5. Racism is very thinly veiled in Greek establishment circles. Glenn is as Korean as Barack Obama is Kenyan.
6. When gross fixed capital formation (investment in physical infrastructure such as machinery) is zero, this means that it is not even enough to cover the replacement of broken machinery or depreciation in its value.
7. If ever proof were needed that wage cuts in the midst of a harsh multi-dimensional recession fail to instil confidence in employers, Greece has provided it. Anecdotally, meanwhile, I asked a business acquaintance whose factory made bathroom furniture why he did not employ more people now that labour was dirt cheap. His answer: ‘Who will buy my toilet bowls now that wages are so low everywhere that no one can afford to refurbish their bathrooms?’
8. The standard troika response to this observation is: exports did not rise because Greece did not reform sufficiently. But this is to shift the goalposts. Neoliberalism predicts that, all other things being equal, a reduction in average wages in a eurozone country should boost exports, so exports should have increased after wages fell, even if no reform had taken place. They didn’t.
9. On 19 May 2014 the IMF’s debt sustainability analysis was made public. In it the fund stated,
more fiscal adjustment is needed to restore debt sustainability. And once there, the primary surplus will have to be maintained at above four per cent of GDP over the full political cycle for many years to come. The adjustment fatigue now evident and the ‘social dividends’ and ‘no new measures’ promised by political leaders suggest that the political commitment to the debt strategy will be severely tested going forward. This strategy leaves no scope for any notable increases in wages and pensions from current levels in the run-up to national elections in 2015 and 2016. On the contrary, with tax rates already high and discretionary spending compressed, achieving the necessary additional fiscal adjustment without further cuts in wages and social transfers, not least pensions, which remain high relative to GDP, will only be possible with a dramatic improvement in the efficiency of the public sector … Debt sustainability remains a serious concern. Debt to GDP is yet to peak, and the extraordinary levels projected well into the next decade suggest that sustainability concerns will remain an obstacle for the recent improvement in investor sentiments to translate into a durable recovery, especially if doubts resurface about the political resolve.
10. Austerity is measured here in terms of the reduction in the government’s budget structural deficit (or increase in its surplus) as a percentage of nominal national income.
11. Britain is an interesting outlier, the reason being that it is the only country on this chart with its own central bank, which under George Osborne’s ‘expansionary contraction’ policy pumped oodles of cash into the British economy while the chancellor practised his contractionary austerity.
12. See Chapter 2, ‘Prisoners of their own device’.
13. Chapter 6, Note 2 describes an email from my immediate predecessor to the troika, which I saw on taking office, that illustrates the Catch-22 beautifully.
14. In March alone €1.1 billion would be needed to repay four debt instalments to the IMF.
15. Wieser’s actual words were: ‘Based on current cash-flow projections, which assume no further IMF or EFSF disbursement and no transfer of European Central Bank profits on Greek bonds held as part of the SMP programme…’ The EFSF was the source of the second bailout loans extended to Greece in 2012. The origin of the ECB profits on Greece’s SMP bonds was as follows: in 2010–11 the ECB had bought these bonds from French and German banks at less than 70 per cent of their face value, when their market price was languishing at around 10 per cent of face value (see Chapter 3, Note 32). This was a major boost for Northern European banks disguised as a move to help Greece’s debt retain its value – more fake solidarity with Greece. Every time one of these bonds matured, the bankrupt Greek government was forced to borrow from Europe’s taxpayers (the EFSF) in order to repay – at face value – the ECB, which now owned those bonds. In other words, the ECB was making a hefty profit at the expense of the bankrupt Greek state and Europe’s taxpayers. Some time in 2012 the Eurogroup decided that some of these profits would be returned to the Greek government, not because the Eurogroup had seen the error of its ways but because it was keen to reduce the headline figure of how much more of Europe’s taxpayers’ money it would be giving Athens to continue with the extending-and-pretending of its insolvency. The meaning of Wieser’s sentence, then, is this: You will be getting none of the loan instalments we had agreed with the previous government. You will not even receive any of the profits the ECB made from Greek bonds – your money – that we had agreed to return to you. But you will be expected to make all the debt repayments the previous government was committed to.
16. Note that both Athens’s repayments to the troika and the troika’s disbursements to Athens were fully specified in the time schedule of the second bailout loan agreement.
17. To quote Wieser: ‘To avoid defaulting on Greece’s debt obligations a further extension of the current “programme” must be sought … [a] measure to fill the financing gap, already used in the midst of the crisis in August 2012, would be an extra issuance of T-bills [but this] requires approval by the troika, which would only happen in the context of a cooperative approach by the new government.’ The T-bills he refers to are short-term Treasury bills, IOUs issued by the state with an expiry period of usually three months. Because T-bills are so short term, they are normally considered safe and attract investors at low interest rates. And because they are safe and liquid, central banks accept them readily as collateral in exchange for cash loans, so commercial banks tend to buy these T-bills, post them with the central bank for cash and collect the interest from the state. The problem emerges when the state has no other way of borrowing except T-bills. To prevent the state from issuing too many of them and thus making them unsafe and less acceptable as collateral by the central bank, the ECB places restrictions on how much outstanding T-bill debt a government can have at any point in time. In the case of Greece, this limit was set at €15 billion. But in the summer of 2012, when the Samaras government had just been elected, the ECB increased the limit to €18.3 billion. The reason was self-serving: in August 2012 the Greek government had to redeem Greek government bonds that the ECB owned. Lacking the money to do so, the ECB allowed Athens to issue an additional €3.3 billion of T-bills so as to repay it. Wieser also informed us that we would need to secure this extension before 10 February as it would need to be approved by various parliaments before the guillotine-deadline of 28 February.
18. See Varoufakis, 2016, pp. 160–1.
19. See Chapter 4, ‘Chronicle of an ambush foretold’.
20. This was a withdrawal of 6.7 per cent of total deposits, bringing them down to €152 billion, a total similar to the previous low in June 2012 when a similar panic had reduced them to €150.5 billion.
21. There was no other justification for it. The Greek banks were no more inherently troubled than, say, the Italian banks. Only a few months earlier, in fact, the ECB itself had declared that the Greek banks had passed the stress tests it subjected them too. This is in contrast to the Cypriot banks in 2013 or the Irish ones in 2009, which had well and truly failed.
22. In his email of 21 January 2015, Glenn added,
An ECB decision is also due to be discussed today post the ELA applications by Eurobank and Alpha Bank and presumably the other two as well. I would have thought that access to ELA is all but certain given the escalation of events even before their Pillar II bonds lose their eligibility as collateral with the ECB funding at the end-February. This drain on liquidity should also be seen in the context of margins calls on Swiss Franc deposits and the potential need for the government to continue tapping investors for short-term Treasury-bill funding. Meanwhile the New York Times picked up yesterday on your comments that the ECB’s quantitative easing would not in itself solve Greek liquidity issues and your call upon the ECB not to exclude Greece from its bond-buying program.
23. To cut a long story short, Kammenos alleged that George Papandreou had bankrupted Greece on purpose to enrich himself and his family. How? By having his younger brother Andreas (a friend and colleague of mine) purchase credit default swap (CDS) derivatives which were due to pay out to their owner in the event of a Greek government default from the Greek Postbank. (The figures Kammenos mentioned were in the tens of billions of euros.) In my deposition I showed that: the actual payouts from the said CDSs were relatively minuscule; Andreas, if he wanted to conspire in this manner, would never have bought CDSs from the Greek Postbank but in Wall Street or the City directly; and Prime Minister Papandreou’s ‘crime’ was not that he bankrupted Greece to enrich himself but that he did not admit to the state’s bankruptcy at all.
24. From Rudyard Kipling’s ‘If’.
25. Syriza won 149 seats. The Independent Greeks won 13, giving us a parliamentary majority of 12. The official opposition, New Democracy, won 76 (the lowest number in their history), the River (To Potami) won 17, the Golden Dawn won 17, the Greek Communist Party 15, and the depleted PASOK-socialists won 13.
Chapter 6: It begins …
1. Foreign Account Tax Compliance Act, a law passed in 2010 that obliges US citizens to report all their foreign transactions.
2. In December 2014, a month before our meeting, my predecessor had sent an email to the troika in which he proposed a series of reforms. His and Antonis Samaras’s hope was that the troika would accept these as the last batch of austerity measures and disburse the remaining €7.2 billion that Greece should have received from the troika, mostly to repay the troika. There were three major reasons why that email was ignored: first, the new austerity measures therein were too much for the Samaras government to push through parliament; second, they were too little to satisfy the troika’s voracious appetite; third, a third bailout was essential to keep extending-and-pretending the state’s bankruptcy, something that the Samaras government was neither willing nor able to pass through parliament given its depleted majority.
3.The Serpent’s Egg is a film by Swedish director Ingmar Bergman. Its depiction of the genesis of the Nazi mindset among scientists had shaken me up when I first watched it as a young man.
4. Jamie’s brother Peter served as a Vermont state senator after retiring from the State Department’s diplomatic service. He was the first US ambassador in Croatia and East Timor, while also playing a significant role in Iraqi Kurdistan.
5. See Chapter 4, Note 13.
6. That was perfectly accurate. But what I did not say was that my Syriza friends wanted them out. In particular Deputy Prime Minister Dragasakis was keen to replace them with people from his own burgeoning circle of apparatchiks.
7. In 1990, shortly after moving to Australia, I arranged for Wassily to follow me. He ended up teaching economics at Charles Sturt University while I taught at the University of Sydney. Four or five years later he returned to Greece to join KEPE – the Greek government’s Economics and Planning Research Centre.
8. This is the EYP, the government’s National Intelligence Agency, though most Greeks still refer to it as the Central Intelligence Agency (KYP), as it was known during the seven-year dictatorship (1967–74), when it was fully controlled by the American CIA.
9. Andreas Papandreou, prime minister 1981–9 and then again from 1993 until his death in 1996, was the father of George Papandreou, who was elected PM in 2009 and jettisoned by Chancellor Merkel, with the help of pretenders within his father’s party, in 2011 (see Chapter 2). The original George Papandreou, George Junior’s grandfather and Andreas’s father, was prime minister in the 1960s. His overthrow set Greece on course for the military coup d’état on 21 April 1967 which ushered in the dictatorship during which my generation grew up.
10. When its members were in Greece, rather than in Brussels or elsewhere, the war cabinet met daily. It comprised Alexis, Deputy Prime Minister Dragasakis, Alexis’s alter ego Nikos Pappas, myself, Euclid and Sagias, the cabinet secretary. Often we were joined by Chouliarakis, chair of the Council of Economic Advisers, Stathakis, the economy minister, and Gabriel Sakellaridis, the government’s spokesperson. Later on, as the plot thickened in May and June, two Syriza party representatives were added to the group, ostensibly to provide a link with the party faithful.
11. Consider the example of François Hollande. He was elected in 2012 on a combative pledge to oppose Chancellor Merkel’s ‘fiscal compact’ of austerity and to use France’s might to drag the EU into a pro-growth, public-investment-led recovery programme. And yet on the day after his election, all that courageous talk was forgotten, never to be recalled again. Why? Sources close to the president told me that immediately after his election he received a phone call from the governor of France’s central bank warning him that the French banks were still in serious trouble and that the ECB’s indispensable support might not come if he continued to antagonize Berlin.
12. See Chapter 6 in Varoufakis, 2016.
13. In 1953 the US government brokered the so-called London Debt Agreement. In essence, the United States leaned on Britain, France, Greece, Italy, Spain, Sweden, Yugoslavia, Norway, Switzerland and many other countries to write off the greatest part of Germany’s pre-war debt to them. The British government protested, arguing that Germany had both the capacity and the moral duty to pay. Washington vetoed London and, to lead by example, immediately wrote off the loans that it had forwarded to Bonn after 1945. Germany’s debts to nations and private creditors were haircut by more than 70 per cent. See Varoufakis, 2016.
14. Βάστα Ρόμελ! – from the Greek verb βαστώ or βαστάζω, which translates as ‘to bear’, ‘to hold on’, ‘to hang on’.
15. I took it for granted that Jeroen would never have issued the ultimatum without Berlin’s approval. I also assumed that we could not count on Paris for significant support. Nevertheless, it was incumbent upon me to verify the extent to which Paris had pre-agreed with Berlin our asphyxiation or to what extent I could count on the French finance minister for support in the Eurogroup.
