It was back on January 31 of this year [19], long before the "game theoretical" approach of Greek negotiations with the Eurogroup and ECB in particular and the Troika, and now Quadriga in general was revealed, that we first forecast with absolute accuracy just what the middle, and end game, of the Greek negotiation with Europe (and vice versa) will be:
... today the ECB's Erikki Liikanen, tired of pleasantries and dealing with what to Europe is a completely incomprehensible and illogical stance, one which is essentially a massive defection by Greece in the European "prisoner's dilemma", and which while leading to a Greek financial collapse and Grexit - both prerequisites to a subsequent Greek economic recovery unburdened by the shackles of the Euro - would also unleash a European depression, came out and directly threatened Greece that it now has 1 month until the end of February to reach a deal with the Troika, or else the ECB would cut off lending to Greek banks, in the process destroying the otherwise insolvent Greek banking sector.
And since only the ECB backstop has prevented a banking sector panic, the ECB is essentially betting the house, and the sanctity of the Eurozone (because after a Grexit all bets are off which peripheral leaves next) that the threat, and soon reality, of a bank run will finally force Varoufakis and Tsipras to sit at the negotiating table with the understanding that not they but the Troika has all the leverage.
Six months later, with the ECB using the Greek bank run nuclear option, the Syriza government did indeed undestand that the Troika "has all the leverage." andtToday, Yanis Varoufakis - who is now embroiled in a national scandal which may see him charged with treason for daring to contemplate and implement a Plan B which saw the return of Greece to the Drachma, presented the full transcript of his interview with El Pais conducted last week, in which he put in his own words just what this battle of leverage which we first laid out in January, would be:
Think of it as a ‘demonstration effect': this is what will happen to you if you don’t fully submit to the Troika. What happened in Greece was definitely a coup. The asphyxiation of the Government through the liquidity squeeze, a series of denials of any serious debt restructuring… What was astonishing is that we kept coming to them with proposals which they refused seriously to discuss, they were insisting that we do not make them public and, at the same time, they leaked that we had no proposals. Any independent observer watching this would agree that they were never interested in a mutually beneficial agreement. By imposing the liquidity squeeze, they forced the economy to shrink so as to blame it on us… We had constantly to make payments to the IMF which where scheduled along with disbursements which never came through. So they kept doing this, delaying any agreement, until we run out of liquidity. Then they gave us an ultimatum under the further threat of bank closure. This was nothing but a coup. In 1967 there were the tanks and in 2015 there were the banks. But the result is the same in the sense of having overthrown the Government or having forced it to overthrow itself.
Spot on.
* * *
Here is the full, unedited transcript of the Varoufakis interview with Claudi Perez from the former finance minister's blog [20] [20]:
Claudi Pérez, of El Pais, inteviewed me in our Athens apartment last week. Here [21] is the article that emerged recently in El Pais. The complete, unedited, transcript (in English) follows:
[22]
Why do all the interviews of you I have read begin with a question about how are you if it is clear, as I see, that you are really ok?
I suspect journalists assume that I am somehow downhearted now that I am not in the ministry. But I didn’t enter politics as a career. I entered politics to try to change things. There is a price to pay if one tries to change things.
What is the price?
The disdain of the establishment. The deep feelings of loathing by the vested interests one must dislodge to make a difference. They felt threatened. If you enter politics with an uncompromising position, you cop it.
You say that you have to change things. In these 6 months, do you have the feeling that you did?
Absolutely. Why are you here? You are here because something changed. There was a government that was elected to negotiate hard on the basis of a line of argument that wasn’t considered acceptable in the eurozone. At the same time, history necessitated it. So you have an unstoppable force striking an immovable object. The immovable logic is the irrationality of the Eurogroup and the unstoppable force is history. The result is a great deal of heat and noise… Hopefully there will be some light too.
I was reading your book, about your daughter… And then I was doing some numbers. The bailout will finish in 2018. Then the supervision will be there until Greece pays back the majority of its loans: the average maturity is 32 years. So the ex troika, now quadriga, and the men in black, will be here in Athens till your grandchildren will be adults. How do you deal with this?
Let’s not call them the ex troika anymore. It’s the troika again. We gave them the chance to become “the institutions”, to legitimize them. But they insisted in behaving like the illegitimate troika of the past five years.
Didn’t you kill the troika?
Well, we got rid of them here in Athens. Now they are back: the troika is back. They could have acted as legitimate institutions. But they seem to have a clear preference to act as the troika of lenders. It’s their choice.
But they’ll be here until 2050, when your grandchildren will be adults.
No, they won’t. Because this agreement doesn’t have a future. It is continuing the extending and pretending charade: extending the crisis with new unsustainable loans, and pretending that this solves the problem… It can’t go on forever. You can fool the people and the markets for a short period of time, but in the end you can’t fool them for fifty years. Either Europe changes, and this process is replaced by something more democratic, and durable, manageable, humanistic. Or Europe will no longer exist as a Monetary Union.
What do you expect for the next 6 months? We expect a 3rd bailout agreement in mid-August.
This is a program designed to fail. And so it will fail. It’s not easy for an architect to build a solid building, but it’s easy for him or her to construct a building that will collapse. Anyone can do it. It was planned to fail, because, let’s face it: Wolfgang Schauble is not interested in an agreement that works. He categorically stated that he wanted to redesign the eurozone and part of that redesign is that Greece should be thrown out of the eurozone. I think that he is completely mistaken but nevertheless this is his plan and he is a very powerful player. One of the great fallacies at the moment is to present the deal imposed on our government on 12th July as an alternative to Schauble’s plan. I see things differently: This deal is a part of the Schauble plan. Of course, this is not the conventional wisdom.
So do you expect a Grexit?
I hope not. But what I expect is a lot of noise, as I said: delays, failure to meet unreachable targets, more recession, political dead ends. And then things will come to head and Europe will have to decide whether to go ahead with Schauble’s plan or not.
But which is your central scenario? Is Schauble condemning Greece to go out?
You can see that there is a plan being implemented and which is in progress. Today we have read that Schauble wants to sideline the Commission and to create something like a Budget commissioner who oversees the ‘rules’ that strike down national budgets, even if a country is not under a program. In other words: to turn every country into a program country! One of the great successes of Spain in the middle of the crisis was that you avoided a full MoU (and only had a limited one stemming from the bank recapitalization program). Schauble’s plan is to put the troika everywhere, in Madrid too, but especially in… Paris!
So Paris is the final game.
Paris is the larger prize. It’s the final destination of the troika. Grexit is used to create the fear necessary to force Paris, Rome and Madrid to acquiesce.
Is it to sacrifice Greece for saving Europe?
Think of it as a ‘demonstration effect': this is what will happen to you if you don’t fully submit to the Troika. What happened in Greece was definitely a coup. The asphyxiation of the Government through the liquidity squeeze, a series of denials of any serious debt restructuring… What was astonishing is that we kept coming to them with proposals which they refused seriously to discuss, they were insisting that we do not make them public and, at the same time, they leaked that we had no proposals. Any independent observer watching this would agree that they were never interested in a mutually beneficial agreement. By imposing the liquidity squeeze, they forced the economy to shrink so as to blame it on us… We had constantly to make payments to the IMF which where scheduled along with disbursements which never came through. So they kept doing this, delaying any agreement, until we run out of liquidity. Then they gave us an ultimatum under the further threat of bank closure. This was nothing but a coup. In 1967 there were the tanks and in 2015 there were the banks. But the result is the same in the sense of having overthrown the Government or having forced it to overthrow itself.
And for Europe as a whole?
Nobody can be free even if one person is a slave. That is Hegel’s well known master-slave paradox. Europe has to pay serious attention to it. Spain cannot prosper, or be free, or sovereign or democratic if its prosperity hinges on another member state being denied growth, prosperity or democracy. 
Rajoy has said that if Spaniards vote for parties like Podemos, we will be like Greece in the coming months.
I remind you that Mitt Romney’s Presidential campaign in 2012 was run also on the basis of that ‘if Obama wins, the US will become like Greece’. So Greece has become a football on the feet of politicians of the right who try to scare their population. This is the great utility of Greece for the Grexit policy of Dr Schauble.
Do you think that Podemos could have damaged Greece because the fear of the political contagion?
I would never say that Podemos is a problem for us. Even if Podemos didn’t exist, the forces of regression in Europe would have used fear because, let’s face it: whenever a province of an empire rebels, the emperor and his minions feel obliged to make an example of those who make a dash for liberty. Maybe Podemos intensified this process but, in reality, we had no alternative: we had an economy caught in a large deflation spiral, no credit even for profitable businesses, no investment except for some speculation.
The previous government was adopting increasing degrees of authoritarianism, shutting down the state’s own radio and television stations. This self-defeating austerity drive, which leads to further losses in income, further debt in order to keep fueling this beast of austerity, can only be kept going by curtailing democracy. So what alternative did we have?
The Greeks voted for us not because they didn’t know we would be treated in a hostile way, but because they had had enough. Whatever happens in Spain, in France, in the Baltics, in Portugal, we had a duty to our people to say: We believe in Europe and we’re going to say to Europeans that we owe them money, we want to repay, but we cannot repay from incomes that keep shrinking. “If you keep squeezing us in this inhuman, irrational manner, you will lose your money and we will lose our country.”
Now, there comes a time when you simply need to say and do what is right, and if Europe as a whole chooses to punish us for it, because it is not ready to accept the truth, then we have no alternative but to say to them: “We are doing our best and we hope you find it in yourselves to do your best too!”
I think that is a uncontroversial: your ideas about austerity and debt relief, everybody says you are right.
If you were talking to me in January it would not have been so. The only reason why now this is not controversial anymore is because we struggled for six months. For those who say to me we failed, these six months were in vain, I say “No we did not fail”. Now we have a debate in Europe which it’s not just about Greece, it’s about the continent. A debate we would have not had otherwise. A debate which is worth Greece’s, our continent’s, weight in gold.
But politics is about results. You called the first and second bailout like the Versailles Treaty. How would you define the third?
The Eurozone began life in 2000. It was badly designed and we realized that, or we should have realized that, in 2008 when Lehman Brothers collapsed. From 2009-2010 we have been in complete denial as official Europe has been doing precisely the wrong thing. This is a European phenomenon, it is an Europe-wide problem. Little Greece, 2% of Eurozone’s GDP, elected a government that raised issues crucial for all of Europe. After 6 months of struggles we had a major setback, we lost the battle. But we won the war of changing the debate. And this is a result!
The debate is the result?
Certainly! I cannot quantify this result for you. I cannot tell you how many billons it is worth. But some things are not measured in terms of prices but in terms of their value.
You had a plan B, with a parallel currency, but Tsipras didn’t want to press the button, to summarize the story.
He is the prime minister, it was his call. My job, as his financial minister, was to provide the best tools I could and it was his decision whether he chose to use them or not. That is what matters. There were good arguments to utilize these tools and there were arguments for not pressing the button.
When you closed the banks, did you think at that moment that you must press the button?
I clearly thought that we should have reacted in kind when the Eurogroup closed the Greek banks and I have stated this for the record. But this is what collective decision making is all about. It means you have an inner cabinet that decides. I tabled my recommendation but I was in a minority. I respected the decision of the majority and acted according to it, as a team player ought to. This is how democracy and governments work and I fully accept it.
But can this plan B still being implemented?
Let’s separate two things. There was a Plan B, which, in fact, we called Plan X, in contrast to the ECB’s 2012 Plan Z, as reported in the Financial Times some time ago. Plan X was a contingency plan for responding to aggressive acts by the ECB, the Eurogroup and so on. Then there was a quite separate design for a new payments system using the tax office’s interface. This system, as I explained in a recent article in the Financial Times, is something that should have been implemented anyway. I think Spain might benefit from implementing it to, or Italy for example. Countries lacking a central bank can potentially benefit from this efficient way of creating more liquidity, and more effectively dealing with multilateral extinguishment of arrears between the state and its citizens, but also among citizens.
So, let’s keep these two ‘plans’ separate. The payment system could, and should, be implemented tomorrow. Plan X is now, I think, part of history because it was intended as a response to aggressive acts that would have as their objective to make us surrender during the negotiations. Now that we have surrendered, it has become part of economic history.
Tsipras said in the parliament before the vote, after the referendum, that there was no alternative to the packages, but I think with this plan you are saying to the people that there is an alternative to the package.
My political thinking, from a very young age, was shaped by a principled, intellectual opposition to TINA – to the neoliberal logic that There Is No Alternative. This opposition shaped me from the time I lived in Britain under Margaret Thatcher who launched TINA. My political thinking was always directed at countering… TINA. I even concocted an alternative, saying that I believe not in TINA but in TATIANA: That Astonishingly There Is AN Alternative! So I would never accept the view that there was no alternative. I would accept that a prime minister, considering all the alternatives, opts for the least bad alternative. We can have a debate on whether his was the least bad, or optimal, alternative. But the proposition that there exists no alternative is constitutionally alien to every fibre of my body and mind.
Let me ask you about your rhetoric: mafia, criminals…
I never used the word Mafia
Terrorism, fiscal waterboarding…
Fiscal waterboarding: I am very proud of this term. It is a precise, an accurate description of what has been happening for years now. What is waterboarding? You take a subject, you push his head in the water until he suffocates but, at some point, before death comes you stop. You pull the head out just in time, before asphyxiation is complete, you allow the subject to take a few deep breaths, and then you push the head again in the water. You repeat until he… confesses. Fiscal waterboarding, on the other hand, is obviously not physical, it’s fiscal. But the idea is the same and it is exactly what happened to successive Greek governments since 2010. Instead of air, Greek governments nursing unsustainable debts were starved of liquidity. Facing payments to their creditors, or meeting its obligations, they were denied liquidity till the very last moment just before formal bankruptcy, until they ‘confessed’’; until they signed on agreements they knew to add new impetus on the real economy’s crisis. At that moment, the troika would provide enough liquidity, like they did now with the 7 billion the Greek government received in order to repay the… ECB and the IMF. Just like waterboarding, this liquidity, or ‘oxygen’, is calculated to be barely enough to keep the ‘subject’ going, without defaulting formally, but never more than that. And so the torture continues with the effect that the government remains completely under the troika’s control. This is how fiscal waterboarding functions and I cannot imagine a better and more accurate term to describe what has been going on.
On my use of the word ‘terror’, take the case of the referendum. On the 25th of June we were presented with a comprehensive proposal by the troika. We studied it with an open mind and concluded that it was a non-viable proposal. If we signed it, we would have definitely failed within 4-5 months and then Dr. Schäuble would say “See, you accepted conditions you could not fulfill”. The Greek government cannot afford to do this anymore. We need to reclaim our credibility by only signing agreements we can fulfill. So I said to my colleagues in the Eurogroup, on the 27th, that our team convened and decided that we could not accept this proposal, because it wouldn’t work. But at the same time, we are Europeanists and we don’t have a mandate, nor the will or interest, to clash with Europe. So we decided to put their proposal to the Greek people to decide.
And what did the Eurogroup do? It refused us an extension of a few weeks in order to hold this referendum in peace and instead they closed down our banks. Closing down the banks of a monetized economy is the worst form of monetary terrorism. It instills fear in people. Imagine if in Spain tomorrow morning the banks didn’t open because of a Eurogroup decision with which to force your government to agree to something untenable. Spaniards would be caught up in a vortex of monetary terror. What is terrorism? Terrorism is to pursue a political agenda through the spread of generalized fear. That is what they did. Meanwhile the Greek systemic media were terrorizing people to think that, if they voted No in the referendum, Armageddon would come. This was also a fear-based campaign. And this is what I said. Maybe people in Brussels don’t like it to hear the truth. If they refrained from trying to scare the Greek, then I would have refrained from using this term.
My point is the rhetoric calling criminals to IMF, as Tsipras did, is not good for the results of the negotiation. And with this rhetoric it is difficult.
He didn’t call the IMF criminal. Let’s be precise. He talked about a criminally negligent program that imposed upon Greeks a monumental crisis, including a humanitarian emergency. Which is exactly what the Greek ‘programs’ fo 2010 and 2012 were. But let me add an important point here: We did not turn up the ‘sharpness’ of our rhetoric (e.g. Tsipras’ remark) until late June. From 25th of January until late June we had been negotiating in good faith while the troika was not. We had been exceptionally mild and polite, in the face of incredible hostility and denigration. We went into each Eurogroup meeting with good proposals, suggesting to them that we should all agree on two or three major reforms immediately (e.g. tax evasion and corruption, a new tax authority independent of politics but also of the oligarchy). They rejected our overtures and they threatened us with cessation of the negotiations if we dared make our proposals public, while they were leaking at the same time to the Financial Times that we had no proposals. They insisted on a denigrating, endless round of ‘technical’ discussions while asphyxiating our economy. They behaved abominably while we continued to respond with solid arguments and in a highly civilized fashion.
And we sat there and took it, month after month. We never stopped compromising. By late June, our Prime Minister had met them 9/10ths of the way. And what did they do? They backtracked even from their own positions, insisting on 25th June, for example, that VAT on hotels should rise to 23%! This was an act of aggression. At that point we decided, very reasonably, to tell the truth, to talk about their program’s criminal negligence, to allude to their fiscal waterboarding. At some point the truth needs to be told. Europeans are losing trust in the EU because of their wall of lies and propaganda which presents itself in the form of nuanced terminology, when in reality what is happening is a complete violation of the basic rules of logic, of the EU Treaties, of polite behaviour and of democracy.
But then why did Tsipras accept it?
You should interview him if you wish to put questions to him. It is not right that I should answer on anyone else’s behalf, especially my Prime Minister.
In the Eurogroup, some ministers portrayed you like difficult to predict, luxurious way of life, many photos… What do you think when you hear this type of portrait?
It is not true. Nobody said anything like that in the Eurogroup. They may very well have said such things outside the Eurogroup, I would neither know nor care. Everybody, in the end, gets judged by the quality of their public narratives. I will leave you and your readers to pass judgment on their demeanour. We all need to be judged by our voters, by the people of Europe. In my case, I have a clear conscience. After the third Eurogroup I posted on my website my interventions in all three meetings. Read them and tell me if I was unpredictable, impolite, whatever. In my estimation, my interventions were clear, economically beyond reproach, and constructive. Readers can read them and judge.
Do people understand your pictures on Paris Match for example? Do you think that people that have voted Syriza, which is a left party, understand this type of pictures?
Well, you want to walk around with me on the streets of Athens and see what people say to me about all this? Our people are not bothered by any of this, even though I said it clearly that the Paris Match aesthetic was terrible and I regret accepting to do the photoshoot. You may not believe me but, when I accepted, I didn’t know what Paris Match was – it is not the kind of press I ever knew much about. I asked to see the article’s text before agreeing to do the photoshoot. The text was fine and so I made the mistake to agree to the photoshoot. I rushed home for it and only had 15 minutes to spare. Danae, my wife, told me it felt like a bad idea but I was already committed and so I decided to do it quickly, rushing from one ‘set’ to the next before leaving for a meeting with the Prime Minister. It was my mistake to have accepted it and I have apologized for it. But all this talk about Paris Match and its photoshoot had one purpose: to ensure that my message, especially the rational criticisms of Europe’s ways, gets drowned in ugly pictures and toxic noise.
What are you going to do about your political career?
Politics should not be a career. I am a member of the Parliament and extremely honored by the trust vested in me by voters. My commitment to them when I entered politics last January was that I will stand my ground and fight along their side for democracy and prosperity in Greece but also throughout Eyrope. I’m here for the course, I´m not going anywhere.
You are an academic, a professor and author of really good books like the Minotaur. Did you like the politics, what you saw in Brussels?
I certainly didn’t like what I saw in Brussels and I don’t think any European would like it if they had the chance to see it for themselves. But this is what we have, that is the EU we have, and we have to fix it. The worst enemy of democracy is citizens who say this is a terrible system but I’m not prepared to do anything to change it.
Why don’t you have allies in the Eurogroup? I mean, nor France, nor Italy, Spain, Ireland… Countries that at the beginning, with Syriza, had positive thinkings and at the end there were 18 against 1.
What you have to understand is that this 18-1 balance in the Eurogroup is an illusion. The 18 are divided very significantly in three groups. The very tiny, tiny minority who believe in austerity. The largest group of countries don’t believe in austerity but imposed austerity on their own people. And then there is another group of countries that neither believe in austerity nor practise it – e.g. France. But they fear that if they support us openly then austerity and the troika will come their way.
What is your relationship with Schäuble, de Guindos and maybe Dijsselbloem?
No relationship could have existed with Dijsselbloem. This is not just because he is so intellectually lightweight but, primarily, because he is untrustworthy. For example, he chose to lie to me in my first Eurogroup about procedure. It is one thing to disagree with the Eurogroup President. It is quite another thing to have him lie to you about gravely important procedures. On the other hand, Schäuble and de Guindos are two colleagues that I very much enjoy talking to, at a personal level. Our conversations were often tough but they were also interesting exchanges. As an academic, there is nothing more interesting than interesting exchanges. Our disagreements were serious but, at personal level, there was mutual respect and a useful exchange of ideas was had. The problem is that when you put all these people together in the Eurogroup, because of the catastrophically bad institutional design of the Eurogroup, you end up with governance failure that damages Europe. So, in a different context, institutional framework, I am sure that with colleagues like de Guindos and Schäuble our working relationship would have ended up producing tastier fruits.
Coming back to the question about Spain. What are the lessons of Greece for Spain? The Spanish government has said that if people vote for Podemos, problems will come and Spain will become Greece after a few months.
I think that the people of Spain need to look at the economic and social situation in Spain and base the judgment on what their society needs, independently of what is happening in Greece, France… The danger of becoming Greece is always there and will materialize if you keep repeating the same mistakes that were imposed on Greece. Punishing one proud nation in order to put fear in another is not what Europe should be about. It is not the Europe we signed up for, not the Europe that González had signed for or Papandreou, or Giscard d’Estaing, or Helmut Schmidt etc. We need to recover the sense of being Europeans and finding ways of recreating the dream of shared prosperity with democracy. The idea that fear and loathing are going to be the creators of the new Europe is an idea that is going to lead us headlong to a postmodern 1930s. I believe that the people of Spain and of Greece know exactly what the 1930s did to them.
You said once that the legacy of Thatcher was financialization, malls and Tony Blair. And I ask you, what is the legacy of Merkel, of her leadership?
Europe is in the process of turning from a realm of shared prosperity, which is how we imagined it, into an iron cage for our peoples. I hope that Mrs Merkel decides that this is not a legacy she wants to leave behind.
