16. The order was not issued immediately. It happened a few days later, in my presence, when I shared a panel with the said minister. When the show finished, aggrieved by my criticisms, he turned to the producer angrily. ‘We pay your salaries and you keep inviting him here to undermine us? Never again!’ After that the invitations ceased. However, to my great surprise an ERT producer did call me a few weeks later with an invitation to appear the following day. I told her that, while perfectly happy to accept her kind invitation, perhaps she should look into the matter once more, mentioning my blacklisting. Her reaction was one of healthy incredulity. ‘The days of fascism at ERT are well and truly over,’ she pronounced. ‘Be that as it may,’ I said, ‘ask around and if you still want me to appear on your programme tomorrow, give me a call and I shall be there.’ Two hours later my phone rang again. In a subdued voice came the sad admission: ‘I had been away on maternity leave and, as the order was never written down, I did not know. I am ever so sorry. For us more than for you. Thank you for protecting me.’
17. I was to find this out during one of my ministerial visits to Washington, DC.
18. Greek pension funds, like in most countries, were forced by law to hold much of their reserves in Greek government bonds. In effect, pensioners were made to lend their fund reserves to the state. The charters of professional bodies, like the lawyers’ association, also compelled their fund managers to invest in government bonds. Greece’s bankers would be hit too, but unlike pensioners and private investors they would be compensated fully with the European taxpayers’ money that the Greek state would borrow as part of the second bailout loan and return to the bankers – in the interests of financial stability, of course.
19. The interim government was formed in the autumn of 2011; the second bailout legislation was approved in the spring of 2012, and the new elections were called in May 2012. Having produced a hung parliament, they were repeated a month later, in June, at which point Mr Samaras managed to form, under his premiership, a coalition government with the massively depleted PASOK and a tiny pro-establishment party of the Left.
20. Unlike Greek pension funds, professional organizations and small bondholders, who lost up to 90 per cent of the money they had lent to the Greek state, very few foreign owners of Greek government bonds suffered a loss. The reason is that, by the time the haircut kicked in, in 2012, foreign banks and other institutional investors had already sold, at a discount, their Greek government bonds either to the European Central Bank or to risk-loving hedge funds. By 2012 the foreign institutions holding Greek government bonds were paying less than 30 per cent of their face value for them. So, they even made money from the 2012 official haircut, taking into consideration the ‘incentives’ they were offered to accept the terms of the haircut.
21. When I became finance minister, the fine lady in charge of the tax office had no obligation even to brief me on what she was doing. But while neither I nor parliament could fire her without the troika’s consent, I nonetheless was answerable to parliament for any scandal, misdemeanour or failure to meet targets by her office.
22. Margaret Thatcher, the politician who made privatization her political legacy, would have been appalled. Her arguments in favour of selling public assets were the enhancement of competition and the reduction of tax rates made possible by the injection of income and lower running costs. In Bailoutistan 2.0 privatizations meant something else: selling public assets for small change, as the economic depression had sent prices through the floor, with the proceeds thrown into the bottomless pit of Greece’s unpayable public debt.
Chapter 3: They bend their tongues like their bows
1. An even more outrageous trick was employed: in addition to the millions from Zorba’s bank, the Aris family’s offshore companies also borrowed millions from Aris’s own bank. These loans were also written off as unserviceable or non-performing, or were used to buy office space that was then resold to other parties only to be leased back to the bank or sold to it at inflated prices. The newly conjured-up funds or ‘profits’ would also be used to buy new shares in the same bank, keeping up the pretence that investors were injecting private capital into them.
2. My constituency being Greater Athens (or Athens B, as it is known), I did not have the opportunity to vote for Alexis in that mayoral election. But in any case I would not have done so, as I was sceptical of Syriza.
3. To be precise, the party was not yet known as Syriza. Prior to 2013 it was called Synaspismos, meaning ‘Alliance’. In the 2009 election Synaspismos formed a broader coalition with many quasi-independent parties and movements. In the 2012 twin elections (May and June) it stood under the name Syriza (Alliance of the Radical Left) as one party in order to become eligible for privileges not afforded to coalitions of parties. It was only in July 2013 that a congress was held that turned Syriza into a unitary party.
4. Yanis Varoufakis, Foundations of Economics: A Beginner’s Companion (1998), Routledge, London.
5. A summary of the Modest Proposal, which in 2013 received a makeover with the help of a new co-author, Jamie Galbraith, can be found as an appendix to Yanis Varoufakis, And the Weak Suffer What They Must? Europe, Austerity and the Threat to Global Stability (2016), The Bodley Head, London.
6. Argentina, like Mexico and other Latin American countries, had pegged its currency at one peso to one dollar, but this made Argentinian exports prohibitively expensive and flooded Argentina with imports. As the country’s trade deficit burgeoned and dollar debts accumulated within Argentina, it eventually became clear to everyone that something had to give. The exodus of capital from the country and the collapse of its domestic economy was cured, eventually, by ending the one-peso-for-one-dollar rate. Technically this was a simple operation, even though it left many Argentinians with dollar debts they could not service once their pesos lost value. All it took was a government decision on a Friday afternoon that the peso would no longer be worth one US dollar.
7. To my genuine surprise, we discussed in depth the Modest Proposal’s remedies for Europe’s sub-crises of public debt, insolvent banks and ultra low investment.
8. Yanis Varoufakis, The Global Minotaur: America, the True Causes of the Financial Crisis, and the Future of the World Economy (2011), Zed Books, London. Since then there have been two new editions, in 2013 and in 2015, with the subtitle: America, Europe and the Future of the World Economy.
9. My first experience of moving countries came at the age of seventeen, when along with thousands of other Greeks my age I moved to Britain to study. Then, in 1988, asphyxiating in Margaret Thatcher’s Britain, I migrated to Australia, where I took up a lectureship at the University of Sydney. My next migratory flight occurred when, at the age of forty, I decided to resign from Sydney and return to Greece, accepting a professorship at the University of Athens. Our 2012 move to the United States was my penultimate shift, the final one (I hope and trust) being the passage in 2015 into the arena of politics.
10. Angela Merkel was of course Germany’s chancellor, and Mario Monti the unelected economist who had replaced the ghastly, but elected, Sylvio Berlusconi as prime minister of Italy. Monti, despite his reputation as Merkel’s man, did his country a major service by pressing Merkel to accept debt sharing across the eurozone (not to be confused with loans) as well as the creation of a proper banking union. That he failed is not due to his lack of effort (see Varoufakis, 2016, Chapter 6) but rather to a combination of Merkel’s unwillingness to come to the aid of the man she had backed and to Monti’s lack of domestic support.
11. A video game company whose multi-million-strong player/customer community had spontaneously generated a substantial macroeconomy, including an evolved monetary system, which I was keen to study.
12. See Varoufakis, 2016.
13. The coalition also included a small, openly racist, ultra-nationalist, Christian fundamentalist party called LAOS, which was later absorbed partly by New Democracy but mainly by the emergent Nazis of Golden Dawn.
14. PASOK had lost the bulk of its support in 2009 after shepherding through the first bailout (down from 44 to a mere 13.2 per cent) while New Democracy, which had lent a hand in the second bailout, saw its electoral base shrink from 33.5 per cent in 2009 to 18.8 in May 2012.
15. Technically this would be simple. The second bailout money, from which Greece’s bankers would receive up to €50 billion, came from the European Financial Stability Facility. The EFSF (effectively Europe’s bailout fund) belongs to all eurozone member states and borrows on behalf of European taxpayers in order to pass the money on to Greek banks, Spanish banks, the Portuguese state, etc. My proposal was that, as the EFSF was pumping money into the Greek banks on behalf of Europe’s taxpayers, the EFSF should own their shares, becoming their owner on behalf of all Europeans. The banks’ directors would then be replaced by appointees of the EFSF (and possibly the European Central Bank) with the remit to cleanse and ‘europeanize’ Greece’s banks.
16. The technical term for this is ‘nominal GDP-indexing’. It means that repayments would be suspended until Greece’s national income, in euros, exceeded a certain level (for example the pre-crisis level of GDP or some agreed percentage of it) and its growth rate was above some annual percentage threshold.
17. In his speech, echoing the views of Syriza’s inner circle, Alexis called for taxing capital transfers out of Greece (not permissible within the eurozone), a home-grown investment programme (when domestic investment funding was totally absent), a tax on shipowners (who are domiciled mostly in London and therefore cannot be touched by the Greek tax office), legislating to force Greeks to repatriate their foreign bank deposits (legally impossible within the EU) and, last but not least, the nationalization of the banks (ignoring my briefing that the Greek state could not afford to capitalize the banks within the eurozone). Most of these pronouncements required Greece to exit the eurozone, but in the same speech Alexis proclaimed that Syriza’s policy was to stay within it.
18. Syriza did make further large gains between the May and June 2012 general elections: up from 16.8 per cent in May to 26.9 per cent in June. But New Democracy made similar gains, from 18.8 to 29.7 per cent, cannibalizing the PASOK socialists, who fell yet again from 12.3 to 4.68 per cent.
19. The new coalition government was an interesting twist on the previous one, that led by Lucas Papademos, the former ECB vice president. At its core were still New Democracy and PASOK, but the third party changed dramatically: LAOS, now absorbed into Golden Dawn and New Democracy, was replaced by a small splinter of Syriza called Democratic Left – moderate left-wingers who had accepted the basic logic of the troika’s Greek programme. The other difference was that the new coalition was dominated by New Democracy, given PASOK’s implosion.
20. Rumours spread by Peter Spiegel of the Financial Times and others that Stournaras had played a role in my appointment are false. He and I first met after my appointment, which was the result of a rare unanimous vote by the Economics Faculty Board. In fact, the original invitation to return to Athens and consider taking up a post there came in the early 1990s from a German-trained left-wing growth theorist, a professor of the old school who graced the university with his erudition and virtue.
21. Stournaras told me an amusing story about the famed ‘Greek statistics’, which have been blamed for letting a thoroughly unprepared Greece into the quicksands of the eurozone. All he and his colleagues had to do to convince official Europe to let Greece in was to copy the tricks that others – primarily the Italians but also the German Finance Ministry – had used to massage their statistics so as to present them as consistent with the eurozone’s rules. Given that Athens was not using any trickery not used by Rome, or indeed Berlin, Stournaras’s subtle strategy was to let it be known that, were Greece to be left out, the world might come to know what Rome and Berlin had been up to. In other words, it was not Greek statistics that got Greece into the eurozone; it was European statistics coupled with a large dose of hypocrisy.
22. The bank was later renamed the Emporiki Bank. In 2004, after Stournaras was fired by the new conservative government, the Emporiki Bank was sold to Crédit Agricole. Following the 2010 crisis the Emporiki bank was wound down.
23. For example, the international PhD in economics programme we introduced required candidates to spend two years taking full-time courses. Previously, some professors would have candidates work for a pittance on their own lucrative projects (or in their business) in exchange for a promise that, one day, four or five years later, they would be awarded a doctorate. Naturally, the dissertations that resulted from this system were worthless, as the students neither received any proper education nor had the time to study on their own. The new programme put an end to the practice and made me very, very unpopular among those colleagues.
24. Stournaras had been a party functionary or, as he preferred to think of himself, a PASOK technocrat. But he was close to, and had worked with, Papandreou’s predecessor, whose legacy Papandreou had been trying to expunge since 2004. Thus Stournaras was sidelined, making him feel bitter and distant from the party that he identified with. In contrast, I was close to the Papandreou family but not to the party, which I could not bring myself to vote for. Even though I did respond to Papandreou’s request to help him and his team (with speech writing, economic analyses, proposals for encouraging a cooperative enterprise sector, etc.), I did so as an outsider and as a personal favour to Papandreou. Nevertheless, by 2006 I could not work with his economic team and I resigned even my informal advising role. This, quite accidentally, brought Stournaras and me closer, as we now shared a distance from Papandreou.
25. The government’s primary budget surplus is the difference between its revenues (taxes, customs duties, returns on public investments, etc.) and its expenditures, not counting the money the government pays to its creditors in the form of debt instalments (interest and principal).
26. This story was relayed on 9 January 2014 in a report in the Financial Times by Peter Spiegel and Kerin Hope. They quote Stournaras: ‘“Poul [Thomsen, the IMF’s point man in Athens] and Lagarde said I had to [stand] by their side,” he recalled. “I said: ‘OK, but if I come by your side, it is what would really help Greece, but it’s something which is totally out of the question.’ Schäuble told me: ‘Stournaras, forget it.’ So it cannot be done, so what can I do?”’
27. The chancellor had visited Beijing with a number of requests, one of which was that China use a small part of its foreign currency reserves to fund the eurozone’s bailout fund (by buying the bonds it issued). A high-ranking Chinese official confirmed to me that Beijing agreed to do this on condition that Angela Merkel took Grexit ‘off the table’. The Chinese were right: they could not be asked to fund the eurozone’s bailout fund when most of the loans it had handed out were likely to be written off – which is precisely what would happen if Greece, the main recipient, no longer had access to euros.
28. After the summer of 2012, markets had received a signal from the European Central Bank that it would buy unlimited amounts of Irish, Italian, Portuguese and Spanish government bonds to stem the euro’s deconstruction. Indeed, it took Mario Draghi almost a year to make this signal possible, winning over to his cause Angela Merkel against the Bundesbank’s severe opposition. Greece was never offered a place under the ECB’s protective umbrella.
29. The precise condition was that the government achieved a positive primary surplus – its revenues exceeded all government expenditures, excluding the mind-boggling debt repayments.
30. The reason why early 2015 was the focal point is that the president of Greece’s term expired in March 2015. Greek presidents are elected indirectly, by parliament, and if no candidate musters the required figure, parliament is dissolved. Prime Minister Samaras could only therefore avoid a new election in March 2015 by securing the votes of smaller parties and independents in the presidential election. He liked neither the prospect of doing that nor his chances of succeeding even if he tried.
31. An extract from the speech:
The fear-mongers will tell you that our party will, if it comes to government, tear up the loan agreement with the European Union and the IMF, that it will take the country out of the eurozone, that it will sever Greece’s links with the civilized West, that Greece will become a new North Korea. This is fear-mongering at its worst. Syriza, my party, wants none of that. We have always been, and always will remain, a pro-European party. That we now think that Europe has lost its way and that it is imposing misanthropic policies on its own peoples is not to be anti-European. It is to be loyal to the people of Europe. To the idea that Europe is our home and we need to defend it from the great depression that is spreading and which is threatening not only us Europeans but also the whole global economy. We want to stop the fragmentation of Europe. And this means opposing Europe’s current policies … Does this mean that a Syriza-led government will tear up its loan agreement with the troika? No. What we are saying is far more basic. We are saying that this agreement is being violated daily by reality. The IMF itself is warning Brussels, Frankfurt and Berlin that this agreement has been overtaken by reality. That it is impossible to implement successfully even if Syriza convinces every Greek man, woman and child to wake up every day and go to sleep every night intent on implementing it … So, if Syriza’s radical Left politics is not about getting Greece out of the eurozone. And if it is not about tearing up our agreements with the European Union. What does our radical Left label signify?
It signifies that we will not be party to depression-era economic policies.
It signifies that we will keep insisting that the Eurozone is redesigned rationally, instead of having its peoples waterboarded every day of the week.
It signifies that we shall not accept Herbert Hoover’s European reincarnation to haunt Europe’s peoples.
It signifies that we will demand a new deal for Europe that mobilizes our continent’s productive capacities against want, against poverty and against hopelessness.
Last but not least, my message to this audience, here at Brookings, is that our party wants to establish a mutually profitable dialogue with well-meaning, progressive thinkers on your side of the Atlantic. I want to tell you that the people of Greece, even its radical Left, think of you as partners in the complex but important enterprise of restoring prosperity and hope on both sides of the Atlantic. The rest of the world, having made huge progress over the past decades, is watching us Europeans and Americans with anxiety. We must not fail them just as we must not fail our own people.
32. ‘Only Syriza Can Save Greece’, 23 June 2013:
Greece’s problem today is with Europe, and Mr Tsipras doesn’t want to pick a fight with Washington. The global financial sector would view a Syriza victory with horror. But banks and hedge funds know that most Greek debt is held by European taxpayers and by the European Central Bank, and what’s left is being snapped up by investors because they know it will be paid. Big Finance is worried about what may happen elsewhere if a left-wing party wins in Greece. This instinct is natural for bankers. But for the American government to adopt the same fear-driven stance would be strategically shortsighted. Indeed, right now, Syriza may be Europe’s best hope. Greeks neither want to leave the euro nor see the eurozone disintegrate, an eventuality likely to bring down the European Union. They also know that Europe’s approach to the crisis, involving increasingly harsh austerity and larger loans, has failed miserably.
33. The full background to this is as follows. At the time of the first bailout, under a lesser president than Mario Draghi, the ECB had purchased a lot of Greek government debt (bonds) in a desperate and ill-fated bid to keep it solvent. This doomed operation was the so-called Securities Market Programme (SMP). By buying Greek, Portuguese, Irish, Spanish and Italian government bonds, the ECB hoped to quell the panic-selling of those bonds by investors. Incredibly, though, the ECB had also signalled to investors that it would not be spending more than €200 billion – a clear invitation to speculators to wager that the SMP purchases would fail to prevent the drop in the value of these bonds. When the SMPs failed, the ECB was left holding tens of billions of unpayable Greek debt. In 2012, when the Greek debt was haircut by imposing large losses on private owners of government bonds as part of the second bailout, the ECB-owned SMP bonds were exempted. This meant that the bankrupt Greek government had to repay the ECB in full for bonds that would have been haircut by up to 90 per cent if it were not for the folly of the ECB’s previous president in purchasing them. In short, the ECB, our nation’s central bank, was behaving like a hedge fund hold-out against a bankrupt state. Hedge funds often buy distressed debt (bonds) of countries in trouble at ludicrously low prices, wait for other creditors to agree a haircut (or debt restructuring) with the government and then refuse to participate in this deal, holding out for full payment – hence the term ‘hold-out’ or the more emotive ‘vulture fund’. Only in Europe could such a travesty be perpetuated and defended as sensible policy.
34. The Bundesbank had a long history of clashing with Germany’s federal government (see Varoufakis, 2016). Jens Weidmann, the Bundesbank’s president, was so opposed to the ECB purchasing the potentially bad debts of the Graeco-Roman states and banks that he sued Draghi and the ECB (of which the Bundesbank is an integral part!) in Germany’s constitutional court, tabling a fiery 120-page deposition. The luckless German judges, unwilling to rule over this most peculiar dispute, which went totally over their heads and expertise, decided to … not decide.
