Those first meetings with Alexis and Pappas proved a turning point in more ways than one. Over the previous two years I had become used to meeting worried politicians from across the political spectrum – with the exception of communist party cadres, who live in a permanent bubble of self-confirming belief. But as 2011 drew to a close and the second bailout approached, there were fewer opportunities for genuine dialogue with anyone from the political centre, whether the shrinking PASOK socialists, many of whom simply recoiled into a private purgatory, or the New Democracy conservatives, many of whom had once shared my forebodings but who now co-opted PASOK’s stragglers into an alliance designed to see the second bailout through and their party into power. Quite suddenly the opportunities for cross-party dialogue had disappeared, like a fast-ebbing tide. In parliament only Syriza remained to fight against the establishment of Bailoutistan 2.0. This is why, when Pappas called back after the second bailout was first canvassed to propose another meeting, I did not think twice: whatever my misgivings, I accepted his invitation.
At our second meeting and in the meetings that followed I was pleasantly surprised: Alexis seemed transformed. Gone was the complacency, the fixation on Syriza’s internal affairs and the casual attitude towards Grexit. He had clearly done his homework, even on the Modest Proposal.7 He also told me proudly that he had engaged an English language tutor and was making good progress. (A few years later, when serving in his first government, I was listening in to a teleconference involving Alexis, Chancellor Merkel of Germany and President Hollande of France and recalled this moment: Alexis had the best English of the three.)
The best thing about our meetings was the emergent clarity and unity of purpose. I invested much energy in impressing upon Alexis and Pappas that in any negotiations with the EU and the IMF Alexis’s success would depend as much as anything else on his ability to control Greece’s banks. Alexis meanwhile seemed fully to embrace my recommendation of a three-pronged policy of constructive disobedience, which comprised firstly saying no to further extend-and-pretend loans and the austerity they came with; secondly putting forward moderate proposals for debt restructuring, lower tax rates and reforms that attacked the triangle of sin; and finally always keeping in mind that at some point, in a desperate bid to kill off demands for a debt restructuring and to avoid Mrs Merkel having to tell her parliamentarians the truth about what she had done in 2010, Berlin would threaten him with expulsion from the eurozone.
Archimedean point
At first I delayed telling Danae about the phone call threatening her son. Before worrying her maybe unnecessarily I wanted somehow to assess the risk. Surely it was just an empty threat meant to scare me into silence? But I realized I had no right to pass judgment alone. As the second bailout approached, the media, the banks and the government were preparing feverishly for a last stand. There was no telling what they were capable of. So I plucked up the courage and told her.
Danae looked at me disapprovingly and issued a laconic, matter-of-fact ultimatum: ‘Either you enter politics to protect us, or we’re leaving the country.’
Without hesitation I replied, ‘Then we’re leaving.’
A few days later I was due to tour the United States to promote my new book on the global crisis.8 While I was there, two job offers presented themselves, allowing me fortuitously to fulfil my bargain with Danae. By early 2012 our move to the United States was under way.9
On the day we boarded the plane Bloomberg screens beamed around the world of finance two newsflashes from the eurozone. The first read: ‘Merkel Open to Debt-Sharing Compromise as Monti Sees Way to Persuade Her’.10 The second was closer to home: ‘Greeks Run University Professor Out of the Country for Telling Economic Truths’. If only the first newsflash had been right – it wasn’t – maybe the second might have been wrong!
Thus Danae and I landed in Seattle, where I worked for a few months as economist in residence at the Valve Corporation11 before moving on to Austin, where my great friend and colleague Jamie Galbraith had arranged for me to join the University of Texas’s Lyndon B. Johnson School of Public Affairs, at which I was to teach courses that included one entitled Europe’s Financial Crisis. Despite his considerable powers of prescience, I doubt he knew quite what he was getting embroiled in when he found me the post: three years later Jamie would end up joining me at the Greek Ministry of Finance to lead work on a vital top-secret project.
For more than two years Austin provided an Archimedean vantage point, the ideal place from which to observe but also to act. While it was heart-wrenching to watch from afar as the troika and its domestic minions formally turned Greece into Bailoutistan 2.0, the view from Austin offered clarity.
It also offered an opportunity to build a bridge between Washington and my new Syriza friends, not the most natural of allies. It seemed safe to assume that a future Syriza government would precipitate an almighty clash with Germany, the European Commission and the European Central Bank. The last thing Alexis and Pappas needed was a hostile administration in the United States. So, from 2012 to 2015, with Jamie Galbraith’s assistance and connections, I would do all I could to explain to American opinion makers and the Obama administration that the United States had nothing to fear from a Syriza government, whose priority would be first and foremost to liberate Greece from its crushing debt.
Austin is weird in the nicest possible way: paradise for live-music aficionados and an excellent place to forget the rest of the world’s tribulations. But none of that was available to me. During the day, while Greece was asleep, I would prepare my lectures and work on my book about the deeper causes of ‘Europe’s inane handling of its inevitable crisis’.12 At night, taking advantage of the time difference, I would appear over Skype on Greek television, follow the ongoing debates and write articles to continue my campaign.
The Greek winter and spring of 2012 were marked by quiet anguish and muffled indignation. Syntagma Square saw almost none of the mass action of 2011. As the recession bit harder, the people privatized their pain, staying at home to lick their wounds and look after their needy. The troika’s technocratic coalition government led by the former vice president of the European Central Bank and supported by PASOK and New Democracy, was completing the construction of Bailoutistan 2.0.13 The time was fast approaching when that government’s work would be done and Antonis Samaras, the New Democracy leader, would trigger a general election that he hoped to win and move triumphantly into Maximos. In the event, the general election was called for May 2012.
Before the May election my exchanges with Alexis and Pappas were few and far between. With Papandreou’s PASOK socialists staring oblivion in the face, the main protagonists were Samaras’s New Democracy and Tsipras’s Syriza, but neither I nor they imagined that a party which had won only 4.6 per cent of the vote in the previous election would have a fighting chance at forming a government, however grave the shift in the political tectonic plates.
My preference was for Syriza to present voters with a basic, progressive, Europeanist, logically coherent, non-populist programme as a foundation on which to build an image of a credible future government, one capable of negotiating the country’s escape plan with the EU and the IMF. Alexis and Pappas were inclined to a different political programme, one that maximized short-term electoral gains at the expense (in my view) of long-term logical coherence. When I read the economic policy segment of Syriza’s 2012 electoral manifesto, my irritation was such that I stopped after a few pages. The next day I was asked to comment on it by a Greek television reporter. I said I was inclined to support Syriza but that my resolve to vote for the party was conditional on my capacity to resist reading its economic programme.
The May election produced a hung parliament. The political centre, comprising PASOK and New Democracy, parties that together had previously commanded up to 80 per cent of popular support, were deserted by more than half of their voters. It was the price the two establishment parties paid for having ushered in Bailoutistan.14 To call this a political earthquake would be an understatement. As often happens when debt deflation causes the political middle ground to implode, Nazism reared its ugly face, with Golden Dawn securing 7 per cent of the vote to become the fourth-largest party. Meanwhile, tiny Syriza quadrupled its previously puny vote to just 2 per cent short of Antonis Samaras’s New Democracy. It was the first time since 1958 that the Left would rise to the lofty heights of the official opposition. Alexis and Pappas had cause to feel vindicated, ignoring the scorn I had poured over Syriza’s economic programme.
But a parliament in which the largest party commands less than 19 per cent of the vote cannot produce a viable government. Its unavoidable dissolution paved the way for new elections a month later, in June 2012. It was to be an interesting month. In the absence of either a government or a functioning parliament, the EU and the IMF were forced to conjure up some breathtaking new illusions to maintain the pretence that the Greek state was meeting its debt repayments. Meanwhile, the only parties with any electoral momentum were Syriza and New Democracy, with Syriza rising faster albeit from a slightly lower base. If the trends of the previous weeks were to continue, Alexis had a shot at forming the next government. This realization shook up the oligarchy, the troika, Germany’s political establishment and not least Alexis and Pappas, who were understandably panicking at the possibility that the cruel gods were conspiring to grant them their greatest wish.
Alarm bell
I had returned to Athens to vote in the May election when Pappas phoned to organize a meeting. Tsipras, he and I met in the same hotel in Psyrri in a state of considerable excitement: they were no longer on the fringes of the political game but were now riding a wave of popular support capable of producing real change within weeks, not years. But it was at that meeting that an alarm bell began to ring loudly in my head.
‘Do you realize that, if we win, you will be handling our negotiations with the EU and the IMF?’ asked Pappas with his trademark simper.
My stomach lurched. Pappas’s eagerness to get me involved in the negotiations with the EU and the IMF was at odds with the fact that Syriza’s economic policy portfolio belonged to Yannis Dragasakis – the party’s shadow finance minister, a veteran politician of the Left who had played a central role in Alexis’s elevation to the leadership and indeed in the creation of Syriza. While Alexis and Pappas evidently did not consider Dragasakis the man to do battle with the EU and the IMF, he was nonetheless responsible for scripting the party’s economic agenda and was a party heavy whose toes they would avoid treading on. I inferred that Alexis and Pappas’s understandable reluctance to do so was what lay behind their ill-thought-through enthusiasm for splitting the roles of chief negotiator and finance minister.
I took a moment before replying to Pappas’s question. Training my eyes on Alexis, I told them I was honoured by their offer but that I did not see how splitting the roles could work. All negotiations would take place within the Eurogroup, where each government is represented by its finance minister: to have any credibility and negotiating power, that minister must have the full backing not only of their prime minister but also of the cabinet, parliament and electorate. Sending an unelected technocrat to negotiate with its creditors the country’s economic liberation while someone else ran the domestic economy would be a disaster in the making.
Seeing that Alexis agreed with me, Pappas tried to salvage the discussion with a request that I prepare a briefing document that outlined the optimal negotiating stance of the government were Syriza to win on 14 June, three short weeks later. That night I sat down to complete the first of many, many versions of that strategy paper.
At its heart I set down two proposals to be presented to the EU and IMF for the restructuring of Greece’s debt. First, the state’s bankruptcy, the public debt, should be uncoupled from the bankruptcy of the country’s banks and their private losses. This way the bankrupt state could not be held responsible for European taxpayers’ money it had not received. More importantly, the banks’ revival would not be held back by the state’s indebtedness: after all, how could the Greek state back the banks when it too was bankrupt? Without such uncoupling, the Greek state and the banks operating in Greece would continue to drag each other down like a pair of weak swimmers caught in stormy waters, hugging one another as they sank towards the bottom of the sea. How could this be achieved? By turning Europe’s taxpayers into the owners of the Greek banks so that they were no longer the de facto liability of the Greek state but were backed instead by the European people, and by having the EU institutions run them on their behalf.15 This was the only way confidence in the banks could be restored.
Second, any repayments of the Greek state’s debt to the EU and the IMF arising from its two bailouts should be conditional on the country’s recovery first reaching a certain momentum.16 This was the only way the national economy could be given a chance to revive.
Taken together, these two debt restructuring exercises would signal a new era: the EU and the IMF would no longer operate like a pre-Christmas Ebenezer Scrooge. Rather, they would become Greece’s partners in promoting its economic recovery, without which their bailout loans would be haircut savagely anyway.
My briefing paper, written for Alexis and Pappas’s eyes only, ended with a section on what reaction to expect from the good folk at the EU–IMF as well as Greece’s domestic oligarchy: venomous hostility. Although ideal for helping Greece to recover and thus repay as much of its otherwise unpayable debts as possible, the two proposals were politically toxic for our opponents both within and outside Greece. My advice was as follows:
What should Athens do if Europe’s officials reject these two proposals outright, insisting instead on fresh extend-and-pretend loans?
Unless a Syriza government is prepared to turn down any new loans until the debt has been effectively restructured, there is no sense in winning the election in the first place. Saying no to new loans will of course come at a cost. The troika will threaten to shut down the banks, and the state will have to pay public-sector wages and pensions out of its taxes. This means that your government must brace itself for a tough negotiating period during which the state lives strictly within its means (reducing if need be the highest salaries and pensions until the primary deficit is eliminated) and paper money transactions are replaced by debit cards, web banking and some form of IOUs issued by the state. It won’t be pretty, but extraordinary struggles for recovering sovereignty call for extraordinary measures. But here is the good news: if you are prepared to issue moderate, sensible demands and at the same time say no to their extending-and-pretending (and mean it!), the EU and the IMF will most certainly come to the table – it would cost them too much not to, both financially and politically.
I knew perfectly well that from 2010 the troika’s reaction to any proposal involving a debt restructuring had been ferocious, for this would have required Chancellor Merkel to come clean on the ulterior motives behind the Greek bailout. The same reaction would now occur domestically, in Greece. In the minds of Greece’s skittish bankers my campaign for debt restructuring boiled down to their liquidation, as control over the banks would be transferred to EU institutions and their ownership to the European taxpayers. Moreover, backing the banks was an entire political class used to receiving massive loans from their banker mates without collateral, guarantees or scrutiny. I cannot recall to what extent Alexis grasped the implications of this strategy, but I do recall telling him in detail what he should expect if he were to adopt my recommendation: nothing short of war. No wonder he was reluctant to embrace it.
‘Are you advising me to call for the Greek banks to be given to foreigners? How can I sell this idea to Syriza?’ Alexis asked me at a later meeting at party HQ.
‘Yes, this is precisely what you must do,’ I answered.
If he wanted a negotiated agreement within the eurozone, I explained, then he had to accept a basic truth: the Greek state did not have the money to prop up the Greek banks. Ergo, the only alternative to either Grexit, where all bets were off, or continued debt bondage, the worst of all scenarios, was European ownership of the banks. In fact, I said, this was something that should be happening anyway: just as it is nonsense to speak of Californian or Texan banking systems within the dollar zone, it was ridiculous to imagine that we could have separate, nation-based banking systems within the eurozone.
Alexis got it. But that did not mean he liked it. Particularly as Syriza’s central committee was naturally drawn to the idea of nationalizing the banks. While the Greek media would shriek ALEXIS TO GIVE OUR BANKS TO FOREIGNERS! Syriza’s leftists would denounce him for abandoning their long-term crusade to bring finance under the control of the state. Seeing his horror at the thought of the inevitable backlash, I warned him that liberating Greece would mean making powerful enemies, not just those who had a political imperative to keep the country a debt colony, but those within Syriza who wanted him to build a socialist paradise within the eurozone. But this was impossible anyway. The only thing possible within the eurozone was to liberate Greece from its debtors’ prison. To achieve this, his only hope was to convince a majority of Germans to see themselves as partners in our recovery rather than serial funders of our black hole. They were about to pour their money into Greek banks, so he must offer them shares in those banks. Only then would they feel they had a stake in Greece’s recovery. With that one stroke he would break the triangle of sin.
Alexis smiled. He told me he didn’t mind confronting the bankers, but without any influence over the commercial banks operating in Greece, he argued, it would be impossible for a government to implement an industry policy or a development and reconstruction plan. He just couldn’t see the Syriza central committee swallowing it. He had a point.
Put it to them this way, I suggested. As true internationalists, as progressive Europeanists, we would be taking bankrupt banks away from corrupt Greek privateers and handing them over to Europe’s common people, to the same European citizenry injecting their money into those banks. At present the banks cannot provide the investment capital needed for Greece’s recovery and growth, so we only stand to gain by handing them, and their liabilities, over. Meanwhile, I suggested, we could set up from scratch a new public development bank into which we would place Greece’s remaining public assets. These could then be used as collateral to generate an influx of new investment funding for development purposes, possibly in collaboration with the European Investment Bank.
Alexis liked the internationalist, progressive sound of this, but did he like it enough to take it to Syriza’s central committee and get Dragasakis to accept it? The young party leader’s dilemma was shot through with many of the ills that ultimately undermined our battle plan in the spring of 2015. I could see it in his face on that afternoon at Syriza’s HQ. On the one hand, he could see that what I was proposing was the only escape route within the eurozone. But at the same time he could not bring himself to break with the internal Syriza establishment.
Personally, I was convinced that my proposals would be rejected, a perfect excuse for keeping my distance from Syriza. As long as Alexis remained hostage to Syriza’s internal delusions, I was resolute in my decision to remain on the sidelines, offering critical advice if and when asked, and relieved not to be involved. Three days later, on 24 May, this relief grew when I read Alexis’s speech detailing Syriza’s economic policies. The chasm between what they were proposing and what could actually be achieved within the eurozone was immense. Within an hour I had dispatched a long scathing email to both Alexis and Pappas which highlighted the numerous logical flaws in what they had just promised voters as well as my assessment of Dragasakis’s capacity to put together a convincing economic programme.17
Alexis’s confused public pronouncements, the Greek oligarchy’s anti-Syriza hysteria, plus Chancellor Merkel’s naked threats against a Syriza-led Greece, combined to produce an election result that kept Alexis in opposition.18 I was at once relieved and saddened: relieved that he would have another parliamentary term to get his act together, and saddened that Bailoutistan 2.0 would now probably be cast in stone by a new coalition government dancing to the troika’s tune.19
A friendship’s last gasp
Yannis Stournaras and I became close soon after I moved back to Greece from Australia. This was in 2000, when I left the University of Sydney for a professorship at the University of Athens, where Stournaras was already an economics professor.20 We made up an informal quartet of academic economists with Georgos Krimpas, a senior professor, and Nicholas Theocarakis, an astounding scholar and dear friend. Krimpas had been Stournaras and Theocarakis’s professor and mentor, making me the new kid on the block. I succeeded Krimpas as director of political economy, the discipline to which all four of us belonged.
Stournaras taught part time because of his government role under the PASOK administration that brought Greece into the eurozone. Indeed, during the accession negotiations in the 1990s, when Berlin was keen to keep Greece out, Stournaras served as chair of the Council of Economic Advisers, an important organ of the Ministry of Finance which he used to convince Berlin and Brussels to let Greece into the euro.21 Once Greece was securely inside the euro, in 2000 the PASOK prime minister rewarded Stournaras with the Commercial Bank of Greece, where he became chair and CEO.22 It was during this last phase of his career that we first met.
Despite his busy schedule, Stournaras was always on hand to do his share of teaching, and to do it happily and devotedly. While our economic perspectives differed considerably, as did our politics, his commitment to the university and the good chemistry between us provided the foundation for a developing friendship. When I set up an international doctoral programme, Stournaras was there to support it, enjoying the higher calibre of students we attracted. More improvements to the curricula followed, drawing indignation from corrupt student politicians and vigorous animosity from colleagues whose petty interests were threatened.23 But the quartet stood firm, aided by many other colleagues. Soon we were socializing outside work, even spending weekends together.
On the night of the September 2009 general election, which brought George Papandreou to government, Danae and I were at Stournaras’s north Athens apartment watching the count on television along with Yannis, his wife and another couple. Of the eight people in the room, Stournaras and I were the only ones who had not voted for PASOK that day – possibly because, like sausages, if you know what’s in them …24 A few months later Greece was bankrupt and the first bailout was on its way.
During that momentous year for Greece, 2010, Stournaras made a career move that raised eyebrows, becoming director of an economics think tank originally set up by Greece’s National Confederation of Industries, the largest and most established bosses’ guild in the land, traditionally affiliated to the conservatives of New Democracy. Soon after taking the helm, Stournaras began endorsing standard free-market solutions that were at odds with the social democratic principles he had long espoused under PASOK. But his move was less an apostasy from PASOK’s socialists, his former crowd, and more a sign of what was to follow once the second bailout demanded a grand coalition government. Stournaras was a pioneer of the collapse of the centre Left and the centre Right into one, indivisible, pro-establishment, troika-friendly government – one that would take its ultimate shape after the June 2012 election.
A month before the May 2012 election I was passing through Athens on my way back to the USA from Berlin, where I had addressed a conference on the euro crisis. Upon arriving in Athens, I called Stournaras. We met the next day at a café in the lobby of a hotel at the foot of the Acropolis; we hugged, kissed and exchanged news of our daughters and partners. Turning to business, I briefed him on the discussions I had just had in Berlin with officials from the European Central Bank and the German government, with financial journalists and the like. I also mentioned a conversation I had had with financier George Soros. I told Stournaras that Soros agreed with my assessment of the Greek situation as well as with the gist of my economic policy proposals for Europe as a whole.
Stournaras and I then proceeded to discuss the troika’s Greek programme. It was clear that Greece’s bankruptcy had created a gulf between us, turning pre-existing differences of opinion into a theoretical, empirical and political crevasse. Stournaras insisted that the troika’s programme was viable provided it was implemented vigorously. I asked him to explain. He did so with his usual ebullience.
‘It’s simple,’ he said. ‘It can be done on the basis of the three fours principle: 4 per cent growth rate, 4 per cent government budget primary surplus, and 4 per cent interest paid out on our bailout loans.’25
‘Sure, that would nail it,’ I replied. ‘Except that it is impossible for the Greek economy to achieve a 4 per cent growth rate and a 4 per cent budget primary surplus at once.’ I argued that if the government stated it intended to achieve a 4 per cent budget surplus, this would translate in the mind of any investor into even higher tax rates and was bound to deter them.
