So I felt none of the excitement I had previously felt on other returns home at the thought of going to Maximos to brief Alexis. I could picture in my mind how he would agree with everything I said but act on nothing. Yet the volume, substance and urgency of what I had to tell him were such that I decided it was my duty to put my brief in writing in the form of a comprehensive policy proposal for recovering control of our fate. By the time I got off the plane, it was almost complete. I called it the N+1 Plan, the ‘N’ referring to the large number of reforms that would be required but whose number was flexible, and the ‘1’ to the debt restructuring without which nothing else mattered.
When I saw Alexis I was blunt. ‘Time has run out. We have a fortnight until Riga [where the next Eurogroup meeting was to be held on 24 April]. My trip to Washington is crucial. Either we take the initiative with a comprehensive policy proposal of our own,’ I said while handing over my brief, ‘or we are dead meat.’ Alexis’s eyes glazed over as he glanced at the document, which contained a day-by-day action plan for the fortnight ahead.2 It was clear that he was either unwilling or unable to engage with it.
Sad but unfazed, I returned to the ministry to work with my team on our latest debt sustainability analysis and debt swap proposals. Four days of unrelenting toil later, the improved N+1 Plan was ready to be presented to the cabinet at a meeting convened on 14 April, the day before I flew back to Washington. At the meeting I warned my fellow ministers that we were out of time and that the N+1 Plan in front of them was our last chance.
If we do not want to surrender, we must tell the creditors that this plan is, from now on, the sole basis of our discussions. To back this demand, we must issue two promises: first, tell Draghi that if he moves to impose capital controls, we shall haircut unilaterally his SMP bonds and activate our parallel payments system; second, tell Merkel that if she succumbs to Schäuble’s plan to eject us from the euro, we shall not go begging to her, ready to sign anything she gives us – we shall reluctantly fall back on our Plan X, which is being completed as I speak. The only alternative to this strategy is surrender.
The next day I flew back to Washington. Perhaps the most telling sign of the complete breakdown in our government’s discipline was that Chouliarakis called me to say he would rather go to Brussels to spend time with Thomas Wieser and Co. I insisted that, as chair of my Council of Economic Advisers, he should accompany me, not least in order to attend the IMF spring meetings that were taking place. He insisted that he was going to Brussels. I gave up. It was hopeless arguing. Besides, if I could salvage anything in Washington it would be in spite of Chouliarakis and Wieser, not because of them.
My first day in DC could not have been fuller. It began with a heart-warming visit to the offices of the American Federation of Labor and Congress of Industrial Organizations, the country’s centre for trade unions. Rich Trumka, its president, told me that our success would strengthen labour’s voice within the Democratic Party, while Damon Silvers, the policy director, encouraged me with some wise advice: ‘They complain you are unreasonable until they realize they can’t buy you or bluff you or intimidate you. Then they really negotiate, often late at night.’ Rich showed me a sign over his desk that read, NOTHING WAS EVER ACCOMPLISHED BY A REASONABLE PERSON.
Next I met a bunch of friendly journalists to deliver a grim message: the Greek government was losing the propaganda war. The troika had invested incredible resources in blackening our image, mine in particular, so we needed a professional lobbyist and PR firm in Brussels. But I can’t even afford a proper press office in Athens, I thought to myself as I made my way to the IMF building for my next meeting – with Christine Lagarde and Poul Thomsen.
In Christine’s office I felt embarrassed when she complained that our side had not moved with the speed that we had agreed a week earlier. She was right, but how could I admit to the exasperation that I was feeling at the state of paralysis in Maximos? It was a short meeting but in it she conveyed an important message: unlike many in Berlin and elsewhere, she agreed with me that Europe could not manage Grexit smoothly. And she had spoken to Draghi about this and about our liquidity. But, once more, she implored us to speed up whatever it was we were doing. I only wished it was up to me.
My next stop was the venerable Brookings Institution, where I delivered a high-profile speech on the causes of the Greek crisis and my proposals for ending it. It so happened that a couple of hours earlier Wolfgang Schäuble had delivered a policy speech of his own there. After the event my hosts were bold enough to compare and contrast the two: whereas my economic analysis held water and contained tangible proposals, they told me, Wolfgang’s speech was an hour-long exercise in denial, offering not one idea on how to rebalance Europe. Perhaps, as good hosts, they were exaggerating, but they made it clear that they had given Wolfgang a tough reception and openly disagreed with him.
Not in our case, Mr President!
From Brookings my minders rushed me to the White House, where I would have the chance of a brief chat with President Obama. That day, 15 April, Obama had invited members of the Greek-American community to celebrate, belatedly, Greece’s national day (25 March). I had been told that if I attended the reception the president would want to talk with me informally.
‘We have the Greek finance minister in our midst,’ said the president in his welcoming speech at the reception. ‘I might as well walk up to him and ask to borrow some money.’ Despite the underwhelming joke and the circumstances, which were far from ideal, our brief discussion, as we stood among all the other guests, turned out to be more substantial than many I have had with officials in secluded rooms.
OBAMA: I don’t envy you at all. You have a difficult task under trying circumstances. We shall try to help the best way we can.
VAROUFAKIS: Thank you, Mr President. From your first supportive statement after our election you have been a breath of fresh air for our people, and for us.
OBAMA: I know what it means to inherit a gigantic crisis upon winning office. I had to deal with it in 2009.
VAROUFAKIS: The greatest since 1929, we all recall. However, the main difference, Mr President, is that you had a central bank backing you every step of the way. We have a central bank stabbing us in the back every step of the way – because we are trying to do things similar to what you did in 2009!
OBAMA: I understand. But you must know that I was forced to do things that were very hard for me. Things that I did not want to do. Things that amounted to political poison. I had to go against my policy to save Wall Street. To collaborate with people that had created the problem.
VAROUFAKIS: We appreciate this well, Mr President. Believe me, we too are ready to collaborate even with those who caused our crisis. To take the political cost of doing so. As long as the balance sheet is in the black, as long as the benefits outweigh the losses. I’m sure you know that the combination of unpayable debt and austerity have generated a humanitarian crisis.
OBAMA: I know, I know. Austerity sucks! But you must compromise in your dealing with the institutions so that an agreement can be locked in.
VAROUFAKIS: Mr President, we are ready to compromise, compromise and compromise some more. But we are not ready to end up compromised.
Obama smiled at that point and placed his right hand sympathetically on my left arm. His minders were trying to get his attention, indicating that he was late for his next meeting. He shook my hand and began to walk away. But then he changed his mind and turned back – to the poorly hidden annoyance of a bodyguard.
OBAMA: We will help by keeping the pressure on the Europeans. But you must meet them halfway.
VAROUFAKIS: More than halfway, Mr President. We have already walked four-fifths of the way towards them but they are not budging at all.
OBAMA: You have no other alternative but to keep trying. And we will help.
VAROUFAKIS: I hope that this applies to your Treasury too. I must tell you that we are disappointed that Jack Lew is not toeing the Obama line on this. In his official statements he blames the lack of progress on our side.
OBAMA: [laughing] You know how it is. Finance ministers are more conservative than their leaders.
VAROUFAKIS: [almost laughing] Not in our case, Mr President … But still, we would appreciate it if your Treasury was closer to your wavelength.
Another warm handshake, another friendly smile and he was gone.
I too had to leave. Nearby, at the legendary Cosmos Club, around fifteen Greek-American politicians had gathered to have dinner with me. It had been organized by Jamie Galbraith and Phil Angelides, former California state treasurer and chair of the Financial Crisis Inquiry Commission charged by President Obama with investigating Wall Street’s collapse in 2008.3 It took less than an hour to dispel the distortions of my policy objectives and practices the press had been feeding them and thus win them over. So enthusiastic were they by the end that, before we called it a night, they formed a five-member committee to coordinate support for our government in Congress.4
By the time I left it was already late, but the long day was nowhere near over. A call summoned me to the IMF offices for a brief discussion in order to pave the way for the following day’s meetings. From there I walked alone to the hotel bar where I met Larry Summers for a drink and the long, illuminating conversation with which this book began.
Improbable American friends
Trade union officials and Greek-American politicians were always going to be supportive, but it took two Americans few would consider Greece’s friends to restore my depleted energies. One of them was Lee Buchheit, a high-flying Washington bankruptcy lawyer; the other was David Lipton, number two at the IMF. I met both the following day, between countless other insubstantial meetings with far more celebrated folk.
I visited Lee at his firm’s offices, accompanied by Jamie Galbraith. I went incognito because Lee Buchheit is renowned as the fairy godmother of finance ministers seeking debt restructuring. If the press got word of our meeting it would be portrayed as a unilateral move to renege on our debt. Even if this is what we should have done, the time had not come for such headlines. Jamie and I walked there and entered through a side entrance. Along the way I told Jamie what Mario Draghi had just told me over the course of an hour-long conversation. Mario had gone out of his way to convince me that he was not part of any conspiracy to overthrow the Syriza government but that his ‘hands were tied’. I believed him. Despite his protestations of independence, no Western central banker is more affected by discreet political machinations than the ECB’s president. ‘The one, fascinating thing I got out of Mario just now,’ I told Jamie, ‘is his advice that I should seek an agreement with the IMF. He concurred on the importance of debt relief. Ergo, only an agreement and a close working relationship with the IMF would work for Greece.’
Lee Buchheit is an intensely clever, gentlemanly figure seemingly from a bygone era. Before talking about the present, he wanted to come clean about his past association with Greece’s governments, which in his view had employed his skills in a manner that squandered a fantastic opportunity to liberate Greece from its debtors’ prison.5 He made no bones about it: he saw in our meeting a chance for redemption. As for the present, his assessment was bleak. ‘They are determined to demolish you with threats that may well be empty.’ His advice was sharp and clear: we needed to signal to Angela Merkel that we were not going to be cowed into submission by the threat of Grexit. It was our only chance for a decent agreement within the euro. It was like hearing myself speak.
Lee suggested two practical moves. First, within the next week, Alexis should pre-empt the threat of Grexit by relaying to Angela Merkel that the institutions were dragging their feet to an extent that an accident seemed increasingly unavoidable and that, as responsible leaders, they needed to prepare for this. Alexis should then propose that Merkel dispatch to a Greek island three or four technicians whose competence and discretion she trusted. There they could work alongside our team of technicians on how to deal with the accident, quietly, professionally and far away from publicity. They should report only to Merkel and Alexis. To prevent any leaks, but also for its symbolic value, Lee suggested that this message be conveyed by an envoy to Berlin and spoken aloud to the chancellor without handing over anything on paper. We would soon find out whether Merkel was prepared to go along with Wolfgang’s push for Grexit or whether she would step in to offer us the minimum debt restructuring that we could not live without.
Lee’s second recommendation concerned the central bank of Greece and our gold deposits.
Make sure that the property rights over Greece’s gold do not belong to the Central Bank of Greece but are transferred to the Greek government. For if there is a clash with the ECB, Mario Draghi will try to seize your gold and all the assets of the Central Bank of Greece in lieu of the latter’s liabilities within the European system of central banks. If you are forced to start a new currency, create a new central bank to do it and let the existing one fail, so that all of Frankfurt’s claims upon it die with it.6
My head spinning with Lee’s advice, I headed for the US Treasury to meet Jack Lew. For the reasons I had explained to President Obama, I took with me little expectation of any useful outcome to the discussion. Predictably enough, he pressurized me to submit to Berlin, making it clear that, even though my analysis was right, the United States considered Greece to be within Berlin’s sphere of economic influence. The only positive thing I got out of our tedious encounter was an admission, similar to Lagarde’s, that ‘the Europeans’ were deluded to think that they could manage a Grexit.7
After a long and similarly tedious session at the IMF, at which the world’s finance ministers and their minders congregated for a succession of pointless speeches, I met Jeff Sachs, who was bearing bad news: Wolfgang had managed to turn most of Washington’s establishment against us, he told me. Jeff was particularly worried by the animosity that David Lipton harboured against us. ‘You must see him tonight,’ he insisted. Jeff judged that only an alliance with Lipton, the IMF’s link with the White House, could bring in Mario Draghi and ultimately persuade Angela Merkel to get off the fence on our side rather than Schäuble’s. ‘I have arranged for you to see David tonight at his office.’
That night, accompanied by Elena Panariti, who knew Lipton from her Washington days, I returned once more to the IMF to meet him. A stocky, prickly man, Lipton did not try to hide the hostility that Jeff had warned me about. It took an hour of extreme reasonableness on my part before Lipton began to mellow. He then mentioned his conversations with Jeff Sachs, telling me that he was his former student and so quite impressed by the kind words Jeff had for me. But despite the warmer atmosphere, our conversation stalled, with Lipton repeating ad nauseam the IMF’s standard line that they needed a comprehensive review based on the MoU and with me repeating ad nauseam why that was a recipe for an unwanted accident. Suddenly, Lipton surprised me, breaking off from his mantra and looking at me as if he had had a eureka moment, saying, ‘Unless…’ followed by a long pause.
‘Unless?’ I asked.
‘Unless you adopt the Polish strategy,’ he said thoughtfully.
I have no idea if this was spontaneous or if he had planned it in advance. It didn’t matter. It was a major breakthrough. The Polish strategy, as he explained, was simple. In the 1990s, when Poland was burdened by huge communist-era debts and the IMF had been called in to impose austerity, reform and a debt-restructuring programme, the Warsaw government had refused to accept the IMF’s MoU-based process. ‘Just like you’re refusing,’ he said. What the Poles did was to put together their own plan covering debt, fiscal policy and reforms, which they presented to the IMF as the basis of the negotiations. ‘It was the only occasion I know of when the IMF was forced to abandon its own programme and to accept as the basis of negotiations that of the government.’ Glancing at the ceiling, Lipton asked, ‘Why don’t you try the Polish strategy? After all, Jeff had helped them put it together.’
It was one thing to insist, as I had on 20 February, that we replace the MoU with a new contract of which we were at the very least the co-authors. But to have America’s man at the IMF, Christine Lagarde’s second in command and Jeff’s former student, tell me not only that we should write our own plan from scratch but that there was a precedent in Poland for this being adopted by the IMF was something altogether different. This was the most encouraging breakthrough I had had since 20 February. Together with Lee Buccheit’s advice, it seemed the foundation of a winning strategy. ‘This is the best advice I have had, David,’ I told him while shaking his hand on the way out. ‘Jeff is waiting at my hotel as we speak,’ I added. ‘We shall get down to work immediately.’ Smiling for the first time during our encounter, Lipton wished me luck.
Back at my hotel bar, I met Jeff. We hugged and I told him what Lipton had suggested. Jeff was pleased and ready to stop everything he was doing to work with me on our own Polish strategy, but he warned me, ‘You must still be prepared for the clash. I am pleading with you to get your prime minister on board, to allow you to prepare for the bank closures that they will try out to intimidate you. Even if you manage to forge an alliance with Lipton and Draghi, Schäuble has the Eurogroup stitched up and is determined to drag you through negotiations with your banks closed.’
It was exactly what I had been thinking: to utilize David Lipton’s advice we would have to combine it with Lee Buccheit’s. We had to work on two fronts: compile our own comprehensive anti-MoU Plan for Greece while convincing Alexis to send an envoy to Berlin with the message Lee had scripted for us. It was the only way. But was it one that my exhausted comrade at Maximos would countenance?
The troika in Paris
The following day, 16 April, was spent entirely at the IMF in meetings. My experience of the morning’s plenary session resembled that of a soldier: prolonged boredom punctuated by sudden moments of intense agitation. For much of the meeting I was sitting next to Benoît Cœuré, second in command at the ECB. While the interminable lectures dragged on, the two of us chatted like naughty schoolchildren. Always friendly, ever eager to present himself as our friend at the ECB, Benoît’s apparent concern could not disguise the threat implicit in his words when, at one point in our conversation, he said, ‘We must prepare now for an accident.’ His advice was that I request the imposition of capital controls.
‘Are you referring to the “accident” the ECB has been working towards since December?’ I asked sarcastically.
He was unashamed: ‘If there is a bank run and if the ECB do not increase ELA liquidity then maybe we shall have to close the banks down while the negotiations continue.’
