Dimitris would look at me with intense scepticism. ‘If you want to sign the MoU you will have to do it over my dead body,’ he would bellow at the top of his voice. Pappas would regularly shout too, though not at anyone in particular. As for Alexis, while calmer than the other two, he also lost his cool on occasion and threatened to blow up the negotiations. They were right to be outraged: we had just won an election fair and square, but official Europe was giving us absolutely no opportunity to develop our policies, run our ministries or even set our own priorities. I even understood why Dimitris was inclined to doubt me: as a non-Syriza adjunct with close ties to American insiders like Larry Summers and Jeff Sachs, I was by definition ideologically suspect, a possible stooge bent on dragging Alexis down.
In such a volatile atmosphere my best ally was Spyros Sagias, the burly secretary to the cabinet, for despite our many differences, we shared the view that any rupture with the creditors should be the result of cold calculation. In the meantime, to placate my agitated comrades and steady their nerves, I had to persuade them that I too was more than ready to withdraw from the negotiations, which looked very much like a charade, but that we should choose our moment well and calmly, avoiding any accidental breakdown in a process that was always going to be unforgiving. Until that point we should expend our efforts on making it as hard as possible for Draghi and Merkel to justify throttling us – first to themselves, then to the rest of the world.
While placating the agitated, I also had to energize the placid. In the five years since Bailoutistan had come into being my ministry’s staff had learned to take the Greek state’s subjugation to the troika for granted. It was imperative to stiffen their resolve and make them realize it was possible to operate once again as civil servants of a sovereign state. The same was true beyond the ministry as well: the whole country was in need of inspiration. With every press conference I had given in Brussels rejecting the creditors’ demands, Greeks of all political colours and dispositions had stood taller with self-respect, but it was vitally important to explain that there was no place in our newfound dignity for nationalist or anti-German bigotry.
Even at the best of times, twenty-four hours often prove insufficient to deal with the tsunami of problems that rise through the bureaucracy each day to land in a finance minister’s in-box. Imagine the difficulty of running the finance ministry of a bankrupt country in the midst of an all-consuming negotiation such as ours. During those three days back in Athens I did my utmost to manage the domestic projects we had set in motion, which were so important to striking a deal with our creditors – our tax evasion-busting efforts above all else.
On Wednesday, 18 February I also worked on two ministerial reports: one described my team’s dealings with the troika in Brussels, summing up our proposals and making technical improvements on them; a second concentrated exclusively on reforming the tax authorities and, more broadly, public administration.
While writing them I conducted an email correspondence with Larry Summers, whose influential support could only help our cause. His pithy advice was deliciously in character: we should put forward a deal that looked like a win for Merkel and the EU but at the same time served justice and truth. Easier said than done, I thought, although I recognized the important point he was making. More specifically, Larry advised that I seek a six-month extension to the loan agreement that was due to expire with potentially calamitous consequences ten days later. I replied that there was a snag: six months would stretch into July and August, when €6.7 billion had to be paid to the ECB to redeem some of the SMP bonds, the very bonds I was proposing should be restructured or swapped for perpetuals or other long-dated instruments. I also related Moscovici’s humiliation before my eyes, which elicited Larry’s summary conclusion that the European Commission was dead in the water.
During our long and detailed exchange it became clear that before committing to help me Larry wanted to be sure that my position was pragmatic rather than inflexible. Once that was established, he wanted to know if Alexis could be trusted to agree to a sensible deal or if he was a loose cannon. I assured him that Alexis was as interested in a mutually beneficial agreement as I was, but that we would only make serious concessions in public when the other side demonstrated an intention to do the same. With these preliminaries out of the way, Larry looked to get a sense of the negotiations so far and a glimpse of how things looked from our perspective. At one point he recommended that we find a champion, someone sympathetic to our position and with the gravitas to take our case to the ‘highest authorities’.
‘This is why we are talking to you,’ I replied. It was an answer that seemed to please him, judging by his agreement to help push our case with contacts at the IMF and the ECB.
That same day Jeff Sachs phoned me with a message from Wolfgang Schäuble’s office. It proved to be an important one. Berlin was signalling that a breakthrough was possible. It appeared that they would grant us a stay of execution on condition I was willing to signal four things to the Eurogroup: interest in an extension of the loan agreement not of six months but of only seventy-five days, acceptance of ‘the concept of debt sustainability’, recognition of ‘the need for structural reform to regain competitiveness’ and agreement that the IMF must be part of the ‘new parameters’.
Happy to oblige, I replied to Jeff point by point. Their request that the bridge be only seventy-five days long sat comfortably with my concern that a permanent outcome (either a good agreement or a final rupture) should be reached while our government still enjoyed incredible popularity (around 75 per cent approval ratings) and before the ECB’s SMP bonds expired in July. In response to their request that I accept ‘the concept of debt sustainability’, I asked Jeff, ‘Are our German friends acquiring a sense of humour? I go to bed every night and wake up every morning dreaming of what the troika’s programme lacks – debt sustainability!’ Jeff burst out laughing. Regarding the recitation of Berlin’s favourite mantra – ‘structural reforms’ to increase ‘competitiveness’ – I said that I was happy to indulge them, exactly as I do on Good Friday when even atheists like me are expected to sing along to ‘O My Sweet Spring’. Lastly, I saw no reason to expel the IMF from the ‘new parameters’ as long as I was not committing to the destruction of what was left of the trade unions or the pension system and while it continued to be the only creditor institution whose officials, Christine Lagarde and Poul Thomsen, were proclaiming that our public debt had to be haircut severely.
That afternoon the war cabinet met at Maximos, where Alexis had been receiving similarly conciliatory messages from the German Chancellery. The initial subject of debate was whether we should send a formal letter to Dijsselbloem requesting an official stay of execution from the Eurogroup. My view, with which Sagias and Dragasakis agreed, was that requesting an extension was part of our mandate as long as we did not commit to the programme in order to secure it. We then discussed the four conditions proposed by Berlin. The IMF’s continued presence proved the hardest to swallow for some members of the war cabinet. Then a message came from Berlin that there was now a fifth commitment that we would need to make before being granted an extension: ‘Recognize Greece’s financial obligations to all its creditors.’
This seemed like a deal-breaker. The raison d’être of our government was debt restructuring, with a large segment of the party demanding swift and deep haircuts. ‘How can we possibly recognize our debt to all our creditors?’ asked an enraged Tzanakopoulos. I proposed we interpret their request in a nuanced way: a corporation can ‘recognize’ a debt to its bankers while still seeking deep debt restructuring to help it recover from a crisis that threatens to ruin both its shareholders and the bank. Similarly, we could ‘recognize’ Greece’s public debt while at the same time insisting that it be immediately restructured so that the creditors could get more of their money back. The wing of Syriza demanding immediate and unilateral haircuts on the basis that the debt itself was illegal would of course be outraged, but ultimately this approach prevailed within the war cabinet. It was agreed that I would write to the Eurogroup with a formal extension request. By implication we would be agreeing to Berlin’s condition that we ‘recognize’ the debt, while negotiating its restructuring.
While pleased with the decision, I was concerned that the pendulum might have swung too far in the direction of compromise. Before returning to my office to pen our request, I presented the cabinet with two possibilities. The better scenario was that Draghi and Merkel had seen enough by now to know that we would not budge, and for this reason were about to press Schäuble – and therefore the Eurogroup, which was almost fully under his control – to grant us a bridge with a view to negotiating a reasonable long-term agreement, including debt restructuring, that would settle the Greek question once and for all. The more likely scenario, however, was that the extension was a tactical ploy: by delaying any outcome they were simply waiting for the depletion of both our current popularity and our small liquidity reserves so that by the time the extension expired in June they could be sure of our exhausted government’s total capitulation.
If the latter was indeed the case then, I argued, our best strategy would be to request the extension while at the same time signalling to the troika that any attempt to wear us down through a tightening of the liquidity noose would be met with a refusal to make the forthcoming repayments to the IMF; that any effort to push us back into the straitjacket of its failed programme or to deny us debt restructuring would be met with a cessation of negotiations; and that any threat of closing down our banks and imposing capital controls would be met with unilateral haircuts of the ECB’s SMP bonds, with the activation of the parallel payments system and with changes to the law governing the Central Bank of Greece in a manner that restored parliament’s sovereignty over it.
By the same token, the worst strategy would be to request an extension, get it, but then fail to signal our readiness to trigger these measures if our creditors were to stray from the spirit of the interim agreement. Were we to make that error, I argued, they would drag us through the mud over the period of the extension and then, at the moment of our greatest weakness, around the end of June, slaughter us.
They all agreed – Pappas and Alexis enthusiastically, Dragasakis with a noncommittal nod, Sagias with a helpful reminder that the ECB’s SMP bonds were the last sliver of Greece’s public debt still under the jurisdiction of Greek law, which meant that any challenge to our decision to haircut them unilaterally would be heard not in a hostile London or New York court but in the Greek courts.
Over the next four months, as the liquidity squeeze grew tighter and threats of bank closures and capital controls mounted, I would regularly remind Alexis and the war cabinet of this decision. Every time I did so, he and they would confirm their commitment to it.13 Alas, as the weeks went by their enthusiasm waned and the confirmations began to sound ritualistic. Day by day, week by week, my worst-case scenario began to creep up on us.
Happy days and constructive ambiguity
Back at my office I put together the letter requesting the extension, had it read by my team, checked by Alexis and Sagias in his capacity as cabinet secretary and the government’s top lawyer and then sent it on to the Eurogroup president. Its stated purpose was to allow Greece and the Eurogroup to begin work ‘on the new contract for recovery and growth that the Greek authorities envisage between Greece, Europe and the International Monetary Fund, which will replace the current agreement’.
It was a letter in the spirit of compromise. Indeed, as I had told the French finance minister at our first meeting in Paris, I chose the word ‘contract’ to replace the IMF’s ‘programme’ in order to reflect Rousseau’s notion of an agreement between equals. As such, the letter contained phrases that the troika would despise, such as ‘social fairness and mitigating the great social costs of the ongoing crisis’ and ‘the substantive, far-reaching reforms that are needed to restore the living standards of millions of Greek citizens through genuine economic growth, gainful employment and social cohesion’, as well as phrases that would be hard for our side, especially the Syriza rank and file, to stomach. ‘The Greek authorities recognize Greece’s financial obligations to all its creditors,’ I wrote, and intended ‘to cooperate with our partners in order to avert technical impediments in the context of the Master Facility Agreement which we recognize as binding’. The letter represented the furthest we could go to satisfy Berlin.
That night, once the letter had been dispatched and while we waited for Brussels to reply, I allowed myself a rare indulgence: Danae and I attended the Greek National Theatre to see a performance of Samuel Beckett’s Happy Days. As we left, the journalists waiting nearby expressed surprise at our choice of such a bleak play. Compared to the crude asphyxiation one experienced at the Eurogroup, I told them, Beckett’s vision of a woman’s gradual burial lifted the heart not just because great art is inherently uplifting but also because of his protagonist’s remarkable capacity to meet her suffocation with inexhaustible defiance.
Next morning the answer came via back channels from Berlin and Brussels. My letter had been deemed ‘helpful’ and a ‘good basis’ for a Eurogroup agreement the following day. But what did that mean? After the false dawn a few days earlier when the European Commission’s excellent draft communiqué had been torpedoed by the Eurogroup president, nothing could be taken for granted. So, on 20 February I flew to Brussels in hope but without a trace of its uncouth cousin optimism.
Before the Eurogroup assembled, I had a quick meeting with Christine Lagarde. She was confident that agreement was around the corner. ‘But will Wolfgang give up on his crusade to commit me to the programme and the MoU?’ I asked. The expression on Christine’s face expressed confidence but also concern.
Then I met Jeroen. It was our first (and last) businesslike meeting. Jeroen wanted to break two pieces of bad news to me. First, the extension would be for four months rather than the six I had requested in my letter. As I had indicated to Jeff Sachs, I did not mind that at all. Second, the ECB was adamant that a ‘credit card’ facility of up to just under €11 billion (designed to be used on behalf of Greece’s banks if they needed emergency capital) be transferred from the HFSF to its parent facility in Luxembourg, the EFSF. This was a little like your bank telling you that an overdraft facility you have been granted but have not yet used would be transferred to your bank’s headquarters from your local branch.14
I told Jeroen I would grant these concessions, which were of little real consequence as far as I was concerned, in return for something I truly valued: policy space. Eurozone member states receiving money from Europe’s bailout fund (the EFSF and later the European Stability Mechanism) have to be ‘assessed’ every few months. This was inescapable, and we had always been prepared to accept it as a condition of the interim agreement we were seeking. The multi-billion-euro question was: assessed by whose criteria? Wolfgang Schäuble’s immediate answer would have been the criteria laid down in the MoU of the existing programme. My mandate, however, was to demand that the new Greek government regain the right to be the author, or at least co-author, of these criteria, and that in rewriting these criteria we put an end to the ridiculous levels of austerity that prevented Greece from recovering. In short, I demanded that the MoU, or at least the 30 per cent of its articles that were unacceptable, be replaced with a new list of reforms proposed by our government, while our primary surplus target be reduced from 4.5 per cent of national income to no more than 1.5 per cent.
To my great surprise, Jeroen agreed. As for the primary surplus, he suggested that we replace the target of 4.5 per cent with the words ‘sizeable primary surpluses’, leaving the question of whether 1.5 per cent was ‘sizeable’ enough to be negotiated. I counter-proposed that we replace ‘sizeable’ with ‘appropriate’. Again he agreed, and soon the draft communiqué was complete.
The Greek authorities will present a first list of reform measures, based on the current arrangement, by the end of Monday February 23. The institutions will provide a first view [of] whether this is sufficiently comprehensive to be a valid starting point for a successful conclusion of the review. This list will be further specified and then agreed with the institutions by the end of April.
If this paragraph made it through to the final communiqué, I thought, it would constitute a triumph for the eurozone’s weaker countries. It would be the first time a government incarcerated within a bailout programme had been granted the right to replace the troika’s MoU with an agenda for reform of its own composition. Of course it was only a preliminary victory since the institutions’ approval would be required before the agenda was agreed, but it was a giant step in the direction of emancipation – the equivalent of a prisoner escaping from solitary confinement, jumping over the prison’s perimeter fence and running through the woods.
The communiqué’s major downside was that it offered Greece no respite from the liquidity squeeze. During a brief meeting within the Eurogroup I put it to Mario Draghi that, with this agreement in place, the ECB had no excuse not to reinstate the waiver, signalling an end to the threat of bank closures and a return to normality. As long as the ECB then allowed Greece’s banks to buy Treasury bills at the rate they had been doing prior to our election, then by my team’s calculations, assuming some serious economizing as well, we could survive until the end of June, giving us four months in which to build the long-term agreement we were seeking. Some say I should have demanded this commitment from Draghi in writing. Others have called me a fool for not having done so.
They are probably the same people who would have called me an idiot if I had demanded a written commitment from Mario, thus yielding another impasse. After all, according to the ECB’s rules, its President is not at liberty to issue such written statements. The point of the interim agreement was merely to carve out the time necessary to see if common ground existed. Instead of specificity, we were looking for language that was sufficiently ambiguous to satisfy both parties without exposing the rifts that remained between us. At this stage avoiding each side’s red lines was essential if there was to be any progress. Euclid reminded me of the term often credited to Henry Kissinger for this diplomatic technique: ‘constructive ambiguity’. This was our immediate task.
White smoke: the 20 February agreement
The Eurogroup meeting of 20 February 2015, a mere eight days before Greece’s banks were due to be shut down, was the easiest one I sat through. A monument to studied ambiguity, it also confirmed the German chancellor’s capacity to wrest command of the Eurogroup, albeit momentarily, from the man who generally controls it – her own finance minister. Emmanuel Macron, France’s economy minister, sent me a text just before the Eurogroup telling me that he had had lunch with Angela Merkel and had pressurized her to help deliver a deal acceptable to both sides. I was also informed that Merkel had given Dijsselbloem direct instructions to end the Greek saga, at least for the time being, by approving the communiqué.
In every other Eurogroup, once the floor was opened for statements by the ministers, the same ritual occurred. First, Dr Schäuble’s cheerleading team of Eastern European ministers would compete with one another as to who could out-Schäuble Schäuble. Then ministers representing previously bailed-out countries such as Ireland, Spain, Portugal and Cyprus – Schäuble’s model prisoners – would add their Schäuble-compatible twopenn’orth before, finally, Wolfgang himself would step in to put the finishing touches to a narrative that had been under his thumb throughout. Alas, on 20 February 2015 nothing worked for him the way it should. Released from Wolfgang’s spell by the German chancellor’s direct instructions, Jeroen read out the draft communiqué and then gave me the floor to express my support for it – which I readily did, hailing it as an important moment in Europe’s history, a moment when European leaders demonstrated that democracy is not a luxury to be afforded to creditors and denied to debtors, a moment when the logic of common ground and common endeavours prevailed over dogma unsupported by economic reality.
After my short speech Jeroen opened the debate to the others. No nameplates were stood on their side. None! Instead of the usual rush of Schäuble cheerleaders, there was an awkward silence. Fearful of Wolfgang, they would not speak in favour of the draft communiqué, but they dared not speak against it either when it had the backing of Angela Merkel. Caught between two masters, they lowered their heads and kept their thoughts to themselves. Their dilemma was made no easier when Mario Draghi and Christine Lagarde proceeded to offer the draft communiqué their support, though with no enthusiasm. Predictably outraged, Wolfgang repeatedly took to the floor to demand that the communiqué reconfirm Greece’s commitment to the MoU and the existing programme, which he insisted was the only show in town. But Jeroen would not budge.
That Wolfgang doggedly opposed the communiqué there is no doubt, but every time he spoke against it, his voice grew shriller and his arguments weaker. Eventually I lost count of how many times he intervened – it must have been more than twenty. The only ministers to back him were Portugal’s, who spoke only twice, and my next-door neighbour, the Spanish minister Luis de Guindos, who spoke up more than ten times – surely a reflection of his government’s fear that any Syriza success would inspire support for its equivalent, Podemos, in Spain’s impending general election.
Confined to the role of observer in this clash between an absent Merkel and an omnipresent Schäuble, I had time to look at my phone and exchange messages with my comrades. The meeting had begun at 3.30 p.m. At 8.30 Euclid texted me anxiously to find out how things were progressing: ‘Are we oscillating to a successful conclusion?’
‘So far Wolfgang is hopelessly isolated,’ I replied.
‘Has Draghi committed to releasing the noose?’
‘Not formally. Will talk to him soon.’
Alexis also texted: ‘The media is reporting that things are going well for us. Stay cool, patient and prevent any edits that worsen the communiqué for us.’
