Late in the evening, Larry leaned back in his chair and offered me some advice … He teed it up this way: I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want. But people on the inside don’t listen to them. Insiders, however, get lots of access and a chance to push their ideas. People – powerful people – listen to what they have to say. But insiders also understand one unbreakable rule: they don’t criticize other insiders. I had been warned.
John Cassidy (2014), ‘Elizabeth Warren’s Moment’, New York Review of Books, Vol. 61 (no. 9), 22/5–4/6/14, pp. 4–8.
2. Quotations from catalogue entry for Danae Stratou’s 2012 exhibition It is time to open the black boxes!
Chapter 2: Bailoutistan
1. One-third of the €110 billion came from the IMF, which means from the taxpayers of the IMF’s member states, which is more or less the whole world. The remainder came from the EU’s taxpayers.
2. ‘Programme’ is shorthand for the troika’s enforced measures of fiscal consolidation and reform – the so-called conditionalities of the bailout loan – whose purpose was the recovery of Greece’s economy and its government’s capacity to borrow from private investors. In reality, it meant cutting wages and benefits savagely, raising taxes and selling off the family silver on behalf of the creditors. Note also Lagarde’s use of ‘they’ instead of ‘we’. This reflects the fact that the IMF has consistently disagreed with important aspects of the conditions placed upon Greece by the European members of the troika. Still, these disagreements never triggered the IMF’s veto. In the final analysis, after IMF officials expressed their reservations, even their apologies to Greece, the IMF consistently backed the European powers’ absurd decisions.
3. Greek government bonds were trading at 19 per cent of their face value, meaning that German banks wanting to offload Greek debt by selling it to investors would have to take an 81 per cent loss.
5. These numbers reflect the fact that Germany represented around 27 per cent of the eurozone’s total income, France’s around 20 per cent, and so on.
6. The IMF was in a slightly different position, in that Christine Lagarde felt immense pressure from non-European members of the fund to retrieve every penny loaned to Athens. These members, such as Brazil, were immensely annoyed with the European leadership of the IMF for having embroiled them in a melee that was none of their business, through bending the IMF’s sacred rule and jeopardizing their money.
7. This is a statement that Mrs Thatcher made often and in a variety of ways. For example, in an interview for Thames TV (This Week, 5 February 1976) she said ‘… and socialist governments traditionally do make a financial mess. They [socialists] always run out of other people’s money. It’s quite a characteristic of them.’
8. As if that were not enough, for every dollar, pound or euro that Europe’s banks had access to, they had lent, or wagered, a cool forty. Given this so-called leverage ratio of 40:1, a back-of-an-envelope calculation reveals that if a mere 10 per cent of these bets or loans were to go bad, someone would have to pump $2.25 trillion into the banks, or else the ATMs would dry up and the banks’ shutters would come down permanently.
9. One of them in fact was Yannis Dragasakis, who would become deputy prime minister in the Syriza government in which I served as finance minister.
10. To illustrate the point, in 2015 the British Treasury repaid a bond issued during the South Sea Bubble crisis of the 1720s.
11. As late as early 2008 its income mountain was rising at a healthy rate of 5.8 per cent while its debt hole was increasing by a mere 4.4 per cent.
12. The state would frequently borrow from foreign banks and pass the money on to developers to build motorways and the like.
13. From its 5.8 per cent growth a year before it subsided by 4.5 per cent. Meanwhile, the debt hole deepened at a rate of 5.7 per cent, up from 4.4 per cent year on year.
14. It is fun to look at what a fully fledged austerity drive would have done to Britain’s economy. Around 2010 the UK’s public debt came to almost 80 per cent, or four-fifths, of national income. At the same time the UK government’s total expenditure was about half of national income. Now, suppose Chancellor Osborne had given his pro-austerity instincts free rein and gone into a frenzy, slashing government spending by half, a cutback equal to a quarter of national income. Cutting this much government spending would reduce national income by at least a fifth. Suddenly public debt would go from four-fifths to four-quarters, or 100 per cent, of national income, without even counting all the public money that ‘had’ to be given to the City’s bankers. This is why austerity, in times of private-sector consolidation, fails by its own criteria – the consolidation of public debt.
15. Indeed the numbers are telling. During his first two years in the Treasury (2010–12) Osborne actually increased government expenditure by 6.9 per cent. In this sense no actual austerity was practised by the Cameron–Osborne government at all. Austerity was utilized by them as a cover for a substantial redistribution of spending and tax cuts that favoured the rich and disadvantaged the poor. In simple terms, the top 20 per cent benefited greatly while the bottom 20 per cent suffered even more.
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.
