7. See Chapter 4, Note 4 for the full repayment schedule. The payments in July included €3.49 billion to the ECB to redeem some of the infamous SMP bonds, and the payments in August were all to the ECB in lieu of more maturing SMP bonds.
8. In January 2016 the creditors proceeded with the transfer of the port of Piraeus to Cosco on the terms that pre-existed our government. Cosco may have ended up with the 67 per cent equity in the third quay it sought, but China lost out on the long-term large-scale investments I had proposed in Greece’s railways, which the troika sold to an Italian company incapable of serious investment, a tech park and shipyards, which at the time of writing are close to permanent closure. The privatization took place without the minimum investment or labour protection or safeguards for the local economy that Beijing had committed to in our dealings. Also lost was Beijing’s readiness to help the Greek state get back on its feet (by buying government bonds) when one day it regains solvency. In other words, Greece lost a strategic industrial partnership that went far beyond a port deal.
9. See Chapter 7, ‘Social democracy’s Waterloo’.
10. When I took over the finance ministry, arrears to the state amounted to €76.08 billion. Of this the tax office estimated that only €8.9 billion was potentially collectable. When I pressed them they confessed that of that €8.9 billion, €1.6 billion was owed by 3.5 million citizens who owed less than €2,000 each – the little people who had been squashed by the crisis and the ensuing austerity. It was these little people that the bill aimed to rescue from official insolvency. The troika’s retort was that rich Greeks, who had defaulted strategically seeking to have their arrears to the state written down, were let off the hook by our legislation – and it was they who owed the bulk of the €76.08 billion. Correct. Except that my ministry and Greece’s courts did not have the resources and mechanisms necessary to identify strategic defaulters and separate them from the little people. It would take years for these to be developed, and the little people would perish in the meantime. Besides, as I kept telling the troika, the strategic defaulters were mostly beyond our reach, as they lived in London, New York, Paris and so on. ‘Let us release the little people from their debt bondage,’ I remember telling Christine Lagarde, ‘and then, in a few months, once our algorithmic method for catching the cheats is in place, we will deal with them separately.’ But no, the troika knew better. As these lines are being written two years later, arrears to the state have topped €90 billion.
11. Kemal Dervish also advised me to resist fire sales and blanket privatizations. This intrigued me because he had a reputation in the West as a great neoliberal modernizer. But his real story is different. Take for example the case of Turkish Airlines. In 2001 the IMF placed Kemal under immense pressure to privatize loss-making Turkish Airlines, but he chose not to. Instead he identified the cause of the losses: ‘stupid price controls, no peak-load pricing and political interference’ as he put it to me. Instead of giving the company away to a foreign airline Kemal reformed the aviation law and allowed aggressive peak-load pricing. Today Turkish Airlines is recognized as a leading airline worldwide. Kemal finished his excellent advice to me with: only privatize when you think the price is right.
12. See Yanis Varoufakis, Joseph Halevi and Nicholas Theocarakis, Modern Political Economics: Making sense of the post-2008 world (2011), Routledge, London and New York, pp. 125–7.
14. Since by early March it was clear that the creditors were leaking falsehoods to the media about what I was telling them, what they were telling me and the level of sophistication of my presentations, I made sure there was an eyewitness present at those meetings. Jeff Sachs’s personal acquaintance with most of the major players including Lagarde and Draghi and the respect they had for him made him the ideal candidate.
Chapter 12: Merkel’s spell
1. Jeff was referring to the postwar Americans and Europeans who had designed and built the European Union.
2. For example, see my article ‘Europe Needs an Hegemonic Germany’, 24 July 2013, in the German financial daily Handelsblatt.
3. A swap deal between central banks of different countries means that one bank commits to exchange a certain amount of its currency with the currency of the other. A swap deal between the Fed and the Central Bank of Greece was likely to give us access to dollars (after Grexit) at a given exchange rate with Greece’s new currency.
4. Jamie wasted a day or two travelling to Wall Street to meet these gentlemen. He reported back to me that they talked a good talk, had booked offices in the building where the legendary Paul Volcker’s offices were and were concocting a mechanism by which a Fed swap line would be combined with Greece providing US companies with oil and gas drilling rights in the Eastern Mediterranean basin. The unfortunate hitch was that no one had talked to the Fed. It was a little like saying that your student newspaper could offer major publicity exposure once Rupert Murdoch had invested massively in it but neglecting to discuss the idea with Rupert.
5. So Alexis reported to me. After an initial trip to Moscow Alexis returned full of smiles, as he had secured an advance of €5 billion from Putin for the construction of a pipeline. Alexis had expected me to be enthused – €5 billion, he thought, would go a long way – but I had disappointed him by replying that, even if the money was available, we should delay receiving it for as long as possible. If we took it, the troika would simply delay negotiations so that the entire sum would go on paying back the IMF and the ECB. Thankfully we were spared this dilemma by the Russians. During his second visit to Russia, this time to St Petersburg, Alexis reported that Putin had withdrawn his offer and told him to go to the Germans instead. I had this confirmed personally when the Russian finance minister called me to say that international sanctions were depleting Moscow’s coffers and unfortunately he did not have the capacity to help us. As I had neither expected nor wanted their help, I was not especially disappointed, but I could foresee the negative impact it would have on Alexis.
6. Not being there to witness any of this, I am basing this part of the narrative on the description Alexis gave to me on his return.
7. It was during their late-night meeting in Brussels in the early hours of 21 March that Merkel formally invited Alexis to Berlin, another move by her that gave Alexis the illusion of a special relationship between them.
Chapter 13: The right stuff, foiled
1. The Battle of Crete began on 20 May 1941. Mainland Greece had already fallen to the Nazis when Hitler ordered the first mass airborne invasion in history in order to capture the island. Crete was defended by Greek, British and what were still referred to as ANZAC troops in Crete and Australia, but the civilian population, including women, old men and children, also fought pitched battles against the German invaders using farm tools and kitchen implements. The island was subdued by 1 June 1941 and many civilians were executed by the occupiers. To this day Cretans walk tall as a result of their defiance.
2. His correct point was that Greece’s first and second bailout loan agreements specified that defaulting to one of the three creditors could be considered by the other two as grounds for declaring Greece to be in default to them too.
3. The key argument in my letter to Christine Lagarde was, ‘The contractual arrangement binding the Greek authorities and the institutions together implies that … while we are renegotiating the loan agreement’s conditionalities, parties cannot call an event of default, and a moratorium of payment should apply. In this context, and with a view to allowing the necessary “quiet time” for reaching the 24 April Eurogroup meeting without an “event”, we are suggesting either a moratorium of repayments by Greece to the IMF until that date or, alternatively, the removal (prior to 8 April) of the ECB’s restrictions (i.e. the return of the waiver and/or the end of limits on the Greek banks’ constraint to stay within very low limits of T-bill ownership).’
4. In 2015 the Catholic/Protestant Easter fell on 5 April whereas the Greek Orthodox Easter came a week later, on 12 April.
5. Roumeliotis rose to prominence as a PASOK functionary and government minister in the 1980s. In 2010, despite his PASOK background, Roumeliotis soon came out into the open with caustic criticisms of the first bailout. His courageous stance was noticed and appreciated by Alexis and others within Syriza. At the time of my trip to Washington on 5 April, I was in the process of appointing Roumeliotis chair of the board of the Hellenic Financial Stability Facility (at Dragasakis’s encouragement) – an appointment that the troika, via Thomas Wieser, eventually blocked. (In the end, Roumeliotis was appointed chair of the board of Athens Eleftherios Venizelos Airport.) Given his knowledge of the IMF, I was glad to have him with me, especially as our IMF representative at the time, an appointee of the previous government, operated as if he worked for the IMF, rather than as our representative promoting Greece’s case within the IMF.
6. From our election to that day in April 2015, our repayments to the IMF amounted to 6 per cent of that period’s seasonally adjusted national income. In addition, this peak in IMF payments coincided with the period of the year when national income and thus tax receipts are at their lowest – about 0.86 lower than average owing to the drop in sales after Christmas and low tourism income. Add to that the financial shortfall we inherited from the Samaras government of 4.9 per cent of national income, and we are up to 11.76 per cent. Finally, factor in the ECB’s liquidity squeeze, which forced us to dig even deeper into state reserves, and the total percentage of national income that we had to plunder to meet the IMF repayments climbs to 14.21 per cent. For a government locked out of the money markets with a humanitarian crisis on its hands, extracting so much cash from its people to wire to a single creditor is unbearable. We had done it, I told Christine, to show our commitment to meeting our obligations and to negotiating in good faith. ‘But we cannot carry on doing it when the ECB is squeezing us dry and, to boot, Brussels and Berlin are all refusing to negotiate matters of life and death to us – like a debt restructure.’ This last point was intended to touch a raw nerve at the IMF, especially given Poul Thomsen’s confession to me in Paris in early February.
7. My precise words were: ‘Given that the disbursements the Greek loan agreement had specified have ceased but at the same time, under the 20 February Eurogroup agreement, we are renegotiating the conditionalities of that loan agreement, there seems to be a case under English and US law for a moratorium on our repayments as well as for refraining from calling a credit event. On this basis, I have been authorized to request that either the ECB will perform its duty or we must discuss the possibility of postponing the April repayment until there is a final agreement by the Eurogroup.’
8. She also said something that history disproved: that there could be no thirty-day delay after a missed payment before Greece was declared to be in default. For when in June we did default on a payment to the IMF, the IMF board unilaterally bundled that payment with future ones, thus delaying by almost a month the declaration of a Greek default. See Chapter 15, ‘Countdown to perdition’.
9. See Chapter 7, ‘Promising liaisons – 2. The troika man’.
10. Lagarde made the excellent if sad point about these SMP profits that it was not Draghi’s fault that I had never received them. It was Wolfgang’s. This is why. The ECB’s profits from all the bond trading that it does are distributed to the various national central banks in proportion to each country’s GDP. As the central bank of the richest country in the eurozone (the country with the ‘largest’ economy), the Bundesbank gets the largest cut. The national central banks then wire that money to their respective finance ministries to be used in any way they want. In the case of the profits of the Greek bonds that the ECB had bought under the SMP programme, the Eurogroup had agreed that they would be returned to Athens, but Schäuble and the other finance ministers had already banked that money in 2014. Indeed, they had already spent it. This meant that returning it to us was not really possible as it would require them to take the money out of their 2015 tax revenues, something that Schäuble was eager to avoid.
11. See Chapter 11, Note 10.
12. This is how I narrated my bank-cleansing plan. ‘The last thing we want our partners to think is that our left-wing government is snatching the banks. At the same time we shall not allow the bankers to rule the land. What I would like to do is to have Takis appointed chairman of the HFSF. I have a good relationship with the CEO of the HFSF, even though she was close to and appointed by the previous government, and I think with her and with Takis we can do good work to cleanse the banks. At the same time we should bring in new CEOs (we are the main shareholders anyway), established bankers with a good reputation from Northern Europe. Something similar to what happened with the Bank of Cyprus, which brought in Ackerman to run it. This is the only way of moving forward. I am not asking you for an opinion; I am simply sharing this with you. I cannot think of any other solution – to end the revolving-door syndrome between the Greek state and the oligarchy. Our party has no connections with the Greek banking community and thus we are well placed to break up this mafia-like group by bringing in reputable well-established bankers from the outside. I was thinking of England, but then I concluded that Germans might be better, signalling to Berlin a determination to do business.’
Chapter 14: The cruellest month
1. Before returning to Athens I had two exploratory meetings: one at the US Treasury with Under Secretary Nathan Steets (as Jack Lew was not in Washington that day), the other at the White House with Caroline Atkinson of the National Security Council. They were like chalk and cheese. Steets was sympathetic, while Atkinson sounded like a cross between a lowly functionary of the German finance ministry and a throwback to the IMF’s pre-2008 days. It was my first whiff of how mixed the messages I would receive in Washington would be.
2. My proposed timetable was as follows. On 12 April Theocarakis would present the N+1 Plan to the Brussels Group. Over the next two days, by 14 April, we would amend it in response to feedback. On 15 April I would present it at the Brookings Institution, Washington, DC, where I had been invited to deliver a major policy speech. Meanwhile, Euclid and Pappas would travel to Brussels to present it to Moscovici while Alexis and Dragasakis approached Merkel and Juncker to tell them that, as far as the Greek government was concerned, this would be the basis of further negotiations. On 17 April I would present the N+1 Plan to US Treasury Secretary Jack Lew. On 19 April Pappas should convene the Frankfurt Group and demand acceptance of the N+1 Plan as the basis for drafting the legislation by means of which the final review would be completed. Finally, between 20 and 24 April, when the Riga Eurogroup was scheduled, the drafting of legislation consistent with the N+1 Plan would be completed. ‘Only in this manner and by means of such a tight schedule,’ I concluded, ‘will we be able to strike an agreement with the creditors.’
3. The final report of the Financial Crisis Inquiry Commission was hailed by the New York Review of Books as ‘the most comprehensive indictment of the American financial failure that has yet been made’ and ‘the definitive history of this period’. See Jeff Madrick, ‘The Wall Street Leviathan’, New York Review of Books, 28 April 2011.
4. The committee comprised Phil Angelides, Dina Titus (Democrat congresswoman for Nevada), John Sarbanes (Democrat congressman for Maryland), Niki Tsongas (Democrat congresswoman for Massachusetts) and James Bilirakis (Republican congressman for Florida).
5. Lee related the story of his involvement in some detail. In 2011, when the PASOK administration was in denial about Greece’s bankruptcy, he was visited by the then finance minister, George Papakonstantinou. It was clear to Lee that Papakonstantinou was not there by choice but rather at the behest of the IMF. The then Greek government did not even want to hear of debt restructuring, indeed went out of its way to vilify people like me for daring to speak the words. But, according to Lee, the IMF was already freaking out at the thought that they had lent to a bankrupt government without first organizing a restructuring of its debts – hence the pressure on Papakonstantinou to see Lee, the world’s foremost authority on debt restructuring. ‘They leaned on him to come and see me,’ Lee told me. ‘He was clearly unhappy to be having that conversation with me.’ According to Lee, Papakonstantinou delayed a meaningful debt haircut to such an extent that the IMF wanted him out. After Papakonstantinou was replaced by another PASOK politician, Vangelis Venizelos, in the summer of 2011, Lee was approached again. He told me he could not believe that the new minister would not take seriously his warnings against the kind of debt restructuring that Berlin was imposing on Greece: a massive haircut on privately owned debt coupled with a huge new loan from Europe’s taxpayers. Lee was pulling his hair out at Athens squandering a wonderful opportunity for debt relief so as not to ruffle feathers in Berlin. In the end, being the professional that Lee is, he delivered the debt restructuring that Berlin demanded. It was to be the largest haircut in history while, remarkably, leaving Greece’s debt thoroughly unpayable. ‘It was a terrible thing to have done to the people of Greece, and an excellent opportunity to cut your debt that was wasted, with my participation,’ he said. ‘If there is anything I can do to help now I would do it unreservedly. Greece deserves a break.’
6. This was seriously good advice, despite its alarming content and the sense of dread it instilled. Two years later, in early 2017, when the debate as to whether Italy should leave the eurozone heated up, Mario Draghi signalled to his fellow Italians that, were Italy to leave the euro, the Central Bank of Italy would have to pay hundreds of billions of euros to the ECB. If any Italian policymakers are reading this, I would thoroughly recommend a brief chat with Lee Buccheit.
7. It was while I was leaving this meeting with Jack Lew that I was approached by an official who kindly warned me of the impending character assassination planned against me. See Chapter 1, ‘Theseus before the labyrinth’.
8. The decision to close a country’s banks (by refusing them more liquidity from their national central bank’s ELA) requires a two-thirds majority of the ECB governing council.
9. See Chapter 9, ‘The commissioner’s humiliation’.
10. Poul Thomsen’s precise words were: ‘It means that six months ago we thought that Greece could go back to the markets and there would be no need for new money. Now there will be new need for very significant new money. Secondly, until six months ago we thought there would be no need for debt relief. We thought that the targets would be achievable.’
12. See http://www.reuters.com/article/us-eurozone-greece-varoufakis-idUSKBN0NG0EO20150425
13. See Nikos Sverkos, ‘Secrets of the Brussels Media Machine’, ThePressProject, 2 May 2015, https://www.thepressproject.gr/article/76506/Secrets-of-the-Brussels-media-machine
14. That morning, Saturday, 25 April, before flying to Athens I had attended the Ecofin meeting. Being a rather ceremonial occasion, each member state was represented by not only its finance minister but also its central bank governor. While we were sitting together Stournaras said to me that he thought the time had come to introduce capital controls – just as Benoît Cœuré had told me a week earlier, on 16 April, in Washington. (See this chapter, ‘The troika in Paris’.) My reply to Stournaras was the same as my reply to Benoît: our government opposed capital controls as we did not believe they were consistent with a monetary union.
15. In December 2008 a policeman had shot and killed a youth in Exarcheia, claiming he felt threatened. The result was not just the death of a teenager but ten days of fire and violence.
Chapter 15: Countdown to perdition
