Former Greek finance minister Yanis Varoufakis outlined his
preparations for a parallel payment system and a possible exit from the euro and
made other observations, especially about German finance minister Wolfgang Schäuble,
in a conference call on July 16. It was hosted by the London-based Official Monetary and Financial Institutions Forum
(“OMFIF”), which appears to have institutional and individual memberships from
both the public and private sector from various countries. This includes both
public and private fund managers. Though this has not been mentioned in any
press accounts, I think it is fair to assume that Varoufakis was paid, and
probably paid well, to participate. (Varoufakis is not setting any precedents
here. Ben Bernanke for example has appeared before investor groups for pay, now
that he no longer works for the U.S. government.) In any case, Varoufakis
delivered for his hosts. I am not sure that what he had to say would have led
to any good trades, but it was uncommonly interesting.
The July 16 OMFIF conference call was held under the “Chatham House Rule,”
which allows for the information to be used but prohibits identifying the
source or the other participants present. At the end of the call, one of the
hosts, OMFIF managing director David Marsh, aware of the “slightly sensitive”
information Varoufakis conveyed, admonished the participants in the call with a
somewhat stronger version of this rule:
“…I do have
to say also that you did say one or two things which were slightly sensitive
regarding various episodes when you were a minister, so I would just like to
say to everybody that none of this information that you have been hearing here
should be used to make any trades of any sort in any way. But also please do
not pass those on to other people, this is a private conversation under the
famous Chatham House rule. And the idea is that you hear first-hand from Yanis
Varoufakis, and also Lord Lamont, about their experiences –but this is not a
public broadcast, this is not the BBC.” (Transcript of the call here; audio here.)
Mr. Marsh also reported that there were “84 people on the
line from all over the world.” I suspect there were more than that, since
multiple people could be listening to the call on a single speakerphone. Given
that, it is surprising that it took 10 days for the information about
Varoufakis’ preparations to set up a parallel banking system in Greece in the
event the banks to leak. It
was first reported on July 26 in the conservative Greek newspaper Kathimerini, which has been critical
of the current Greek government. It seems likely that the leak was meant to
embarrass Mr. Varoufakis and the current government. Indeed, some
claim that Mr. Varoufakis has committed treason or other crimes. (I know
nothing about Greek law, but I suspect that these allegations will not go
anywhere.)
Since this story broke, Varoufakis and his two questioners
Norman Lamont and Marsh agreed that the
recording of the call be made available online. Subsequently, a
transcript has also been released at the OMFIF website.
Why Varoufakis decided to make the secret preparations for
an alternate payment system, including the hacking of the website for tax
payments which he says was controlled by the troika, is not entirely clear. He
had to have known, Chatham House Rule notwithstanding, that the information was
too explosive to stay secret, given the number of listeners.
After listening to the call, I suspect that Varoufakis has
bristled at the charge that the Greek government failed badly in its
negotiations with the other Eurozone countries because they had no plan, and no
credible way to threaten, pulling out of the euro. He implies that Prime
Minister Tsipras did not have the courage to escalate the fight with the
Eurozone countries by implementing the plan when the European Central Bank (“ECB”)
forced the closure of the Greek banks. Varoufakis is prompted to tell this
story after Marsh asks:
“You
obviously didn’t have a Plan B and did rather weaken your negotiating argument,
because the others were absolutely scared of you leaving and yet you said
‘Don’t worry we’re not going to leave.’ I think though just in the last couple
of weeks you yourself did start to think about a Plan B, and I think you even
gave some inkling about it in your interview with the New Statesman where there was a vote in the inner-cabinet in Athens
after the referendum and you were in favour of trying to prosecute a Plan B and
you were out-voted. Do you think there was still a chance, if everything goes
badly, that there may well be a Plan B and that the Grexit - which nobody wants
in Greece, I understand that - may come about even though it is something for
which you are unprepared?”
Whatever the reasons Varoufakis made this public, the story
he tells shows how dangerous the brinksmanship played by both sides were to
European unity. What Varoufakis had in mind, using the Greek tax website as an
alternative payment site, would not have been as provocative as another scheme
to take over the Bank of Greece and use the euro notes in its vaults. This
has been reported to have been an idea of former energy minister Panagiotis
Lafazanis and Varoufakis. If Greece had
done that, the fury of the ECB would have come down on Greece, and the notes
would have been declared counterfeit. Varoufakis does not mention this in the
call, and it is not clear whether he really supported this. In any case, the
press has dropped this story.
However, setting up an alternative payment system which
could be switched to a new currency would have been provocative enough. Whether
it would have worked at all is not clear, but it could only have bought Greece
a bit of time and all hell would have been let loose in Europe. If there is a
decision for Greece to leave the euro, the mechanisms to do this should be
negotiated with substantial input from technical experts. It is a complicated
undertaking to accomplish smoothly, and disputes over who owes what to whom are
inevitable.
Also, in the conference call, Varoufakis indicates that
Greece may have been set up. While the Greek parliament is passing legislation
required by the preliminary agreement as preconditions to negotiating a final
loan agreement, the IMF may very well decide that it cannot participate because
the level of Greek debt is unsustainable. That could cause the whole agreement
to fall apart, which may lead to a Greek exit from the euro, which is what Schäuble
wants, though it is not the preferred outcome for Chancellor Angela Merkel.
According to Varoufakis, Schäuble wants to use Greece to terrorize
France:
“[Schäuble]
believes that the Eurozone is not sustainable as it is. He believes that 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 the properly elected federal parliament can render can bestow
upon an executive, it will have to be done in a very disciplinarian way. And he
said explicitly to me that the Grexit, a Greek exit, is going to equip him with
sufficient bargaining power, with sufficient terrorising power, in order to
impose upon the French that which Paris is resisting. And what is that? It is a
degree of transfer of budget-making powers from Paris to Brussels.”
Schäuble is wrong both about economics and politics.
Austerity has clearly not worked, and having Germany dictate to other EU
countries how they should manage their affairs will also not work. In a
perceptive column in The New York
Times, Shahin Vallée writes that a
euro leading to Germany being able to dictate will not be acceptable for other
major European countries:
“…The choice will soon be whether Germany can build the
euro it wants with France or whether the common currency falls apart.
“Germany could undoubtedly build a very successful
monetary union with the Baltic countries, the Netherlands and a few other
nations, but it must understand that it will never build an economically
successful and politically stable monetary union with France and the rest of
Europe on these terms.
“Over the long run, France, Italy and Spain, to name just
a few, would not take part in such a union, not because they can’t, but because
they wouldn’t want to. The collective G.D.P. and population of these countries
is twice that of Germany; eventually, a confrontation is inevitable.”
While the France of François Hollande is not the France of
Charles de Gaulle, France is still a proud country and will not stand for
Germany dictating its fiscal affairs. France may be able to be “terrorized”
(probably too strong a word) in the short-term, but that will not last long.
The basic problem is that a monetary union implies a fiscal
union, and for that to work in Europe, it must have legitimacy and be subject
to democratic control. There is no clear path for that to happen. Jean Monnet’s
European dream is in danger of turning into a nightmare.
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