The Penelope ruse
Delaying tactics are always used by the side that considers the ticking clock its ally. The troika’s approach was to give my proposals the Swedish national anthem treatment while refusing to make any proposals of their own beyond the non-viable programmme of their MoU, squeezing the last remnants of liquidity from the Greek state in the meantime. In addition, they deployed what I referred to as the Penelope ruse.
In the Homeric tale of Odysseus’ faithful wife, Penelope fends off aggressive suitors in her husband’s absence by telling them that she will announce whom among them she will marry only after she has completed weaving a burial shroud for Laertes, Odysseus’ father. During the day she weaves incessantly but at night unravels her work. The troika’s Penelope ruse had two elements. One was to threaten that if we dared make our proposals public, they would never be discussed – just as Penelope told her suitors that if they proposed to her before her weaving was finished, she would discount them from selection altogether. The other was to issue endless requests for data, for fact-finding missions to Athens, for information about every bank account held by every public organization or company. Like Penelope, they would spend all night undoing the spreadsheets of data that they had put together during the day.
Absurdly, they even demanded access to ministry departments that were entirely under their own control. It is a simple fact that parts of some Greek ministries – what I referred to as the holes in the Swiss cheese – sent their data and documents first to the troika for its approval and only later to us, their ministers. Nevertheless, the troika demanded the right to send people to Athens to visit those same ministries in order to gather the very data that they were sifting and approving before we had even laid eyes on it. The more data they mined, the worse the reality it purported to describe became, the greater our society’s pain and the faster our state’s liquidity evaporated.
Truth reversal and all or nothing
Meanwhile, Operation Truth Reversal was on. Through tweets, leaks and a campaign of disinformation involving key nodes in the Brussels media network, the troika spread the word that I was the one wasting time, arriving at meetings either with no proposals at all or with proposals that lacked quantification, consisting only of empty ideological rhetoric. In contrast, the troika succeeded in presenting itself as the champion of a wholly comprehensive solution that included reform of all aspects of Greece’s social economy. How I longed for such a comprehensive solution! Except that the troika was advocating one in name to make it impossible in practice.
No comprehensive agreement was possible – or indeed viable – unless it included some form of debt restructuring and provision to deal with the banks’ bankruptcy. Without this, no fiscal policy would add up in the long term, and no Greek would be willing to embrace the proposed reforms. But Berlin simply refused to discuss debt restructuring. Given how little time we had to strike a deal, a realistic approach would have been to identify four or five areas where agreement could be reached quickly, draft the necessary legislation, push it through Greece’s parliament and thus establish a foundation for a longer-term agreement. By insisting on a comprehensive deal in which everything was agreed at once – with the sole exception of the single issue on which everything relied – they ensured that nothing could be agreed at all.
Causal confusion
Bullies blame their victims. Clever bullies make their victims’ culpability seem self-evident. Of the three institutions I was dealing with, the ECB proved particularly adept at this. It all hinged on the vexed question of Treasury bills, or T-bills.
T-bills are short-term IOUs that a government issues to gain immediate access to liquidity. Usually T-bills are considered ultra-safe as they mature within, say, three months, and it is most unlikely that a government will go bankrupt in such a short time. So there is considerable demand for T-bills from institutional investors such as banks and insurance companies, who need to park their cash somewhere safe. Moreover, investors can post them as collateral with their central bank to get cash. In short, T-bills are almost as liquid as cash but they also bear interest. That’s why they are in demand.
However, the ECB places restrictions on how much outstanding T-bill debt a government can have at any one time, as excessive issuing of new ones can undermine trust in the government’s capacity to redeem its outstanding Treasury bills, rendering the T-bills themselves unsafe. In other words, T-bills provide a government with the equivalent of a credit card, with the borrowing limit set by the ECB. Greece’s liquidity between the 20 February agreement and the 30 June deadline depended for the most part on Mario Draghi maintaining our credit card limit and on there being continued demand for our Treasury bills among Greece’s banks. Previously, just after the Samaras government was elected, the ECB increased its T-bill limit from €15 billion to €18.3 billion – albeit for the purely self-serving purpose of funding the government’s redemption of its bonds held by the ECB.
However, when our new government took office, with only a few days before the cash ran out, demand for Greek T-bills dried up. Mario Draghi used this as evidence that our T-bills were too risky and thus justified banning the Greek banks from buying them, ostensibly to shield them from the risk but effectively to suffocate our government. By reversing the direction of causality, he created a lethal weapon against us. The fact that X happens before Y does not always mean that X causes Y. For example, the fact that the demand for toys increases prior to Christmas every single year does not mean that Christmas is caused by a prior increase in the demand for toys.
And so it was with my ministry’s T-bills. The reason demand dried up was the anticipation, fuelled by leaks from within the ECB, that the ECB would squeeze our government’s liquidity, thus bringing Greece to the verge of bankruptcy. Just as the anticipation of Christmas causes an increase in the demand for toys, so the anticipation that the ECB would asphyxiate us caused a decrease in demand for my ministry’s T-bills.5
Mario Draghi’s claim that he was only following the ECB’s rules in stopping Greek banks from buying new T-bills – thus preventing us from rolling over the debt from our outstanding T-bills into new ones as the existing ones matured – was ingenious. How can you blame a man for following the rules imposed on him by the charter of his institution? Surely there was nothing else he could do? Surely the fault was mine for imagining that I could convince him, through posturing and moralizing speeches, to do otherwise? It was simply prudent action on the part of an ECB that prioritized the health of our banks, the implication being that our government had brought its liquidity problems upon itself.
Or was it? In reality, after 2008 any attempt by the ECB to impose its charter rigorously and dispassionately would have ruled out any of the various waivers, reinterpretations and extraordinary shenanigans that have so far prevented the eurozone from collapsing altogether. Far from being apolitical, the ECB’s huge discretionary power over when to enforce its rules and when to circumvent them – when to strangle a government and when not to – make it the most political central bank in the world. Like any tragic despot too powerful to remain idle but at the same time powerless to act decently, Draghi ended up making our government the exception by imposing upon us rules that had been waived for everyone else.
The dragon’s teeth
While the ECB’s shameful threat to choke the Greek government was responsible for the lack of interest in our T-bills, we were nonetheless falling into Draghi’s trap by indulging an archaic leftist hostility to potentially advantageous foreign investment, enabling the troika to present us as boorish leftists who deserved the ECB’s asphyxiation. I was determined to put an end to this by killing two birds with one stone: by attracting foreign investment into the real economy while demonstrating our capacity to attract buyers for our T-bills.
Syriza’s instincts were right on one count: Greece did not need any more fire-sale privatizations. What we needed were patient investors willing to plough large sums of foreign money into our rusting infrastructure and breathe new life into our fading industry. If this required partial privatization, I was all for it. The best possible start I could make in this direction was to reverse Syriza’s foolhardy commitment to getting rid of Cosco, a Chinese-government-owned conglomerate, from the port of Piraeus.
Since 2008 Cosco had been running two of the three container quays in Athens’s main port. Moreover, after years of negotiations with previous governments, Cosco was close to securing a 67 per cent shareholding in a thirty-five-year lease of the third quay in a bid to control the port almost completely.6 From 2008 to 2015 Syriza had campaigned not only to prevent this but also to eject Cosco altogether from Piraeus. In fact a couple of my fellow cabinet ministers owed their election to parliament to this campaign.
Naturally, news of Syriza’s electoral success did not go down well in Beijing.
From a strategic perspective, it struck me as daft to antagonize Beijing at a time when the battle lines against Berlin, Frankfurt and Brussels were being drawn. Beyond strategy, however, I was also convinced that Syriza was wrong to target Cosco and the Chinese. Years before we came to power, while my Syriza colleagues railed against Cosco, I had published articles in which I not only backed Cosco’s involvement in Piraeus but went on to recommend the sale of Greece’s antiquated, dysfunctional and loss-making railway system to Chinese companies too. As I explained at the time, while I considered the privatization of British Rail a colossal blunder, Greece was in a league of its own. Our ports and railways were nineteenth-century museum pieces demanding massive investment that the Greek economy could not (and French and German companies would not) provide. China was the obvious solution. Chinese companies had access to billions in investment funding, remarkable engineering capacities and a long-term interest in completing their prized new Silk Road, linking China to Europe via the revamped Suez Canal and a railway from Piraeus to Central Europe, thus cutting freight delivery times to the heart of the continent by eight whole days as compared to sailing around Gibraltar to Rotterdam. All that was necessary was an honest, mutually beneficial agreement between the governments of our two ancient civilizations.
From my first day in office I had had it in mind to initiate this process. Glenn Kim had done his research and reported back with unsurprising news: yes, Beijing was disturbed by the anti-Cosco pronouncements of some of my cabinet colleagues, but there was a splendid opportunity to repair the damage by launching a charm offensive. Glenn summed up the tangible benefits of following his recommendations as follows.
First priority is to secure short-term funding for [Greece], which may be vital in the coming days ahead. Secondly, secure long-term investment monies that will bring about significant capital improvements in parts of the nation’s commercial infrastructure, as well as create potential new jobs. Thirdly, demonstrate to your European partners that the new government is able to attract key foreign investment monies in the earliest days of its administration.
Precisely what I had been thinking. To test the waters I had asked my secretary to accept a dinner invitation from the Chinese ambassador for the evening of 25 February. (Had I known as I was accepting the ambassador’s invitation that it would coincide with the drama over the letter requesting the extension of our loan agreement, I might have thought twice. I had to decline invitations from almost every ambassador to Greece in the aftermath of my election and appointment for lack of time.) The fact that I chose to drop everything in order to keep this appointment was a measure of the importance I attached to mending fences with the Chinese and investing in a long-term relationship with them.
The night before, I had explained the significance of the dinner to Danae. On the 25th, having rushed from Maximos back to our flat, I was startled and pleased to see Danae wearing a fabulous Chinese silk dress that she had bought in 2006, when we had visited Shanghai on our travels – during a different lifetime, it seemed. The ambassador and his wife were clearly pleased by my acceptance of their invitation, not to mention Danae’s dress, but at first hid behind a veil of reserved courtesy. However, by the end of the night the mood had turned positively upbeat, friendly, celebratory even.
During the entrées and main course I listened as the ambassador gave the Chinese side of the story. In a soliloquy that conveyed great frustration he beseeched me to avert any hostile actions against Cosco. Clearly mistaking me for one of the contingent within Syriza keen to evict the Chinese from Piraeus, he was aiming low, hoping only to convince me that it would be terrible to undo what Cosco had already built up. Thus when I stated my case during dessert, the ambassador could not contain his satisfaction. While acknowledging that there would be resistance within Syriza, I shared my vision with our host – a vision that not only involved an enhanced presence for Cosco in Piraeus, under specific conditions, but a lot more to boot.
‘Greek shipyards are dying, and skills acquired over millennia are dying with them,’ I told the ambassador. So I proposed, in a second phase of collaboration, that Cosco and other Chinese companies should invest in our three main shipyards, turning them into repair hubs for the container ships that Cosco would increasingly attract to our part of the Mediterranean. ‘But what is the point of securing the port of Piraeus,’ I continued, ‘if the railway that will transport your containers to central Europe is derelict, slow and unsafe?’ I argued that a similar investment in Greece’s railways made sense as well. Lastly: ‘Greece has a highly educated workforce, yet wages have fallen by 40 per cent. Why not get companies like Foxconn to build production or assembly facilities in a tech park, enjoying a special business tax regime in an area close to Piraeus?’
Stimulated by this catalogue of joint ventures, the ambassador changed gear. From petitioning for a stay of execution for Cosco, he began to speak with the self-assurance of a partner as we discussed the many benefits of embarking on this collaboration. But while suspicion abated, caution remained.
‘Minister, you must understand that, from Beijing’s perspective, Cosco is the dragon’s jaw. First, we must ensure that its teeth bite hard so that the dragon gets in. Once it is in, have no concerns or doubt: the rest of the dragon will follow.’
The message was clear: let’s complete the Cosco deal first; everything else will follow.
I agreed. ‘Will you signal to Beijing that their worries about our government are misplaced?’ I asked.
‘The moment you and your wife sadden us by departing,’ he answered. Then he added, ‘Beijing would appreciate some public token of commitment to our new relationship, some gesture that will demonstrate to those sceptical in our government that we have a new situation.’
‘How about visiting Cosco’s Piraeus operations with you in the following days? Will this do?’ I suggested.
‘Would you do that, Minister? Really?’ he asked with the smile of a child promised an enormous present.
‘Yes, of course. What you see and hear is what you get from me,’ I reassured him.
‘Can we bring a Chinese camera crew along?’ he asked incredulously.
‘I insist that you do.’
The rest of the evening was like a reunion of old friends. The Piraeus visit was scheduled for two days later, to be followed by a meeting in my office, where we would agree initial terms.
When Cabinet Secretary Spyros Sagias found out about my agreement with the ambassador and my impending tour of Cosco’s facilities, he could not contain his joy. Prior to the general election Sagias had provided legal advice to Cosco. As such he was constrained by an almighty conflict of interest from canvassing in favour of Cosco. Having done so myself, I had not only relieved him of his conflict of interest, I had redirected the wrath of anti-Cosco Syriza cabinet ministers firmly in my direction. It was a risky move on my part but, as I explained to him, I had taken it because it was important that someone should. ‘You did very, very well,’ Sagias said.
The visit to Piraeus accomplished all it was meant to. Despite the heavy rain that persisted throughout the morning and over lunch, Danae and I were treated to a full tour of the facilities. Captain Fong, Cosco’s local manager, was rugged, fully on top of the entire operation and extremely smart. He allowed a Greek manager and the company’s lawyer to act as our guides, while steering the event with gestures, an effusive smile and a few carefully chosen words. Without pointing it out, he made sure that we noticed the sharp contrast between Cosco’s part of the container port, which was super-modern and running beautifully, and the adjacent quay, still under state control, which looked sad, rusty and almost abandoned.
As we were making our way to lunch, I spotted a canteen where some employees were taking a break and broke away from my hosts to speak to them. They shook my hand and smiled a lot, but when I asked them about working for Cosco they were coy. ‘It’s good,’ was about as much as they were willing to say. The expressions on their faces were hard to read. Looking over my shoulder, I saw Captain Fong and his Greek white-collar entourage watching us. I made a mental note to insist on full union rights for all workers as a pre-requisite for any deal before saying my goodbyes.
From there my hosts whisked me up to the company restaurant, where a rare view awaited us: the ancient harbour immediately below, the island of Salamis in the background, and between them the straits where the famous naval battle between the Persians and Athenians took place in 480 BC. Now a third ancient people were making their mark in history here.
‘Which do you want first, Minister, the good news or the bad?’
After lunch, which featured an odd but pleasant blend of Greek and Chinese recipes and a quick interview for a Chinese TV crew, we arranged a follow-up meeting with Cosco’s Greek representative and Sagias in order to negotiate the terms of the deal. A few days later, on the evening of 2 March, we convened at my ministry. The meeting was short and efficient.
I repeated my commitment to speed up the privatization of the port of Piraeus, to be followed by even bigger and bolder joint ventures, and spelled out the same conditions that I had already explained to the Chinese ambassador: Cosco’s shareholding in Piraeus would be reduced from 67 to 51 per cent, with the difference (16 per cent of the equity) to be retained by the Greek state with a view to passing it on to the suffering pension funds of naval, shipyard and municipal workers; Cosco would commit to an investment of up to €300 million within eighteen months; all Cosco employees at Piraeus would be unionized, collective agreements on wages and conditions would apply and there would be no workers hired via subcontractors; and coastal shipping would be handled by the municipality of Piraeus, with the active participation of the local authorities of the islands served by the port, ensuring that communities in the area shared in the benefits.
Lastly, as a token of its desire to help Greece get back on its feet again, I required a commitment from the Chinese government to purchase immediately €1.5 billion of the T-bills that Mario Draghi’s ECB had prohibited the Greek banks from buying. And once the impasse with our creditors had been brought, one way or another, to an end, I said, ‘Athens would be tremendously grateful to the people of China if Beijing helped Greece launch its first new bond issue with a purchase of at least €10 billion.’
Cosco’s representative seemed confident that my terms would be given a sympathetic hearing in Beijing, and further communications with the Chinese ambassador confirmed that my new friends were happy with the deal and that a positive response would be forthcoming from the land of the dragon, now that its teeth were in. Indeed, a tangible sign of good faith followed less than forty-eight hours later, on the morning of 4 March, when the head of my ministry’s public debt management department called me with the news that China’s treasury had, indirectly and secretly, bought €100 million worth of our T-bills – news that brought me to the brink of satisfaction.
But not quite there. Lest we forget, two days later I would have to find €301.8 million to hand over to the IMF. A week after that, on 13 March, I would have to do the same with another wad of €339.6 million. Three short days after that, on 16 March, I would have to come up with a whopping €565.9 million to wire to the IMF. Then, on 20 March, €339.6 million more would have to be extracted from our depleted coffers to be sent the same way. During March alone, then, we would haemorrhage to the IMF more than €1.5 billion. In that context, the €1.5 billion T-bill purchase promised by Beijing would have given me three weeks in which to catch my breath before the fiscal waterboarding recommenced on 13 April, when a further €452.7 million would have to be paid to the IMF. After that, between 12 May and 19 June, another six instalments were due to the IMF totalling €2.52 billion. But the hottest months were yet to come: in July we would have to pay almost €4 billion to the creditors with another €3.2 billion to follow in August.7
In other words China’s liquidity injection of €1.5 billion would not have nearly sufficed. Indeed, however willing Beijing might have been, no injection of loans, however large, could have saved us from insolvency. As I had been saying for years, they could only have extended it. Nevertheless, €1.5 billion would have bought us at least two months to ascertain whether a new contract with our creditors was possible, while making it impossible for Mario Draghi to maintain his argument that no one other than the Greek banks cared to purchase our T-bills. At the same time, it would also have demonstrated our capacity to attract foreign investment, to be flexible and to turn a colonial fire sale into a mutually beneficial agreement with one of the world’s superpowers.
Sagias and I briefed Alexis and began preparations. The intention was to restart the formal bidding process for the port of Piraeus under the new conditions that the Chinese had accepted, while behind the scenes the two governments agreed the Chinese loans to the Greek state. Soon the plan was finalized and ready for implementation. First, Beijing would inject the remaining €1.4 billion of the promised €1.5 billion into our T-bills. Almost simultaneously Deputy Prime Minister Dragasakis would make a formal trip to Beijing to strengthen relations between the two governments and informally seal the agreement. Lastly, Alexis would follow up with a full state visit in April or May to make public and sign the comprehensive agreement between Athens and Beijing.
