LAGARDE: But you could have checked their capacity—
VAROUFAKIS: Our tax authorities do not have the resources to check three to four million people in a short time. So, what we plan to do is to let them get into the instalment plan – start repaying – and then go after the strategic defaulters.
It was now my turn to tell Christine which reforms I thought truly mattered. These were not even on her radar screen, and, as I would go on to explain, the fact that she did not know of them was intimately linked to the liquidity crunch our government was facing. It all related to Greece’s corrupt bankers. ‘I’m sure you’re not privy to this but the word “reform” becomes a dirty one the moment the troika pats on the back our corrupt bankers while targeting the pharmacists and the pensioners. Even worse, when the ECB collaborates with the same bankers to deny liquidity from the government that the people just elected, in order to force us to accept cuts in the lowest of pensions, the whole population turns against the ECB, you, everyone in authority.’
Christine seemed fascinated. I proceeded to tell her of the trick pulled by the Greek bankers (recall Aris, Zorba and their ilk) which kept them in control of the banks that they had bankrupted, all with the active support of the Eurogroup Working Group, which dominated the HFSF, whose funds kept the banks going and the bankers unaccountable. As I talked, Poul looked like a man about to have a stroke. But there was more. The bankers, I explained, then used the liquidity provided by the ECB and the capital channelled to them by the creditors, which of course burdened the weakest taxpayers, to fund media outlets and spread propaganda in favour of those politicians who were in the bankers’ pockets: the triangle of sin.
‘When the ECB gets into bed with corrupt and corrupting bankers, who are actively sabotaging democracy, we consider this enemy action,’ I said. ‘I am not telling you that Mario knows this. But someone in Frankfurt must know it if I do. Your people in Athens are smart enough to have picked it up, even though I do not doubt that they keep it from you. When our people see the same figures, aided and abetted by the troika, retain control of bankrupt banks and bankrupt media with new debt burdening the little people against whose interests the banks and the media labour, you cannot expect them to take you seriously. Or take us seriously if we do as you tell us.
‘We cannot go on like this, Christine. This is very hard for us. We want to talk about reforms. But in this state of warfare, and with Wolfgang Schäuble telling me, “I am not going to talk to you,” I am sounding an alarm bell that this is not the Europe that we signed up to. We are mightily pro-European. We want to keep Greece in the euro. I think it would be excellent for official Europe to demonstrate that Europe can do business not only with the establishment political parties it is affiliated to but with pro-European political parties who have a different – weird for you – view of the world. And to show the Greek people that they can be part of this process. Alas, all the people of Greece now see is your functionaries in bed with our oligarchy’s triangle of sin: bankrupt banks, toxic television channels, corrupt procurement…’
Christine looked concerned and I believe she genuinely was.
LAGARDE: But why don’t you go after them, if you have evidence that they—
VAROUFAKIS: They have all the cards. The press are their agents. The judiciary is ineffectual and in some cases corrupt. Of course we will go after them even if it means falling. But that is why we need breathing space … The TV stations are lambasting us for throwing the country onto the rocks by resisting the troika while at the same time criticizing me for coming here to negotiate pension cuts with you. We will prevail because we are doing very well with the people and because we have managed to create a disconnect between the majority of Greeks and the TV channels, which is a remarkable achievement – they are not influenced by them any more. For how long I do not know. What we need is a little peace and quiet. What we are asking for is ninety days—
LAGARDE: You can create that—
VAROUFAKIS: I hope so.
LAGARDE: To demonstrate that you have the will to do it, we will go out of our way. Working with you.
Poul then made a point of saying that Christine and he spoke with one voice, something that I had just witnessed was untrue. ‘Anything you hear from me, or from our mission in Athens,’ he claimed, ‘be assured that everyone at the IMF speaks as one.’
Incapable of resisting, I said, ‘Yes, I know. You are like the Catholic Church!’
Christine took the joke with good humour, insisting the IMF was the better institution.
By now night had fallen. As we were wrapping up, Christine was keen to know that I would not now be heading to the press to announce an imminent default. And I was eager to get her to commit to doing something to ease the waterboarding. We had understood each other but we were obliged to finish with a last rendition of our tussle, one that was performed with the greatest courtesy.
LAGARDE: A default would be terrible for Greece.
VAROUFAKIS: Of course, but it would be terrible for the IMF and for Europe too.
Lagarde: Yes, yes.
VAROUFAKIS: Defaulting to you, to the IMF, would trigger the cross-defaults, and then Mario would refuse to lift ELA with the result that the banks would run out.
LAGARDE: Then capital controls—
VAROUFAKIS: We would not accept that, Christine. This is a political decision. It is a nightmare of course. We do not sleep at night. But we cannot accept capital controls in a monetary union. And we are preparing as we should.
LAGARDE: That would be terrible for Greece. Think about inflation.
VAROUFAKIS: Why? Do you think that having capital controls imposed and turning into a kind of protectorate without any access to liquidity would be better?
We had said all there was to say, but as we got up to leave Christine asked me to stay back for a word in private. She was ‘flabbergasted’ she said by what I had told her about the triangle of sin and in particular about our bankers. ‘I’m a lawyer, and I would love to understand … I know it is hot sensitive but I would love to understand what is happening.’ I shared with her my plan for cleansing the banks, by which Takis, my companion that day, would be appointed chair of the HFSF and new CEOs would be brought in to the key banks.12 She nodded, if not in agreement then at least to show she had a clear understanding of what I was up to and what I was proposing. In a low voice, she then said, ‘I will speak to Mario. I cannot guarantee the outcome.’ It was the best I could get, given the position I had arrived in.
As if to offer me some solace, Christine’s parting gift was a promise to do some ‘digging’ into the background and activities of Greek individuals who might jeopardize my work and to get back to me about them. Even though she never did get back, which I never expected her to, it was the thought that counted.
‘Thanks once more for sacrificing your Easter Sunday,’ were my last words as I made my way out.
14 The cruellest month
The next day I flew back to Greece knowing that I would be returning to Washington a week later to try to win President Obama’s people over to our side.1 A week earlier I would have been over the moon with excitement at the prospect. Alas, as my trust in my comrades had withered, any such excitement had died with it.
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!
