It was a splendid opportunity for both countries. A lifeline for Greece and a giant leap forward for China’s new Silk Road into the heart of Europe. Dragasakis left for Beijing on 25 March, accompanied by our foreign minister. Counting on the €1.4 billion that would pour into my ministry by the end of the month, I scraped the bottom of the barrel to find the €1.5 billion we were obliged to pay the IMF during March. The idea was to use that month to give the creditors one last chance to reach out to us with serious intent for a viable agreement. China now had a stake in our success, and our ability to attract Chinese investment would be a significant weapon in the negotiations. The cash itself would then buy us a further month in which to table our own fully fledged plan for Greece’s recovery.
On 31 March, the day Beijing had promised the breakthrough purchase of €1.4 billion in T-bills, I was at my office waiting for the phone to ring. The auction was meant to end at around 11.00 a.m. At 10.30, unable to contain myself, I called the ministry’s public debt manager. ‘No news yet,’ I was told, ‘but don’t worry. The Chinese make a habit of entering auctions at the very last moment.’ So I waited.
At 11.02 my phone rang. I jumped to answer it. ‘There’s good news and there’s bad news, Minister. Which do you want first?’ asked the public debt manager.
‘Begin with the good news,’ I said.
‘Well, the Chinese have entered the auction, but the bad news is that they only bought another €100 million.’
Before we had hung up, I was dialling the Chinese ambassador on my mobile. Once I had told him what had happened, he said, ‘I cannot believe this. Can I come to your office right away?’
‘Of course,’ I replied.
Half an hour later, a frazzled Chinese ambassador was sitting on my red sofa. In what I believe to have been genuine anguish, he pleaded with me to believe that he had had no inkling that something like this would happen, that he was hugely embarrassed and that he would do all he could to get to the bottom of the shortfall. From within my office he tried to place calls to the Chinese ministry of finance but could not get through. So he went back to his office promising to get back to me as soon as he heard.
A few hours later he called, sounding far more relaxed. ‘Minister, I can assure you it was a technical hitch. Beijing is very sorry about it. In two days’ time, when you have another T-Bill auction, the purchase will go through.’
I felt a mixture of relief and incredulity. On the one hand it made no sense for Beijing to lie via its ambassador, who appeared genuinely keen to cement our deal. On the other, the idea that China’s technocrats had simply made a mistake was equally unbelievable. Time would tell.
Two days later I was in my office awaiting the same call from our public debt manager. At 11.05 the phone rang. ‘There’s good news and there’s bad news, Minister. Which do you want first?’ Not again, I thought.
‘Please don’t tell me that they entered the market with another €100 million,’ I implored him.
‘Precisely what they did,’ came his reply.
This time I did not bother to call the ambassador; I went straight to Maximos. There I told Alexis what had happened and suggested strongly that he contacted the Chinese prime minister.
The next day Alexis relayed the news from Beijing. Someone had apparently called Beijing from Berlin with a blunt message: stay out of any deals with the Greeks until we are finished with them.
When I spoke to the Chinese ambassador again, I tried to convey to him how our people felt when foreign powers, pretending to be our partners, steamrollered their hopes for recovery and dignity.
‘I understand, I understand,’ he replied. And I believed him.
So ended a dreadful episode in the long saga of the creditors who had no interest in getting their money back – with the scuttling of a marvellous agreement between two ancient countries.8
The tides of March
At the beginning of March it felt as if the tide had suddenly gone out, leaving the hopes I had carried back to Athens after the 20 February Eurogroup agreement exposed, bedraggled, stranded. The creditors’ promises to allow us to co-author our own country’s reform agenda and to negotiate a life-saving debt restructuring had been withdrawn even before February was over. But unlike February, whose cold breeze had braced my resolve, March’s warmer touch made me freeze.
The difference was the narrow crack that had opened up across the bond linking me to Alexis – narrow but now impossible to ignore. However successfully I managed to put it out of sight, I could not put it entirely out of mind. With every concession we made that month and with each delay in Alexis’s reactions to the troika’s aggression, I sank deeper into doubt. Would he be prepared to activate our deterrent when the troika chose to put him to the test? By the end of March, and certainly by the beginning of April, the impartial spectator within was telling me that our opponents had succeeded in intimidating him. It took a little while longer for the rest of me to catch up.
There were two aspects to our talks with the creditors: the negotiation over our reform agenda, which was meant to be concluded by mid-April, and the negotiation over debt restructuring and ending austerity. To keep hope’s flame alive, it was essential that these two strands not be separated: only with debt restructuring would a reform agenda make any sense. But despite the differences between them, the creditors were impressively united towards us and invested tremendous effort into prising the strands apart: only once we had accepted their reform priorities would they contemplate discussing debt restructuring. It was an increasingly lonely struggle. Alexis, Pappas, Dragasakis and even my friend Euclid seemed increasingly ready to accept a deal that included only vague promises on debt as long as some of Syriza’s sacred cows – the reintroduction of collective bargaining agreements and the preservation of pensions, for example – were left alive. They were drifting into the mentality of the famous Brussels fudge.
The contrast between the troika’s rigid will and my side’s shrinking ambitions enhanced my sense of dread and loneliness. War cabinet meetings were turning into exercises in weighing up the utility of different forms of surrender based on Syriza survivability come the next election. At such moments I felt contemptuous of intra-party politics and glad that I kept out of them. Pappas would go on and on about preserving the administrative ban on large-scale dismissals that the IMF was keen to abolish. Alexis focused more on the pensions that Berlin had in their sights. Others banged on about privatization. I could not bear it. I too cared deeply about all these issues, but what was the point if we did not first and foremost end the doom loop? What was the point of preserving an administrative ban on mass dismissals if austerity were to be reinforced thus causing companies of all sizes to fail? What was the point of focusing on pensions when the state on which our pension systems depended was insolvent?
Every attempt I made to return our deliberations to what really mattered – debt restructuring, the end of austerity, investment and bad banks – was treated as a distraction from the main agenda. Were we still committed, I would ask, to start defaulting on the IMF and later the ECB by the end of March or at the latest the beginning of April if the troika refused to discuss debt restructuring seriously? Were we still determined to retaliate to their threats of capital controls and bank holidays with haircuts of the ECB’s SMP bonds and the activation of our parallel payments system? In response they would humour me, ever less convincingly, with repetition of oaths of allegiance to our strategy.
Back at the ministry I would attempt to pick up my spirits and plough ahead. The fact that any agreement would require my signature, and mine alone, made me feel simultaneously pivotal and expendable. But until I was expended, I thought, I had some power to keep debt relief at the top of the list, to unify the two negotiations, to continue to hold Alexis to our covenant, to strive for international alliances, to push for the completion of our algorithmic cornering of major tax cheats, to develop our parallel payments system and, last but not least, to promote a bill to address the humanitarian crisis. It was the least I could do for Lambros and the millions of others who, to use an old Peloponnese expression favoured by my grandmother, had made us the object of ‘all their devotions and [should we disappoint them] all their curses’.
The next Eurogroup meeting in Brussels, where we would take stock of the negotiations, was on 9 March. It was wholly in the troika’s interests that there should be no progress to report, a shortcoming which they would blame on our recalcitrance, and when the IMF’s Poul Thomsen called me on 1 March to announce that the troika was ready to fly to Athens, I knew they were going in for the kill.
Welcoming the troika’s officials into our ministries would have triggered precisely the wrong kind of negotiation, in which technocrats from the European Commission, the ECB and the IMF would demand concessions from our ministers on the minutiae of the troika programme. If we were to respond by agreeing to talk about such matters only as long as we also talked about debt swaps and austerity too, they would simply refuse, telling us that negotiating our debt was above their pay grade, which of course it was. The only way to avoid being cornered in this way was to insist that there be no negotiations in Athens between the troika’s middle managers and our elected ministers. In other words, our refusal was not just symbolic, it was critically strategic. Nonetheless, troika officials began reporting to the press that our refusal to welcome them to Athens was ‘ideological’, whereas they simply wanted to get the necessary work done.
On 3 March I briefed my team on the importance of keeping the two negotiations unified and insisting on a comprehensive agreement. I remember warning them that the troika would respond with threats of capital controls and informing the most trusted among them of the deterrent that a tiny team was working on: the parallel payments system and the SMP bond haircuts. Meanwhile, Jeff Sachs was hard at work in Washington meeting David Lipton, number two at the IMF, and Poul Thomsen in a desperate attempt to bridge our differences.
The media battle continued. A day or two later, Mario Draghi publicly described me and Alexis as ‘loquacious’. Jamie Galbraith responded in typical style: ‘Normally a central banker would deliver such a message in private, and the fact that he chose to do otherwise was evidence of loquacity.’ When asked by Italian daily La Repubblica to comment on the accusation that I spoke to my Eurogroup colleagues with greater ‘candour’ than one would expect of a finance minister, Jamie replied, ‘While it might be true that Varoufakis has departed from the customary standard of candour among finance ministers, since I support raising those standards anyway, it is not evident to me that there is a problem.’
On 5 March, in an attempt to upset troika strategy, I sent a letter to the Eurogroup president, Jeroen Dijsselbloem, demanding the commencement of negotiations, including a proposal to implement immediately seven of the reforms the institutions had approved in our teleconference of 24 February. Their response was to rubbish the seven proposed reforms accompanying my letter to Jeroen, targeting for greatest ridicule the idea that German Vice Chancellor Sigmar Gabriel had been so keen on in our meeting in February: clamping down on tax evasion by employing people from all walks of life to record transactions as they happened.9 Ever since, our plans for the algorithmic capture of large-scale tax evasion had been entirely ignored, dismissed with derisive references to ‘wired tourists’.
That same day my alternate finance minister Nadia Valavani and I were working to finalize our Humanitarian Crisis Bill. At its heart were two measures: the provision of a prepaid credit card for 300,000 families living without food, shelter and electricity, and a Herculean effort to bring the 40 per cent of the Greek population who had dropped out of the tax system because they were in arrears to the state back into the fold. How? By letting them pay back a small amount, even €20, each month. Although millions had been rendered so impecunious by the crisis that they would have difficulty paying even such a small amount, we were confident that they would do all they could to find it in return for the right to reactivate their tax file numbers and leave the purgatory of official bankruptcy. It was an act of mercy and economic common sense. Indeed, within a month of the system’s subsequent introduction €700 million had been paid into the state coffers by those striving to return to the formal sector.10
With the Humanitarian Crisis Bill almost done, I had an important phone call to make. My secretary had informed me that US Treasury Secretary Jack Lew wanted to speak to me. Our conversation began well enough with his request that I update him on the negotiations. I told him that, despite our hope that the 120-day interim agreement of 20 February would lead to a new process that would break the deadlock, over the past week the institutions and some of their key partners had issued statements that apparently reversed the agreement, violated its spirit and demanded that we revert to the previous arrangements, something we could not and would not do. His response was more in keeping with the line taken by the US ambassador to Greece than that of President Obama’s public statements: in essence, the US Treasury agreed with us on the issue of austerity but we still had to give in. I explained that I was not confident of raising the payment owed to the IMF on 18 March. Secretary Lew replied with a comment to the effect that we should place our trust in our creditors.
Kemal Dervish, a Turkish former finance minister who was working at Brookings in Washington and with whom I was corresponding, warned me not to heed such advice. In his view, Poul Thomsen’s promotion from chief of the IMF’s mission in Greece to European director was disastrous for us: the old Greek programme might be a dismal failure but it was his baby. ‘There is nothing you or anybody can do about it, but [it’s] all the more important to meet Christine Lagarde personally,’ he said. ‘I do have good relations with her, and she is fundamentally a very reasonable woman. But she has so many fires to fight, not least of course the Ukraine mess, which tends to swamp everything here.’11 This was not too far off my estimation, but was there any way of coming to a sensible agreement with Christine that sidelined the programme that her European director was determined to defend?
A far more likely person to unlock the negotiations was Angela Merkel. She was the only reason we had found common ground at the 20 February Eurogroup. But the moment Merkel turned her back on Schäuble and Dijsselbloem, the MoU was brought back and the process collapsed. With the next Eurogroup meeting around the corner and the negotiations still stalled, I suggested to Alexis that he call Merkel: ‘Surely, if she wants to prevent her good work from two weeks ago from going to waste, she must intervene again?’
That night Alexis spoke to the chancellor on the phone. She responded warmly and positively. She said she would send Thomas Wieser to Athens on a mission to find a way forward. We were encouraged. Thomas Wieser was exorbitantly dull, incredibly powerful and a man who knew how to walk the tightrope binding Angela Merkel and Wolfgang Schäuble together. He was ideal.
Emissary without a missive
The condition on which Chancellor Merkel sent Wieser to us was absolute confidentiality. Our ministries were not to be involved in planning his visit; there would be no government car to pick him up, and the meeting would have to be held at a secluded private residence. I decided that our flat was ideal. An unofficial car was sent to pick Thomas up from the airport and deliver him straight to us. The empty street outside our building, thanks to a cold grey day, put paid to any concern that tourists visiting the New Acropolis Museum opposite might recognize him.
It is fair to say that Thomas Wieser brought the weather with him into the flat. Our seven-person party – Dragasakis, Theocarakis, Chouliarakis, Euclid, Alexis’s secretary, Danae and myself – was keen to welcome Wieser warmly. Wieser was equally keen to keep his distance. His first sentence was disheartening: ‘I’m happy to be here even though I do not know why I’m here.’ Surely the person who had asked him to visit us must have explained the reason, I asked. ‘I have no idea who sent me,’ he replied. ‘I just found a note at my office instructing me to board a plane for Athens.’
Unwilling to beat about the bush, I spelled out the facts: we were at an impasse, one that only Chancellor Merkel’s intervention could overcome. She had proved amenable to such an intervention and had offered to send him to us informally to discuss how to reboot the negotiations.
Incredibly, Wieser would have none of it, continuing to deny any knowledge of the chancellor’s involvement in his trip. Instead, over the course of a lengthy meal, he laid down the law with the charisma of a bailiff and the sensitivity of a litigator. Outlining the coming weeks and months, he carefully avoided the substance of the negotiations, instead giving us chapter and verse on Eurogroup and Eurogroup Working Group rules and constraints. From his litany of troika-speak, one thing of interest emerged: we should expect no easing of the squeeze on our liquidity before 30 April – which was presented as a natural, apolitical consequence of bureaucratic constraints.
In response I told Wieser that unless we received a sign from the creditors that they were serious about a compromise on the reform agenda and a sensible fiscal policy made possible by meaningful debt restructuring, we would not reach 30 April without a default to the IMF. ‘Independently of our preferences and political will,’ I said, ‘our liquidity will run out well before then.’
He replied that we could last much longer by plundering the reserves of non-governmental but publicly owned institutions such as pension funds, universities, utility companies and local authorities.
‘And why would we want to do that?’ I asked. If the creditors showed no interest in negotiating in good faith, why should we continue to extract yet more flesh from the scrawny body of our society in order to service a debt to the IMF that even it considered to be ultimately unpayable?
Faced with this question, Wieser’s training kicked in. He recoiled behind the fact that he had no mandate to discuss debt restructuring and austerity.
Realizing that this line of conversation was a waste of time, I brought up the €1.2 billion that my legal and financial advisers informed me Greece could claim from the creditors as its own. Apparently, the previous government had spent that sum from the state’s reserves on bailing out a few of Greece’s smaller banks even though it had been agreed that this money should have come from the second bailout loan deposited with the HFSF. Given that I was not willing to plunder the remaining reserves as he had suggested, I asked Wieser whether we could use this credit to meet our IMF payments for March, buying us both extra time to negotiate. ‘It sounds reasonable,’ replied Wieser, advising me to send a formal request to Jeroen, his boss, for access to that €1.2 billion. (Days later, when I did so, Jeroen referred me to the president of the Eurogroup Working Group … Thomas Wieser! And what was Wieser’s verdict, now that he had been given the authority to decide? That what I was requesting was ‘too complicated’.)
Seeing no glimpse of a potential breakthrough, the only useful thing that remained was to try to establish some form of human bond between us – to at least bring some humanity into the proceedings, if only for the sheer hell of it. Euclid, Nicholas Theocarakis, Danae and I took the lead, changing the subject to anything other than the negotiations: we spoke of art, music, literature, our own families. For six hours in all we ate simple but excellent Greek food and drank a considerable amount of wine followed by Cretan raki. Thomas Wieser’s resistance was extraordinary. He ate and drank and smiled frequently, but the force field that he erected to prevent any camaraderie from developing between us proved impenetrable.
As the evening drew to a close, Nicholas asked Wieser if he was related to Friedrich von Wieser, the pioneering right-wing economist and Austrian finance minister whose thinking had shaped the minds of libertarians such as Ludwig von Mises and Friedrich von Hayek. Thomas answered that, yes, he was indeed the grandson of his cousin, but confessed that he did not know much about his works. Reaching into our bookshelves, I pulled out a thick volume that Nicholas and I had co-authored in 2011, in which we referred to von Wieser’s influence in a chapter aptly titled ‘Empires of Indifference’.12 I offered it to Thomas for him to keep. He accepted.
As he was leaving, heading to a hotel before his flight back to Brussels the following morning, I longed for my academic days, when disagreements were resolved through the power of argument rather than brute force. Weeks later, as the troika’s brute force was reaching its climax, I recalled one of von Wieser’s most memorable lines, wondering whether he would be pleased or appalled by his descendant’s part in the eurozone’s travails: ‘Freedom has to be superseded by a system of order.’
To the Eurogroup!
Wieser’s visit brought home a stark reality: with twenty-four hours left until the next Eurogroup meeting, Merkel was not willing to intervene as she had done previously. Perhaps she was never serious about achieving common ground with us; perhaps she had lost tactical ground to Wolfgang Schäuble. It didn’t matter. The choice facing us was the same: withhold all payments to the troika for as long as they continued to asphyxiate us, signal that there would be no negotiations on the basis of their MoU, insist that debt restructuring and an end to punitive austerity were strict prerequisites. Or prepare to surrender.
