‘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.
The conversation was going nowhere. But I still believed our friendship, one of the few remaining bridges between opposing camps, was an asset that could be harnessed for the greater good. Just before we parted, I said that the two of us had a responsibility to remain friends. He seemed to be heading towards some lofty government position whereas my ideas were taking me in the other direction, towards the opposition. But above all else we should not allow ourselves to be turned against one another at a human level. He nodded in agreement and we parted ways with a hug that, thinking back, was on the lukewarm side.
Two months later, just before the June 2012 election, the University of Athens Economics Faculty was considering my application for leave without pay, so I could return to Austin and continue to teach there. Such a request was perfectly normal and the faculty’s vote to accept it little more than a formality, but this application occasioned a tumultuous debate. The reason was that Stournaras had presented the faculty with the following question: why should the University of Athens grant me leave to return to the United States when my purpose there was to collaborate with George Soros in the shorting of Greek bonds?
To short a government bond means to make a bet that its value will fall, effectively speculating that the country’s public debt will become unattractive to investors. If enough people spend enough money shorting a bond, confidence in the bond falls, it loses value and the short becomes self-fulfilling. Stournaras’s bizarre accusation was that I was speculating on the New York money markets in cahoots with George Soros in order to profit from a downgrade of the Greek state’s creditworthiness.
Allegations such as this – that I was a self-serving opportunist working towards bankrupting the Greek state – were a favourite of my opponents. Anti-Semitic rightist conspiracy theorists had attacked Soros as a Jew for leading a campaign to bring Orthodox Christian Greece down. From 2010 onwards, when I started arguing that the Greek state was bankrupt and advocated embracing our bankruptcy, these circles insinuated, and later proclaimed, that I was his stooge. The first time I heard the accusation, in 2011, I was merely amused. Now Stournaras had added a whole new twist to these ludicrous charges, presumably based on my account of my discussion with George Soros in Berlin.
The simple facts are that I have never bought or sold – let alone shorted – a bond or a share in my life, and I had never before met or communicated with Soros except at our shared panel event in Berlin in the spring of 2012.
Upon hearing of his outrageous allegation I picked up the phone, seething with anger, and called Stournaras to ask, as calmly as I could, why he had made it. He apologized immediately, citing ‘stress’ and the ‘bad influence’ of media reports that I was working for Soros. I said I accepted his apology, but in my heart I knew Stournaras had crossed the Rubicon to a terrain incapable of supporting any bridge between us.
A few days later, after the June 2012 election ushered in Antonis Samaras’s coalition government, I heard on the news that Stournaras was to be the country’s next technocratic – unelected – minister of finance. He stayed in the job for two years, using his tenure to implement the loan conditions of the second bailout as faithfully as he could – so much so that the swingeing austerity introduced in wave after wave of cutbacks and tax hikes accelerated the recession, terminally destabilizing the Samaras government. Less than two years after its election victory, in the May 2014 European parliamentary election, Samaras’s New Democracy received fewer votes than Syriza and subsequently fell well behind in the opinion polls. A month later the term of the governor of Greece’s central bank expired, and Samaras used the opportunity to appoint Stournaras. Were the establishment parties to lose the next general election, at least they would leave behind someone at the central bank who was willing and able to undermine the incoming Syriza government. Which is precisely what Stournaras did.
The hotel café where we met in April 2012 had, as things turned out, witnessed our friendship’s last gasp.
Success story
While Stournaras was taking over at the finance ministry during the hot summer of 2012, the folks at the EU and IMF were trying to solve a little conundrum of their own. The loans for the second bailout had been delayed by the twin Greek elections and would not start arriving before the autumn. Unfortunately, Athens was meant to send just under €3.5 billion to the ECB, one of its many unpayable debt repayments, on 20 August. How could that happen given that the coffers were empty?
