One evening, on returning to our flat after yet another session at ERT, the Greek state radio and TV network, the landline rang. I picked the phone up to hear a familiar voice. It belonged to Antonis Samaras, then leader of the conservative New Democracy party, at the time Greece’s official opposition and the man I helped defeat four years later, in the January 2015 general election.
‘We have never met, Mr Varoufakis,’ he said, ‘but having just watched you on ERT I felt an urge to call. For I cannot remember the last time I was so touched by something so profound I heard someone say on television. Thank you for your stance.’
He was not the only member of the Greek establishment to approach me. Indeed, my campaign had led to many secret discussions with socialist ministers, opposition conservative members of parliament, trade union bosses and the like who felt I was on to something. Once I outlined my basic analysis, not one of them contested it. The socialists spoke like petty officers who know that the ship is heading for the rocks but are too scared to confront a captain in deep denial. The conservatives, at least up until November 2011, were a happier lot: with their leader Antonis Samaras adopting an anti-austerity, anti-bailout position, they felt freer to endorse my musings.
A few days later I was at ERT’s studios preparing for yet another appearance on the main news bulletin. The network’s CEO had previously approached me with an intriguing offer: to present a short programme almost daily that would follow the main news, offering my commentary on the unfolding economic drama. ‘The government will not like it but your views are important and deserve an airing,’ he had said decisively. Flattered, but also pleased by the head of state television’s commitment to pluralism despite the government’s fierce opposition to my views, I had agreed to think about it.
That night, ten minutes before show time, the CEO summoned me to his office for a chat. Sitting opposite him was the station’s main anchor, a journalist who for two decades had been the darling of the PASOK establishment, well known for her dyed blonde hair, blue eyes, captivating voice and flirtatiousness. The CEO reminded me of his offer of a regular slot for me, to which the anchor added her enthusiastic approval. Just before we headed for the studio, under his watchful eyes, she came up with her caveat: ‘I know that this is your thing, but please do not mention debt restructuring tonight. It makes it hard to keep you on air. The government go ballistic when they hear these words.’
I smiled and proceeded to the set. Once settled in, and after she had read the headlines, she turned to me with her usual au fait manner to ask, ‘Mr Varoufakis, the government is telling us that the programme is going to succeed. But we hear other views also. What say you?’
Immediately I replied, ‘Without debt restructuring, no programme, not just this one, stands a chance.’ I thought I detected an almost imperceptible twitch under her heavy make-up.
Once the show was over, I headed straight for the car park, got on my motorcycle and rode home, certain that I would never be invited onto ERT’s programmes again. Indeed, on the orders of the press minister (whose mere title fills any liberal heart with unease) I was unofficially blacklisted.16 Four years later, exactly the same sin – insisting on debt restructuring – would lead Europe’s top dogs to demand my removal from Greece’s finance ministry and the Eurogroup. Who says Europe’s establishment is not consistent?
The 2011 ERT ban was my first whiff of the incompetent authoritarianism that characterized the European Union’s approach to the eurozone crisis. For their attitude to the crisis was essentially a moralistic one. Austerity is an awful economic policy that, as explained previously, is guaranteed to fail in bad times. But austerity is not really an economic policy at all. Austerity is a morality play pressed into the service of legitimizing cynical wealth transfers from the have-nots to the haves during times of crisis, in which debtors are sinners who must be made to pay for their misdeeds. Not satisfied with the Greeks’, the Spaniards’, their own people’s submission to their authority, the troika demanded also that the other weaklings of Europe, including the many Germans struggling against poverty, take the guilt and the blame for the crisis too.
The German finance minister Dr Wolfgang Schäuble once told me that my opposition to austerity placed me in a minority of Europeans, citing opinion polls that showed support for government expenditure cuts. I replied that, even if that were true, a majority can be wrong about the cause of their malaise. During the Black Death of the fourteenth century, I reminded him, most Europeans believed the plague was caused by sinful living and could be exorcized by bloodletting and self-flagellation. And when bloodletting and self-flagellation did not work, this was taken as evidence that people’s repentance was not sincere enough, that not enough blood had been let, that the flagellation was insufficiently enthusiastic – exactly as now, when austerity’s abysmal failure is cited as proof that it has been applied too half-heartedly.
If he was amused, Wolfgang did not show it. But this is the point: stripped of its moral weight, austerity emerges as what it is: a failed economic policy founded on unethical moralizing. The reason the establishment found me infuriating was that I had a degree of success in applying cold logic to the problem and thus de-moralizing the debate on Greek debt, utilizing arguments that transcended the divisions between Left and Right and resonated powerfully with segments of both.
This is why, if they had been able, they would have blacklisted me not just from ERT but from every public forum on the continent.
Square of hope
At the same time as Greek state television was blacklisting me for continuing to campaign for a debt restructuring, the IMF was beginning to work towards … a debt restructuring. The German government wanted none of this, but the IMF, increasingly embarrassed at the mess the Europeans had dragged it into, was pushing hard. To appease the IMF, the Greek finance minister lukewarmly consulted debt restructuring experts in Washington, despite his determination to toe Berlin’s line.17 Meanwhile, Berlin and Paris were coming to the conclusion that Greece needed a new bailout loan, a haircut of some of its debt and a new government.
Their thinking was uncomplicated: the first bailout loan had almost all been spent on shoring up the French and German banks. The Greek state would soon need more money – a great deal more – to continue its pretence of solvency. But just as when you use a credit card to repay a mortgage, your overall debt only rises, so the size of the headline sum to be loaned to Athens as part of the second bailout in 2012 would have given the already fuming parliamentarians throughout Europe a collective stroke if it weren’t accompanied by some kind of haircut. President Sarkozy and Chancellor Merkel resigned themselves to the idea of Greek debt restructuring on condition that it would burn only those creditors who were incapable of harming them much. By the summer of 2011, it was decided: the haircut would mainly hit Greek pension funds, Greek semi-public institutions and Greek savers who had bought government bonds, while the loans provided by the IMF and the European institutions in 2010 would of course remain inviolable.18
That this would spell the end of the wretched Papandreou government, which had pushed the first bailout through parliament, was considered an acceptable price to pay. After all, Prime Minister Papandreou, his finance minister, the whole Greek establishment, had only managed to get parliament to approve the first bailout by repeatedly asserting that it would save Greece’s bacon, that debt restructuring was neither necessary nor desirable, and that anyone who said otherwise deserved to be tarred and feathered – or at least ostracized in the ancient Athenian way. Less than two years later, how could that same government push through the same exhausted and humiliated parliament debt restructuring plus a loan even larger than the first? They were doomed.
The impotence of the Papandreou government was evident not only in Parliament House but even more so just outside it, on Syntagma Square. Syntagma means ‘constitution’, and the square’s name harks back to an uprising in 1843 against the Bavarian-born King Otto, in which the rebels imposed upon their foreign overlord a written constitution. The square is sandwiched between the Parliament House on one side, formerly King Otto’s palace, and the ugly 1970s block that is the Ministry of Finance on the other. From certain parts of the square one can catch glimpses of the Acropolis, a reminder of bygone glories but also of the idea that the demos – ‘people’ – ought to matter. Since 1843, when King Otto was forced to back down, almost every demonstration or rally in Athens has begun, passed through or ended up at Syntagma Square, in front of Parliament House. Indeed, it is the site where I, along with millions of other Greeks of my generation, joined my first demonstration in the early 1970s, tasted the delights of CS gas and cut my political teeth.
During the spring of 2011, with the country already in savage recession, the spontaneous occupation of Syntagma Square began, possibly in emulation of similar occupations of public spaces in Spain by the so-called indignados – ‘indignants’ – protesting against austerity and demanding back their dignity. At first, one or two thousand people would gather after nightfall. But night after night the people would return, and every night thousands more gathered than the night before. This went on for three whole months. At its peak one hundred thousand people congregated in the square. Despite the occasional brief flare-up of low-level violence caused by fascists, riot police and hooded anarchists, what made these rallies special were the impeccably structured debates. No one could speak for more than three minutes; the speakers were drawn by lot; and every few hours the theme under discussion changed. (I recall thinking to myself how splendid it would be to emulate such orderly discussions in our universities.) It might not have been democracy at work, since no binding decisions were possible, but at least it was a huge agora vibrating with possibility, in sharp contrast to what went on in Parliament House nearby, site of our national humiliation and submission to a great depression.
Danae and I would take the ten-minute walk from our flat to Syntagma Square to breathe in the oxygen of hope. Twice I was asked to address the crowd. Just before stepping onto the makeshift podium, I remember recalling that the last time I addressed a demonstration was somewhere in Nottinghamshire, at a picket line during the 1984 miners’ strike. At least at Syntagma the weather was warm, the crowd much larger and I was no longer a ‘meddling foreigner’, which is what a British policeman had once called me. Yet the exhilaration was exactly the same. As I left the podium, visibly chuffed, Danae leaned close to my ear to ask, ‘Are you sure you don’t want to run for parliament?’ I said I was. Whatever my personal feelings, I explained, the best contribution I could make to the cause would be to maintain the lines of communication I had established with politicians from different parties and try to work across party divides. But deep inside I wondered how much longer that would remain possible. The mists of discord were thickening.
In June 2011 the faltering Greek government was being forced by the troika to push through parliament one corrosive bill after another, including the effective termination of trade union rights. These were effectively the rites of Papandreou’s departure, a last humiliation before the rug was finally pulled from under his feet by the second bailout. Sensing a crisis, the crowds at Syntagma Square were getting denser and meaner and soon were occupying the square around the clock. Ominously, divisions began to open up. In the upper square nationalists and fascists began to make their ugly presence felt, their slogans reflecting their hatred of all politicians, indeed of parliamentary democracy itself – the visible makings of Golden Dawn’s ascent. In the lower square the much more numerous progressives would gather, striving to oppose both the establishment and the crude anti-establishment agitators of the upper square by honouring the tradition of well-organized pluralist debates.
Members of parliament, especially of the governing socialist party, would tell me on the phone or confess bitterly over a cup of coffee behind closed doors that they couldn’t take it any more. Walking past the screaming, enraged, humiliated masses to enter the chamber in order to vote for bills that they detested was taking a heavy toll. They repeatedly told me they were on the verge of voting down their own government’s troika-dictated bills, but time and again, with only one or two exceptions, they would be beaten back into the government’s pen. Within a year, the socialist party that for three decades had commanded around 40 per cent of the vote saw its support collapse to a pitiful 5 per cent.
One day in late June five thousand police encircled Syntagma Square in a well-orchestrated operation to end its occupation. Using quantities of CS gas never seen before in a relatively confined urban space, along with stun and smoke grenades, water cannon and good old-fashioned police violence, they turned the square and surrounding areas into a wasteland. Hardened war correspondents of my acquaintance tell me they never imagined they would witness such state violence in a city like Athens. Walls and pavements were blackened by the smoke, and the whole city reeked of chemicals for weeks. On that day the last remnants of the government’s legitimacy were well and truly expunged.
Bailoutistan 2.0
The technical details of how Prime Minister Papandreou was ousted are too sad to recount here. Suffice to say that, as in all good drama, the troika brought him down by means of political machinations involving the courtiers that surrounded his shaky throne. It is typical of the troika’s cruel indifference towards those who serve it loyally that before they discarded George Papandreou they subjected him to the ultimate ignominy: in October 2011 he was obliged to travel one last time to Brussels to place his signature on the draft of the second bailout and the very debt restructuring he had been denouncing for so long on the troika’s behalf as ‘unnecessary and undesirable’.
Setting up a successor government capable of shepherding the second bailout through the Greek parliament was not a simple operation. Papandreou’s demise and the weariness of the ruling socialists’ parliamentarians pointed to new elections. But the ballot box is unpredictable and elections require at least a month, time that the EU, the IMF and the Greek elite did not feel they could spare. An interim coalition government would be formed instead, and only after it had pushed through the second bailout would an election be risked in the spring of 2012. To form that grand coalition, Antonis Samaras, the leader of the opposition conservative party, would have to be co-opted into the logic of the bailouts, which he had hitherto resisted.
It took one meeting – on 23 June 2011 in Berlin with Mrs Merkel – to break Mr Samaras’s emotional attachment to my fierce condemnation of Bailoutistan that he had expressed in our phone conversation following my appearance on ERT. The lure of an eventual move into Maximos, the Greek prime minister’s official residence, proved irresistible. He would not be the last leader to trade a principled opposition to Bailoutistan for that office. The plan was as follows: following Papandreou’s resignation, a ‘technocrat’ prime minister would be installed, with the centre Left (PASOK) and the centre Right (New Democracy) providing ministers for the government and the necessary votes in parliament. Once they had seen the troika’s second bailout through the legislature, this government would call for fresh elections, which Mr Samaras’s New Democracy was bound to win given PASOK’s implosion – the result of having borne the moral and political cost of the first bailout. As long as Antonis Samaras could find it within himself to jettison his anti-bailout narrative, endorse the second bailout and support the interim government from the wings, he need only wait six to eight months for his turn as prime minister. Which is precisely what happened.19
To underline the depth of the cynicism involved, the gentleman chosen to lead the coalition government was none other than the recently retired vice president of the European Central Bank. A former economics professor in my department at the University of Athens, Lucas Papademos would be obliged to forget some unfortunate utterances before moving into Maximos. Until three days before his swearing-in, Papademos was still parroting the troika’s line that a restructuring of Greece’s debt was ‘neither necessary nor desirable’. But once he was standing on the threshold of Maximos, surrounded by journalists keen to have his first official statement, he pronounced with a perfectly straight face that his main duty as prime minister would be to oversee the restructuring of Greece’s debt.
And so we come to the delightful moment in our history when the people who denounced as treacherous fools those of us who dared call for a debt restructuring found themselves to be the very same people called upon by the troika to implement it. By itself that would have been an amusing footnote if the point of the debt restructuring were indeed to render Greece solvent again. But that was never the intention.
To default on your creditors, to declare bankruptcy formally, is a terrible thing, but it has an upside: your debt shrinks and you get the chance to work hard again, pull yourself up by your bootstraps and regain the trust of potential investors. This is, for example, how General Motors recovered after 2009, indeed how Germany returned to the land of the living in the 1950s by means of substantial debt relief. But no, Greece was destined to make history. Under the terms of its second bailout in 2012 the new government would declare the largest non-payment in world history while simultaneously remaining in debtors’ prison courtesy of the largest loan in world history.
The world-beating €100 billion debt default haircut hit Greece’s powerless pensioners, its professional associations and small-time bondholders – who would be forced to kiss goodbye to the money the state owed them – while a world-record extend-and-pretend loan of €130 billion was pushed down the nation’s throat, almost none of which would go to the Greek state per se. Instead, a large chunk of that money went to Greek bankers (to overcompensate them for money they had lost on the haircut government bonds), a second chunk went to Greece’s foreign private lenders (as an incitement to make them accept the haircut), and the third chunk went to service the EU’s and the IMF’s loans from the first bailout agreement.20
What made Bailoutistan 2.0 a regime more sinister than its previous incarnation were three new institutions that, by sidelining parliament, damaged democratic sovereignty. These were a mechanism for bailing out the bankers, a new form of governance for the state’s revenues and customs, and a department to organize, in the creditors’ interests, fire sales of the family silver – in other words, privatization Greek-programme style. A quick look at these offers a valuable beginner’s guide to Bailoutistan 2.0.
Possibly the vilest of these institutions was the first of them, the mechanism for bailing out the bankers. When money is injected into a private firm, the entity that provides it must receive shares in the firm in proportion to the injected value and an equivalent degree of control over its management. The second bailout stipulated that €41–50 billion was to be given to the bankers, new public debt that burdened the taxpayers. But rather than securing some degree of public control over the bankrupt banks in return for this money, an ingenious scheme was devised to circumvent this altogether. A new fund was created, wholly owned by the Greek state, called the Hellenic Financial Stability Fund (HFSF), into which €50 billion of the total €130 billion of the second bailout was channelled with the express order that it be passed on to the banks. Legally, the bankers would be required to pass shares to the HFSF that amounted to around 80 per cent of their banks’ equity in return, but two devices ensured that parliament would still have no say in their management. First, parliament voted to agree that the shares held by the HFSF would carry no voting rights. Second, the HFSF’s board of directors was to comprise foreign directors appointed directly by the troika and Greek nationals (including the CEO and the board’s chair) whose appointment required the troika’s approval. Moreover, none of the directors could be fired by the government or parliament without the troika’s say-so. By passing this bill, parliament’s last meaningful action with regard to banks kept alive by its citizens’ indebtedness was to give up its oversight of them.
Turning to the Greek state’s revenues and customs department, parliament again swallowed an abomination: the department head would now need to be endorsed by the troika and could not be fired without the troika’s consent. In many countries the tax office (HMRC in Britain, the IRS in the United States) is independent of the Ministry of Finance or Treasury but answerable directly to the legislature. In Bailoutistan 2.0 the tax and customs office would be answerable to neither.21
To complete the triad of affronts, privatizations were assigned to an independent authority led by yet another troika-endorsed chairperson, whose motto might best be summarized as ‘Everything must go!’ Glossy prospectuses, featuring everything from the nation’s ports and railways to pristine beaches and small islands, invited potential buyers to make an offer. The family silver was for sale, and the proceeds were to be collected by Greece’s foreign creditors through local appointees.22 Nothing captured better the people’s frustration and resentment than the expressions on their faces while perusing these brochures.
How were parliamentarians persuaded to vote for legislation that denied them jurisdiction over three such crucial pillars of governance? They were blackmailed with the threat of Greece’s expulsion from the eurozone. It was a vote that no system of jurisprudence should permit, and only an agonizingly wearied parliament could have acquiesced.
Who do I have to be?
‘You have no right to do this. Just vote no!’
A young woman shouted these words at a member of parliament as he struggled past the Syntagma Square occupiers into Parliament House to vote for one of the Bailoutistan 2.0 bills.
‘Who are you to judge what I should or shouldn’t vote for?’ he barked back at her as he elbowed his way in, sweat running down his face.
Her devastating answer came effortlessly: ‘Who do I have to be?’
Bailoutistan is an ugly word, but it reflects an obnoxious reality: the turning of Greece into a debtors’ prison on behalf of Northern Europe’s banks. Those Syntagma Square nights framed the country’s further transition from prison into institutionalized debt colony, but they also marked Europe’s legitimacy crunch in the aftermath of its credit crunch. That a European country embedded in the continent’s great common currency experiment would end up being pushed around like a banana republic is a devastating indictment of a union supposedly founded on the promise of shared prosperity and mutual respect.
Of course Europe’s establishment had willed none of this. Before 2008 the elites in Berlin, Brussels, Paris and Frankfurt had believed their own rhetoric, as had those in the United States and the City of London: capitalism had delivered the Great Moderation; boom and bust was a thing of the past; banks had found a magical way to produce ‘riskless risk’and were self-regulating marvellously. Those in authority believed that history had ended, and their job was one of micro-management, of nudging a magnificent self-guided, self-managing system in a broadly predetermined, rational direction.
But when Europe’s financial system hit the rocks put in its way by Wall Street’s self-destruction, Europe’s elites panicked. The sight of French and German banks sinking without a trace made them reach into history’s dustbin to retrieve the spirit of gunboat diplomacy and the inept economics that came with it. Greece just happened to be the place were these would again be applied, and Bailoutistan was the result.
When inordinate weight is loaded onto a flimsily constructed bridge, the weakest beam will break first. Greece was that beam. The reason it was has nothing to do with the European Union and everything to do with the sorry history of the modern Greek state and the oligarchy that ruled over it, but the cause of the disaster was the bridge’s poor design. Even if Greece had been removed from the structure and replaced by a stronger beam, the bridge would have still collapsed.
It is true that in 2010 Greece’s public and private sectors were incompetent, corrupt, bloated and indebted. That is why the euro crisis began there. We Greeks managed to acquire an unsustainable debt even before our state was formally created in 1827, and since then tax evasion has been something between an Olympic sport and a patriotic duty. Railing against this disgrace and the Greek oligarchy’s excruciating ineptitude, which often translated into despotism, we progressives learned our politics in the 1960s and 1970s, demonstrating on the streets and in particular in Syntagma Square. And yet none of this explains the depth of Greece’s post-2010 crisis or the subsequent establishment of Bailoutistan, a sad debtors’ colony on the Mediterranean.
If Greece had stayed out of the euro in 2000, what would have happened? In the common currency’s first eight years our state and private sector would have borrowed a tiny amount from the French and German banks, who would have been coy about lending to a deficit country whose currency was on a permanent slide. As a result, between 2000 and 2008 Greece would have grown at the pace of a tortoise compared to the debt-fuelled boom we actually experienced. And when the credit crunch hit in 2008 Greece would have faced a small, short, insignificant recession, like Romania’s or Bulgaria’s. Just as corrupt and inefficient as ever, Greece would have plodded along much as it did in the 1950s and 1960s without the humanitarian crisis in which it is now immersed. Progressives, sick of our society’s ills, would have continued to demonstrate in Syntagma Square, unseen and unheard by the rest of humanity, and the world’s headlines would have been free of any reference to the NEW GREEK TRAGEDY, GREECE’S THREAT TO GLOBAL FINANCE and the like. And, of course, this book would never have been written.
To err is human, as they say, but to fail spectacularly and with stunning human cost, it seems we needed Europe’s grandest economic design, the euro. Greece was the canary in the eurozone’s coal mine, whose death should have been a warning of the deadly financial fumes leaking through the continent’s monetary system. Instead, in 2010 small, fragile, wasteful Greece became the scapegoat for Europe and its banks. Not only were the Greeks made to shoulder impossible loans on behalf of the French and German banks, not only were they made to submit to a life in a postmodern workhouse so that foreign parliaments could be kept in the dark, but they were also expected to internalize the blame. However, during those long glorious nights in Syntagma Square, Europe’s establishment lost control of the blame game. The young woman who stood tall, proclaiming her right to question authority with that glorious ‘Who do I have to be?’ symbolized the turning point. Yes, our society was shot through with a multitude of malignancies, but no, our cruel and unusual punishment was not justified. And we would not take it lying down.
Catherine the Great once said that if you cannot be a good example, then you will just have to be a horrible warning. Greece’s warning to the rest of Europe’s laggards was indeed horrible: an iron cage forged by debt and austerity awaited those who fell foul of financial rules that the crisis made impossible to obey. But the young woman at Syntagma Square, Lambros the homeless interpreter, millions of others willing to make sacrifices but not to see them thrown into the bottomless pit of Greece’s debt were determined to show the rest of Europe that there were humane alternatives, that Europe’s plight while dreadful need not be tragic, that our fate was still in our hands.
After the brutal eviction of the Syntagma Square occupiers, the Greek summer heat took its toll and the occupiers never returned. Instead they filtered out into Greek society, where they spread the word, biding their time until the next conflagration. Then the spirit of Syntagma would become an unstoppable political movement which used the ballot box to establish a new government whose simple task was to dismantle Bailoutistan and knock down the prison walls. But to get there four years of arduous groundwork would be needed first.
