12. See Varoufakis, 2016.
13. The coalition also included a small, openly racist, ultra-nationalist, Christian fundamentalist party called LAOS, which was later absorbed partly by New Democracy but mainly by the emergent Nazis of Golden Dawn.
14. PASOK had lost the bulk of its support in 2009 after shepherding through the first bailout (down from 44 to a mere 13.2 per cent) while New Democracy, which had lent a hand in the second bailout, saw its electoral base shrink from 33.5 per cent in 2009 to 18.8 in May 2012.
15. Technically this would be simple. The second bailout money, from which Greece’s bankers would receive up to €50 billion, came from the European Financial Stability Facility. The EFSF (effectively Europe’s bailout fund) belongs to all eurozone member states and borrows on behalf of European taxpayers in order to pass the money on to Greek banks, Spanish banks, the Portuguese state, etc. My proposal was that, as the EFSF was pumping money into the Greek banks on behalf of Europe’s taxpayers, the EFSF should own their shares, becoming their owner on behalf of all Europeans. The banks’ directors would then be replaced by appointees of the EFSF (and possibly the European Central Bank) with the remit to cleanse and ‘europeanize’ Greece’s banks.
16. The technical term for this is ‘nominal GDP-indexing’. It means that repayments would be suspended until Greece’s national income, in euros, exceeded a certain level (for example the pre-crisis level of GDP or some agreed percentage of it) and its growth rate was above some annual percentage threshold.
17. In his speech, echoing the views of Syriza’s inner circle, Alexis called for taxing capital transfers out of Greece (not permissible within the eurozone), a home-grown investment programme (when domestic investment funding was totally absent), a tax on shipowners (who are domiciled mostly in London and therefore cannot be touched by the Greek tax office), legislating to force Greeks to repatriate their foreign bank deposits (legally impossible within the EU) and, last but not least, the nationalization of the banks (ignoring my briefing that the Greek state could not afford to capitalize the banks within the eurozone). Most of these pronouncements required Greece to exit the eurozone, but in the same speech Alexis proclaimed that Syriza’s policy was to stay within it.
18. Syriza did make further large gains between the May and June 2012 general elections: up from 16.8 per cent in May to 26.9 per cent in June. But New Democracy made similar gains, from 18.8 to 29.7 per cent, cannibalizing the PASOK socialists, who fell yet again from 12.3 to 4.68 per cent.
19. The new coalition government was an interesting twist on the previous one, that led by Lucas Papademos, the former ECB vice president. At its core were still New Democracy and PASOK, but the third party changed dramatically: LAOS, now absorbed into Golden Dawn and New Democracy, was replaced by a small splinter of Syriza called Democratic Left – moderate left-wingers who had accepted the basic logic of the troika’s Greek programme. The other difference was that the new coalition was dominated by New Democracy, given PASOK’s implosion.
20. Rumours spread by Peter Spiegel of the Financial Times and others that Stournaras had played a role in my appointment are false. He and I first met after my appointment, which was the result of a rare unanimous vote by the Economics Faculty Board. In fact, the original invitation to return to Athens and consider taking up a post there came in the early 1990s from a German-trained left-wing growth theorist, a professor of the old school who graced the university with his erudition and virtue.
21. Stournaras told me an amusing story about the famed ‘Greek statistics’, which have been blamed for letting a thoroughly unprepared Greece into the quicksands of the eurozone. All he and his colleagues had to do to convince official Europe to let Greece in was to copy the tricks that others – primarily the Italians but also the German Finance Ministry – had used to massage their statistics so as to present them as consistent with the eurozone’s rules. Given that Athens was not using any trickery not used by Rome, or indeed Berlin, Stournaras’s subtle strategy was to let it be known that, were Greece to be left out, the world might come to know what Rome and Berlin had been up to. In other words, it was not Greek statistics that got Greece into the eurozone; it was European statistics coupled with a large dose of hypocrisy.
22. The bank was later renamed the Emporiki Bank. In 2004, after Stournaras was fired by the new conservative government, the Emporiki Bank was sold to Crédit Agricole. Following the 2010 crisis the Emporiki bank was wound down.
23. For example, the international PhD in economics programme we introduced required candidates to spend two years taking full-time courses. Previously, some professors would have candidates work for a pittance on their own lucrative projects (or in their business) in exchange for a promise that, one day, four or five years later, they would be awarded a doctorate. Naturally, the dissertations that resulted from this system were worthless, as the students neither received any proper education nor had the time to study on their own. The new programme put an end to the practice and made me very, very unpopular among those colleagues.
24. Stournaras had been a party functionary or, as he preferred to think of himself, a PASOK technocrat. But he was close to, and had worked with, Papandreou’s predecessor, whose legacy Papandreou had been trying to expunge since 2004. Thus Stournaras was sidelined, making him feel bitter and distant from the party that he identified with. In contrast, I was close to the Papandreou family but not to the party, which I could not bring myself to vote for. Even though I did respond to Papandreou’s request to help him and his team (with speech writing, economic analyses, proposals for encouraging a cooperative enterprise sector, etc.), I did so as an outsider and as a personal favour to Papandreou. Nevertheless, by 2006 I could not work with his economic team and I resigned even my informal advising role. This, quite accidentally, brought Stournaras and me closer, as we now shared a distance from Papandreou.
25. The government’s primary budget surplus is the difference between its revenues (taxes, customs duties, returns on public investments, etc.) and its expenditures, not counting the money the government pays to its creditors in the form of debt instalments (interest and principal).
26. This story was relayed on 9 January 2014 in a report in the Financial Times by Peter Spiegel and Kerin Hope. They quote Stournaras: ‘“Poul [Thomsen, the IMF’s point man in Athens] and Lagarde said I had to [stand] by their side,” he recalled. “I said: ‘OK, but if I come by your side, it is what would really help Greece, but it’s something which is totally out of the question.’ Schäuble told me: ‘Stournaras, forget it.’ So it cannot be done, so what can I do?”’
27. The chancellor had visited Beijing with a number of requests, one of which was that China use a small part of its foreign currency reserves to fund the eurozone’s bailout fund (by buying the bonds it issued). A high-ranking Chinese official confirmed to me that Beijing agreed to do this on condition that Angela Merkel took Grexit ‘off the table’. The Chinese were right: they could not be asked to fund the eurozone’s bailout fund when most of the loans it had handed out were likely to be written off – which is precisely what would happen if Greece, the main recipient, no longer had access to euros.
28. After the summer of 2012, markets had received a signal from the European Central Bank that it would buy unlimited amounts of Irish, Italian, Portuguese and Spanish government bonds to stem the euro’s deconstruction. Indeed, it took Mario Draghi almost a year to make this signal possible, winning over to his cause Angela Merkel against the Bundesbank’s severe opposition. Greece was never offered a place under the ECB’s protective umbrella.
29. The precise condition was that the government achieved a positive primary surplus – its revenues exceeded all government expenditures, excluding the mind-boggling debt repayments.
30. The reason why early 2015 was the focal point is that the president of Greece’s term expired in March 2015. Greek presidents are elected indirectly, by parliament, and if no candidate musters the required figure, parliament is dissolved. Prime Minister Samaras could only therefore avoid a new election in March 2015 by securing the votes of smaller parties and independents in the presidential election. He liked neither the prospect of doing that nor his chances of succeeding even if he tried.
31. An extract from the speech:
The fear-mongers will tell you that our party will, if it comes to government, tear up the loan agreement with the European Union and the IMF, that it will take the country out of the eurozone, that it will sever Greece’s links with the civilized West, that Greece will become a new North Korea. This is fear-mongering at its worst. Syriza, my party, wants none of that. We have always been, and always will remain, a pro-European party. That we now think that Europe has lost its way and that it is imposing misanthropic policies on its own peoples is not to be anti-European. It is to be loyal to the people of Europe. To the idea that Europe is our home and we need to defend it from the great depression that is spreading and which is threatening not only us Europeans but also the whole global economy. We want to stop the fragmentation of Europe. And this means opposing Europe’s current policies … Does this mean that a Syriza-led government will tear up its loan agreement with the troika? No. What we are saying is far more basic. We are saying that this agreement is being violated daily by reality. The IMF itself is warning Brussels, Frankfurt and Berlin that this agreement has been overtaken by reality. That it is impossible to implement successfully even if Syriza convinces every Greek man, woman and child to wake up every day and go to sleep every night intent on implementing it … So, if Syriza’s radical Left politics is not about getting Greece out of the eurozone. And if it is not about tearing up our agreements with the European Union. What does our radical Left label signify?
It signifies that we will not be party to depression-era economic policies.
It signifies that we will keep insisting that the Eurozone is redesigned rationally, instead of having its peoples waterboarded every day of the week.
It signifies that we shall not accept Herbert Hoover’s European reincarnation to haunt Europe’s peoples.
It signifies that we will demand a new deal for Europe that mobilizes our continent’s productive capacities against want, against poverty and against hopelessness.
Last but not least, my message to this audience, here at Brookings, is that our party wants to establish a mutually profitable dialogue with well-meaning, progressive thinkers on your side of the Atlantic. I want to tell you that the people of Greece, even its radical Left, think of you as partners in the complex but important enterprise of restoring prosperity and hope on both sides of the Atlantic. The rest of the world, having made huge progress over the past decades, is watching us Europeans and Americans with anxiety. We must not fail them just as we must not fail our own people.
32. ‘Only Syriza Can Save Greece’, 23 June 2013:
Greece’s problem today is with Europe, and Mr Tsipras doesn’t want to pick a fight with Washington. The global financial sector would view a Syriza victory with horror. But banks and hedge funds know that most Greek debt is held by European taxpayers and by the European Central Bank, and what’s left is being snapped up by investors because they know it will be paid. Big Finance is worried about what may happen elsewhere if a left-wing party wins in Greece. This instinct is natural for bankers. But for the American government to adopt the same fear-driven stance would be strategically shortsighted. Indeed, right now, Syriza may be Europe’s best hope. Greeks neither want to leave the euro nor see the eurozone disintegrate, an eventuality likely to bring down the European Union. They also know that Europe’s approach to the crisis, involving increasingly harsh austerity and larger loans, has failed miserably.
33. The full background to this is as follows. At the time of the first bailout, under a lesser president than Mario Draghi, the ECB had purchased a lot of Greek government debt (bonds) in a desperate and ill-fated bid to keep it solvent. This doomed operation was the so-called Securities Market Programme (SMP). By buying Greek, Portuguese, Irish, Spanish and Italian government bonds, the ECB hoped to quell the panic-selling of those bonds by investors. Incredibly, though, the ECB had also signalled to investors that it would not be spending more than €200 billion – a clear invitation to speculators to wager that the SMP purchases would fail to prevent the drop in the value of these bonds. When the SMPs failed, the ECB was left holding tens of billions of unpayable Greek debt. In 2012, when the Greek debt was haircut by imposing large losses on private owners of government bonds as part of the second bailout, the ECB-owned SMP bonds were exempted. This meant that the bankrupt Greek government had to repay the ECB in full for bonds that would have been haircut by up to 90 per cent if it were not for the folly of the ECB’s previous president in purchasing them. In short, the ECB, our nation’s central bank, was behaving like a hedge fund hold-out against a bankrupt state. Hedge funds often buy distressed debt (bonds) of countries in trouble at ludicrously low prices, wait for other creditors to agree a haircut (or debt restructuring) with the government and then refuse to participate in this deal, holding out for full payment – hence the term ‘hold-out’ or the more emotive ‘vulture fund’. Only in Europe could such a travesty be perpetuated and defended as sensible policy.
34. The Bundesbank had a long history of clashing with Germany’s federal government (see Varoufakis, 2016). Jens Weidmann, the Bundesbank’s president, was so opposed to the ECB purchasing the potentially bad debts of the Graeco-Roman states and banks that he sued Draghi and the ECB (of which the Bundesbank is an integral part!) in Germany’s constitutional court, tabling a fiery 120-page deposition. The luckless German judges, unwilling to rule over this most peculiar dispute, which went totally over their heads and expertise, decided to … not decide.
35. The ECB’s desperate need to keep up the pretence that Greece was redeeming the Greek government bonds that the ECB owned was the deeper cause of the remarkable trickery described earlier under ‘Success story’.
36. Syriza was built as a loose alliance of socialists, ecologists, social democrats and communists. The Left Platform was one of its larger factions with historical links to the old pro-Soviet communist party, prior to its split in 1991. The Left Platform was traditionally, as the communists remain to this day, in favour of Greece pulling out of the eurozone. Once the euro crisis erupted and the Greek economy went into sharp recession, Left Platform Syriza members began campaigning strongly for Grexit.
37. The European System of Central Banks, built around the ECB, is a strange confederacy of the national central banks that make up the eurozone. While the national central banks have no right to issue currency or the ability to set interest rates, they retain some important functions. The most significant is that of providing the banks domiciled in their country with emergency liquidity assistance (ELA). The idea is this: under normal circumstances, the banks of a country such as Greece or Italy tap directly into the Frankfurt-based ECB for cash. They post collateral with the ECB (government bonds, mortgages and other paper assets that they own) and receive cash in return, but if the collateral is considered to be of poor quality, the ECB can refuse it. If matters were allowed to rest there, these banks would have to close down immediately, as they would not be able to give out cash to their depositors, triggering a run. This is when ELA kicks in. Effectively, the ECB tells the bank, ‘No cash for you from us in Frankfurt but do try your friendly national central bank; it may accept your poor collateral.’ So the distressed banker takes his poor collateral to his national central bank, which is essentially a branch of the ECB, and pleads for cash in return. The national central bank is unlikely to turn the banker down because otherwise a domestic banking crisis would erupt. There are two reasons why bankers do not like to be diverted from the ECB to their national central bank: it is bad for their reputation (revealing that the ECB has deemed their collateral to be poor) and it is bad for their bottom line (as ELA cash costs the banks more than ECB cash in terms of the interest rate charged). Finally, and importantly, the right and capacity of a national central bank to provide ELA cash to bankers can be curtailed by the ECB. All it takes is for two-thirds of the ECB Governing Council (thirteen of the nineteen governors of the eurozone’s central banks) to vote in favour of shutting down a member state’s national central bank’s ELA. Then the banks of the said member state run out of cash within hours and its whole banking system collapses.
Chapter 4: Treading water
1. ‘Blood, sweat and tears’, 15 September 2014, protagon.gr.
2. For a concise version of the Modest Proposal for Resolving the Euro Crisis, co-authored by myself, Stuart Holland and Jamie Galbraith, see Appendix in Varoufakis, 2016. To this day I remain convinced that had those proposals been implemented they would have prevented the European Union’s slide into ignominy and deconstruction, including Brexit.
3. Elections in Greece are always held on a Sunday.
4. 2015 was a minefield of repayments for any incoming government, with the IMF and the ECB alone demanding from the Greek government a sum equal to almost half of its tax revenues. Looking at the repayment schedule was enough to give the incoming finance minister a migraine.
6 March
