While I was in the thick of the struggle, Bill Black, an American colleague who had played a leading role in exposing similar shenanigans in the United States, the savings and loans scandal of the 1980s and 1990s in particular, made me laugh one day by sending me an email that contained only a short quote, which I interpreted as a gesture of solidarity: ‘And they bend their tongues like their bow[s] for lies: but they are not valiant for the truth upon the earth; for they proceed from evil to evil.’ (Jeremiah 9:3)
The young prince
Psyrri, a neighbourhood in Athens taken over by bustling youngsters at night, is a different place by day. Tiny workshops continue to struggle for existence, manufacturing nuts, bolts, buttons, tools and other stuff whose value is plummeting in the globalized economy. The air is thick with a cacophony of industrious noises alongside the delectable smells of bakeries and the odd jasmine shrub, and punctuated by the melancholy singing of Roma musicians, who wander the narrow streets with their accordions, horns and violins, collecting the odd coin from nostalgic passers-by.
I know Psyrri well, since my university office at the time was only a few hundred metres up the road from the neighbourhood while Danae’s studio is located at its heart. Close by, at the edge of Psyrri, are the shabby offices of the Alliance of the Radical Left, universally known as Syriza. So when in early 2011 Nikos Pappas, the closest associate of Syriza’s young leader, called me to arrange a meeting and suggested that the three of us meet in Psyrri, it made perfect sense.
We met at a discreet boutique hotel, one of those investments in the area that now epitomize the false dawn of the gentrification cut short in 2010. It would become our usual meeting place, its pastel-coloured walls witnessing exchanges that began on that day at a relaxed, almost academic pace but turned serious and purposeful by early 2012. Nevertheless, during that first meeting and for some time afterwards, I had no reason to believe we would be meeting again.
I had first laid eyes on Alexis Tsipras on a poster plastered all over Athens promoting his candidature for mayor in the local government elections of 2008. Danae, a long-time supporter of that particular strand of Greece’s Left, was enthusiastic about a thirty-four-year-old running for a post usually held by dreary older politicians using it as a springboard into Maximos.2 In the event Alexis doubled Syriza’s vote in central Athens, and before long the party’s old guard had organized an internal putsch which installed him as leader, shoving aside the man who had anointed Alexis as his eventual successor. In the general election the following year, though, when Alexis led the party for the first time, the headlines were dominated by the victorious surge of George Papandreou’s ill-fated socialists, with Syriza3 coming in fifth, collecting a miserable 4.6 per cent of the vote, half a per cent less than in 2007.
When I walked into the hotel, he and Pappas were already at a table, ordering lunch. Alexis’s voice was warm, his smile unaffected, his handshake that of a potential friend. Pappas had wilder eyes, a high-pitched voice. He joked incessantly, whether the matter was funny or tragic, and tried to exude authority while being everyman to everyone. From the outset it was evident that Pappas had the young prince’s ear, guiding, restraining and spurring him on, and this initial impression survived throughout the turbulent times that followed: these two young men, of similar age but different temperaments, were acting and thinking as one.
‘I’ve been following your work for years, ever since I read your Foundations,’ Pappas said, breaking the ice, referring to an economics textbook I had published in 1998.4 Apparently he had been a postgraduate economics student in Scotland when he came across the book, and since then he had read the Modest Proposal for Resolving the Euro Crisis, which I had co-authored with Stuart Holland, a British Labour former MP and professor of economics at Sussex University. Stuart and I had been working on the Modest Proposal since 2005, motivated by the conviction that the euro would cause an almighty crisis which Europe might not survive.5 After the euro crisis erupted, Stuart and I did our utmost to refine and promote the Modest Proposal, convinced that it was Europe’s best chance of avoiding its demise. ‘Tell Alexis what you are advancing in the Modest Proposal,’ said Pappas.
I explained its basic logic, and then the conversation turned to a general assessment of the political economy of Bailoutistan and the strategies available to progressives intent on offering the country an escape from its prison of debt.
It soon became clear that, for political reasons, Alexis was vacillating over a basic issue: whether Greece should retain the euro. Even in 2011 Syriza was torn by internal disagreements over whether the party should or shouldn’t make Grexit (departure from the eurozone, though not necessarily from the EU) its official policy. As we talked, Alexis’s attitude to the question struck me as cavalier and immature. His focus was more on keeping control of the feuding wings of his party than on clarifying in his own mind what the right policy was. Judging by the meaningful looks coming from Pappas, it was clear that he thought so too and was hoping I would help shift his leader away from casual experimentation with the idea of Grexit.
In the hour or so that followed I did my best to impress upon Alexis that turning Grexit into an objective would be as large a mistake as failing to prepare for it. I also criticized Syriza for making silly promises such as that, if elected, the bailout agreement with the EU and the IMF would be unilaterally torn up.
‘Why can’t we tell them that if they do not accept our unilateral rejection of their programme, we will exit the euro?’ Alexis asked.
I explained that there were three possible outcomes of a confrontation with the troika. The best outcome would be a new deal for Greece – involving serious debt restructuring, the end of self-defeating austerity and a series of reforms targeting the oligarchy – which kept us in the euro. The worst possible outcome would be to stay in the euro in the same position: in debtors’ prison and with shrinking incomes, prospects and hopes. Grexit would be in between: far, far worse than a viable deal within the eurozone but better, in the medium and long term, than a continuation of the vicious circle of bailouts, austerity and depression for another five years or more.
I told him there was no way Berlin, Frankfurt, Brussels or the IMF would accept a take-it-or-leave-it offer from him; they would simply leave it. So to issue such an ultimatum would be to ensure the third outcome – expulsion from the eurozone – and to remove even the possibility of the first. To leave the door open to the best possible outcome, he needed to force a negotiation. On the one hand this meant rejecting Grexit as a threat (let alone an objective) while on the other signalling to the world that his worst fear was not enforced Grexit but the continuation of the current situation. However, I was unsure whether he was much interested in the nuances of this argument.
‘But Yanis, many people, like Paul Krugman, say that we would be better off outside the euro anyway,’ Alexis retorted.
I agreed that we would be better off if we had never entered the eurozone but hastened to add that it was one thing to have stayed out of the euro and quite another to leave it. Exiting would not get us to where we would have been had we not entered!
To try to shake him out of his lazy thinking, I outlined what I expected to happen immediately if Grexit were announced. Unlike Argentina, a country that had severed its currency’s ties to the dollar, Greece did not have its own notes and coins in circulation. Grexit would involve more than severing the one-to-one exchange rate between the drachma and the euro. The result of such a severance in Argentina had been a drastic devaluation in the national currency, leading to a major surge in exports. This in turn led to a major reduction in the trade deficit, and so, eventually, to the restoration of economic health. Unlike the Argentinians, however, Greece would have to create a new drachma before then severing it from the euro.6 But creating a currency takes months. In other words, Grexit would be like announcing a currency devaluation months before it happens, a strategy that comes with dire consequences: an exodus of euros and an absence of a local currency to facilitate daily transactions.
Would he be prepared, I asked Alexis, to stand in front of voters during an election campaign and tell them that this was what he was proposing? That this should be Plan A? Or would it not be better to tell voters this: we shall demand a renegotiation that yields a new deal for Greece rendering our social economy sustainable within the eurozone, but if the EU and the IMF refuse to negotiate meaningfully, then we shall not accept any more extend-and-pretend loans from Europe’s taxpayers. And if they want to retaliate by pushing us out of the euro, at immense cost to both themselves and us, then let them do their worst.
Pappas was nodding enthusiastically, but Alexis seemed elsewhere. When I pushed him to explain his silence, his reply confirmed that he was preoccupied with the goings-on within Syriza rather than engaging properly with the issue at hand. I was unimpressed. As the meeting drew to a close, and at the risk of sounding condescending, I offered him some well-meant but unsolicited advice on a separate matter, which he may have found offensive: ‘Alexis, if you want to be prime minister, you need to learn English. Get a tutor, it is imperative.’
Back home Danae asked me how the meeting had gone. ‘He is a very agreeable person but I do not think he has what it takes,’ I replied.
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.
