I looked around the room to see that only Euclid was on my side. I was in a minority of two.
The discussion then moved on to the management of the greatest nightmare a finance minister can face in peacetime: the indefinite closure of the country’s banks. It was essential, I argued, that we make clear who was responsible for this calamity. Ever since our election, we had bent over backwards, even accepting concessions that we knew to be impossible to implement, in order to keep the banks open; Stournaras and Draghi, in contrast, had done everything in their power to create and fuel the bank run that had precipitated the closure. We should not do them the favour, I argued, of letting ourselves be portrayed as the government that chose to deny its citizens access to their deposits. I therefore proposed that we let the banks open on Monday morning as usual, so that when the counters ran out of cash the managers would be forced to close down their branches themselves. At that point we should be outside, protesting with the people against the troika.
Naively, I had anticipated agreement. This time not even Euclid was on my side. If banks opened only then to run out of cash, it was argued, we risked civil disorder inside and outside the branches. There was something in this argument, but the risk, I thought, was grossly exaggerated and various measures could be taken to mitigate it, whereas failing to protest publicly against the bank closures and instead allowing them to be presented as our idea was a catastrophic political error. I told them that to close the banks by government decree would mean losing the blame game domestically, which meant defeat at the referendum.
It was as we were leaving Maximos that the realization hit me hard: this was, in fact, their intention. But it was not they who would take the blame; it would be me.
As we made our way out, Dragasakis approached me looking surprisingly friendly. ‘Tomorrow you must convene the Council for Systemic Stability,’ he said. ‘I will not be able to come but I am sure you can handle it well.’ The Council for Systemic Stability is a body that no finance minister ever wishes to convene. It only meets when the banks must be closed down in an emergency. From day one of our government, Dragasakis’s office had issued a series of decrees that removed all powers over regulation of the banks from the finance ministry and placed them instead under his control as deputy prime minister. Now that the war cabinet had decided, at his behest and against my express opinion, that the government should convene the Council for Systemic Stability in order to shut down the banks, he would not even attend the meeting, let alone chair it. He was confident I would swallow the poison he had handed me because my only alternative, being in a minority of one within the War Cabinet, would have been to resign as finance minister, and he knew that I would not contemplate doing so for fear of causing a rift among those who supported the no campaign. Unspeakably cowardly as it was, the strategy of making me convene the Council despite my passionate opposition to the idea worked. To this day sections of the Greece press refer to me as the man who closed the banks.
Alongside my own deputies, the members of the Council for Systemic Stability included Stournaras, his deputy at the Bank of Greece and the CEOs of Greece’s commercial banks. I began the meeting with an explanation of how we had come to our current predicament. In my speech I made it clear that Stournaras was one of the driving forces behind the calamity. Stournaras did not seem to mind at all. In fact, he radiated happiness and was extremely friendly towards me.
That night, once the meeting was over, my team and I embarked on the gigantic job of devising a formula to determine how much cash the ATMs should release, working out what to do for the 85 per cent of pensioners who did not possess debit or ATM cards and deciding which imports to finance with the little liquidity that was left in our central bank. Like the Hydra’s heads, new problems sprang up wherever one was dispatched. At 1.40 a.m. that Monday I received a text message from Stournaras: ‘Dear Yani, thank you for the exquisite collaboration.’ Knowing him well, I think the appreciation he conveyed was just as genuine as his evident glee at the success of his project to undermine our government, ever since Samaras appointed him to the governorship of the bank twelve months earlier.
For my part, the adrenalin coursing through my blood helped me fend off despair and work ceaselessly with my team until 9 a.m. Normally, this was when the banks opened; instead, our television screens were filled with scenes of endless queues at ATMs as the Greek people attempted to withdraw the sixty euros we had calculated was the most each account holder was allowed if we were to survive until the morning after the referendum on 5 July. It was at this point that I was informed that over the weekend, before the decree imposing limits on withdrawals had been announced, MPs had emptied the ATMs located in Parliament House five times over. I was scandalized that the people’s representatives should abuse their access to Parliament House’s ATMs, which were evidently re-stocked more diligently than all others were. So when a Bloomberg correspondent asked me if I had lined up to withdraw some cash at an ATM, I replied that I had not had time but that in any case I did not think it appropriate. It was soon reported in the press that I, the man who had closed the banks, thought myself too important to queue up with the rest of the population.
Later that week I was interviewed for the New Yorker by a journalist to whom I had granted special access, including to our apartment and members of my family. During dinner with friends at which the journalist was present, I described the irony and the sheer pain of having to shut down the banks on behalf of a war cabinet that had turned against my strategy for keeping them open. ‘I don’t wish this fate on my worst enemy,’ I said. Realizing that I had cast a depressing cloud over the party, I tried to brighten the mood a little and joked, with light-hearted self-pity, that a cruel screenwriter dramatizing these events would have had me say to Danae, ‘Honey, I shut the banks’ – a reference to the Hollywood film Honey, I Shrunk the Kids. The New Yorker piece featured that reference, to which the Greek media gave their own special spin: ‘Varoufakis celebrated as he closed the banks, telling Danae, “Honey, I shut the banks!”’
My image and the distortions that were meant to destroy it are unimportant in themselves, except that, in tarnishing me, my enemies were damaging the no campaign and the brave people who took it upon themselves to save our collective dignity by supporting it. They were indeed lions led by donkeys. And the donkeys came in a variety of colours. I recall being approached in parliament by a Syriza MP, a member of the pro-Grexit Left Platform, who was displeased with me. This was hardly surprising given that he had spent months criticizing me for not implementing capital controls and not getting us out of the eurozone. What was surprising was the reason for his anger now that capital controls were in place: owing to the restrictions on wiring money abroad, he was now unable to pay the mortgage on his house in London. ‘But you were in favour of the drachma and of capital controls,’ I exclaimed. ‘If I had done what you were imploring me to do, how would you be paying your London mortgage? In drachmas?’ This was not the kind of leadership our people deserved.
Back at Maximos, I suggested that ministers should travel to all of Greece’s major cities and islands to campaign for a no vote. Despite assurances that it would be done, nothing transpired. Instead, Pappas and Dragasakis’s office were leaking fake stories about me to the press, while Wassily showed me evidence that my own ministry’s Council of Economic Advisers, still chaired by Chouliarakis, was campaigning openly for yes. My greatest concern, though, was that the stance of the war cabinet prohibited me from explaining to the electorate what a no vote actually meant. It was essential, I thought, to make clear that a no vote would be an instruction to the government not to leave the eurozone but to hold firm in order to broker a new agreement within it – one that freed us from debtors’ prison, recovered our dignity and ended the downward spiral. If Mario Draghi and Angela Merkel refused us this, a no vote meant haircutting the ECB’s Greek bonds and starting a euro-denominated parallel payments system that would buy us and the creditors space and time to return from the brink of Grexit. And if Wolfgang’s Grexit strategy were to prevail, the euro-denominated parallel payments system could potentially turn into the foundation of a new national currency.
If we spoke openly to voters and explained the strategy in full, I felt certain our hand would be strengthened because Draghi and Merkel would be forced to take notice and a proper compromise would surely be found. For as ECB Vice President Vítor Constâncio confessed in the autumn of 2015, the ECB would never carry through the threat of Grexit. But the majority view in the war cabinet prohibited me from saying any of this. The best I could do was to proclaim our determination not to play with Grexit but also not to fear it or buckle when threatened with it, and leave the rest for the voters to infer.
Occasional boosts to my spirits came from abroad. On the day the banks closed a good American friend sent yet another letter to Christine Lagarde, which his office copied to me. ‘In my view,’ wrote Bernie Sanders, ‘the Greeks have every right to vote no in the referendum. By threatening to force Greece out of the euro, German Chancellor Angela Merkel, French President François Hollande and Italian Prime Minister Mateo Renzi are playing a dangerous game with the stability of the global financial system as well as the very fabric of European democracy.’
That same day, at a meeting in Maximos to discuss the plight of Greek pensioners, many of whom were distrustful of technology and preferred to visit the – now closed – banks in person to withdraw their pensions, Alexis looked at me happily. ‘Juncker called to say that he accepts your debt swap proposals. You scoundrel, you got what you have been going on and on about for years. You got your debt restructuring. But the price Juncker is asking is that they crush us on social issues: VAT, islands, pharmacies, labour relations, privatization – they’re demanding everything.’ He showed me Juncker’s non-paper and asked, ‘Is this a basis for reopening the negotiations?’
I read it quickly. ‘Yes, it is,’ I said. ‘It opens a new window to a sustainable future and puts the second bailout behind us.’
That was the last I heard of Juncker’s proposal. Whether it was killed off directly by Merkel, who could now see that we had capitulated, or indirectly by Dragasakis, Sagias and Chouliarakis, who had given up on debt restructuring long before, I shall never know. What I did know was that, had we stuck to the strategy we had originally agreed, Brussels would have met us halfway.
But of all the moves made by politicians seeking to salvage Europe’s honour during that week, the most interesting and genuine arrived as a text message on Black Sunday, the day before the banks shut down.
Macron’s gesture
Emmanuel Macron, economy minister of France, texted me at around 6 p.m. on Sunday, 28 June to inform me that he was attempting to convince President Hollande and Sigmar Gabriel, Germany’s social democratic vice chancellor, to find a solution. ‘I do not want my generation to be the one responsible for Greece exiting Europe,’ he said.
Less than a minute later I replied, ‘But of course. Just know that we need an agreement that offers respite for the long run and a prospect that this situation will not be repeated in a few months.’
Emmanuel agreed. He would talk to his president and get back to me. ‘Sustainable solution is key, I agree with you,’ he said, proposing that he travel to Athens the next day, incognito, to have dinner with me and Alexis and to hammer out a deal between Athens, Berlin and Paris.
After midnight, while we were in the thick of preparations for the bank closures, Emmanuel wrote again to inform me that President Hollande was planning to issue a statement in the morning announcing the reopening of negotiations. ‘Would Alexis agree to go to Paris on Monday evening or Tuesday morning?’ he asked. I implored him to come to Athens himself instead. With the situation in Greece so volatile, Alexis could not leave the country for open-ended talks.
‘OK,’ Emmanuel said. ‘I am ready, and I am sure that Alexis, you and me could find a deal … I will convince the president tomorrow. We have to succeed!’
Deeply appreciative, I texted him: ‘I always felt that you and I could see eye to eye. The difficulty will be to find a solution that is viable for us and acceptable to Wolfgang.’
On Monday, 29 June, the day he was meant to come to Athens, Emmanuel called, asking for a favour: could Alexis contact President Hollande to let him know that he was ready and willing to receive Emmanuel in Athens as the French president’s emissary? I called Alexis, explained the opportunity that was being presented to us, and he agreed. An hour later, however, Alexis called me back, understandably cross. ‘What’s going on? Hollande’s office replied that they have no idea about a possible mission by Macron to Athens. They referred us to Michel Sapin. Is he pulling your leg?’
When I relayed this exchange to Emmanuel, his explanation shocked me. ‘The people around Hollande do not want me to come to Athens. They are closer to the Berlin Chancellery than to our government. They clearly blocked Alexis’s approach. But let me have his personal mobile phone number. I shall go to the Élysée personally in an hour to speak with him [Hollande] and ask him to call Alexis directly.’
Some hours passed, but Hollande never called Alexis. So I texted Emmanuel: ‘Do I take it there has been no progress? And that your trip has been cancelled?’
A dejected Macron confirmed that he had been blocked by his president and the president’s entourage. ‘I will push again to help you, Yanis, believe me,’ he promised. I believed him, and of course I understood exactly how he felt.
Three months after my resignation, in October, Emmanuel invited me to visit him at his ministerial office even though I was not in government any more. He told me that at a summit meeting before his failed attempt to mediate with Alexis he had used my line that the troika’s deal for Greece was a modern-day version of the Versailles Treaty. Merkel had heard him and, according to Emmanuel, ordered Hollande to keep Macron out of the Greek negotiations. Merkel’s spell was every bit as powerful as I had imagined.
A very Greek farce
It is both absurd and lethal for a finance ministry to lack the support of its central bank. One of the absurdities during that awful week, as we struggled to make very little liquidity last as long as possible, was that I did not even know how much liquidity there was in the system. But the fact that the Bank of Greece was headed by the governor who had started the bank run and who was plainly ecstatic the night the banks closed made me suspect it was under-reporting the amount of available cash.
After performing some research, to which Jeff Sachs contributed, I discovered an interesting if unusable piece of information: not only was there more liquidity in the system than the Bank of Greece was reporting, there was also €16 billion of ECB-owned cash stashed in the vaults of its branches around the country. It was there as a consequence of the previous cash crisis, which had taken place in the summer of 2012, when the ECB had organized hundreds of cargo flights into Athens from Frankfurt in order to keep Greece’s ATMs stocked with banknotes. To prevent the need for another airlift, the ECB had been building up cash reserves in Greece, just in case.
That day, on my daily visit to Maximos, I found Alexis in his office entertaining Alekos Flabouraris, a minister without portfolio in the government and something of a father figure to him. As usual, I briefed the prime minister on everything of consequence that day, primarily the rate at which cash was leaking out of the ATMs. I also mentioned the €16 billion stash.
Alexis’s eyes lit up. ‘What? There is €16 billion in cash lying around and we are not using it to stuff the ATMs and make them function normally?’
I explained that we could not touch the money. Confiscating it would be theft. ‘But, Yani,’ protested Alexis, ‘if my child is starving, and I have no money, I have a moral right to steal a milk carton. Is this not similar here?’
‘Since when did theft become part of the Left’s arsenal?’ I asked.
Flabouraris leaped to his protégé’s defence. ‘We have every right,’ he bellowed, ‘to get that money to stop the people’s suffering.’
As the conversation unfolded, another minister joined us, Panagiotis Lafazanis, the leader of the Left Platform, a declared enemy of the eurozone and a passionate Grexiteer. He asked what was going on. Alexis and Flabouraris informed him that I had discovered €16 billion in cash. Flabouraris told Lafazanis that he and Alexis, unlike me, believed the situation justified our tapping into this cash, currently languishing in state-owned vaults. I tried to calm them down and, in view of Lafazanis’s pro-Grexit position, to explain what our real options were.
If we wanted to stay in the eurozone, I told them, we could not possibly confiscate the ECB’s money. If, on the other hand, we wanted Grexit, then there was something useful we could do with the cash without being branded thieves: we could nationalize the €16 billion, stamp the notes with special ink to invalidate them as euros and rebrand them as new drachmas, put them in the ATMs and use them as a new currency. We would have to apologize to Mario Draghi, explain that we were in a national emergency and ask him to tell us what the paper value of his €16 billion cash was so that we could compensate him.
I also reiterated my own view, which was that we should do none of this but instead activate the electronic parallel payments system that I had been preparing. This would extend our fiscal space within the euro even if we did ultimately reach a good agreement with the troika, and if there was no agreement, it would buy us time or, in the most extreme scenario of Grexit, serve as the foundation of a new digital national currency.
