The Default Line: THE INSIDE STORY OF PEOPLE, BANKS AND ENTIRE NATIONS ON THE EDGE (5 page)

At one of the series of ‘summits to save the euro’ in autumn 2011, amidst forced smiles and fake bonhomie, the prime ministers of the Eurozone nations signed up to yet another interminable communiqué. Buried in paragraph 13 of this intergovernmental understanding there was something quite unprecedented, something quite extraordinary, relating to a massive solar energy project: ‘Greece commits future cash flows from project Helios or other privatisation revenue in excess of those already included in the adjustment programme to further reduce indebtedness of the Hellenic Republic by up to 15 billion euros with the aim of restoring the lending capacity of the EFSF.’

The sun’s healing rays were now being focused on Europe’s highly problematic experiment with economic union, in which there was a shared currency and a shared monetary policy, but no shared approach to tax, or spending, or borrowing. In the place of a convincing system of European fiscal transfers to compensate for the inability of troubled economies to devalue currency, adjust interest rates or print money, was this deal: a promise to transfer solar radiation.

Project Helios was certainly ambitious. The plan was to carpet 200 square kilometres of Greek land with solar panels, starting in Crete. It had been announced by the Greek energy minister in Hamburg in September 2011. The cost was up to €20 billion, with €3.5 billion probably paid for by German investors. The electricity generated was then to be transmitted through a new €10 billion line to Germany, providing 2 gigawatts of green solar energy by 2020 and 10 gigawatts by 2050. It sounded like a win-win for everyone. As the boss of the private solar park at Athens airport told me, ‘Greece can be the Saudi of solar.’ At the time, Greece’s annual solar output of 0.2 gigawatts was tiny for a country with 300 sunny days a year and which received 50 per cent more solar radiation than Germany, the world’s leader in solar power production. There were also advantages for Germany: the provision of Greek solar power would help to dilute its reliance on Russian gas.

But what paragraph 13 seemed to suggest was that the first chunk of the optimistic estimate of €80 billion of expected revenues would flow directly to Greece’s European creditors. Greece was being forced to mortgage its sunshine to pay for the bailout.

The twist emerged later in Athens. George Papandreou told friends that he consented to the deal at the European Council under pressure from northern European countries to come up with some security for the expanded bailout. Mark Rutte, the Dutch prime minister, was one of the loudest voices calling for some kind of guarantee from Greece. At this point, German chancellor Angela Merkel dodged laying down the law directly to Greece. It worked better for all concerned if smaller members of the triple A creditor bloc got their hands dirty rather than Berlin. The putative solar swap was a striking symbol of how Greece was no longer master of its own destiny.

Sunshine was not the only asset owned by the Greek government. At the old Athens airport, on the Athens Riviera, the case for the Dutch and German position could be viewed up close. It had remained closed for a decade and largely abandoned since the 2004 Olympic Games. Intact aircraft remain at the side of the runway, used for training emergency services. Part of the old airport hosted a major cluster of Olympic venues. Again, most lie unused, totems of the excess spending during the good times required to host the Games. The original plan had been to create a massive park for Athenians. But hard times meant hard choices, and a more commercial redevelopment plan emerged for a plot of land twice the size of Monaco, with its own marina. There was no shortage of takers to spend billions of euros to develop what would have been the largest redevelopment in Europe, but the Troika representatives faced a reluctance to sell.

‘They told us that they had reserved it to build an aquarium. It’s a kind of craziness that reflected the real issue: ideologically they were very much against our organisations,’ said one Troika official.

Greece though, was a ‘complete outlier’ with the biggest portfolio of assets to privatise of all the programme countries. Hotels, thermal springs, motorways, airports and lots of land. Land laws dating back to the Ottoman era meant that the Greek state inherited huge expanses of orphaned land and buildings. Not the Acropolis, or the islands, or the national parks, but land. No one knew exactly how much land, because the Greek state did not have a proper functioning land registry. At the IMF they thought the land holdings were worth up to 80 per cent of GDP. A seriously focused sale could have ‘dramatically’ reduced Greece’s national debt within two years, with some quick wins within months.

A figure of €50 billion of land sales and privatisations was agreed with the Troika. By the end of 2012, however, almost nothing had been sold. Understandably, Greek politicians did not want to hold a fire sale at the bottom of the market. Equally, it was a vivid illustration that the Greeks were stalling. For their Troika overlords, it was part of a concerning pattern of behaviour. ‘The Greeks are very good at playing brinkmanship, you know,’ one former IMF Troika representative told me. ‘They say, “This is your problem not ours. You’ve got to give us the money anyway.” For both programmes they got the money at times when they should not.’

This early type of drachmail threatened Europe-wide contagion in November 2011. Papandreou returned to Athens from a Brussels EU summit with a write-off of a third of Greece’s debts, in return for more reforms, cuts and taxes. But he felt that the incessant strikes and the strong domestic opposition to the plans were wrecking the Greek economy and making the country politically ungovernable. He called a referendum on the October deal to give some public legitimacy to the controversial austerity plans. Greece, the cradle of democracy, was to exercise people power (
demos kratos
in Greek). But Papandreou had not consulted his own finance minister, Evangelos Venizelos, nor anyone else in his cabinet. Nor had he consulted fellow EU leaders. Venizelos fell ill with appendicitis, and was obliged to telephone the German finance minister from hospital. (There appears to be something of a pattern of Eurozone finance ministers developing illnesses during periods of acute euro stress.) Papandreou’s gamble failed dismally. Elected in a landslide just two years previously, in the space of a week Papandreou was to be unceremoniously ejected from office.

In Berlin, officials reflected on Germany’s response to these events. ‘At the EU Council in October we had the basic decision on PSI, to relieve Greece of €100 billion, very nice. And then Papandreou says that he doesn’t know if Greece can accept this, and he’s going to have to vote on it. We asked “What happened? Why didn’t he say this at the time?”’ The Germans believed that any referendum should be on whether Greece would fulfil the requirements of being in monetary union – not on the acceptability or otherwise of a specific bailout programme.

So Chancellor Merkel and President Sarkozy summoned Papandreou and Venizelos to a dinner on the sidelines of the Cannes G20 Summit (Greece is not in the G20) on Wednesday, 2 November. It was, to say the least, an awkward occasion. There was no small talk; Merkel simply dictated terms. She told Papandreou that the referendum would be held quickly, the following month, and that the referendum was to be about Greece’s membership of the euro, not the bailout programme. An €8 billion tranche of EU funds to Greece would be postponed until after the referendum. She then announced all this publicly. President Sarkozy was overheard telling President Obama that Papandreou was a ‘madman’. But there was, he said, no point ‘beating him up’ about it. ‘He’s already on the floor,’ Sarkozy said. ‘Knockout.’

Incredibly the final blow was applied on the plane back from Cannes to Athens by Papandreou’s own finance minister, Venizelos. Upon touchdown at Athens at 4.45 a.m. on Thursday, Venizelos released a statement on his finance ministry’s website. Greece’s membership of the euro, he said, ‘cannot depend on a referendum’. It seemed that he was mounting some kind of bloodless coup. I waited for him outside his ministry. The Greek journalists there did not dare ask him even a single question, confirming my suspicion that as far as the euro is concerned, politicians can get away with limited media accountability. When I suggested that we might soon see the return of the drachma, he gave a nervous smile.

It was democracy – of a sort – in action. A few days before, too much democracy, in the form of the promised referendum, had nearly brought about the collapse of the Greek government and broken the euro. Now there was a remarkable about-turn in the Greek parliament. After abandoning the idea of the referendum, Papandreou hung on to power, surviving a no-confidence motion in parliament by a mere eight votes. ‘The last thing I care about is my position,’ Papandreou said during the debate. ‘I have said it before and I will say it again. I say it to Greece, I say it abroad: I don’t care if I am ever elected again.’ As Greece’s highly unpopular parliamentarians left the parliament building after the midnight vote in their nice new BMWs, guarded by police, they contemplated a new coalition government of national unity, including a far-right party. I asked Kostas Kartalis, an MP in Papandreou’s PASOK party, if this was democracy in action. ‘The decisions taken today are democratic decisions… elections are a different story,’ he said. ‘Elections will develop political instability in the country at the moment. Because what is needed is to implement agreements with the EU, and we don’t have too much time to do it. The parliament is democracy.’

In Italy, at the same moment, leading politicians were piling on the pressure for Prime Minister Berlusconi to resign to prevent a market meltdown on the Monday. At the end of a week of shocks, U-turns, coup fears, rebellions and generalised political bedlam, this is what passed for stability in Athens and Rome, the ancient heart of the Eurozone.

A few days later, Venizelos’ efforts succeeded in getting the ruling PASOK party to force Papandreou out of office within days. But he did not win the leadership. In the end, on 11 November, a Greek technocrat named Lucas Papademos, who just a year before had been the vice president of the European Central Bank, was appointed unelected prime minister in an emergency government. A brief gamble with
demos kratos
, in its cradle, ended within days in the establishment of
technos kratos.

It was not just Greece: Italy saw the defenestration of Silvio Berlusconi and his replacement with the eurocrat Mario Monti. Greece’s PSI negotiations continued. These unelected politicians gave some – though not total – confidence to the creditor nations of northern Europe. The German finance minister floated the idea of a new panel of economists with the power to intervene in the profligate borrowing plans of member states. He also advocated that the EU economic commissioner, Olli Rehn, should be able to implement EU regulations over the objections of other commissioners, even over the objections of the EU president himself.

At a highly charged Brussels summit in February 2012 I spoke to the then Dutch finance minister, Jan Kees de Jager, who suggested something similar. ‘Each side has to assess whether Greece has done enough,’ he told me. ‘It was not so last week. It was also not so the week before.’ He felt that, given the number of ‘derailments’ that had already occurred in Greece, it was probably necessary to have ‘some kind of permanent presence of the Troika in Athens’, rather than a visit every three months. Another journalist, from Spain, asked if Mr de Jager wanted the permanent representatives of the Troika in Athens to be able to veto Greek budgets. His reply gives a crucial insight into what some in the Eurozone elite want of Greece and other programme nations. ‘Of course a country remains to some extent always sovereign,’ he said. But it is very important, he continued, that when you loan money, ‘you are the boss of loaning money,’ in other words, it must be the lenders who decide whether or not they will disburse the next tranche. ‘That’s why I’m in favour of a more permanent mechanism of the Troika,’ he declared, adding that he was also in favour of an escrow account, enabling the lenders to decide how the money should be spent, for example prioritising repayments and interest payments on Greece’s debt over other government spending. ‘So yes,’ he concluded, ‘I’m in favour of more control, more supervision, a more permanent presence of the Troika, as well as a kind of escrow mechanism, in order to establish more control in Athens of the money itself. Because the money is the thing probably we can control [in] Greece best.’ Belgium’s finance minister, Steven Vanackere, echoed the point when he told me: ‘The whole question of monitoring is a crucial factor in maintaining confidence of euro colleagues.’ So, despite the appointment of a technocratic government in Athens, the rich north of the Eurozone still did not trust Greek democracy to carry through the bailout deal.

All of this was to reach a crashing crescendo with the twin elections in May and June 2012. The parties that had enforced the recent Troika reform programmes were obliterated in May. The winners were New Democracy, a centre-right party in office just before the crisis, and partly responsible for it. But ND and PASOK combined, the duopoly of Greek politics that typically accounted for 80 per cent of Greek votes, slumped to below a third of total votes cast. In PASOK’s place Syriza, a radical left party headed by the 38-year-old Alexis Tsipras stormed into second place. And the crypto-Nazis of Golden Dawn would also enter parliament, in military formation. None of these parties would cooperate with each other. ND did not have enough to form a government. Always beware of countries where the leading political party polls a lower percentage vote share (18.8 per cent) than the standard rate of VAT (23 per cent).

The election was interpreted as an expression of anger. Greece’s patience had snapped. After four years of recession, the Greek public had defiantly rejected the ‘internal devaluation’ strategy. They did not reject the euro as such. But they did reject the rules that go with being a member of the club. The uncertainty of another election would be required to clarify Greece’s fate.