Brinkmanship with the power brokers of Europe
EXTRACT In January 2015, with Greece effectively bankrupt, an angry Greek public elects a radical-Left Syriza government on a promise to roll back austerity and renegotiate the country’s mammoth debts.
The man chosen to confront Greece’s creditors is Yanis Varoufakis, a prominent Greek academic and long-standing critic of the Germanbacked austerity agenda for Europe. For six months Mr Varoufakis, renowned for his leather jackets and preference for riding to work on his old motorbikes rather than taking a ministerial car, does battle with what he calls Europe’s “deep establishment”.
In Adults in the Room Varoufakis gives an outsider’s perspective on the inner sanctums of European power-politics, as he tries – and ultimately fails – to win forgiveness for Greece’s debts.
THE STRANGE MEETING WITH MERKEL’S GO-BETWEEN
In early March 2015 negotiations in Brussels reach another impasse. After a phone conversation with Alexis Tsipras, the Greek prime minister, Angela Merkel offers to send an emissary to Athens to try to break the deadlock. That man is Thomas Wieser, the president of the Eurogroup Working Group, but also a key player whom Varoufakis describes as “probably the only deep establishment functionary equidistant from her and the German finance minister”.
The condition on which Chancellor Merkel sent Wieser to us was absolute confidentiality. Our ministries were not to be involved in planning his visit; there would be no government car to pick him up, and the meeting would have to be held at a secluded private residence. I decided that our flat was ideal. An unofficial car was sent to pick Thomas up from the airport and deliver him straight to us. The empty street outside our building, thanks to a cold grey day, put paid to any concern that tourists visiting the New Acropolis Museum opposite might recognise him.
It is fair to say that Thomas Wieser brought the weather with him into the flat. Our seven-person party was keen to welcome Wieser warmly. Wieser was equally keen to keep his distance. His first sentence was disheartening: “I’m happy to be here even though I do not know why I’m here.” Surely the person who had asked him to visit us must have explained the reason, I asked? “I have no idea who sent me,” he replied. “I just found a note at my office instructing me to board a plane for Athens.”
Unwilling to beat about the bush, I spelt out the facts: we were at an impasse, one that only Chancellor Merkel’s intervention could overcome. She had proved amenable to such an intervention and had offered to send him to us informally to discuss how to reboot the negotiations.
Incredibly, Wieser would have none of it, continuing to deny any knowledge of the chancellor’s involvement in his trip. Instead, over the course of a lengthy meal, he laid down the law with the charisma of a bailiff and the sensitivity of a litigator. Outlining the coming weeks and months, he carefully avoided the substance of the negotiations, instead giving us chapter and verse on Eurogroup and Eurogroup Working Group rules and constraints. From his litany of Troika-speak, one thing of interest emerged: we should expect no easing of the squeeze on our liquidity before April 30 – which was presented as a natural, apolitical consequence of bureaucratic constraints.
In response I told Wieser that unless we received a sign from the creditors that they were serious about a compromise on the reform agenda and a sensible fiscal policy made possible by meaningful debt restructuring, we would not reach April 30 without a default to the IMF. “Independently of our preferences and political will,” I said, “Our liquidity will run out well before then.”
He replied that we could last much longer by plundering the reserves of non-governmental but publicly owned institutions such as pension funds, universities, utility companies and local authorities.
Given that I was not willing to plunder the remaining reserves as he had suggested, I asked Wieser whether we could use €1.2 billion that Greece was owed by Europe’s central bank to meet our IMF payments for March, buying us both extra time to negotiate. “It sounds reasonable,” replied Wieser, advising me to send a formal request to Jeroen [Dijsselbloem, Dutch finance minister and president of the Eurogroup], his boss, for access to that €1.2 billion. (Days later, when I did so, Jeroen referred me to the president of the Eurogroup Working Group . . . Thomas Wieser! And what was Wieser’s verdict, now that he had been given the authority to decide? That what I was requesting was “too complicated”.)
Seeing no glimpse of a potential breakthrough, the only useful thing that remained was to try to establish some form of human bond between us – to at least bring some humanity into the proceedings, if only for the sheer hell of it. Euclid, Nicholas Theocarakis, Danae and I took the lead, changing the subject to anything other than the negotiations: we spoke of art, music, literature, our own families. For six hours in all we ate simple but excellent Greek food and drank a considerable amount of wine followed by Cretan raki. Thomas Wieser’s resistance was extraordinary.
He ate and drank and smiled frequently, but the force field that he erected to prevent any camaraderie from developing between us proved impenetrable.
As the evening drew to a close, Nicholas asked Wieser if he was related to Friedrich von Wieser, the pioneering Right-wing economist and Austrian finance minister whose thinking had shaped the minds of libertarians such as Ludwig von Mises and Friedrich von Hayek. Thomas answered that, yes, he was indeed the grandson of his cousin, but confessed that he did not know much about his works. Reaching into our bookshelves, I pulled out a thick volume that Nicholas and I had co-authored in 2011, in which we referred to von Wieser’s influence in a chapter aptly titled “Empires of Indifference”. I offered it to Thomas for him to keep. He accepted.
As he was leaving, heading to a hotel before his flight back to Brussels the following morning, I longed for my academic days, when disagreements were resolved through the power of argument rather than brute force. Weeks later, as the Troika’s brute force was reaching its climax, I recalled one of von Wieser’s most memorable lines, wondering whether he would be pleased or appalled by his descendant’s part in the Eurozone’s travails: ‘Freedom has to be superseded by a system of order.’
THE BLOCKED CHINESE DEAL
As the Troika continues to stop money reaching Greece’s banking system, Varoufakis does a deal with the Chinese to invest in Greece’s crumbling port and railways and – as a show of good faith – purchase €1.4 billion in Greek T-bills [similar to gilts] to give the country precious space from its creditors. The plan, however, is thwarted by unseen hands.
On 31 March, the day Beijing had promised the breakthrough purchase of €1.4 billion in T-bills, I was at my office waiting for the phone to ring. The auction was meant to end at around 11.00am. At 10.30, unable to contain myself, I called the ministry’s public debt manager. “No news yet,” I was told, “but don’t worry. The Chinese make a habit of entering auctions at the very last moment.” So I waited.
At 11.02 my phone rang. I jumped to answer it. “There’s good news and there’s bad news, Minister. Which do you want first?” asked the public debt manager.
“Begin with the good news,” I said. “Well, the Chinese have entered the auction, but the bad news is that they only bought another €100 million.”
Before we had hung up, I was dialling the Chinese ambassador on my mobile. Once I had told him what had happened, he said, “I cannot believe this. Can I come to your office right away?”
“Of course,” I replied. Half an hour later, a frazzled Chinese ambassador was sitting on my red sofa. In what I believe to have been genuine anguish, he pleaded with me to believe that he had had no inkling that something like this would happen, that he was hugely embarrassed and that he would do all he could to get to the bottom of the shortfall. From within my office he tried to place calls to the Chinese ministry of finance but could not get through. So he went back to his office promising to get back to me as soon as he heard.
A few hours later he called, sounding far more relaxed. “Minister, I can assure you it was a technical hitch. Beijing is very sorry about it. In two days’ time, when you have another T-Bill auction, the purchase will go through.’
I felt a mixture of relief and incredulity. On the one hand it made no sense for Beijing to lie via its ambassador, who appeared genuinely keen to cement our deal. On the other, the idea that China’s technocrats had simply made a mistake was equally unbelievable. Time would tell.
Two days later I was in my office awaiting the same call from our public debt manager. At 11.05 the phone rang. “There’s good news and there’s bad news, Minister. Which do you want first?” Not again, I thought. “Please don’t tell me that they entered the market with another €100 million,” I implored him.
“Precisely what they did,” came his reply. This time I did not bother to call the ambassador; I went straight to Maximos. There I told Alexis what had happened and suggested strongly that he contact the Chinese prime minister.
The next day Alexis relayed the news from Beijing. Someone had apparently called Beijing from Berlin with a blunt message: stay out of any deals with the Greeks until we are finished with them.
When I spoke to the Chinese ambassador again, I tried to convey to him how our people felt when foreign powers, pretending to be our partners, steamrollered their hopes for recovery and dignity. “I understand, I understand,” he replied. And I believed him. So ended a dreadful episode in the long saga of the creditors who had no interest in getting their money back – with the scuttling of a marvellous agreement between two ancient countries.
THE KEY GERMAN MEETING
By June 2015 negotiations between Greece and the Troika had reached a stalemate as the Greek government continued to refuse to sign the Memorandum of Understanding (MoU) with its creditors committing it to a swathe of new austerity measures. Wolfgang Schäuble, the German finance minister has suggested that Greece takes a “time out” from the euro, but has been overruled by his chancellor, Angela Merkel. On June 8 Varoufakis goes to see Schäuble for the last time, and presents him with a Policy Framework paper with a new set of proposals.
My recollection is that Wolfgang found nothing to fault in my proposition. Later, seeking a second opinion on his response, I asked Jamie Galbraith [the American economist and Varoufakis supporter and adviser] to write down his impressions. Here is how he described Wolfgang’s reaction.
Schäuble listened to the presentation at length with close attention and body language that suggested no disagreement on any point of the argument. Varoufakis stated repeatedly that a solution should be definitive and not a predicate for further failure and ongoing bailouts . . . The most important fact about Schäuble’s response was that he said, repeatedly and with a shrug, that he has “no idea” about how to resolve this matter.
I pressurised him for some kind of response. “Here I am, asking you, the finance minister of the richest and most powerful country in Europe, to tell me what I should do. You reject my ideas; your own proposal was rejected by your chancellor, and meanwhile the negotiations between my prime minister’s team and the Troika in the Brussels Group are heading in a direction that is the opposite of a solution. What should I do, Wolfgang?”
He looked up for the first time in a while and said without any enthusiasm, “Sign the MoU.” We had come full circle.
“OK,” I said. “Let’s suppose I do it. Let’s assume that I sign the damned thing. Tell me this: are we not going to be in the same situation again in six or 12 months? With another funding crunch feeding “Greece on the verge again” headlines, more recession, and a political backlash in the Eurogroup?’
Perking up a little, Wolfgang agreed and said, “This is why I told you to convince your prime minister to consider a time out.”
“Except that your chancellor put an end to that discussion.”
“Well, that leaves you with the MoU,” he said, falling back once more on the same non-solution.
Only a move beyond reasoning and rhetoric could break the vicious cycle, I thought, a human gesture. “Will you do me a favour, Wolfgang?” I asked humbly. He nodded warmly. “You have been doing this for 40 years. I have only been doing it for five months. You know from our earlier meetings that I have followed with interest your articles and speeches since the late Eighties. I need to ask you to forget for a few minutes that we are ministers. I want to ask you for your advice. Not to tell me what to do. To advise me instead. Will you do this for me?”
Under the watchful eye of his deputies, he nodded again. Taking heart, I thanked him and sought his answer as an elder statesman, not an enforcer. “Would you sign the MoU if you were in my place?” I was expecting him to give me the predictable answer – that, under the circumstances, there was no alternative – along with all the usual, senseless arguments. He didn’t. Instead he looked out of the window. By Berlin standards, it was a hot and sunny day. Then he turned and stunned me with his answer. “As a patriot, no. It’s bad for your people.”
A chink had appeared. Naturally, I tried to prise it open. I said that since we now agreed that the MoU was “bad” and Grexit was off the table, an agreement like the one I was proposing was the only solution consistent with our mandate and duty to our people – the Germans as well as the Greeks. But by that stage Wolfgang looked like a broken man.
As I departed that day, I was not leaving behind me a Machiavellian dictator; I was leaving behind a sunken heart, a man ostensibly more powerful than almost anyone in Europe who nevertheless felt utterly powerless to do what he knew was right.
As the great tragedians have taught us, nothing causes greater wretchedness than the combination of supreme authority and wholesale powerlessness.