Flabbergasted, I asked, ‘Who’s “we”? Who decided that “we” won’t default?’
Alexis, sounding coy, said, ‘Me, Sagias, Dragasakis … we decided that it’s not the right move just before Easter.’
‘Thanks for telling me,’ I replied, fuming and dejected. Adopting as cool and dispassionate a tone as I could, I asked, ‘So what do I do now? Get on the same plane and return? What’s the point of seeing Lagarde now?’
‘No, you must hold the meeting. You must go ahead as we agreed. Go in there and tell the lady that we’ll default.’
It was the most absurd thing I have probably ever heard. I cannot be hearing this right, I told myself. I needed clarification. ‘What do you mean? Tell her that we’ll default even though you’ve decided that we won’t be defaulting?’
‘Yes,’ said Alexis. ‘Threaten her so that she gets anxious enough to call Draghi and push him to stop the liquidity squeeze. Then we’ll reciprocate by announcing that we’re not defaulting to the IMF.’
The adrenalin racing through me dissolved all traces of fatigue or jet lag. Keeping my indignation in check, I asked, ‘And what if Draghi doesn’t relax the liquidity squeeze upon hearing from Lagarde that I threatened to default on the IMF? What then, Alexi?’
‘They will give in, Yani, they will!’ came back his baselessly optimistic prediction.
‘And what if they don’t? Don’t you see that when David’s facing down Goliath with only a small catapult as a weapon, it’s silly to put the catapult in jeopardy? Our catapult is the threat of default. You should only take it out if you intend to use it. For if you threaten to use it and then blink when the enemy calls your bluff, we’re finished. Then they’ll never fear your threats. We are too weak to bluff, Alexi. And, as your finance minister, I cannot let you waste our only weapon. I cannot tell Lagarde we’ll default after you have just made it clear to me you don’t intend to let me default.’
‘You will tell her we’ll default. Consider this an order from the prime minister.’
It was the first time Alexis had pulled rank on me. And he did so to waste our only trump card. As I was switching off my mobile phone it suddenly felt unbearably hot and heavy. Watching Takis walk ahead of me towards the terminal exit and the waiting car, escorted by embassy staff, I felt separated from him by a haze of grief. I envied him for not knowing and for his freedom from the questions ricocheting through my mind. Had Dragasakis and Sagias changed Alexis’s mind while I was in mid-air? Had Alexis’s rousing speech in Maximos during which he had embraced my proposal to default merely been a ruse to lift the spirits of his cabinet before cynically calling off the default? How could I serve a prime minister who so casually embraced an empty threat against the world’s most powerful financial institution?
As the car pulled away from the kerb I knew I had to find a way of silencing the cacophony in my head. The unanswerable questions about what was going on in Maximos had to wait. Christine Lagarde was expecting me in her office at an otherwise empty IMF headquarters. And I was under orders from my prime minister to walk in and threaten her with something I believed we should do but which he had said he would not.
There’s a lady who knows …
Of the many offices I visited during my brief ministerial stint, Christine Lagarde’s at the IMF was the only one bordering on the aesthetically pleasing. She herself was relaxed and warm. But the absurd instructions I had been given overrode all else. It was as if I had a thorn lodged deeply in my foot: every step into that room was painful. There was a chance, I believed, that Christine and I might reach some kind of consensus, but the appearance of Poul Thomsen at her side eradicated any remaining hope of that.
I apologized for spoiling her Easter Sunday while agonising about how I could possibly carry out Alexis’s diktat without damaging our credibility. ‘None of us wants to write history in a negative way,’ was how I broached the issue. I then tried to impress upon her what a difficult spot they, our creditors, had put us in. I was armed with an impressive number: 14.21 per cent, the proportion of Greece’s puny national income that my ministry had had to find during our government’s first three months just to repay the IMF.6 I told Christine that, given our superhuman repayments in March and the ECB’s stubbornness, ‘as of 9 April we are in the danger zone. To put it bluntly, the government will be pushed into the hideous dilemma of having to choose between defaulting to the IMF or to pensioners and civil servants. As you understand whenever a government has this dilemma—’
Christine interrupted me helpfully to say, ‘Yes, it is a no-brainer.’
To her immense credit, the IMF managing director’s view of how to deal with this dilemma was precisely the opposite of that of Klaus Regling when Jeff and I had met him after the Eurogroup meeting of 9 March. Of course, when I pushed a little harder and asked her what she would do as a finance minister faced with this conundrum, Christine wriggled out of it by saying that she would have tried not to be faced with this conundrum.
The time had come to deliver my message from Athens. ‘Let me convey to you an argument that has been gaining ground in Athens under legal advice,’ I said, gearing up to read out the letter that I had scripted with Sagias. The gist of our case was simple, I explained. Greece and its creditors were bound by a loan agreement. The loan agreement specified, first, a schedule of repayments (from Greece to the creditors), second, a schedule of disbursements (from the creditors to Greece) and, third, a set of conditionalities (the MoU) under which the disbursements would be made. Since the general election three major developments had occurred: first, the disbursements had ceased, second, Greece’s liquidity had been curtailed by the ECB and, third, the conditionalities were under renegotiation in the context of the 20 February Eurogroup agreement. Ergo, until this renegotiation delivered a new set of conditionalities, our repayments should be suspended alongside the disbursements – at least for as long as the ECB exercised its power to reduce our liquidity.7
Christine answered quickly, shrewdly, albeit in a manner that violated the spirit of the 20 February agreement. If Athens insisted on a moratorium of repayments based on the argument that the conditionalities were under renegotiation, her rejoinder would be that there were no negotiations over the conditionalities.8 Smiling, I asked her what on earth we were negotiating about if not the conditionalities? Naturally I got a nebulous reply: ‘It is about matching the MoU with your commitments.’
Since we were not in a court of law competent to settle the issue, there was nothing more for me to do at that moment other than to say what Alexis had ordered me to say: ‘I am not authorized to enter into a war of words with you. But I am authorized to inform you that in four days’ time we shall default on our scheduled repayment to the IMF, as long as our creditors continue to stall the negotiations and the ECB continues to limit our liquidity.’ And I would have said these words proudly, but only if they were backed by the intention to act on them. In the absence of that intention, I went about things differently: I tried to win the IMF managing director over with an honest account of the situation.
Our conversation lasted a long time and covered a broad range of issues. It was friendly, constructive and pleasant because both of us made an effort to see the other’s point of view. Keen to avoid the usual subterfuges, I explained to her my greatest worry: that all the Eurogroup discussions, including the Brussels Group negotiations, were taking place under false pretences. That Greece’s recovery and sustainability within the eurozone was not what those running the show cared for. To drive the point home I shared with Christine my conversations with Wolfgang Schäuble, my offer to him of three or four major reform bills that we would draft collaboratively, and how he had dismissed this idea because, in his view, no Greek government could keep Greece inside the eurozone.
‘So, do you see Christine,’ I beseeched her, ‘why we need some evidence that we are all on the same page? That we all want a comprehensive solution for Greece within the eurozone? We are not confident that we are all on the same page.’
‘Do you mean politically?’ she asked with concern evident on her face.
‘Yes, politically,’ I answered. ‘We crave evidence that everyone around the Eurogroup table wants to avoid an “accident”. I hope I am wrong, but my view is that this is not at all evident. A majority are craving the accident. We will compromise, but we do not intend to end up compromised in the sense of signing up to an MoU which we think is unenforceable and not helpful even if it is enforced.’
‘What do you mean not enforceable?’
I explained how destructive further austerity would be for a country that had already broken the world austerity record: it would lead to a world-record rise in the rate of our debt-to-income ratio. More austerity and the continued denial of the need to restructure Greece’s debt would lead with mathematical certainty to the country eventually being evicted from, or falling out of, the eurozone.
From the corner of my eye I could see that Poul Thomsen’s gaze was fixed on the floor and recalled how he had enthusiastically endorsed every word I had just uttered on our first meeting in Paris.9 Recalling also that Poul and other troika operatives had repeatedly accused us of ‘ideological fixations’, I talked about the troika’s ideological fixations using examples: ‘Only 9 per cent of the unemployed ever receive unemployment benefits. Greece is a libertarian’s wet dream. We have five hundred thousand people who have not been paid for six months. One-third of paid labour is undeclared. The template with which the IMF comes to every country is irrelevant in Greece. Our major problem is not labour market inflexibility. It is undeclared labour, the worst case of informal flexibility. Even a boost in tourism does not create the increase in aggregate demand necessary. You have people in their early sixties who are unemployed and unemployable and with no access to social security, leading to pressure to put them into the pension system. These are the issues I want to talk about.’
‘We want to talk about these issues too,’ said Christine in a thoroughly conciliatory manner. Except that Poul intervened just at that point to make sure that we didn’t. Instead he turned the conversation towards the ‘process’ of the ongoing negotiations.
‘The issue is the process,’ he said predictably. ‘Bringing it to conclusion is possible. If you engage with us, I can see light at the end of the tunnel. Tell us what you do not like about the programme.’
I related how Chancellor Merkel had already asked Alexis for precisely such a document. I explained how I had produced a twenty-seven-page document with areas of agreement and disagreement and our counter-proposals coded by colour. I also told them about the late-night meeting during which Alexis and Angela sweated over the document.
‘She is very impressive,’ I said.
‘The chancellor?’ asked Christine
‘Yes, the chancellor,’ I confirmed.
‘We all love her,’ was Christine’s reaction.
To which I replied, ‘Now that’s taking matters a little too far!’
I then handed over the document. Thomsen seemed very pleased with it. Going through, he said, ‘This is very helpful,’ adding that the IMF ‘need agreement on comprehensive measures’.
That would be fine, I retorted. I wanted nothing more than to sit down and produce a fully comprehensive plan for the long term, I told them. We did not want to postpone these discussions for one second. ‘But let’s overcome the liquidity cliff,’ I said, ‘while showing our people and the institutions that we mean business … Let’s come up with three bills that go through parliament in two weeks and generate reformist momentum. And of course let’s talk simultaneously about the debt restructuring without which no agreement can be comprehensive.’
Christine stepped in. ‘Maybe your approach is the right one, but I’m sceptical … I don’t think that they [the ‘Europeans’] will like the idea of working on three or four bills. You will get the Wolfgang reaction. I think it is better to “go comprehensive” [accept the process of a comprehensive review] and demonstrate that you are determined.’
Sensing that I had convinced her, though not Poul, I ploughed on: ‘Christine, the idea that first we agree on everything and then we can do something tangible on pressing reforms, on the liquidity crunch, sounds to us like there is a lack of interest in finding a solution … I’m convinced that there are good intentions on both sides – us and the IMF. But I’m not convinced about the others. I want to have my mind changed on this. Wolfgang’s position is immovable and disappointing. It is him that you should be arguing with. Not me. This is why we went to Merkel. Because we need clarity on intentions.’
Indicating that I was indeed getting through to her, Christine turned to Poul to ask him, ‘Can you describe the [Greek] government’s priorities regarding these three, four or five bills that they want to push through? How can this be made agreeable with the comprehensive process?’
