3 They bend their tongues like their bows

He came home in the early hours of Sunday morning. Exhausted, Danae and I had already turned in but had been listening for the front door’s reassuring thud before going to sleep. Danae’s seventeen-year-old son had recently spread his wings and was observing the customary rites of an Athenian teenager on a Saturday evening: going out with friends to discuss the meaning of everything until late in the night, usually at cafés at Psyrri, a neighbourhood a stone’s throw from the ancient agora. Athens is the safest of cities, and Psyrri even more so, but like any parent we welcomed the sound of the front door.

On that night, moments it seemed after sleep had taken me, the landline rang. Conditioned to associate calls after midnight with family illness, I jumped out of bed and rushed to the living room to pick up.

An eerily suave male voice asked, ‘Mr Varoufakis?’

Hazily I said, ‘Yes, who is this?’

‘We are very glad to see that your boy has returned,’ continued the voice. ‘He had a great time, it seemed to us, in Psyrri. He then made his way back along Metropolis Street, taking a detour along Hadrian’s Road, arriving home via Byron Street.’

With a chill running down my spine I shouted into the phone, ‘Who the hell are you? What do you want?’

His answer was icy cool. ‘Mr Varoufakis, you were misguided to put certain banks in your sights and in your articles. If you want your boy to continue to return home every day, every Saturday, you will cease and desist. There are better topics for you to meddle in. Pleasant dreams.’

My greatest fear had materialized.

It was November 2011 and already the second bailout was having an effect. Whereas the first bailout had been an exercise in making weaker Europeans (primarily Greece’s pensioners and low-income workers) pay for foreign bankers (primarily French and German), the second bailout was aimed at Greece’s own bankers: while the haircut sheared them of up to €32.8 billion, they would receive an injection of more than €41 billion as compensation, borrowed by Greek taxpayers from the rest of Europe’s taxpayers. Greece’s bankers had everything at stake in seeing this most peculiar transfer through.

Their concern was twofold. First, with the Greek parliament so degraded and its members so shattered, the bankers feared that the political process would stall before they got their money. Second, the European Central Bank, increasingly embarrassed by financiers’ shenanigans and keen to be seen to be clamping down on them, was demanding that before they received more public money the banks raise some of their own. But how could Greece’s bankers attract new capital given that, like the state, they were well and truly bankrupt? No sane investor would put money in a defunct bank.

Two men and a barrel of whiskey

To grasp the ingenuity with which two Greek bankers solved the problem it helps to know a joke I was once told in a Dublin pub involving two entrepreneurial drunkards.

Art and Conn, goes the tale, decide that they have to do something to lift themselves out of poverty, so they persuade Olcán, a local publican, to lend them a barrel of whiskey. Their plan is to roll it down the road to the next town where a fete is to be held, where they will sell its contents by the cup. Rolling the barrel along the road, they stop for a rest under a great oak. While they are sitting under the tree, Art finds a shilling in his pocket, rejoices and asks, ‘Hey, Conn, if I give you a shilling can I have a cup of our whiskey?’

‘Aye, go on,’ replies he, pocketing the shilling.

A minute later Conn realizes he now has a shilling to spend, turns to his companion and asks, ‘Art, what do you say? If I give you a shilling can I also have a cup?’

‘Aye, Conn,’ Art agrees, taking back his shilling.

And so they proceed, the shilling changing hands, until hours later Art and Conn are fast asleep under the oak tree with great grins on their faces, the barrel empty.

I have no idea whether Greece’s bankers had ever heard this joke but their solution to the problem of raising capital for their banks was uncannily similar to Art and Conn’s, with the difference that they would not be the ones to suffer the resulting hangover. Here is how our two bankers – let’s call them Aris and Zorba – did it.

Aris’s family founded offshore companies, to which Zorba agreed secretly to lend without collateral or guarantees the millions that Aris’s bank needed. Why such generosity towards a competitor? Because Zorba and Aris were sitting under the same proverbial oak. Desperate to raise money for his own bank, Zorba agreed to the loan on condition that Aris’s bank lent a similar amount to Zorba’s family’s offshore outfits. Aris’s and Zorba’s families then used the monies from their offshore accounts to buy new shares in their own banks, thus fulfilling the regulators’ requirement that new capital be raised and thereby qualifying for the real money that the poor taxpayer was borrowing from the troika.

Where Aris and Zorba went one better than Art and Conn – whose hangover was compounded by the thought of their debt to Olcán – was the means by which they ended up owing nothing to anyone. Both sets of loans – from Zorba’s bank to the Aris family offshores, and from Aris’s bank to the Zorba family offshores – were written off soon after being granted and transferred to the banks’s long list of non-performing loans.1

Of course Aris and Zorba were not being especially innovative. They were, in fact, standing on the shoulders of con men grander than themselves, such as the perpetrators of the Savings and Loans scam in the United States during the 1980s whose techniques they had copied. Where Aris and Zorba proved unique in the history of capitalism was in succeeding in getting away with their con with the active help of three of the most renowned global financial institutions: the International Monetary Fund, the European Union’s Commission and the European Central Bank. These grand institutions committed the following three sins. First, they forced Greece’s ruined taxpayers to borrow money from other European countries that they could never repay in order to pass it on to Aris and Zorba in the form of ‘recapitalizations’. Second, they deprived Greece’s taxpayers of any control over the banks that they now legally owned (being majority shareholders) and ensured that Aris and Zorba would remain in charge of them. Last, they condemned Greek taxpayers to a banking system that, despite the public monies ploughed into it, remained fully bankrupt, courtesy of the non-performing loans the bankers had generated.

Throughout 2011 I had made it my personal crusade, in parallel with a couple of investigative reporters, to expose the connections between Greece’s bailout loans, the international institutions that granted them, Greek bankers’ remarkable ‘innovations’ and the Greek political system. Evidently, this was the kind of meddling that could provoke interesting telephone conversations in the early hours of the morning.

Of tongues and bows

When foreign journalists interview me, they usually try to get me to acknowledge Greece’s endemic corruption in an attempt to make me admit that I exaggerate the role of the EU, the IMF and the troika in engendering our great depression. Curiously, they are never interested in discussing the central role that the media has played in the process.

During my time as finance minister one of the many interviews I gave on Greek television was marked by a fascinating confession. It was a long interview that spanned almost every conceivable topic. During the first segment the interviewer came out all guns blazing, each question laced with pernicious allegations, giving me time to utter no more than four or five words before I was hit with the next. During the commercial break he approached me to whisper into my ear, ‘Minister, I’m very sorry about this but you know our dire situation these days. Aris’s bank is our only source of advertising.’ I told him I understood. After that the interview proceeded at a more relaxed pace that allowed me a chance to be heard. It seemed that enough had been done, on that occasion at least, to secure the station its daily bread.

In fairness, this was only to be expected. Greek television stations had been in the red even before 2008. Indeed, none of them had ever declared a profit. Nor had Greek newspapers or radio stations. Had they been stand-alone enterprises, they would have filed for bankruptcy long ago. Except they were not. During the years of unsustainable, debt-fuelled growth Greece’s media provided an important means of leverage for the developers that owned them. Government ministers could either award their owners lucrative state contracts or expect to be torn to shreds on air or in print. This is one of the many reasons why Greece ended up with motorways costing three times what they would in Germany, overpriced drugs in its hospitals, submarines that leaned like the Tower of Pisa, rivers of cash stowed away in offshore bank accounts and media outlets that always lost money but never shut down.

The silver lining of Greece’s bankruptcy in 2010 was that the trough the developers used to feed from dried up, while their mouthpieces were suddenly left to fend for themselves, an impossible task given disappearing advertising revenue and a business model that was never meant to be viable. And yet only one network closed down during the crisis years, the rest continuing to function despite multiplying losses. How could that be? Aris and one or two other bankers provide the answer.

Quite simply, the bankers now took over the funding of the media in order to manipulate public opinion and thus control the political game that kept them in charge of their bankrupt banks. But, unlike the developers, the bankers were clever enough to eschew ownership of the insolvent television stations and newspapers. Instead, they kept the media alive by paying them ludicrous sums to advertise their services and more importantly granted them large extend-and-pretend loans just like the loans they were granting one another and just like the loans the EU and the IMF were granting the Greek state.

The triangle of sin was complete: the insolvent media were kept in a zombified condition by the zombie banks, which were maintained in their undead condition by a bankrupt government, itself preserved in a condition of permanent bankruptcy by the EU and the IMF’s bailout loans. Is it any wonder that the Bailoutistan media extolled the benefits of the bailout and portrayed its bankers as victims of an unreliable state, while demonizing anyone who dared reveal what was really going on?

While I was in the thick of the struggle, Bill Black, an American colleague who had played a leading role in exposing similar shenanigans in the United States, the savings and loans scandal of the 1980s and 1990s in particular, made me laugh one day by sending me an email that contained only a short quote, which I interpreted as a gesture of solidarity: ‘And they bend their tongues like their bow[s] for lies: but they are not valiant for the truth upon the earth; for they proceed from evil to evil.’ (Jeremiah 9:3)

The young prince

Psyrri, a neighbourhood in Athens taken over by bustling youngsters at night, is a different place by day. Tiny workshops continue to struggle for existence, manufacturing nuts, bolts, buttons, tools and other stuff whose value is plummeting in the globalized economy. The air is thick with a cacophony of industrious noises alongside the delectable smells of bakeries and the odd jasmine shrub, and punctuated by the melancholy singing of Roma musicians, who wander the narrow streets with their accordions, horns and violins, collecting the odd coin from nostalgic passers-by.

I know Psyrri well, since my university office at the time was only a few hundred metres up the road from the neighbourhood while Danae’s studio is located at its heart. Close by, at the edge of Psyrri, are the shabby offices of the Alliance of the Radical Left, universally known as Syriza. So when in early 2011 Nikos Pappas, the closest associate of Syriza’s young leader, called me to arrange a meeting and suggested that the three of us meet in Psyrri, it made perfect sense.

We met at a discreet boutique hotel, one of those investments in the area that now epitomize the false dawn of the gentrification cut short in 2010. It would become our usual meeting place, its pastel-coloured walls witnessing exchanges that began on that day at a relaxed, almost academic pace but turned serious and purposeful by early 2012. Nevertheless, during that first meeting and for some time afterwards, I had no reason to believe we would be meeting again.

I had first laid eyes on Alexis Tsipras on a poster plastered all over Athens promoting his candidature for mayor in the local government elections of 2008. Danae, a long-time supporter of that particular strand of Greece’s Left, was enthusiastic about a thirty-four-year-old running for a post usually held by dreary older politicians using it as a springboard into Maximos.2 In the event Alexis doubled Syriza’s vote in central Athens, and before long the party’s old guard had organized an internal putsch which installed him as leader, shoving aside the man who had anointed Alexis as his eventual successor. In the general election the following year, though, when Alexis led the party for the first time, the headlines were dominated by the victorious surge of George Papandreou’s ill-fated socialists, with Syriza3 coming in fifth, collecting a miserable 4.6 per cent of the vote, half a per cent less than in 2007.

When I walked into the hotel, he and Pappas were already at a table, ordering lunch. Alexis’s voice was warm, his smile unaffected, his handshake that of a potential friend. Pappas had wilder eyes, a high-pitched voice. He joked incessantly, whether the matter was funny or tragic, and tried to exude authority while being everyman to everyone. From the outset it was evident that Pappas had the young prince’s ear, guiding, restraining and spurring him on, and this initial impression survived throughout the turbulent times that followed: these two young men, of similar age but different temperaments, were acting and thinking as one.

‘I’ve been following your work for years, ever since I read your Foundations,’ Pappas said, breaking the ice, referring to an economics textbook I had published in 1998.4 Apparently he had been a postgraduate economics student in Scotland when he came across the book, and since then he had read the Modest Proposal for Resolving the Euro Crisis, which I had co-authored with Stuart Holland, a British Labour former MP and professor of economics at Sussex University. Stuart and I had been working on the Modest Proposal since 2005, motivated by the conviction that the euro would cause an almighty crisis which Europe might not survive.5 After the euro crisis erupted, Stuart and I did our utmost to refine and promote the Modest Proposal, convinced that it was Europe’s best chance of avoiding its demise. ‘Tell Alexis what you are advancing in the Modest Proposal,’ said Pappas.

I explained its basic logic, and then the conversation turned to a general assessment of the political economy of Bailoutistan and the strategies available to progressives intent on offering the country an escape from its prison of debt.

It soon became clear that, for political reasons, Alexis was vacillating over a basic issue: whether Greece should retain the euro. Even in 2011 Syriza was torn by internal disagreements over whether the party should or shouldn’t make Grexit (departure from the eurozone, though not necessarily from the EU) its official policy. As we talked, Alexis’s attitude to the question struck me as cavalier and immature. His focus was more on keeping control of the feuding wings of his party than on clarifying in his own mind what the right policy was. Judging by the meaningful looks coming from Pappas, it was clear that he thought so too and was hoping I would help shift his leader away from casual experimentation with the idea of Grexit.

In the hour or so that followed I did my best to impress upon Alexis that turning Grexit into an objective would be as large a mistake as failing to prepare for it. I also criticized Syriza for making silly promises such as that, if elected, the bailout agreement with the EU and the IMF would be unilaterally torn up.

‘Why can’t we tell them that if they do not accept our unilateral rejection of their programme, we will exit the euro?’ Alexis asked.

I explained that there were three possible outcomes of a confrontation with the troika. The best outcome would be a new deal for Greece – involving serious debt restructuring, the end of self-defeating austerity and a series of reforms targeting the oligarchy – which kept us in the euro. The worst possible outcome would be to stay in the euro in the same position: in debtors’ prison and with shrinking incomes, prospects and hopes. Grexit would be in between: far, far worse than a viable deal within the eurozone but better, in the medium and long term, than a continuation of the vicious circle of bailouts, austerity and depression for another five years or more.

I told him there was no way Berlin, Frankfurt, Brussels or the IMF would accept a take-it-or-leave-it offer from him; they would simply leave it. So to issue such an ultimatum would be to ensure the third outcome – expulsion from the eurozone – and to remove even the possibility of the first. To leave the door open to the best possible outcome, he needed to force a negotiation. On the one hand this meant rejecting Grexit as a threat (let alone an objective) while on the other signalling to the world that his worst fear was not enforced Grexit but the continuation of the current situation. However, I was unsure whether he was much interested in the nuances of this argument.

‘But Yanis, many people, like Paul Krugman, say that we would be better off outside the euro anyway,’ Alexis retorted.

I agreed that we would be better off if we had never entered the eurozone but hastened to add that it was one thing to have stayed out of the euro and quite another to leave it. Exiting would not get us to where we would have been had we not entered!

To try to shake him out of his lazy thinking, I outlined what I expected to happen immediately if Grexit were announced. Unlike Argentina, a country that had severed its currency’s ties to the dollar, Greece did not have its own notes and coins in circulation. Grexit would involve more than severing the one-to-one exchange rate between the drachma and the euro. The result of such a severance in Argentina had been a drastic devaluation in the national currency, leading to a major surge in exports. This in turn led to a major reduction in the trade deficit, and so, eventually, to the restoration of economic health. Unlike the Argentinians, however, Greece would have to create a new drachma before then severing it from the euro.6 But creating a currency takes months. In other words, Grexit would be like announcing a currency devaluation months before it happens, a strategy that comes with dire consequences: an exodus of euros and an absence of a local currency to facilitate daily transactions.

Would he be prepared, I asked Alexis, to stand in front of voters during an election campaign and tell them that this was what he was proposing? That this should be Plan A? Or would it not be better to tell voters this: we shall demand a renegotiation that yields a new deal for Greece rendering our social economy sustainable within the eurozone, but if the EU and the IMF refuse to negotiate meaningfully, then we shall not accept any more extend-and-pretend loans from Europe’s taxpayers. And if they want to retaliate by pushing us out of the euro, at immense cost to both themselves and us, then let them do their worst.

Pappas was nodding enthusiastically, but Alexis seemed elsewhere. When I pushed him to explain his silence, his reply confirmed that he was preoccupied with the goings-on within Syriza rather than engaging properly with the issue at hand. I was unimpressed. As the meeting drew to a close, and at the risk of sounding condescending, I offered him some well-meant but unsolicited advice on a separate matter, which he may have found offensive: ‘Alexis, if you want to be prime minister, you need to learn English. Get a tutor, it is imperative.’

Back home Danae asked me how the meeting had gone. ‘He is a very agreeable person but I do not think he has what it takes,’ I replied.