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.
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.
