€301.8 million – IMF
16 December
€565.9 million – IMF
21 December
€339.5 million – IMF
Subtotal
€8.53 billion – IMF
Subtotal
€6.66 billion – ECB
Total
€15.19 billion
5. My information that top ECB officials were worried about the effects of a haircut of the ECB’s Greek government bonds on their freedom to embark fully in March 2015 on quantitative easing (the usual term for massive debt purchases) had come from a source high up the ECB hierarchy. More recently, in June 2016, that insider information was confirmed by a press release of the German Constitutional Court (Bundesverfassungsgericht) concerning an interpretation of the European Court of Justice decision on the ECB’s debt-purchasing activities, in particular on the so-called outright monetary transactions programme that Draghi had introduced as a preamble to his fully fledged quantitative easing programme. In it the German judges ruled that ‘although the European Court of Justice considers the policy decision to be permissible even without further specifications, its implementation must fulfil further conditions in order for the purchase programme to not violate Union law’ [emphasis added]. Which conditions? One was that all purchases of government debt, presumably extending to past ones, ‘do not manifestly violate the prohibition of monetary financing of the budget’. As Draghi once told me in person, any delay in redeeming the Greek government bonds owned by the ECB would be considered ‘monetary financing’, thus giving the German constitutional court a trigger to stop the ECB’s crucial debt-purchasing programme. Furthermore, the German judges also stipulated that ‘purchased bonds are only in exceptional cases’ to be ‘held until maturity’. If the Greek government were to legislate the prolongation of repayment two decades beyond maturity (as I was proposing), Draghi and the ECB would have fallen foul of the German Constitutional Court. Even if the latter did not act against Draghi upon such a Greek government move, the markets would panic, interpreting the Greek action as a significant boost to the probability that the ECB’s trillion-euro debt purchases were in jeopardy. See Bundesverfassungsgericht press release no. 34/2016, 21 June 2016, ‘Constitutional Complaints and Organstreit Proceedings Against the OMT Programme of the European Central Bank Unsuccessful’, http://www.bundesverfassungsgericht.de/SharedDocs/Pressemitteilungen/EN/2016/bvg16-034.html, last accessed 11 November 2016.
6. A former PASOK finance minister reported in 2011 that Wolfgang Schäuble had expressed his preference for Greece to exit the euro and return to the drachma. My conversations with Dr Schäuble, described fully in following chapters, confirmed this.
7. The president of the Hellenic Republic is voted in by parliament. Three ballots are allowed. In the first one the winning candidate must be voted in by a minimum of 200 of the 300 members of parliament. If no candidate secures this two-thirds majority, a second ballot takes place under the same rule. If again no candidate succeeds, then there is a final ballot in which the required number of votes falls from 200 to 180. If no candidate secures 180 votes, parliament is automatically dissolved and the next parliament elects the president with a simple majority (151 members out of 300). In December 2014 the Samaras government could count on only 153 members and would have to secure the support of a smaller centre-Left party plus a handful of independents to achieve the necessary 180 votes.
8. The Ministry of the Economy includes trade, industry, shipping, tourism and the crucial portfolio of managing the EU’s structural funds. The new Ministry of Productive Reconstruction would include public works, energy and the environment.
9. When I asked Alexis in private why Syriza had ditched my Five-Pronged Strategy, his masterful response was that the party was not sufficiently mature. He said the leadership lacked the determination to win the June 2012 election and admitted they were not prepared for government.
10. I also said that our proposals must correspond to substantial debt relief but be of the sort that Merkel could present to her people as her own idea. This could be achieved without an outright haircut by utilizing financial ‘engineering’ or debt swaps – of the type I ended up proposing to Berlin and to the Eurogroup in February 2015 (see Chapters 5 and 6).
11. Unlike Britain, where ministers must be members of parliament, the Greek prime minister can appoint extra-parliamentarian ministers, as long as the government wins a general vote of confidence in parliament.
12. Greek electoral law specifies that a small number of members of parliament are drawn from a ranked party list. If Syriza, for instance, wins four such positions, the first four candidates on the Syriza list become members of parliament. Each party’s quota for these seats is based on its nationwide percentage of the vote.
13. Voters first choose which party they prefer by picking the party’s ballot paper and then indicate which of the party’s candidates they want to send to parliament.
14. Plan Z, the troika’s plan for ejecting Greece from the eurozone and managing Grexit’s repercussions, was devised within the ECB but in collaboration with the German government and the European Commission. It involved a very small number of officials who worked in secret. See ‘Inside the ECB’s Plan Z’ by Peter Spiegel in the Financial Times, 14 May 2014. https://www.ft.com/content/0ac1306e-d508-11e3-9187-00144feabdc0
15. The first two ballots for the election of Greece’s president are ritualistic unless the two larger parties have agreed on a common candidate (see Chapter 4, Note 7).
16. ‘Xenophon Zolotas: Parallels and Lessons from back then for today’, Speech by Bank of Greece Governor, Mr Yannis Stournaras, Bank of Greece, 15 December 2014.
17. See Appendix 3 for a more analytical presentation of this argument.
18. Not content with the accusations of idiocy and irresponsibility I faced from establishment opinion makers, I invented tough questions of my own. Here is a Q&A that I published online around the same time.
Q: What will you do if Berlin and Frankfurt respond to your overtures for a renegotiated deal with a fat Nein, deciding to punish you with a liquidity switch-off?
A: This is a pertinent question, as such a development would be seriously unpleasant for Greece. But allow me to answer with a question of my own: is there any demand by the creditors to which you would say no, incurring a similar threat from them? Do you possess no thin red line of your own? If you don’t, does this not mean that you are relying on the kindness, and wisdom, of the creditors? Does it not also rely on them caring about Greece, rather than using Greece’s crisis as collateral damage in their tussle against Paris, Rome and Madrid. Please tell the voters and let them decide which policy is most dangerous and least dignified. Yours or ours?
19. I met Thomas Mayer at the conference in Florence that I attended in November 2014, the day before flying to Athens for the pivotal meeting with Alexis, Pappas and Dragasakis. We had a long, interesting conversation about the eurozone and exchanged details. He called his parallel currency solution the G-euro. Other advocates of a parallel currency included Dimitri Papadimitriou, who led the Levy Institute at Bard College.
20. See Chapter 3, Note 32.
21. To give it its proper name, the bailout fund was the temporary European Financial Stability Facility (EFSF), based in Luxembourg and subsequently merged with the permanent European Stability Mechanism (ESM).
22. Even astute private-sector operatives cottoned on. A day after that BBC interview (broadcast 13 January 2015), I know not whether as a result of it or independently, Mohamed El-Erian, then Allianz’s chief economic adviser and Pimco’s CEO, wrote the following in his Bloomberg column.
As it prepares for a possible role in government, Syriza should be supplementing its emphasis on orderly economic management within the eurozone with behind-closed-doors work on the mechanics of an exit, should such an event prove inevitable. In addition to careful and detailed internal preparations for a Plan B for alternative exchange and payments regimes, this would require clear communication of an alternative economic vision for the country.
Keen to signal that our government was neither planning for nor trembling at the knees when threatened with Grexit, I replied to El-Erian on my blog with a clarification: our alternative ‘payments regime’ did not involve a parallel currency but a parallel payments system that would allow us more room to negotiate a decent deal within the eurozone. And yes, we were ready to present an alternative economic vision based on an end to austerity, a permanent end to government deficits and a combination of lower tax rates for businesses and citizens coupled with a development bank to generate new investments, a public bad bank to deal with non-performing loans and a reinforced system of addressing destitution and despair.
Chapter 5: Raging against the dying of the light
1. Alekos Papadopoulos had been close to my mother, a PASOK stalwart herself and one-time deputy mayor of our south Athens municipality. She had used her remarkable capacity to deliver votes in parliamentary elections to support Alekos over many elections, something that he remembered appreciatively. Mum liked and trusted Alekos well before I got to know and work with him. Our relationship solidified when, holed up in the foreign affairs ministry over three days and nights, we worked feverishly to put together PASOK’s platform for the April 2004 election campaign in a futile bid to help George Papandreou develop a half-decent economic plan. Neither of us truly believed that it was possible but saw it as an important exercise.
Unfortunately, as it turned out, I ended up regretting his recommendation for a deputy minister in charge of the Treasury. Within a month or so of his appointment I realized he had no capacity to see through the subterfuge of the Treasury officials he was meant to oversee and was concerned at his apparent interest in influencing the appointment of high-powered positions in state-owned or -controlled organizations.
2. See Chapter 3, ‘A friendship’s last gasp’. The other was the German-trained growth theorist who had approached me in the early 1990s about moving from Sydney to Athens University.
3. This was around the time I was blacklisted from state radio and TV, so I was not surprised to see the video of her performance speedily removed from parliament’s website.
4. These institutions were the EFSF and its successor the ESM, whose charter and rulebook Glenn had a hand in authoring.
5. Racism is very thinly veiled in Greek establishment circles. Glenn is as Korean as Barack Obama is Kenyan.
6. When gross fixed capital formation (investment in physical infrastructure such as machinery) is zero, this means that it is not even enough to cover the replacement of broken machinery or depreciation in its value.
7. If ever proof were needed that wage cuts in the midst of a harsh multi-dimensional recession fail to instil confidence in employers, Greece has provided it. Anecdotally, meanwhile, I asked a business acquaintance whose factory made bathroom furniture why he did not employ more people now that labour was dirt cheap. His answer: ‘Who will buy my toilet bowls now that wages are so low everywhere that no one can afford to refurbish their bathrooms?’
8. The standard troika response to this observation is: exports did not rise because Greece did not reform sufficiently. But this is to shift the goalposts. Neoliberalism predicts that, all other things being equal, a reduction in average wages in a eurozone country should boost exports, so exports should have increased after wages fell, even if no reform had taken place. They didn’t.
9. On 19 May 2014 the IMF’s debt sustainability analysis was made public. In it the fund stated,
more fiscal adjustment is needed to restore debt sustainability. And once there, the primary surplus will have to be maintained at above four per cent of GDP over the full political cycle for many years to come. The adjustment fatigue now evident and the ‘social dividends’ and ‘no new measures’ promised by political leaders suggest that the political commitment to the debt strategy will be severely tested going forward. This strategy leaves no scope for any notable increases in wages and pensions from current levels in the run-up to national elections in 2015 and 2016. On the contrary, with tax rates already high and discretionary spending compressed, achieving the necessary additional fiscal adjustment without further cuts in wages and social transfers, not least pensions, which remain high relative to GDP, will only be possible with a dramatic improvement in the efficiency of the public sector … Debt sustainability remains a serious concern. Debt to GDP is yet to peak, and the extraordinary levels projected well into the next decade suggest that sustainability concerns will remain an obstacle for the recent improvement in investor sentiments to translate into a durable recovery, especially if doubts resurface about the political resolve.
10. Austerity is measured here in terms of the reduction in the government’s budget structural deficit (or increase in its surplus) as a percentage of nominal national income.
11. Britain is an interesting outlier, the reason being that it is the only country on this chart with its own central bank, which under George Osborne’s ‘expansionary contraction’ policy pumped oodles of cash into the British economy while the chancellor practised his contractionary austerity.
12. See Chapter 2, ‘Prisoners of their own device’.
13. Chapter 6, Note 2 describes an email from my immediate predecessor to the troika, which I saw on taking office, that illustrates the Catch-22 beautifully.
