One year ago the Greek people voted in a referendum to reject the draconian proposals the EU demanded as its price for bailing out Greece.
To everyone’s astonishment, having rejected the EU’s proposals and won the support of the Greek people in the referendum, Greek Prime Minister Alexis Tsipras immediately after the referendum carried out a complete U turn, and accepted on behalf of Greece bailout proposals which were even harsher than those he and the Greek people had previously rejected.
Greece has been saddled with this bailout plan ever since. It is one the IMF thinks is unworkable and which no big name economist believes in. Latest information suggests Greece is once again slipping back into recession.
How did this disaster come about? Exactly a year ago I dissected the negotiations and showed that Tsipras and his Finance Minister Varoufakis (who does not deserve the cult status he has achieved) bear the main responsibility, and that Grexit (ie. Greece’s orderly negotiated withdrawal from the Eurozone) together with a debt restructuring was a fully viable option.
Here is what I wrote then:
Ever since the latest bailout agreement misinformation to justify it has been pouring out of Greece. Much of this centres on the supposed impracticability of a Grexit and of the “revolutionary” nature of the plans certain individuals hatched to achieve it. Varoufakis has claimed authorship of some of these plans. Others are attributed to the former Energy Minister and leader of Syriza’s Left Platform, Panagiotis Lafatzanis.
Varoufakis’s plan, which he claims to have presented to Tsipras at the last moment as the referendum results were coming in, was for the Greek government to start handing out electronic IOUs in place of a currency. This would have been accompanied by capital controls, the nationalisation of the banks and the seizure of the government’s revenue office and of the Bank of Greece. Varoufakis claims that this plan was prepared by the five man group based within the Finance Ministry he set up back in February. Apparently this group carried out its work in total secrecy and – in a bizarre twist – even hacked into the Finance Ministry’s own computers in order to prepare its plans.
Meanwhile the Financial Times has published a lurid account of a semi-secret meeting arranged by Lafatzanis and Syriza’ s Left Platform in an Athens hotel, where there was supposedly wild talk of arresting the governor of the Bank of Greece and of seizing the hoard of euros supposedly stashed away in the Athens mint in order to keep the economy going and to pay for essential imports until a new currency was set up.
No doubt in the desperate situation caused by the Syriza government’s failure to undertake proper and timely preparations for a Grexit all sorts of wild ideas were in circulation. Not all these ideas were however wild. It is constantly overlooked that because the Greek banks were bailed out by the Greek government in 2008 (a major reason why its debt burden became so catastrophically and insupportably high) they are already 80% state owned. “Nationalising” the banks would not therefore have been an act of revolutionary confiscation or appropriation of private property. It would have simply meant the state taking operational control of the banks by replacing their managements by new managements appointed by and accountable directly to the government.
Implementing extreme steps such as seizing the Bank of Greece and the mint and issuing IOUs would nonetheless have provoked a major crisis in Greece. The economy would have been thrown into turmoil, with much of the population and the business community refusing to accept the IOUs of a bankrupt government as a credible substitute for actual money. Acting in such a way would also have completely antagonised the EU leaders, who would have been bound to construe such steps as a declaration of economic war. They would undoubtedly have responded by suspending the Greek government’s participation in the EU’s central institutions on the grounds that it was in breach of the fundamental provisions of Article 2 of the Treaty of the European Union.
Putting all that aside, what no one has explained is why any of these schemes were necessary.
Implicit in Varoufakis’s various “plans” and in the scheme the Financial Times attributes to Lafatzanis is the strange idea that preparing a new currency was something that needed to be done in secret and which would have had to be improvised at the last moment. Nothing could be further from the truth. Far from the introduction of a new currency being something that would have been resisted across Greece and Europe, we know it would have had the backing of the Bundesbank, of the German Finance Ministry, of Wolfgang Schauble and of the IMF.
According to the British writer Tariq Ali, as long ago as February Schauble was offering Varoufakis 50 billion euros and help with an orderly Grexit. Tariq Ali describes the offer in this way:
“It is now known that Schäuble offered an amicable, organised Grexit and a cheque for 50 billion euros. This was refused on the grounds that it would seem to be a capitulation. This is bizarre logic. It would have preserved Greek sovereignty, and if Syriza had taken charge of the Greek banking system a recovery could have been planned on its terms. The offer was repeated later. ‘How much do you want to leave the Eurozone?’ Schäuble asked Varoufakis just before the referendum. Again Schäuble was snubbed. Of course the Germans made the offer for their own reasons, but a planned Grexit would have been far better for Greece than what has happened.”
No one in Greece is denying this story and in fact I am told it is true (NB: it has since been denied in Greece but I know it to be true – AM).
Even as late as the latest EU summit the option of an orderly Grexit was on the table. Schauble – with Merkel’s (alas temporary) backing – actually proposed it. If the Greeks had agreed to it, it would have happened. The IMF, which has made known its complete lack of belief in the viability of the latest bailout, would have backed it. Greece would have got its 50 billion euros to help it support the new currency, Schauble and the Germans would have ensured that the ECB provided the necessary liquidity to the banks to keep the banks operating until the new currency was ready, the banks could have been nationalised by mutual agreement – there being as I have said nothing revolutionary about this – capital controls would have been imposed until the new currency was ready (the Germans agreed to this when Cyprus imposed them, so why would they refuse it if sought by Greece?) and control of the Bank of Greece, the mint and the revenue service would have been transferred back to the Greek government as an indispensable element in an orderly and agreed Grexit. Meanwhile the Russians had already said that they were prepared to help with essential imports of energy and (probably) food, if that was needed.
The Financial Times says the process of introducing a new currency would have taken 6-8 months, much less than the 18 months Varoufakis is claiming (NB: he still – wrongly – claims it – AM). Actually that is far too pessimistic. The former British cabinet minister John Redwood has guesstimated it would take no more than 3 months. In my opinion, given financial help and technical support from the EU and the IMF the whole process could have been carried out from beginning to end in the space of a few weeks (NB: I have since learnt that the Russians offered technical help including printing the bank notes – AM).
Once Greece was out of the Eurozone it could have agreed a formal restructuring of its debt as part of a package negotiated with the IMF (the alternative of a default on the entire debt might have done irreparable damage to relations with the creditor countries). The conditions would doubtless have been tough but they would hardly have amounted to the psychopathic agreement we have now. With Greece outside the eurozone and able to regain competitiveness through a devaluation there would have been a real chance that whatever was agreed would succeed.
However one spins the ball, the reality has to be faced: a Grexit did not happen not because it was difficult to do but because the Syriza government didn’t want it.
All claims to the contrary are fairy tales, whilst the malicious spreading of stories about the various plans that were hatched in the desperate final hours before Greece’s final capitulation is being done purposefully in order to discredit the idea of a Grexit and those who support it. As for the perennial claim that the Greek people want to cling on to the euro no matter what, since the referendum I no longer believe that claim despite what the opinion polls are alleged to say.
In my opinion far too many people go on giving Tsipras, Varoufakis and Syriza the benefit of the doubt even though the extent of their incompetence and of their double-dealing is becoming simply impossible to deny.
Varoufakis has in fact now admitted that the real Plan B if the negotiations for a debt write-off failed was not a Grexit – his claims to have prepared for one is so much smoke and mirrors – but a resignation of the government and the formation of a “government of national unity” consisting of the old oligarchic pro-EU parties to sign a bailout package in place of Syriza. In Varoufakis’s own words
“We are going to do all it takes to bring home a financially viable agreement. We will compromise but not be compromised. We will step back just as much as is needed to secure an agreement-solution within the Eurozone. However, if we are defeated by the catastrophic policies of the memorandum we shall step down and pass on the power to those who believe in such means; let them enforce those measures while we return to the streets.”
No word here of any plan for a Grexit.
This comment of Varoufakis by the way provides final confirmation for my previous statement – doubted by some – that the Ambrose Evans-Pritchard story is true: Tsipras called the referendum in the expectation of a Yes vote so as to give himself political cover to resign. That way a “government of national unity” without him and Syriza would be formed. It would sign-up to the bailout plan. He would thereby be able to evade responsibility and campaign against it.
In my opinion plotting the resignation of his own government – elected just a few months before to bring an end to austerity – to save his own reputation was an extraordinary act of irresponsibility. Regardless – because to his surprise and horror the Greek people instead of voting Yes voted No – it is not what Tsipras eventually did. Instead of resigning he remained in power, obliged (since he remained adamantly opposed to a Grexit) to agree to an even worse deal than the one he had previously rejected.
Instead of admitting that Schauble offered him a dignified way out, Varoufakis is now also busy spreading a fantastic story that Schauble was throughout plotting to expel Greece from the Eurozone so that he could terrorise France to accept the economic medicine he supposedly wants to impose on it. Varoufakis is actually claiming that Schauble told him as much. Varoufakis’s precise words are:
“Schauble believes that the eurozone is not sustainable as it is. He believes there has to be some fiscal transfers, some degree of political union. He believes that for that political union to work without federation, without the legitimacy that a properly elected federal parliament can render, can bestow upon an executive, it will have to be done in a very disciplinary way. And he said explicitly to me that a Grexit is going to equip him with sufficient terrorising power in order to impose upon the French, that which Paris has been resisting: a degree of transfer of budget making powers from Paris to Brussels.”
Does anybody seriously believe that if Schauble really has such a plan he would have shared it with Varoufakis of all people?
The reality is that Schauble adamantly opposes a debt write-off for Greece whilst it remains part of the Eurozone not because he wants to terrorise France into submission but because of the disastrous precedent such a write-off might provide to other heavily indebted and bailed out eurozone states like Portugal, Spain, Cyprus and Ireland. Obviously that is not sinister enough for Varoufakis – who has never shown the slightest understanding of Schauble’s position – which is why he attributes this bizarre plan to him.
Sad to say Varoufakis was already spreading his fable about Schauble’s wicked plan to use Greece in order to terrorise France whilst the negotiations were actually underway – one reason surely why Schauble came to dislike him so much. It could be that Varoufakis misunderstood something Schauble said to him. However I have to say that it looks to me more like an attempt by Varoufakis to play the French and the Germans off against each other, in much the same way that Tsipras at the same time was trying to play the Russians and the Europeans (and the Americans) off against each other. Needless to say, if that was the ploy then it failed.
In fairness to Tsipras, Varoufakis and Syriza, though their tactics were manipulative and disastrous, their objective was always what they said it was: to keep Greece in the Eurozone whilst securing an end to austerity and a debt write-off. Most people – including me – assumed that as it became clear this was impossible that they would take Greece out of the Eurozone in order to end austerity and secure the debt write-off. That was the position Varoufakis eventually decided on when all else failed, though the plan he came up with is testament to his failure to prepare for a Grexit properly, as it was his responsibility as Finance Minister to do.
In Tsipras’s case however it is now clear he always intended the opposite – to drop the plan to end austerity and get a write-off, so as to keep Greece in the Eurozone irrespective of the cost.
The result is that Greece’s relations with the rest of the EU have been poisoned, the cause of anti-austerity across Europe has been discredited, and the Greek people are left paying a fearsome price.