuts and attempts by the troika to sideline the ECFU, his staff had been reduced to no more than one hundred people for the whole of Greece. When he dispatched officers to Mykonos or Santorini, the culprits would get word that they were heading their way even before their ferry boat had left Piraeus harbour.
To get to the bottom of these corrupt practices, I told Gabriel, we needed innovative methods that put the fear of God into tax cheats. He agreed and suggested that probity would return only if proprietors were worried their next customer might be working for the tax office. I told him that I was already considering authorizing the tax office to employ outside personnel whose job would be to pose as regular customers at bars, restaurants, petrol stations, doctors’ surgeries and the like. Lacking enforcement authority, their job would simply be to record transactions electronically so that the authorities could then work out if there were grounds for investigation or prosecution. Once the word spread that the tax office had eyes that saw and ears that heard, a gigantic amount of petty tax evasion would end, with tremendous benefits to the state’s finances. Gabriel was keen on the idea, and as we were walking to the press room for yet another joint press conference put his arm around me and encouraged me to implement it.
Once at our respective lecterns in front of the cameras, the microphones and assorted journalists, it was déjà vu. More specifically, it was Paris all over again. Gabriel was a changed man. Once again a European social democrat attempted to out-Schäuble Schäuble in public. All the talk about a joint social democratic project for Greece and Europe vanished. The common ground we had established on industrial policy, ending austerity and debt restructuring gave way beneath my feet. The meeting of minds regarding strategies for tackling tax evasion evaporated. All was replaced with aggression towards my government and a harsh lecture on my obligations to our creditors, which were paramount and beyond negotiation. To add insult to injury, he added a reference to the troika’s ‘flexibility’.
With my by-now outstandingly low expectations of Europe’s social democrats further downgraded by my previous night’s experience with Jörg and Jeromin, I continued unperturbed and gave my standard spiel about our government’s quest for sustainability by means of moderate proposals to recalibrate radically the troika’s failed Greek programme. But as we were leaving the press room, I asked Sigmar how easy it was for him to say one thing in private and quite another in public. ‘It is something that I’m finding very hard,’ I added.
He claimed not to understand what I was referring to but did say that being in coalition with the Christian Democrats was constraining. I responded that he should learn the lesson of PASOK, the Greek social democratic party, which had had a similar habit of adapting their narrative to suit their coalition with the New Democracy conservatives. ‘They crashed from 40 per cent to 4 per cent. I would not want to see the party of Willy Brandt go the same way’ were my last words to him.15
A month later I proposed to the ‘institutions’ the idea of Greece’s tax department employing outside personnel in an attempt to shift Greek social norms away from habitual petty tax evasion – just as I had discussed with Sigmar Gabriel that day. This was just one of many reforms to the tax office that I put forward, the most important being enforced digitization of transactions and a limit of fifty euros on cash dealings. Troika officials leaked the proposal to the press, which went to town. Instead of the serious reforms demanded by the troika (such as raising VAT rates in a broken economy where people evaded VAT), I was portrayed as putting forward foolish proposals involving wired-up tourists and housewives encouraging Greeks to snitch on their neighbours.
Did Sigmar Gabriel or any in his circle defend the proposal that he had seemed so keen to see me implement? The answer may not surprise you. If anything, his office helped spread the propaganda. If anyone wonders about the nature and causes of the general Waterloo now facing European social democracy, this story may provide some clues. Of course, compared to the way Sigmar Gabriel was to behave four months later, during the last week of June 2015, this change of heart does not even register on the Richter scale of cowardice.
8 The frenzy before the storm
I returned to Athens late on Thursday night. My first Eurogroup meeting was scheduled for the following Wednesday (11 February). We had a long weekend in which to prepare.
For three days and nights the sixth floor of the ministry teemed with a group of people sent by Lazard and my own close associates, which included Glenn Kim, Elena Panariti, former PhD students and other technical experts who had volunteered to help. At the top of the agenda were three crucial documents that had to be tabled at the Eurogroup: an up-to-date debt sustainability analysis (DSA) demonstrating how the debt swaps I was proposing were not only consistent with recovery but indispensable for returning Greece to sustainable growth; a list of proper, progressive reforms to replace the troika’s programme; and a proposal for a more rational and efficient process for monitoring Greece’s progress. At the same time Jamie Galbraith arrived from the United States and took up residence in a small office hidden within the ministerial suite. I greeted him with a hug and the words, ‘Welcome to the poisoned chalice.’1, 2
The quality and volume of everyone’s work was impressive and the source of great optimism. But to put together a comprehensive policy document for nationwide reform, the team required input from the other ministries too. Early on Friday morning I had put a call out to each of my cabinet colleagues, asking them to send through a complete set of the reforms they were planning to implement. Once they had arrived on the sixth floor, the team assessed these contributions and came to see me in my office. It was not looking good. Most were simply slightly edited versions of Syriza’s pre-election policy proposals, half-baked and badly written up. We would need to put a great deal of work into them before they were presentable in Brussels. Of course that was as it should be: we were a new government and needed what most new governments need – a honeymoon period in which pre-election plans could be developed with the help of experienced civil servants into implementable policies. We did not have that privilege, perhaps because ours was less a government and more a committee planning a mass escape from Bailoutistan.
While sifting through the material that would go into my submission to the Eurogroup I received an email from Willem Buiter, Citigroup’s global chief economist, offering to help in any way he could and expressing his amazement and anger at the ECB’s move to withdraw the waiver ‘so early’. Hours later Paul Krugman addressed the same issue in his New York Times column: ‘Maybe the Germans imagine that they can replay the events of 2010, when the central bank coerced Ireland into accepting an austerity programme by threatening to cut off its banking system. But that’s unlikely to work against a government that has seen the damage wrought by austerity, and was elected on a promise to reverse that damage.’
This was precisely what I was hoping: that our government stayed steadfast against Berlin’s attempt to deploy the ECB against us. My only objection to the article was its title, A GAME OF CHICKEN. For years I had been arguing that our interactions with Greece’s creditors, and Berlin in particular, were nothing like a game of chicken: if the one who blinks first loses, it only makes sense to hold your ground if you think that in the end your opponent will back down. In our case, however, as Krugman himself admitted, we had every reason to stay unswerving even if we thought Chancellor Merkel and President Draghi would do the same. This was the essence of my covenant with Alexis.
In the meantime, the High Noon narrative was particularly damaging to our cause because it distracted public opinion worldwide from what was really at stake: the common interests of all Europeans. To address this I authored an op-ed for the New York Times entitled NO TIME FOR GAMES IN EUROPE.3 In it I made three points: first, as finance minister of a bankrupt small nation I lacked the moral right to bluff. All I could do was honestly present the economic facts, table proposals for re-growing Greece, explain why these were in Europe’s interest and reveal the red lines beyond which logic and duty prevented us from going. Second, as I used to tell my students, game theory only applies when you can take the players’ motives for granted. In poker or blackjack this assumption is unproblematic, but in the current deliberations, I wrote, ‘the whole point is to forge new motives. To fashion a fresh mindset that transcends national divides, dissolves the creditor–debtor distinction in favour of a pan-European perspective, and places the common European good above petty politics, dogma that proves toxic if universalized, and an us-versus-them mindset.’ But what if refusing to back down brought the Greek people much pain? My third point was simply that there are ‘circumstances when we must do what is right not as a strategy but simply because it is … right … One may think that this retreat from game theory is motivated by some radical-left agenda. Not so. The major influence here is Immanuel Kant, the German philosopher who taught us that the rational and the free escape the empire of expediency by doing what is right.’
In addition to writing this article and the frenzy of preparation for the Eurogroup, I had two other distractions to contend with. One was my first appearance in parliament, on the occasion of the election of the new speaker and my and Euclid’s belated swearing-in (delayed because of our travels). The second was a visit from the US ambassador, who would be accompanied by a delegation from the US Treasury.
At midday on Friday, 6 February, I walked to parliament alone, stopping briefly to speak with well-wishers as I crossed Syntagma Square. Entering the house as an elected MP filled me with pride. A tall policewoman realized I was a novice and gave me directions through the building’s unfamiliar corridors to the ministers’ entrance to the chamber. Walking through that door, I found myself suddenly amid the ministerial benches, with the podium to my left and the speaker’s bench towering above. In front of me, arranged like an amphitheatre, were three hundred seats, one for each member, the same number as there were Spartans at the famous battle of Thermopylae. On the far right (appropriately) I couldn’t help but recognize the seventeen MPs of the Golden Dawn, so keen were they to dress and look like Nazis.
The decision to appoint Zoe Konstantopoulou speaker was rich in symbolism. Over the previous two parliamentary terms this impressively tall and uncompromising Syriza MP had single-handedly exposed the gross violations of procedure employed by previous governments to pass the legislation dictated by the troika. Voting her in as the speaker was a joy and a statement that never again would parliament be reduced to rubber-stamping its own servitude. And when a few moments later Zoe called upon me to affirm my allegiance to the constitution and thus become formally an MP, I felt impervious to the slings and arrows already being aimed at me from Brussels, Berlin and Frankfurt.
It was in this mood that I walked back across Syntagma Square to the ministry to receive the US ambassador and the delegation that Jack Lew, the US Treasury secretary, had dispatched from Washington, DC. Jeff Sachs and Jamie Galbraith had been hard at work lobbying key US officials such as Janet Yellen at the Fed, Samantha Power at the UN and David Lipton at the IMF to help secure us a ninety-day breathing space free of threats to our banking system or deadlines for impossible repayments in which to conduct our negotiations. Given President Obama’s helpful public statement shortly after our election, not to mention Bernie Sanders’s exquisite letter to Christine Lagarde, I felt confident that the United States would be an important source of support. Alas, my meeting with the ambassador put paid to that particular expectation.
Nothing of what the ambassador said was in sync with Barack Obama’s publicly stated view that ‘you cannot keep on squeezing countries that are in the midst of depression’. On the contrary, he went to some lengths to lecture me on how important it was to accept the parameters of the programme and to go along with the IMF. I did not see how I could do both, I informed him, since the IMF had been saying for a while now that the Greek programme could not work without serious debt restructuring and the relaxation of current levels of austerity. Indeed, the IMF’s European chief, Poul Thomsen, had told me explicitly at our meeting in Paris that we needed to erase €53 billion of Greece’s public debt immediately and recalibrate the programme to minimize austerity and rewrite the reform agenda. With the ambassador looking uncomfortable, I turned to the US Treasury delegation and asked them for their opinion on the matter. Their response seemed much more in tune with Obama’s line, but within minutes the ambassador was interjecting to restate his uncompromising message.
There was no doubt that, for whatever reason, America’s ambassador to Athens was following a line different to that of the White House and possibly of the US Treasury. But as time went by, I would discover that Jack Lew’s Treasury was also edging closer to the views of the ambassador than those of the president. The fact that Lew did not invite me to Washington during those first weeks, contrary to President Obama’s suggestion to Alexis, should have alerted me to this rift. At that moment though only one thing mattered. When Jeroen Dijsselbloem tried to bully me into submission a few days before, I had stood up to him. Not to do the same now would have been an indefensible and anti-European double standard.
Looking out of the window on that clear winter’s day to where the inimitable Attic sun bathed Parliament House in vibrant colours, I began by confessing to the ambassador that I had never aspired to be a minister. Yes, I was happy to be doing the job, I told him, but only out of my sense of duty to a nation in debt bondage, a duty whose sole purpose was to rewrite the terms of our contract with the EU and the IMF, so as to turn it from a predatory relationship into a workable and equitable one. So accepting the current parameters of that contract was simply not an option. Here again the ambassador interjected, this time with a vague, implicit but perfectly recognizable threat. Out of respect for the people who had appointed me to my office, I felt obliged to cut him short.
‘Ever since I assumed this ministry, this room has become the focal point of the hopes and expectations of millions. But it is not my natural habitat. My natural habitat is out there,’ I said, pointing to Syntagma Square. ‘I am happier there demonstrating against this office, as I have been doing since I was thirteen. If I am pushed to pledge allegiance to the failed programme that condemns my people to a continuation of our present indignity, rest assured that I will jump at the opportunity to return there as one of thousands of demonstrators. It would in fact make my day.’
The ambassador got the message and was soon on his way. I would not have been surprised to learn that, upon returning to his embassy, he had dispatched a wire: ‘Varoufakis is not for turning. If the present programme is to continue, his removal is imperative.’ What I did not know was who the recipient of such a message might be. The State Department? The White House? The Treasury? By mid-April I had a fairly good idea.
Pre-positioning: the 70 per cent gesture
On Saturday morning, 7 February, I attended our first cabinet meeting. Oscar Wilde’s quip about democracy was at the back of my mind: ‘It is impractical, and it goes against human nature. This is why it is worth carrying out.’4 Having wasted a few precious hours on a largely ceremonial occasion at which too many of us spoke for too long to say too little, I rushed back to the office, where the Lazard team and my people were working on the three non-papers I would be taking to Brussels.
I felt they were coming along satisfactorily. Our debt sustainability analysis, helped also from afar by Jeff Sachs, was irrefutable in its empirical findings and projections and lent clear support to the debt swaps and the fiscal policy I was proposing. The reform agenda was comprehensive, especially our proposals for the management of public assets and the banks’ non-performing loans, even if the contribution of key ministries (labour, energy, health, the environment) was thin. Lastly, the proposed replacement for the troika’s process was undeniably sensible: our plan was to unbundle the troika into its component parts, with the ECB concentrating on its primary mission, namely to keep the banks liquid and the financial markets stable, the IMF offering technical assistance on a number of areas, and the European Commission undertaking all political negotiations with the Greek government.
By Sunday night the three papers were complete, allowing me to concentrate on preparations for my first big moment in parliament, the delivery of my programmatic statement, the finance minister’s outline of economic policy for the parliament’s full term, which would take place the following morning. With my first Eurogroup due within twenty-four hours, this was also an opportunity to set out the proposals I would be making there and the spirit in which they would be conveyed. With this in mind, I focused my statement on four themes: transparency, analysis, commitment to uncompromising moderation and, finally, a major gesture of goodwill to our creditors.
‘I have this idea, ladies and gentlemen,’ I began my speech on Monday, ‘of trying out an innovative policy: of coming to the house to address members truthfully about the economic situation facing the country.’ Unlike previous finance ministers, who had presented our economy’s terrible free fall as a success story of recovery, I promised I would continue to refer to our state as bankrupt until we achieved solvency. This was what I meant by transparency.
I then suggested that the failure of previous governments to rescue Greece from its plight was due to their acceptance ‘of impossible conditions they could never carry out, even if they had intended to – an acceptance which made successive Greek governments almost as guilty in accepting what they could not fulfil as the creditors were in imposing what they were not entitled to exact’.5
This was what I meant by analysis: ‘If the troika’s programme was a very bitter medicine that cured our disease, I would recommend taking it. But it is not. Their programme is poisonous and only worsens the Greek patient’s condition,’ I concluded. The best strategy was to stop taking it. Otherwise, it threatened to poison the whole of the European Union with its deflationary effects, as it had been doing since 2010, the only beneficiaries being the ultra Right and the enemies of liberal democracy.
