If it did not matter when they pulled the waiver, I argued, then there was no need to do it that very afternoon. ‘Why not wait for the Eurogroup meeting only a few days away? Why snuff out the gains I just made in London?’
His only comeback was to insist that it was not he who was proposing the waiver be removed, implying again that it was out of his hands.
At this point I could have lambasted the president of Europe’s central bank for washing his hands of a major decision taken by his own board that would destroy precisely the thing that central banks were created to shore up: market confidence. But I did not, partly because there was a slim chance that he did oppose the waiver’s removal but was unable to stop it. Instead I told him that I trusted he would be able to prevail upon the ECB Governing Council to keep the waiver and thus not jeopardize yesterday’s Athens stock exchange revival, just as I trusted that he would support my debt restructuring proposals. ‘I am saying this here, at the ECB, because it is in this building not in Brussels that Europe has the experts capable of understanding and supporting them.’
The first item in my non-paper was the proposal to swap the SMP bonds held by the ECB for a new Greek government perpetual bond. This was sensitive ground. The SMP bonds were, as we both knew, the backbone of my deterrence strategy and his Achilles heel. If Greece unilaterally wrote them down, we would in all probability wreck his quantitative easing programme. I wondered what he would have to say about them.
His tactic was to skirt around the issue, dismissing the idea of a swap as a form of ‘monetary financing’ and therefore impossible. I begged to differ: a write-down might, I conceded, be interpreted strictly as an indirect form of monetary financing, but my proposal was for swapping one kind of debt (short term) for another (infinitely long dated). The Greek government would continue to owe the ECB €27 billion, but instead of repaying that capital within a few years it would undertake to make regular if small interest payments to the ECB ad infinitum. No write-down, no monetary financing. ‘This is something that the authors of the ECB rules could not have banned simply because they had never considered it,’ I concluded.
Unexpected help came from Benoît Cœuré. He turned to Draghi to say that my proposal had merit and should not be dismissed. Even if the ECB was reluctant to accept a new Greek perpetual bond in return for its remaining SMP bonds, maybe we could ‘triangulate’: the European Stability Mechanism (ESM), the EU’s bailout fund, could give €27 billion in cash to the ECB in order to redeem the SMP bonds, while Greece could issue its perpetual bond, with a face value of €27 billion, and give it to the ESM. I immediately recognized a further merit of Benoît’s idea, which was that by leaving no Greek bonds on the ECB’s books (perpetual or SMP), Greece would qualify for Draghi’s forthcoming round of quantitative easing.10
Quickly changing the subject, Draghi complained that my public comments about the insolvency of the Greek banks were making it hard for him to keep them open, given that his rulebook banned him from keeping insolvent banks afloat. I responded by pointing out that the waiver the Greek banks had been granted was itself a clear admission that they were insolvent; why grant it otherwise? The problem was that this temporary fix had become permanent as a result of our collective failure to deal with the underlying insolvency. ‘Surely our task now is to end the death embrace, the doom loop, between insolvent banks – that the ECB is forced to keep afloat against its rules – and an insolvent state at which Europe’s taxpayers keep throwing good money after bad?’
Peter Praet and Sabine Lautenschläger, sitting on Mario’s left, looked aghast, not because what I was saying was preposterous but – I am convinced – because it was very close to their own criticism of the Greek bailouts and the ECB’s role in them. Praet began to question me on privatizations. I gave the same answers as I had in London when addressing my City friends. They seemed satisfied with the argument but unhappy with the reality on the ground in Greece – my feelings entirely! After a few more questions and a short statement from Euclid, which was a little more combative than mine, the meeting drew to a close.
As we were leaving, Mario approached me and together we left the boardroom. Walking along a corridor, away from others’ ears, he attempted to mollify me on the issue of the possible withdrawal of our waiver by the ECB’s Governing Council that afternoon. I would have none of it.
‘Mario, I shall hold you personally responsible if the waiver is removed on the day after I pushed the banks’ shares up by 20 per cent. If you do this it will be a first in the history of central banking – a central bank working to undermine a finance minister’s success at improving market sentiment.’
Draghi looked coy. Again, he protested that it was really not up to him; that he did not control the ECB Governing Council. Once more he argued that I was not helping him keep the waiver by continuing to speak of his Achilles heel, the possibility of a unilateral haircut of the SMP bonds.
All I wanted was for us to work together, I reassured him. ‘Not only will I not haircut those bonds unilaterally, I will not even think of it – as long as you do not close down our banks,’ I promised.
‘I will do my best,’ he replied. ‘But it is not always up to me.’
Time and again since the euro crisis began, I have had to correct the fundamental misconception that it is a tussle between Germans and Greeks, north and south, between a stingy Berlin and a profligate European periphery. On the contrary, the enemies of European solidarity, rationality and enlightenment reside in Greece, in Germany, in Italy – everywhere. And the same is true of their defenders.
After the ECB meeting a couple of media engagements kept me in Frankfurt for a few hours. During that time I was accompanied by four German secret service bodyguards, two walking ahead, two trailing a few steps behind. Whenever we took cars, they would get in last and alight first to size up the surroundings. Unsmiling and intense, with their crew cuts, earpieces, microphone cufflinks, rubber boots and subtle uniforms, they were impervious to my objections to their constant presence.
When my interviews were done, they took me to the airport, where they continued to do their thing, silently, efficiently, as I made my way through to catch my flight to Berlin. Before boarding the plane I asked for permission to go to the loo. One of them, obviously the team leader, followed me inside, standing too close for comfort. But I knew he was just following orders so I relaxed, and soon I was washing my hands and on my way out.
Before we reached the other three bodyguards, who were waiting by the gate, he spoke for the first time. In very good English he asked permission to address me. ‘Of course,’ I said.
‘Minister,’ he said, ‘I want you to know that what you are doing is very important – not only for your country but also for us. You are giving us hope that there is a chance that we shall be liberated too.’
Whenever I hear people, including friends and supporters, tell me that Europe is finished, that there can be no common path for Germans, Brits, Italians and Greeks, I reach into my memory to retrieve the words of that German secret service officer.
It’s for you!
Soon after landing in Berlin I was scheduled to have a secret dinner with Jörg Asmussen and Jeromin Zettelmeyer. Asmussen was the junior minister for labour affairs, but a key figure in the German political system with close contacts at the ECB, where he had been a member of the Executive Board until a year before, and a power broker within the Social Democrats (SPD), the federal government’s junior coalition partners. Zettelmeyer worked directly for Sigmar Gabriel, the vice chancellor of the federal government, economy minister and SPD leader. The purpose of the dinner was ostensibly to build bridges between the Syriza government and the section of the German government controlled by the Social Democrats. They presented themselves as our allies and supporters within the Berlin administration, offering me advice and protection from the ‘big bad wolf’, as one of them jokingly referred to Wolfgang Schäuble.
The agreement was that I would go to the restaurant alone, incognito and by cab, and that I would not tell anyone we were meeting. The implication was that it would backfire on all of us if word leaked. ‘Let’s keep this just among ourselves,’ Jeromin had said to me on the phone. Of course the fact that he called my mobile meant that it was already quasi-public knowledge – as Yannis Roubatis, our government’s head spook, had explained to me. Just as I was ready to leave my hotel room, I received an email from Jeromin telling me that they had changed the restaurant booking because the original choice was ‘too public’, confirming once more the importance of discretion. Partly because of this emphasis on secrecy, and partly because I was exhausted and looking forward to disconnecting for a couple of hours, I left my mobile phone in my room.
I found a taxi in a cold dark street nearby and gave the driver the address of the out-of-the-way pizzeria where we were now meeting. On arrival, as per my instructions, I walked upstairs to the first floor, which had been reserved just for us. Over pizza and red wine a friendly discussion developed.
Jörg and Jeromin spoke to me like friends, comrades even. It was becoming a pattern among social democrats, I thought, recalling my encounter with Michel Sapin. The objective, as they put it, was to create a common Syriza–SPD agenda sophisticated and sensible enough to make it hard for Angela Merkel and Wolfgang Schäuble – their Christian Democrat colleagues in government but political opponents in general – to oppose. It sounded good to me. Too good, to be honest. Then again, if a decent agreement could be hammered out with Jörg's and Jeromin’s help, fine. If not, what did I have to lose?
As our discussion drifted from one topic to another, the basic plan I was proposing seemed to satisfy them. The question that preoccupied them was what objections the Christian Democrats would make and how these could be addressed. The more we talked the more I felt as if I was having dinner with a pair of consultants working for my government. Until, that is, Jörg’s phone rang. He answered it, put the phone to his ear, then looked at me seriously and, without speaking a single word into the phone, said, ‘It’s for you. Mario wants to speak to you.’
So much for the secrecy of our meeting. These people don’t even try to keep up the pretence, I thought to myself. I got up, took Jörg’s phone and walked out into the dark corridor above the pizzeria’s kitchen, immersed in pleasant smells and noises.
‘Hello, Mario, what can I do for you?’
‘I wanted to let you know, Yanis,’ Draghi said in a steady voice, ‘before you learn it from the media, that as I foreshadowed this morning, the Governing Council voted to withdraw your banks’ waiver. But this does not mean much since your banks will continue to be supported by your central bank via emergency liquidity assistance.’
‘I appreciate you going through all sorts of interesting channels to find me and inform me in person, Mario,’ I said. ‘Since you are giving me the opportunity to respond in person on the telephone, allow me to say that this decision – the withdrawal of the waiver a day after I single-handedly lifted the banks’ shares and reversed the bank run, a week after our election, indeed a week before my first Eurogroup meeting, and three whole weeks before the expiry of the programme extension – can only be interpreted as a hostile, deeply political move by the ECB against my government.’
Draghi made a faint attempt to deny that there was anything political about this move but I would have none of it. It was a decision, I told him, that would be interpreted in Athens as an unwarranted, over-hasty and aggressive move concerted with the Eurogroup president’s ultimatum.
When I returned to the table I found Jörg and Jeromin in a different mood. I put on a brave face, pretending that nothing much had happened, but of course they knew better. Gone was the atmosphere of comradeship, of sharing in a joint project to rejig the Greek programme against Schäuble and Merkel’s designs. So I stopped pretending and let them have my assessment of the ECB’s decision. Asmussen replied as if he was still on the ECB’s Executive Board, whispering unconvincing excuses. All the heroic talk of a Syriza–SPD collaboration had evaporated with a single phone call that exposed the whole dinner for what it was: a clumsy set-up.
They were not bad people either
I returned to my hotel at around midnight, switched on my phone and called Alexis to tell him Draghi had pulled the waiver.
‘Be uncompromising but see if Gabriel can be of any help,’ he advised me sounding unperturbed.
‘Judging by his two messengers last night, Alexi, I am not hopeful,’ I said. We needed to signal persistently our determination to activate our deterrent the moment they pulled the ELA on our banks, I told him.
‘Get some sleep now. You have to be fresh for Schäuble,’ Alexis replied light-heartedly.
First I had to write a press release to soften the blow of the waiver withdrawal. The happy task of the finance minister, I ruminated: packaging a shock as a non-event.
Meanwhile, upon hearing the news, the ever-vigilant and helpful Glenn Kim sent me an email with his analysis of its immediate financial effects. It confirmed that even before the stock exchange opened or depositors had a chance to make fresh withdrawals, the banks would take a major hit.11 My task was to pen a statement that on the one hand hinted at my intense disapproval of the ECB’s aggression while at the same time it steadied nerves, minimized the inevitable sharp turn in market sentiment and preserved some of the gains I had made in London.
Anticipating that when I went to see Schäuble the following day I would be accosted outside the federal finance ministry by journalists demanding a reaction to the ECB move, I prepared the following statement.
The ECB is basically trying to abide by its own rules, motivating both us and our partners to reach a political and technical agreement quickly, while keeping the Greek banks liquid. I trust that Greek depositors understand that day-to-day stability is guaranteed and that we are negotiating new terms that will bring recovery and a permanent solution. To us, the timing of the ECB decision was particularly surprising as it risks creating an unnecessary sense of urgency, given that we had until 28 February before the current Greek programme expires. I trust that the hasty decision was due to the timing of the ECB Governing Council’s regular ‘non monetary policy’ meeting yesterday. From their point of view, it was probably the right timing.
