Bailoutistan is an ugly word, but it reflects an obnoxious reality: the turning of Greece into a debtors’ prison on behalf of Northern Europe’s banks. Those Syntagma Square nights framed the country’s further transition from prison into institutionalized debt colony, but they also marked Europe’s legitimacy crunch in the aftermath of its credit crunch. That a European country embedded in the continent’s great common currency experiment would end up being pushed around like a banana republic is a devastating indictment of a union supposedly founded on the promise of shared prosperity and mutual respect.
Of course Europe’s establishment had willed none of this. Before 2008 the elites in Berlin, Brussels, Paris and Frankfurt had believed their own rhetoric, as had those in the United States and the City of London: capitalism had delivered the Great Moderation; boom and bust was a thing of the past; banks had found a magical way to produce ‘riskless risk’and were self-regulating marvellously. Those in authority believed that history had ended, and their job was one of micro-management, of nudging a magnificent self-guided, self-managing system in a broadly predetermined, rational direction.
But when Europe’s financial system hit the rocks put in its way by Wall Street’s self-destruction, Europe’s elites panicked. The sight of French and German banks sinking without a trace made them reach into history’s dustbin to retrieve the spirit of gunboat diplomacy and the inept economics that came with it. Greece just happened to be the place were these would again be applied, and Bailoutistan was the result.
When inordinate weight is loaded onto a flimsily constructed bridge, the weakest beam will break first. Greece was that beam. The reason it was has nothing to do with the European Union and everything to do with the sorry history of the modern Greek state and the oligarchy that ruled over it, but the cause of the disaster was the bridge’s poor design. Even if Greece had been removed from the structure and replaced by a stronger beam, the bridge would have still collapsed.
It is true that in 2010 Greece’s public and private sectors were incompetent, corrupt, bloated and indebted. That is why the euro crisis began there. We Greeks managed to acquire an unsustainable debt even before our state was formally created in 1827, and since then tax evasion has been something between an Olympic sport and a patriotic duty. Railing against this disgrace and the Greek oligarchy’s excruciating ineptitude, which often translated into despotism, we progressives learned our politics in the 1960s and 1970s, demonstrating on the streets and in particular in Syntagma Square. And yet none of this explains the depth of Greece’s post-2010 crisis or the subsequent establishment of Bailoutistan, a sad debtors’ colony on the Mediterranean.
If Greece had stayed out of the euro in 2000, what would have happened? In the common currency’s first eight years our state and private sector would have borrowed a tiny amount from the French and German banks, who would have been coy about lending to a deficit country whose currency was on a permanent slide. As a result, between 2000 and 2008 Greece would have grown at the pace of a tortoise compared to the debt-fuelled boom we actually experienced. And when the credit crunch hit in 2008 Greece would have faced a small, short, insignificant recession, like Romania’s or Bulgaria’s. Just as corrupt and inefficient as ever, Greece would have plodded along much as it did in the 1950s and 1960s without the humanitarian crisis in which it is now immersed. Progressives, sick of our society’s ills, would have continued to demonstrate in Syntagma Square, unseen and unheard by the rest of humanity, and the world’s headlines would have been free of any reference to the NEW GREEK TRAGEDY, GREECE’S THREAT TO GLOBAL FINANCE and the like. And, of course, this book would never have been written.
To err is human, as they say, but to fail spectacularly and with stunning human cost, it seems we needed Europe’s grandest economic design, the euro. Greece was the canary in the eurozone’s coal mine, whose death should have been a warning of the deadly financial fumes leaking through the continent’s monetary system. Instead, in 2010 small, fragile, wasteful Greece became the scapegoat for Europe and its banks. Not only were the Greeks made to shoulder impossible loans on behalf of the French and German banks, not only were they made to submit to a life in a postmodern workhouse so that foreign parliaments could be kept in the dark, but they were also expected to internalize the blame. However, during those long glorious nights in Syntagma Square, Europe’s establishment lost control of the blame game. The young woman who stood tall, proclaiming her right to question authority with that glorious ‘Who do I have to be?’ symbolized the turning point. Yes, our society was shot through with a multitude of malignancies, but no, our cruel and unusual punishment was not justified. And we would not take it lying down.
Catherine the Great once said that if you cannot be a good example, then you will just have to be a horrible warning. Greece’s warning to the rest of Europe’s laggards was indeed horrible: an iron cage forged by debt and austerity awaited those who fell foul of financial rules that the crisis made impossible to obey. But the young woman at Syntagma Square, Lambros the homeless interpreter, millions of others willing to make sacrifices but not to see them thrown into the bottomless pit of Greece’s debt were determined to show the rest of Europe that there were humane alternatives, that Europe’s plight while dreadful need not be tragic, that our fate was still in our hands.
After the brutal eviction of the Syntagma Square occupiers, the Greek summer heat took its toll and the occupiers never returned. Instead they filtered out into Greek society, where they spread the word, biding their time until the next conflagration. Then the spirit of Syntagma would become an unstoppable political movement which used the ballot box to establish a new government whose simple task was to dismantle Bailoutistan and knock down the prison walls. But to get there four years of arduous groundwork would be needed first.
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?
