In early 2010 I disenchanted several members of the Greek government with whom I had previously enjoyed cordial relations. The reason was that I opposed their determination to seek a large loan from German taxpayers.
While there is nothing wrong with borrowing per se, it is unacceptable to seek loans for the purpose of hiding the fact that one has become insolvent. New debt is fine even for the insolvent, but only after reforms are enacted and the existing debt is restructured.
In May 2010 the then government considered me ‘treacherous’ for opposing the first ‘bailout’ on the grounds that it sought to disguise the Greek state’s insolvency as a problem of illiquidity. But my analysis was straightforward: For years, a kind of vendor-financed spending-spree converted Northern European loans into Greek owned BMWs in the context of a generalised consumer-led Ponzi growth. But when Lehman Brothers caved in, capital flows ceased, our economy slipped into recession, and the mountains of debt were no longer serviceable.
In 2010 Greece owed not one euro to German taxpayers! We should have kept it that way. Irresponsible Greek borrowers and irresponsible German lenders should have taken the hit. Not the poorer Greek and the unsuspecting German taxpayers that had never been part of that racket. Instead, our governments, in the name of European… ‘solidarity’ enabled the transfer of private losses from the books of private banks onto the shoulders of Greek and German taxpayers.
Naturally, these loans, the largest in history, were conditional on fiscal adjustment. Under the troika’s watchful eye, the state’s structural deficit turned into a surplus by a whopping 20% of national income, wages contracted by 37%, pensions by up to 48%, state employment by 30%, consumer spending by 33%, even the current account deficit fell by 16%.
Five years later I inherited the finance ministry following the election of our SYRIZA government. Why were we elected? Because, in the meantime, as a result of the aforementioned ‘adjustment’, economic activity was choked, total income fell by 27%, unemployment skyrocketed to 27%, undeclared labour scaled 34%, investment and credit evaporated, and young Greeks left for other countries, many of them to Germany, exporting precious human capital invested in them by the Greek state. Meanwhile public debt had risen to 312 billion euros (despite a large 2012 haircut) as national income was collapsing from more than 250 billion to less than 179 billion euros.
In my first visit as finance minister to Berlin, I remember encountering a German official on my way to meet Dr Schäuble. He, half-jokingly, asked me: “When am I getting my money back?” I was tempted to remind him that five years of terrible policies had crushed the incomes from which ‘his’ money could be readily repaid. Or that 90% of the loans to the Greek state went to the banks, much of it to German ones. Only I bit my tongue. After all, in 2010 I had opposed the bailouts because of the conviction that they would poison relations between our peoples. Adding to the cycle of mutual retributions would not help the cause of lessening the discord.
Last September, well before I decided to run for office, I wrote another article in response to SYRIZA’s electoral platform. It was entitled ‘Tears and Blood’ and displeased many of my comrades. In it I argued that, while we were right to promise a new course that breaks the self-reinforcing cycle of austerity-driven debt-deflation, it would not be an easy path. Our European partners and the institutions would not find it easy to recognise that their five-year program for Greece had failed. ‘Tears’ and ‘blood’, I wrote, were the only electoral promises consistent with the gigantic task of severing the vicious cycle; of refusing new loan tranches until we have a viable agreement.
The day I moved into the Ministry of Finance I pledged not to indulge my predecessors’ penchant for accepting non-viable loans from European taxpayers as a short-term ‘remedy’ of our problems. Today official ‘Europe’ is pushing us to “sign the agreement”; to “do the right thing and take the institutions’ final offer to avoid bankruptcy”. This is 2010 all over again! I am being asked to do as my predecessors had done then – to take the money, extend the crisis into the future, and pretend that it was being … solved. No thanks! It is not what we were elected to do.
Last Thursday, in the Eurogroup meeting, I presented a comprehensive proposal that would end the crisis and enable Greece to repay its debts. It comprised deep reforms, an automated deficit brake that guarantees no more primary deficits, and an idea for an intra-troika debt swap that involves not a single euro of new funding for our state. It would, we believe, break the vicious cycle that began in 2010.
Alas, the Eurogroup refused to discuss our proposal, the result being that it now all hinges on Monday’s extraordinary EU Summit meeting. Our side will arrive in Brussels with the determination to compromise further as long as we are not asked to do what previous governments did: to accept new loan tranches under conditions that offer little hope that Greece can repay its debts.
And so it is that, on Monday, the German Chancellor will face a stark choice: Enter into an honourable agreement with a government that opposed the ‘bailouts’ and which seeks a negotiated solution that ends the Greek crisis once and for all. Or to heed the sirens from within the Federal Government encouraging her to jettison the only Greek government that is principled and which can carry the Greek people along the path of genuine reform. The choice, I am very much afraid, is hers.