On the theme of uncompromising moderation, I had this to say:
Tomorrow I shall be telling my Eurogroup colleagues that we accept the principle of continuity between previous government undertakings and our new government’s mandate … Ours is not the only democratic government in the eurozone. We have a mandate but so do the other eighteen finance ministers sitting in the Eurogroup … But this means establishing common ground, throwing a bridge over our differences … It will take goodwill to do so and a period of calm, free of the type of threats that have unfortunately been issued … I commit to not passing any legislation during the negotiations that derails our target for a small budget primary surplus. At the same time I expect our partners to take our proposals and our analysis seriously … This is what a negotiation ought to mean.
From the opposition benches several New Democracy and PASOK MPs interjected boisterously. ‘Negotiate as hard as you want,’ they shouted, ‘but rule out falling out with the troika. Rule out any rupture!’ I gave the only logical response I could:
If you cannot imagine walking out of a negotiation, you should never enter it. If you cannot fathom the idea of an impasse you might as well confine yourself to the role of a supplicant who implores the despot to grant him several privileges but who accepts in the final analysis whatever the despot grants. This was not our mandate on 25 January. Our mandate was to negotiate. Which means to work towards avoiding a rupture while refusing to rule out a rupture. This is what I promised voters and this is what we are delivering. You had your chance of getting the country out of debtors’ prison through your model prisoner strategy. Now it is our turn to try to liberate Greece through a genuine negotiation.
A heated debate ensued, though I had not even reached the most controversial part of my speech, the gesture of goodwill to our creditors: ‘As reasonable partners we shall include in our reform agenda up to 70 per cent of the measures in the existing programme and augment them with a plan to combat the humanitarian crisis that has afflicted our people after years of politically motivated denial of the crisis’s causes and nature.’
The official document describing Greece’s programme, known as the Memorandum of Understanding (MoU), was a list of reforms (austerity targets, the institutional elimination of social benefits, privatization targets, administrative and judicial changes and so on) that the previous government had agreed to as the conditions (conditionalities in troika-speak) for receiving the second bailout loan. There was no way we would implement these conditions in full, since doing so would involve accepting massive pain for absolutely no gain, especially as more than 90 per cent of the bailout loan had been disbursed before we were even elected. However, careful study of the MoU list in 2012 had made clear to me that many of its measures could be implemented without too much social damage. Accepting these elements, which comprised about 70 per cent of the MoU, in return for our demands, while rejecting the genuinely toxic measures of the remaining 30 per cent, was a strategic move. As I had argued in my op-ed in the New York Times, when one finds oneself bargaining from a position of relative weakness, as we did, it is sensible to make all the compromises upfront and then stick to one’s guns without bluffs or stratagems.
This gesture provoked a great furore: the establishment parties accused me of not having yielded enough to the troika, while leftists lambasted me for having given away too much. The following morning I had the opportunity, as finance minister, to wrap up the debate that preceded parliament’s vote of confidence in the incoming government. In my speech I tried to put the matter to rest.
For us the bailout that we reject means one thing: the combination of new loans piled on existing non-payable private and public debt which come under conditions that reduce the incomes from which old and new debts must be repaid … What percentage of the twisted bailout logic do we accept? Precisely zero per cent. We shall not accept a single measure that reinforces the doom loop boosting the debt-to-income ratio or the tax rates imposed on those who are already exhausted by punitive taxation. We shall not accept even one of the MoU lines that sacrifices a single Greek citizen on the altar of reality denial.
But, I concluded, an agreement requires compromise on both sides. Many of the measures in the MoU list were unproblematic and could be implemented without any of the sacrifices that we rejected as unacceptable. Indeed, some of the measures, such as the idea of a minimum guaranteed income, were to be desired.
In normal circumstances this position would surely have been considered sensible and moderate. After all, it was those at the extremes – committed Grexit-supporters on the one hand and die-hard troika loyalists on the other – who were angered by it. But Greece is not living in normal circumstances.
Enlisting the OECD
Before I headed off to Brussels for the Eurogroup meeting I had arranged to receive a delegation from the Organization of Economic Cooperation and Development (OECD). Created by Washington in 1950 to administer the Marshall Plan in postwar Europe, the OECD was one of the three major institutions designed by the United States to keep another Great Depression (and thus the Soviet bear) at bay, the others being the IMF and the World Bank.
It so happened that I had a good personal relationship with the OECD’s secretary general, Ángel Gurría. Our good chemistry was born out of a common appreciation of the need to restructure unsustainable debt. Ángel had made his name as the finance minister of Mexico who had negotiated a major haircut of its unpayable public debt in the 1980s. Before I even imagined that I would become Greece’s finance minister, Ángel had invited me to the OECD’s offices in Paris to give a lecture on the European crisis and to meet him and his team as part of the regular briefings they organized to keep abreast of the latest thinking about global capitalism. After the fateful late-night meeting with Alexis in November 2014 when I accepted his offer of a role in the government, I reconnected with Ángel and his people. Syriza did not have the expertise to come up with a bespoke fully fledged reform agenda on its own. Having such a prestigious global institution not only contribute to that agenda but then vouch for it once it was finalized would be a powerful means of pre-empting the inevitable criticism.
The OECD delegation had arrived the day before on Tuesday, 10 February. I met them in the roof garden of the Grande Bretagne, an historic hotel also on Syntagma Square. Over dinner we discussed Greece’s situation and found ourselves in complete agreement over our new collaboration. My single request was that they publicly ditch their so-called toolkits – a set of reforms that the OECD had put together at the behest of the troika and previous Greek governments aimed at ordinary people. Ángel promised that we would start afresh, conceding that the toolkits had not been the OECD’s finest hour.
The dinner lasted until after midnight. Early next morning we met again, this time at Maximos, in front of the cameras and with considerable pomp and ceremony. The prime minister welcomed the OECD’s secretary general, with myself, Deputy Prime Minister Dragasakis and Economy Minister Stathakis also present, thus formally making it known that the new Syriza government would be working closely with the rich countries’ club to develop a new pro-growth reform agenda. In his response to Alexis’s welcoming speech, Ángel Gurría expressed his enthusiasm at the partnership and, as agreed, his disavowal of the OECD’s toolkits, which would be replaced with better and more appropriate market reforms.
My appreciation and respect for the former Mexican finance minister grew that morning. He knew that the troika would be displeased and that the OECD would suffer the consequences of their displeasure. But hearing him speak those words confirmed that it was possible to join forces with globally credible institutions – that it was possible to have them as partners, not antagonists, in our efforts to bring fresh air to Greece to drive away the stench of stagnation and hopelessness.
Minutes after the official ceremony ended, I was in a car heading for the airport and Brussels. The first Eurogroup beckoned.
At the Eurogroup
A prison is not newsworthy when the inmates suffer quietly. But when they stage a revolt, and the authorities crack down, then the satellite trucks appear. Even before my plane landed in Brussels, the press was reporting Alexis’s recent speech in parliament as evidence we were rolling back reforms and digging our own graves.6 When I actually arrived at the European Commission’s building, where the Eurogroup was scheduled to take place, the din of the assembled press corps was impressive.
Before the Eurogroup meeting itself, I met Christine Lagarde, head of the IMF. Her positive attitude and openness to the proposals in our non-papers were a psychological boost. (It was at the end of this meeting that Christine made her plea that I work within the programme, despite her remarkable acknowledgement that it was destined to fail, as described in Chapter 2.) Afterwards, her message to the gathered journalists was: ‘They are competent, intelligent, they have thought about their issues. We have to listen to them. We are starting to work together, and it is a process that is starting and is going to last a certain time.’
A short way down the corridor, as we made our way to the meeting itself, we came across Jeroen Dijsselbloem. Seeing Christine and me engaged in friendly conversation, Jeroen looked decisively sullen. Perhaps the unhappy memory of his luckless visit to see me in Athens had sprung to mind. We entered and took our places.
The Eurogroup is an interesting beast. It has no legal standing in any of the EU treaties and yet it is the body that makes Europe’s most vital decisions. At the same time most Europeans, including most politicians, know almost nothing about it. It convenes around a huge rectangular table. Finance ministers are seated along its two longer sides, each accompanied by a single aide who also represents them in the Eurogroup Working Group. However, real power sits at either end of the table.
At one end, to my left, sat the Eurogroup president, Jeroen Dijsselbloem. On his right was Thomas Wieser, the Eurogroup Working Group president and the real power at that end of the table; on his left were the IMF representatives, Christine Lagarde and Poul Thomsen. At the other end of the table was Valdis Dombrovskis, commissioner for the euro and social dialogue, whose real job was to supervise (on behalf of Wolfgang Schäuble) Pierre Moscovici, the economic and financial affairs commissioner, who sat on the Latvian’s left. On Dombrovskis’s right, meanwhile, sat Benoît Cœuré and beyond him Mario Draghi representing the ECB.
At the same corner of the table as Draghi, but on the longer side and at right angles to him, sat Wolfgang Schäuble. Their proximity would on occasion give rise to intense heat, though never any actual light. Along the same side as Schäuble were what I came to see as his cheerleaders: the Finnish, Slovakian, Austrian, Portuguese, Slovenian, Latvian, Lithuanian and Maltese finance ministers. My seat was almost diagonally opposite Schäuble’s, alongside the other profligates, nicely lined up together: to my left was Ireland’s Michael Noonan, to my right Spain’s Luis de Guindos, and next to de Guindos was Italy’s Pier Carlo Padoan. France’s Michel Sapin also sat on our side, next to Padoan.
In normal Eurogroup meetings a fascinating ritual illustrated the manner in which the troika and its processes had taken over the governance of continental Europe – one reason why Greece’s appalling drama, which gave rise to the troika, is so significant. Every time an item was tabled for discussion – for example, the French national budget or developments in Cyprus’s banks – Dijsselbloem would announce the topic and then invite the representatives of the institutions to present their views in turn: first, Moscovici on behalf of the European Commission, then Christine Lagarde (or Poul Thomsen in her absence) on behalf of the IMF, and finally Mario Draghi on behalf of the ECB (with Benoît Cœuré stepping in on the rare occasions that Mario was absent).7 Only after these unelected officials had given their assessment and set the tone and terms of the debate did the elected ministers get a chance to speak. Moreover, for almost all the meetings at which I was present the ministers received no substantial briefing on any of the topics under discussion. A reasonable and impartial spectator might easily have concluded that the purpose of the Eurogroup is for the ministers to approve and legitimize decisions that have already been taken by the three institutions.
However, the Eurogroup meeting of 11 February 2015 was not a normal one. For the first time a country was being represented by a finance minister who had been elected on a platform of confronting the troika, the Eurogroup’s backbone. The air was filled with tension. Before the meeting Dijsselbloem had contacted Alexis with an offer to bend the Eurogroup rules that limit each member state to two representatives. Given this was our government’s first meeting and one of such vital importance, Jeroen was keen to allow the deputy prime minister to attend as well. And so, in addition to having George Chouliarakis, Dragasakis’s appointee, at my side, I had Dragasakis as well. Wassily believed this was an attempt by Dijsselbloem, in cahoots with Alexis, to dilute my impact. I did not mind at all. The more the merrier, I thought.
Continuity versus democracy
Finance ministers attending their first Eurogroup get the chance to present their policy priorities in a maiden speech. I began mine by appealing to my colleagues’ weariness.
I understand your fatigue with the Greek drama. But believe me, the Greek people have had much more than enough of it too … Our government faces the task of earning a precious currency without depleting an important capital good: we must earn your trust without losing the trust of our people. For their support is an important capital good in Europe’s struggle to sort Greece out and to render it stable and, indeed, normal.
Next I committed our government to sound finances, deep reforms and a wholesale assault on vested interests. ‘Why should you expect us to deliver that which other Greek governments have not?’ I asked. ‘Simply because we are not tied to any interest groups … We will not only commit to reforms, we shall deliver them.’
But to succeed in this we would need to have the people on our side. And this would require them to feel justly treated. This, I explained, was why we had rehired cleaners and school janitors whom the courts had judged to have been illegally dismissed by the previous government on the troika’s orders. This was why we had promised to reverse cuts to pensions for old people living beneath the (extremely low) Greek poverty line. This was why we were looking into ways of gradually restoring the minimum wage in the private sector. Those assembled in the Eurogroup had my commitment, I told them, that none of these small-scale measures would have a measurable fiscal impact. The price tag on these minor interventions in return for a renewed sense of justice was tiny. To think of the illegal firing of a cleaner as a reform, and her rehiring as evidence that reforms were being rolled back was unhelpful if not absurd.
To demonstrate our openness to the involvement of international organizations, I mentioned our new collaboration with the OECD and proposed to work closely with the IMF and the ECB in its areas of expertise, while calling upon the European Commission to play its role as political mediator between Athens and the other capitals. On the question of privatizations and the development of public assets, I declared our government to be
undogmatic … ready and willing to evaluate each and every one project on its merits alone. Quick fire sales of public property, when asset prices are deeply depressed, is not a smart policy. Instead the government will create a development bank, which will incorporate state assets, enhance their equity value through reforming property rights and use them as collateral for the purposes of providing, in association with European investment institutions such as the European Investment Bank, funding to the private sector … In association with the ECB we shall set up a public bank to clean up non-performing loans to render the banks able to support small business and families.
What happens, I asked, in a democracy when two principles clash? Democracies find a compromise that reflects the common will. That day we were facing such a clash, I suggested. There was the principle of continuity: our government, whether we liked it or not, had been committed by previous Greek governments to a programme. But there was also the principle of democratically mandated change: their governments, whether they liked it or not, were obliged to respect the fact that the Greek voters had given us a mandate to challenge that programme. What was our duty in this European forum? To establish a new partnership that found common ground between the previously agreed Greek programme and our government’s fresh mandate. To that end, I invited the IMF to state clearly its views on our debt’s sustainability and my debt-swap proposals.
Jeroen Dijsselbloem had joked in Athens that the EU already had a permanent debt reduction conference – the Eurogroup. I turned this into a proposal: ‘We welcome Mr Dijsselbloem’s recent statement in our joint press conference in Athens that the Eurogroup is the proper forum to act as a permanent European debt conference, addressing debt problems in euro-area member states. We therefore propose to create a specific Eurogroup working group gathering member states’ representatives and experts.’ (While speaking, I noticed the angry look that Schäuble gave a seemingly apoplectic Dijsselbloem and could not help but smile.)
I then moved from the essential business of restructuring our massive debt to the need for short-term financial stability. The troika was demanding that the bankrupt Greek state pay just under €5 billion to the IMF by July 2015 and then, during July and August, a further €6.7 billion to its own central bank. I proposed that we begin with a modest agreement that the ECB would pay back the €1.9 billion it owed Greece from its past years’ profits on our SMP bonds.8 This was Greece’s own money. If the creditors wanted us to keep up our repayments to them, the least they could do was give us access to our own money. Anything less would surely be an invitation to default.
Moreover, we propose to work urgently on a bridge financing mechanism to ensure Greece’s liquidity position over the coming months … Let me be very clear on this: the government asks for this … on the condition that it is the starting point for genuine negotiations in good faith for forging a different contract between us, based on a realistic primary surplus effort and efficient as well as socially just structural policies – including of course many elements of the previous programme that we accept. We need assurances on this point. Such an extension cannot be taken as acquiescence to the logic of the former agenda that has been rejected by our people.
After delving into some of the technicalities involved, I made my final plea:
Europe is whole and indivisible, and the government of Greece considers that Greece is a permanent and inseparable member of the European Union and our monetary union … Some of you, I know, were displeased by the victory of a radical left-wing party. To you I have this to say: it would be a lost opportunity to see us as adversaries. We are dedicated Europeanists. We care about our people deeply but we are not populists promising all things to all Greeks. Moreover, we can carry the Greek people along with an agreement that is genuinely beneficial to the average European. In us you will find trustworthy partners who do not see these meetings as a means of extracting something out of nothing, of gaining at anyone’s expense.
Elections versus economic policy
