Today, on the anniversary of the stupendous NO with which 62% of Greek voters responded to a third predatory loan ultimatum from Greece’s ‘official’ lenders (the troika: IMF, ECB, EU), Greece’s oligarchic press – in cahoots with the troika itself – is hard at work in its attempt to demonise the people of Greece for having dared to say NO to yet another lost generation. The memory of our collective defiance still prevents the oligarchy from sleeping tightly at night, it seems. In the process of demonising the NO, they are paying me, personally, a huge compliment. This is why/how:
Kathimerini, the official organ of Greece’s oligarchy and the local representative of the troika’s collective will, has (just as they did a year ago, on the first OXI/NO anniversary) chosen to portray the Greeks’ NO as reckless folly. To build up their argument, they begin with a correct hypothesis: The only viable alternative to surrendering to the troika (i.e. to ignore the NO vote and turn it into a YES, which is what Alexis Tsipras did on the night of that famous referendum), was to implement the parallel payments system that I had been devising since at least February 2014 (see this).
So, to ‘demonstrate’ that the NO was foolish and dangerous, Kathimerini is trying its hardest to portray my parallel payments system as amateurish and sure to fail. In today’s edition, they seize up0n a presentation by my close aide, Glenn Kim, to continue along the lines of two distortions that they have invested a great deal of time and energy in:
Distortion 1: My parallel payment system was clandestine and only exposed by their investigative reporting – when, in reality, they only know of it because I told the world about it – in response to accusations I had entered into negotiations without a Plan B. (See this article in the Financial Times, less than a month after I resigned the Ministry of Finance.)
Distortion 2: That I was designing a parallel currency – when, in reality, I had rejected a parallel currency from the outset, opting instead for a parallel payment system. (Nb. journalists incapable of distinguishing between a payments system and a currency should perhaps disqualify themselves from this debate!)
In short
Kathimerini have a point: Either the parallel payments system I was designing, along with Glenn Kim and other members of my team, represented a good alternative to a 3rd predatory debt-deflationary ‘bailout’ loan, or it was dangerous folly. I was convinced, and still believe strongly, – as do other analysts (e.g. Wolfgang Munchau in the Financial Times) – that the activation of my payments system would be the by far preferable option from the perspective of a crushing majority of Greeks and of the country’s long-term interests.
In a functioning liberal democracy, it would be interesting to conduct this debate calmly, logically but passionately. Alas, in a debtor’s colony, that is today’s Greece, ruled over by unscrupulous lenders and unfathomable oligarchs, given voice by newspapers like Kathimerini, it is impossible to have this conversation with the powers-that-be. For they are only interested in demonising anything and anyone that stands in their way. That 62% NO vote, and the parallel payments system that could support it, sticks to their throats like thorns. And they react violently, via propaganda, alternative-news, truth reversal and monumental distortion. All we can do, as sensible democrats, is remain calm and stick to the issues.
To this purpose, I copy below two extracts from Chapter 4 of my recent book, Adults in the Room, pertaining to the parallel payments system that I was about to implement in 2015 in support of our people’s NO. The first extract relates the manner in which I presented the concept of the parallel payments system to Syriza’s leadership one night in November 2014; the same meeting in which Alexis Tsipras offered me the Ministry of Finance. The second extract explains the great difference between a payment system and a currency (that Kathimerini’s journalists seem incapable of grasping), as well as the reason I opposed capital controls.
1st Extract from CHAPTER 4 – Subsection: A parallel payments system
The scheme I outlined, alluded to in June 2012 … was based on theoretical work I had done previously on how fiscally stressed eurozone governments could gain some room for manoeuvre through a novel utilization of their tax office websites. The gist of it was simple.
Suppose that the state owes Company A €1 million but is delaying payment due to the state’s liquidity squeeze. Suppose also that Company A owes €30,000 to Jill, one of its employees, plus another €500,000 to Company B, which supplied it with raw materials. Meanwhile, Jill and Company B also owe, respectively, €10,000 and €200,000 in taxes to the state. Now imagine that the tax office creates a reserve account for each taxpayer (per tax file number, to be precise), including for Companies A and B and Jill. The state can then just ‘deposit’ €1 million into Company A’s reserve account simply by typing it in and provide each taxpayer with a PIN to be used to transfer ‘funds’ from one taxpayer’s reserve account to another. Company A could then transfer €30,000 to Jill’s reserve account and €500,000 to Company B’s reserve account, which Jill and Company B could then use to repay the €10,000 and €200,000 they respectively owe the state in tax arrears. The immediate cancellation of many arrears would have been thus effected.
Such a system would be great to have in Portugal, in Italy, indeed in France even during the best of times, but it would be critical in Greece during the emergency of an ECB-enforced bank holiday, allowing all sorts of transactions to continue, not just those with the state. For example, pensions could be partly paid into a pensioner’s tax office reserve account, and the pensioner could then transfer a part of that sum to, say, her landlord, who would also have tax to pay. Even though these credits could not be withdrawn from the system as cash, the scheme would continue to work for as long as the state continued to accept the credits in lieu of tax. And it could work remarkably well if it were developed further in two ways.
Every Greek citizen already has an identity card. Imagine if this were reissued as a smart card featuring a microchip[WH1] similar to those in modern debit and credit cards. The ID cards of pensioners, public-sector workers, people on benefits, government suppliers – anyone who has financial dealings with the state – could be linked to their tax office reserve accounts and used to pay for goods and services at supermarkets, petrol stations and the like. In other words, even if the banks were to close down, even if the state was rendered illiquid, the government could still meet its obligations simply by assigning tax credits to people’s ID cards – as long as the total value credited did not run the government into a fiscal deficit, of course.
Second, the same system could be used to allow the government to borrow from Greek citizens, thus bypassing the commercial banks, the hostile and suspicious money markets and, of course, the troika. As well as receiving tax credits from the state, citizens could be given the option to buy credits from the tax office online, using web banking linked to their normal bank accounts. Why would they want to do this? Because the government would offer them a discount of, say, 10 per cent, if they later used those credits to pay their taxes, say, a year down the line. The state would in effect be borrowing from its citizens at an interest rate (10 per cent) that no European can get from any bank these days. As long as the total level of tax credits sold by the government was capped and fully transparent, the result would be a fiscally responsible increase in government liquidity, greater freedom from the troika and thus a shorter path to the ultimate goal of a viable new agreement with the EU and the IMF.
Seemingly impressed, Dragasakis asked me to produce a written blueprint for this scheme, while Alexis and Pappas appeared soothed by the thought of the precious time it would buy them after a rupture with the creditors. Within forty-eight hours of my return to Austin I had sent a ten-page technical blueprint to Pappas to pass on to Alexis and Dragasakis.
Let’s briefly fast-forward four months to March 2015 and to a cabinet meeting of the Syriza government with Alexis, as prime minister, in the chair. After an assessment of the confrontation with the troika that had begun with a vengeance on day one, just as anticipated, I outlined a bill my ministry had tabled in parliament to combat the humanitarian crisis: debit cards would be issued to three hundred thousand families living below the poverty line, with a credit of a few hundred euros per month to cover their basic needs.
‘But these cards are just the beginning,’ I said. ‘Soon they could replace ID cards and provide the basis of a payments system that functions in parallel with the banks.’
After I explained how the system would work, I outlined its many advantages: it would give the government more fiscal space, support the poor without subjecting them to the stigma of using coupons and, above all, signal to the troika that Greece had a payments system that would allow our economy to function even if they closed down our banks. Lastly, I pointed out that if the troika decided to push Greece out of the eurozone, as the German finance minister had been wanting to do for years,[1] this same payment system could be redenominated to a new currency at the press of a button.
When the cabinet meeting was adjourned, most of the ministers present approached me to express their enthusiasm, some patting me on the back, others embracing me, one telling me that she was moved and inspired.
Five months later, after my resignation, the press lambasted me for having entered into a tough negotiation without a back-up plan. For days I was mocked in the media not just by opposition politicians but also by many Syriza MPs for walking into the lion’s den without a strategy for what to do if the banks were shut down. I waited to see if Alexis or anyone else in the cabinet came forward to put the record straight. None did. So, during a teleconference conducted by David Marsh of the Official Monetary and Financial Institutions Forum in which I was replying to questions on what had gone wrong with the Greek government’s negotiations with the EU and the IMF I made known my plans for a parallel payments system.
The discussion was supposedly being held under the Chatham House Rule[YV2] , but this convention was ignored. Recordings of my entire presentation were soon made public. Immediately those same journalists and politicians who had been ridiculing me for not having a Plan B suddenly accused me of the direct opposite: varoufakis’s secret grexit plan was a typical headline, suggesting that I had gone behind Alexis’s back to engineer a devilish plot for getting Greece out of the euro. Calls to indict me on criminal charges began to mount. Indeed, while these lines are being written a charge of high treason is hanging over me in Greece’s parliament for undermining Prime Minister Tsipras by means of a ‘secret plot’.
It is a source of personal pride and joy to me that the troika’s cheerleaders within Greece use every opportunity they can to undermine me. I consider their attacks a badge of honour, conferred for having dared to say no to their demands in the Eurogroup. But to have former cabinet colleagues, those very same people who filed past me to praise my proposed payments system, either pretend they have never heard of it or join in with the denunciations fills me only with sadness.[WH3]
2nd Extract from CHAPTER 4 – Subsection: Rejecting the enemy’s weapons
Many of my economist friends – who suspected that I was about to land the worst job in the universe – wrote to me, emailed and phoned to lend support. Some suggested that on my first day in office I should introduce capital controls. That is, rather than wait for the ECB to close down our banks and ATMs on the grounds of halting the very bank run that they had begun, why not pre-empt them by slapping restrictions on how much cash depositors could withdraw from their accounts or wire abroad? The idea was that by slowing the bank run we could buy more time before the banks were closed in which to negotiate under calmer circumstances. There were three reasons for rejecting this counsel.
The first was that imposing capital controls would have been the obvious first step of a party that intended to return to the national currency in order to devalue it and thus gain competitiveness: in that case, introducing capital controls would be essential to prevent the outflow of money caused by the expected devaluation. In other words, introducing capital controls would have been the right move only if we were intending to leave the eurozone – to opt for Grexit – and would therefore have contradicted both my negotiating aims and my strategy for signalling credibly what these aims were. Moreover, even if we managed to convince Brussels of our sincere desire to remain within the euro, capital controls would signal a willingness to become second-rate citizens of the eurozone, as stragglers who had euros but who could not do as they pleased with them. My intention was to signal the precise opposite.
The second reason was that the time available for negotiations was fixed by our debt repayment schedule, so capital controls would not actually buy us any time. These repayments were due to begin in April 2015 and continue until August, which demanded a new agreement by June 2015 at the very latest. Even if I could have waved a magic wand to stop the bank run dead, the negotiations would still have to be completed within four to five months at the very most. Capital controls would not change this one iota.
The third reason was that capital controls are inconsistent with monetary union, whose spirit and reality they violate. The whole point of the eurozone or any common currency area is that money is free to move unimpeded. If I were to introduce capital controls on day one of our administration, how could I censure the ECB for threatening us with them? The moment I did so, all the accusations against me and the Syriza government – of being anti-European, of preparing Greece for Grexit, of undermining the indivisibility of the eurozone – would be vindicated. Moreover, our own people would be puzzled: why is a government pressing for a good agreement within a common currency area stopping us from getting our money out of our own bank accounts or sending it to other countries in the same monetary union? The blame game would have been lost before the negotiations even started.
Another suggestion for helping a Syriza government buy time during the negotiations came from, among others, Thomas Mayer, formerly chief economist at Deutsche Bank. His idea was to introduce a second currency parallel to the euro within Greece in order to create more liquidity and space for us to manoeuvre. It was an interesting idea but one I had actually considered and rejected back in 2010 as a solution to the euro crisis.[2] Its gist was that wage rises, aimed at reversing austerity, be awarded in a new currency backed by government debt. The new currency would of course devalue immediately in relation to the euro. Thus, while Greek workers’ pay packets and pensions would increase a little, Greek labour, as measured in euros, would devalue in relation to German, French or Portuguese labour, making Greece more competitive. [WH4]
I gave Thomas Mayer[YV5] two reasons why I could not endorse a parallel currency. First, ‘Parties and interests opposed to us are already creating an atmosphere of terror by claiming that we have a hidden agenda to bring Greece out of the euro, plunder people’s savings and put Greece on the road to a new Argentina. Your proposal’s propaganda value to our opponents would tend to infinity.’ Second, there was no need for it because the parallel payments system that I was working on provided us with the flexibility we required.
Months later it struck me that these two measures – capital controls and a parallel currency – would be wielded by Germany’s finance minister, Dr Wolfgang Schäuble, against me. Rejecting them as the enemy’s weapons had been vindicated, and yet, soon after the government’s surrender and my resignation I was accused of devising diabolical plans to introduce them both.
C’est la vie in Bailoutistan.
ENDNOTES
[1] A former PASOK finance minister reported in 2011 that Wolfgang Schäuble had expressed his preference for Greece to exit the euro and return to the drachma. My conversations with Dr Schäuble, described fully in following chapters, confirmed this.
[2] I met Thomas Mayer at the conference in Florence that I attended in November 2014, the day before flying to Athens for the pivotal meeting with Alexis, Pappas and Dragasakis. We had a long, interesting conversation about the eurozone and exchanged details. He called his parallel currency solution the G-euro. Other advocates of a parallel currency included Dimitri Papadimitriou, who led the Levy Institute at Bard College.