Before flying to Brussels, I briefed Alexis and the war cabinet on the demands we should expect to face at the Eurogroup: first, that we suck the life out of our non-governmental public institutions to keep repaying the IMF; second, that we allow the troika to return victoriously to Athens; third, that the talks be confined within the template of the MoU. I was alarmed that the second of these seemed to exercise them most and that their anger did not seem to extend to the third.
It transpired that I had good cause to be concerned. As I was preparing for my trip, I got scent of an interesting development: Chouliarakis had resurfaced in Maximos and was now heading an informal team of Syriza advisers working behind my back on a list of concessions to be gifted to the troika. Having a second team of economic advisers to shadow the finance ministry’s is not necessarily a bad thing for a prime minister. Given the seriousness of the situation we faced, such checks and balances were prudent, but this particular team and the manner in which Alexis was using them posed a real danger. They combined the worst of Syriza’s fixations with the most obnoxious of the troika’s obsessions, advocating increases in corporation tax, for example – a perfectly good left-wing policy under normal circumstances but not when business was bleeding to death – in order to meet the troika’s demands for a higher government surplus. This worst-of-both-worlds economic policy directly undermined my advocacy of reduced austerity as a prelude to lowering tax rates.
Meanwhile, Spyros Sagias was devising bills related to financial matters that were outside both his remit and his competence – for example, on transfer pricing, which relates to the exchange of goods between two separate subsidiaries of the same conglomerate – and trying to impose them on me. Even worse, the day before I was due to fly to Brussels to attend the Eurogroup, our defence minister, the right-wing conspiracy theorist we had had to tolerate in order to retain our parliamentary majority, made a statement straight from Mephistopheles’s notebook. The London Daily Telegraph headline summed it up: GREECE’S DEFENCE MINISTER THREATENS TO SEND MIGRANTS INCLUDING JIHADISTS TO WESTERN EUROPE.13 It was exactly what we did not need. Gradually Maximos was writing the textbook on how not to run a negotiation.
I had one last meeting with Alexis before boarding my plane. I warned him that the troika would stall, blame us for the delay, demand that we legislate to plunder all our remaining reserves in order to keep paying the IMF, and then, once Greece was as dry as a Peloponnese sultana, close down the banks to turn the people against us. We had to stop the rot. If the forthcoming Eurogroup was the set-up I was expecting it to be, our only recourse was a hard default on the IMF and the parallel activation of our deterrent.
As I was handing him various non-papers that I was planning to present in Brussels, I told Alexis, ‘I shall talk privately to all of them, the IMF, Schäuble, Draghi, Moscovici. I shall be conciliatory beyond belief, ready to compromise as much as it is possible without jeopardizing Greece’s recovery chances. I shall speak only the language of cooperation and goodwill. But if, Alexi, they respond with their usual mix of aggression and truth reversal, leaving us no room to manoeuvre, upon my return we must act decisively. I trust that you agree.’
Alexis agreed. And so I set off for Brussels determined to be maximally compromising – to make sure beyond a shadow of a doubt that Greece’s creditors were committed to denying us even a minimally rational agreement.
Soon I had my proof that this was so. And Jeff Sachs, who accompanied me in all the bilateral meetings I had, is my witness.14
12 Merkel’s spell
At 11 a.m. on 9 March, the morning of the Eurogroup meeting, I met Poul Thomsen in the lobby of my hotel in Jeff’s presence. Poul began the conversation by assuring me that the IMF were ‘not dogmatic’. They had lost patience with the Greek programme well before our left-wing government was elected, he told me. Poul spoke angrily about the Samaras government. ‘We lost patience with them. They failed to deliver on almost everything they had committed to,’ he claimed. ‘Samaras told the Germans what they wanted to hear, did nothing else, and then in view of the election used the money he got to pour tax waivers and other favours on his people.’
At that point I interjected to say that, in view of his experiences with previous Greek governments, surely he would appreciate our reluctance to make promises that we either did not intend to, or simply could not, keep. ‘Poul,’ I told him sincerely, ‘just know that, if you and I come to a viable agreement, I shall move heaven and earth to implement my side of the deal. But we cannot do this while in the toxic fog of permanent bankruptcy. We need debt sustainability before anything else.’
‘Greece needs debt relief before it can agree to any compromises,’ Jeff added. ‘First the creditors must allow it oxygen to breathe and then [they can] place further demands.’
Thomsen seemed in agreement, judging by his nodding and positive expression. ‘I do not think that a reasonable debt sustainability analysis would be difficult or that your short-term liquidity issues would be difficult to surmount,’ he said.
I replied by taking his point to its natural conclusion: ‘Yes, Poul, I have no doubt that your good people in DC have excellent analyses of why our debt is ridiculously unsustainable. Nor do I doubt that our short-term liquidity difficulties can be sorted out with one wave of Mario Draghi’s hand, or of the IMF’s for that matter. But however helpful that would be, it is not the issue, is it? The elephant in the room is the question of debt restructuring, without which we shall remain insolvent and un-reformable. Neither your analysis that this is so nor a relaxation of our liquidity constraints can change that. We need to have upfront debt relief. And you, the IMF, are the only ones who can push for this. So the ball is in your court. Will you?’
Thomsen clearly understood but remained non-committal, mumbling something about ‘the Europeans’ being difficult to shift on the matter. I insisted: either they shifted or there would be no agreement, and a very expensive, very preventable accident would occur.
‘The Europeans have their ways…’ was Poul’s cryptic final comment.
The next of our bilateral meetings was with the two leading lights of the central bank whose heavy boot was on our throats.
Jeff and I walked into a small office to meet Mario Draghi and Benoît Cœuré. Mario greeted Jeff like an old friend and was clearly impressed that he was by my side, but despite the warmth in his voice, his message was unchanged. In the spirit of maintaining its apolitical independence, the ECB was not going to lift a finger, let alone its boot, from our throat without a green light from the Eurogroup. I rehearsed my usual counter-argument: that there was nothing more political than reducing our liquidity during these negotiations, given that the ECB had increased it during its negotiations with the Samaras government in the summer of 2012. Draghi attempted to dismiss this point on a technicality. Jeff intervened to say that where there is goodwill there is a way to prevent an accident. Draghi was unmoved.
I then made the point that, at the very least, the ECB could release to us the almost €2 billion profit it had made on our SMP bonds, which was to have been paid to Greece in 2014. As I spoke I looked squarely at Benoît, who I knew agreed with this argument. ‘If you want us to pay the IMF during the next weeks, and given that we lack the money to do it, this is a reasonable suggestion. It is our money after all,’ I said.
Mario replied that releasing the profit on the SMP bonds to us was not within his gift. He was obliged to pass it on to the central banks of the eurozone member states, they to their governments and the governments to Greece after agreement at the Eurogroup.
‘I know all this, Mario,’ I said, ‘but it is our money nevertheless.’ Whatever arcane rules the Eurogroup had concocted – without the approval of the European parliament or any legitimate body of the EU – I was merely trying to find a practical way to avoid defaulting on the IMF in the next two weeks, I told him. ‘The situation is simple: we owe one part of the troika, the IMF, a sum that we do not have. At the same time another part of the troika, the ECB, owes us a similar sum. Logic dictates that we cancel out these two sums.’ I was not even asking the creditors to trust me with our money, simply to take the money the troika conceded it owed us and use it to pay itself. ‘Have the money transferred, if need be, from the ECB to national central banks, to member-state governments and then directly to the IMF. This is a practical, logical, fair solution.’
‘This is not up to me,’ Draghi said. ‘It is up to the Eurogroup.’
Jeff tried valiantly one more time. ‘Mario,’ he said, ‘I have been listening to this discussion and I must tell you that I am concerned. Yanis has been trying to propose a practical solution to a simple-to-solve problem. You rejected that solution, which is fair enough if there are technical problems, but I have not heard from you any alternative solutions.’
Mario shrugged his shoulders. ‘It is not for the central bank to offer such solutions. This is a matter for the politicians.’
‘Just wait and see what the politicians do when I raise the subject with them,’ I said to Jeff as we were leaving. ‘They will refer me to back to the ECB, possibly to Poul Thomsen.’ Jeff shook his head in disbelief.
I met Nicholas Theocarakis, who had replaced Chouliarakis as my Eurogoup deputy, at the entrance to the meeting. This would be his baptism of fire. But as we walked into the room who should I see at the chair next to mine but George Chouliarakis!
Nicholas and I greeted him, and the three of us sat down as the other ministers and their deputies filed in. Chouliarakis knew that each minister was allowed only a single deputy at the Eurogroup – leaving aside the exception made for our government’s first Eurogroup, when Dragasakis was allowed to sit in – and to this day I cannot imagine what he was thinking. When I leaned over to ask politely that he wait for us with Jeff Sachs in the Greek delegation’s office, he refused, explaining that he had neglected to inform Wieser formally that Nicholas had replaced him. ‘Don’t worry about that,’ I told him. ‘I will deal with Wieser.’
Meanwhile, Jeroen had declared the meeting open. Sitting next to him, Wieser had spotted the scene that Chouliarakis was making. Never one to miss an opportunity to criticize us, he walked over to tell us that one of my two associates had to leave. Huffing and puffing, Chouliarakis finally got up and left. Later I found out that, instead of waiting in our office, he simply went to the airport and boarded a flight back to Athens.
The Eurogroup of 9 March was a wholly predictable affair. One after the other, like arsonists watching a blaze that they had started and commenting on its progress, the troika’s leaders blamed us for stalling the negotiations. When my turn came, I explained as moderately as I could the two causes of the stasis: the troika’s refusal to enter into genuinely comprehensive negotiations that included my debt-swap proposals and the relaxation of austerity that these would enable, and their demand, the IMF’s in particular, that their so-called missions return to Athens for direct ‘consultations’ with our ministers. I reminded my fellow finance ministers that I had written to Dijsselbloem demanding the commencement of negotiations and concluded with a plea to end the stonewalling and the asphyxiation of our government using the practical proposals that I had already presented to Mario Draghi and Benoît Cœuré.
Once more Draghi repeated his insistence that the ECB was operating strictly within its rules while avoiding decisions that would politicize its work. I decided to expose this lie gently but firmly.
The present circumstances are similar to [those of] the summer of 2012, in the sense that there is a new Greek government, the programme is suspended, there are negotiations about negotiations, and the Greek state has pressing repayments coming up. But the ECB today is refusing to behave towards our government in a manner comparable to how it behaved in 2012 towards the previous government. Mario’s claim that the ECB is above politics is not supported by the facts. Indeed, the only reasonable explanation of its behaviour today is that the ECB is biased against a government that its governing council members dislike for purely political reasons.
As I outlined the facts and figures that made this contention irrefutable, I could see in the corner of my eye that Mario Draghi was looking uncomfortable. Wolfgang Schäuble, on the other hand, looked anything but. Unwilling to let the ECB president off the hook, I continued:
Before the 20 February agreement, the ECB president had told me that, once we strike an interim agreement with the Eurogroup, the waiver would be returned and liquidity restored to the Greek banks. This promise remains unfulfilled. And it is not the only one. When requesting the restoration of our T-bill limit, Mario had told me in no uncertain terms that it would happen once there was evidence of demand for our T-bills from customers other than the Greek banks. Well, I have it on good authority that five days ago a Chinese investor purchased €100 million of our T-bills. Alas, there has been no relaxation of the asphyxiating constraint. I am tiring you with these details for one reason only: because our hard work to get to the 20 February agreement is being undermined in ways that you may not be privy to and for which our government is not responsible.
Instead of engaging with my very serious accusation that the ECB was acting politically, Jeroen hastily attempted to end the discussion. He proposed that we issue a quick statement saying that the negotiations would begin in two days with the institutions coming to Athens. I immediately replied that I welcomed the commencement of negotiations but proposed they take place in Brussels instead. Jeroen retorted that the negotiators might need data that could only be found in our ministries. I said that we were happy to welcome technical personnel from the institutions to Athens in order to collect data to be brought to the two sides’ negotiators in Brussels. At that point, in a rare helpful intervention, Pierre Moscovici suggested that he and I work this out over the next couple of days. We had successfully avoided falling into the trap of accepting the troika’s return.
Judging by the exchange of text messages that followed the meeting, Alexis was happy. ‘We are spinning it as a success: political negotiations to commence in Brussels along the lines of the 20 February agreement in order to end the impasse.’ He also had a warning for me. Apparently Michael Noonan, the Irish finance minister, was reported to have said that I was about to be replaced. ‘We have denied this,’ Alexis texted me. In a separate message he added, ‘I think that the Irishman is trying to facilitate the creditors’ plan to undermine you because you are a tough negotiator.’
Separately, Alexis texted me to say that Jeroen had contacted him directly to push for the troika to come to Athens two days later on 11 March: ‘He told us that you agreed to that. Pappas replied that he did not believe that Varoufakis would ever have agreed.’
I responded, ‘He threatened that it will all be over if the troika does not return. I told him his threats will not work.’
Alexis fumed at Jeroen’s cheap tactics: ‘Jeroen threatened me with a cessation of the negotiations as he was “getting tired”. Pappas told him to take a deep breath because we were only at the beginning of an historic process. Yani, end this today before it takes us under.’
I knew what he meant: ensure that the negotiations took place in Brussels; prevent at all costs the return of the troika to Athens. ‘Not to worry, Alexi. I shall nip this in the bud,’ I reassured him. To do so I needed to talk to Moscovici urgently. But first I had two appointments to keep.
Jeff’s shock
After the obligatory post-Eurogroup press conference, at which Jeroen lamented a ‘wasted two weeks’, clearly implying that we were the ones responsible for the delay, I collected Jeff from our delegation office and headed down the corridor to the office of the Federal Republic of Germany.
To a Europeanist like me there is something beautiful about that corridor, off which every European country has an office. Admittedly it is on a nondescript floor in an ugly building, but the fact of its existence should be something to be seriously proud of. As it was, I headed for Wolfgang’s office with Jeff and Nicholas Theocarakis, dreading what might occur but with a plan.
Thinking back to what transpired I am reminded of Mike Tyson’s fantastic line at the height of his tumultuous boxing career: ‘Everyone has a plan until they get punched in the mouth.’ My plan had been inspired by a tip I received from Pier Carlo Padoan, the Italian finance minister, when I had met him in Rome a little more than a month earlier. Pier Carlo had managed to break the ice with the German finance minister by offering to push through Italy’s parliament a reform bill Wolfgang was proposing. Its successful passage won him Wolfgang’s trust. ‘Offer him something similar,’ had been Pier Carlo’s advice.
Wolfgang began the meeting in top form. ‘Your prime minister and your cabinet have managed to make us lose all confidence in your government,’ was his opening line.
‘But, Wolfgang,’ I said genuinely bemused, ‘we never had your confidence. We are, for goodness’ sake, a government of Greece’s radical Left party! How could you have confidence in us?’ Wolfgang smiled at my frankness. ‘But,’ I hastened to add, ‘believe me when I tell you that I want to earn your confidence and your trust.’ I continued: ‘The question is how? I will not lie to you, Wolfgang, like others before me with promises that I can neither fulfil nor intend to. That would accomplish the opposite. The only way I know to win your trust is by making a promise that is difficult to fulfil but which, firstly, I want to fulfil and, secondly, you want me to fulfil. So, here is my suggestion: why don’t you tell me what are the three or four major reforms that you think we should implement in Greece? If we can agree on three or four major reform bills, that we both agree would be therapeutic for Greece and increase your chances of getting your money back, then all I ask you is for four weeks without the present liquidity squeeze. During those four weeks I shall endeavour to pass these bills through our parliament and begin implementing them. If I am successful, you will then have cause to begin to trust me. If not, proceed with your plan to throttle us.’
I had not briefed Jeff about my plan, but it seemed to go down well with him and he appeared eager to hear Wolfgang’s response. I suspect Wolfgang’s reply came as something of a surprise to him. ‘I am not going to negotiate with you. As I have told you last time, you must go to the institutions!’
‘But Wolfgang,’ I replied, ‘time is running out. In a week or two we will have to default to the IMF with untold consequences for all. You tell me to go to the institutions. But the institutions simply lack the mandate to do what it takes to avert a crash or to negotiate with us a viable agreement for Greece within the eurozone. I am telling you all this because there are forces at work trying to derail the process.’
Wolfgang’s face went from apathy to engagement. Even though I had learned from past meetings that such changes in Wolfgang’s expression were pregnant with disappointment, on that occasion I could never have predicted his extraordinary response. ‘I don’t think that any government can keep Greece in the eurozone,’ he declared.
‘Is this the chancellor’s view too?’ I asked.
‘She has other ideas,’ he replied dismissively.
