The Default Line: THE INSIDE STORY OF PEOPLE, BANKS AND ENTIRE NATIONS ON THE EDGE (6 page)

‘Achtung Frau Merkel. The Greek people want to live free and they don’t want to be again under a new occupation by Germany,’ Manolis Glezos told me in his house in Athens. He is one of modern Greece’s greatest heroes. As a teenager during the Nazi occupation of Athens in 1941, he climbed the Acropolis to rip down the swastika that flew over the Parthenon. ‘Frau Merkel’s attitude is the same as was Hitler’s during the occupation. The measures taken are not the same of course. But the attitude’s the same. Hitler wanted to put the Greek people to submission, to get them to their knees, to extinguish them by starvation and executions. Frau Merkel wants to subjugate the Greeks financially, wants to subjugate us politically, but just as we didn’t accept and overthrew all Hitler’s plans, in the same way we’ll overturn Frau Merkel’s plans.’

The German attitude is deeply resented by many in Greece, especially those with long memories. A pensioner at Piraeus port told me that Germany should repay the gold ‘they looted from us during the occupation’. Not all Greeks, however, are so angry at Berlin. Some Greeks I’ve spoken to believe that all these Troika measures are necessary, given what they see as the fiscal mismanagement in Athens. A bus driver in Piraeus described Greece’s political elite as the ‘300 traitors’, and told me that Merkel would be ‘Willkommen’ to sort out Greece’s problems. The real anger in Greece seemed more directed at its own domestic political establishment than at Frankfurt, Berlin or Brussels.

But the anti-bailout rhetoric has had an impact. Now 90 years old, Glezos is a member of the Greek parliament and sees himself in the vanguard of a Greek popular revolt. He is the patriarch of Syriza, led by Alexis Tsipras, whose fiery oratory shook Greek politics and the entire European Union. In coalition negotiations Mr Tsipras aggressively played his second-place mandate, refusing to yield to the demands of europolitik. He even wrote to the heads of the European Commission and the ECB to complain about the ‘barbaric’ austerity plan. Syriza is a coalition of left-wingers, students, ex-communists, ecologists and feminists. Its flag sports the red of the left, the green of environmentalism and the purple of feminism, together with a communistic-looking yellow star: ‘the yellow star of hope’. Its surge in support came largely from the young. By the time of the May election, it was already the number-one party in many cities and districts.

When I asked Mr Glezos if Greece was on the verge of a peaceful revolution, he replied, ‘Of course. It started already on 6 May [the date of the first election] and the river doesn’t run backwards. My country started saving itself when the Greek people chose a new way for themselves and the rest of the world.’ Syriza says it wants to keep Greece in the euro, but also says it cannot abide German sado-austerity. In other words, it is calling the Germans’ bluff. Either the Germans will have to relent on the cuts programme, or they risk losing a Eurozone member. Glezos reminded me that ‘Europe is a Greek word’.

Greece exiting the euro used to be unthinkable. By late spring 2012, however, the possibility was being openly discussed. It had even acquired its own portmanteau word, ‘Grexit’, a term now heard on the trading floors and in diplomatic meetings around the world. Threatening a Grexit was Syriza’s most powerful bargaining chip. A top official told me at Syriza HQ that Greece’s mainstream parties had been too scared to refer to this directly in negotiations, knowing the implications. Greece has the ability to infect the Italian and Spanish banking systems with contagion, in the same manner one might be mugged by a heroin addict with a syringe. Syriza’s optimistic scenario was that François Hollande, newly elected as French president on an anti-austerity ticket, would come riding to the rescue, accompanied by Merkel’s German opponents.

To threaten Grexit involved a heady game of brinkmanship with the EU, the European markets and the banking system, a degree of brinkmanship beyond any ever previously imagined. True drachmail. It risked what US Treasury secretary Timothy Geithner had referred to as ‘the threat of cascading default, bank runs, and catastrophic risk’. But Syriza did not have the same fear. Alexis Tsipras’s line was that he would do ‘as much as I can’ to keep Greece in the euro. He also used the analogy of ‘mutually assured destruction’ (MAD for short), the Cold War theory behind nuclear deterrence, and firmly believed there was no legal basis to throw Greece out. But he clearly implied that there was a price for euro membership that he believed was not worth paying.

Greece’s European partners started to make contingencies for what Grexit would mean for their tourists. Plans were made for flying in money to embassies to distribute to holiday islands, and even for the evacuation of tourists from the Greek islands. German tourists pulled their holiday bookings.

In London, the Eurozone Contingency Committee sat at the Treasury, featuring Mervyn King, Adair Turner and cabinet ministers William Hague and Vince Cable, chaired by Chancellor George Osborne. ‘Throughout 2011–12 we were very worried about the Eurozone precipitating a UK financial banking crisis again: we created an emergency committee on Eurozone contingency planning, which for a while was meeting every other week, even every week.’

Strikingly, German politicians and leading members of the ECB popped up in the days after the inconclusive May election to say that a Grexit would be ‘manageable’, as it would ‘do more harm to Greeks than the Eurozone’. But the more Greece’s hard-left parties were attacked from abroad – and by the discredited mainstream parties in Athens – the more popular they became. In other European capitals officials believed that Syriza’s analysis was correct. A Greek exit would lead to uncontrolled contagion, and leave Chancellor Merkel with little option but to move immediately towards sharing Eurozone debts with a eurobond (see
here
). Syriza were open about their plan to play chicken with Greece’s euro membership. If they had been miscalculating regarding Germany’s patience, Greece would have been de facto out of the euro rather quickly if Syriza had won the election re-run.

And what would exit have meant? All kinds of agony. First, Greece’s European bailout money would be cut. The government would be unable to pay pensions and salaries with euros, and would have to print an alternative currency or special IOUs pretty quickly. A government minister, Makis Voridis, pointed out that if the fiscal aid stopped, ‘It will almost be a necessity to go back to the drachma in order to be able to pay. So no one will force us out. But probably the Greek government,
if there is one
, will have to go back to the drachma… that is the danger.’ But many ordinary Greeks could scarcely believe that the pain could be any worse than being internally devalued. Haris Manolis from the steel factory says many more Greeks are willing to contemplate the return of their own currency: ‘Yes, the drachma, or whatever you want to call it. We survived 5,000 years with the drachma but in ten years in the euro we have problems, like we’re going to die.’ In contrast, his friend says that he wants to stay in the euro to protect stability. But when asked if he’d keep the euro even if there is no change to the EU austerity plan, he changes his mind.

Many in Greece were not prepared to wait for the dénouement of this drama, and began evacuating their euros before they could be converted into devalued drachmas. The Athens Airlifts of large bundles of euros restarted. All the time, a select band of Greek technocrats were well aware of how Greek social stability was dependent on the cash machines continuing to function. While the cash exodus got underway, the European Union and the Greek finance ministry had already started to make contingency plans for a managed euro exit, involving controls of capital and of borders.

The second election in June became a fight between hope and fear: hope that something would change Greece’s economic misfortunes, and fear of a return to the drachma. Outside some polling stations waited the curiously well-funded foot soldiers of Golden Dawn. Not all were steroid-enhanced skinheads. The ones I met were slightly avuncular, a bit racist and faintly dim. Others were rather sinister, and openly fascist. A student documentary maker, Konstantinos Georgousis, made a film called
The Cleaners
, following one aspirant Golden Dawn politician around. Migrants were subhuman, the candidate said on camera. ‘We are ready to open the ovens,’ he went on. ‘We will turn them into soap. We will make lamps from their skin.’ His party, which has a swastika-like logo, argues he was joking. But anti-immigrant violence has surged since Golden Dawn burst onto the scene.

Greece does have a serious issue with migration. Turkey turns a blind eye to thousands trying to cross into the European Union via its only land border with Asia. Even though most of the migrants have no desire to stay in Greece, Golden Dawn has capitalised on their presence, and this, together with the economic collapse, saw them win eighteen parliamentary seats in June 2012. In the subsequent months, the party regularly polled double digits, equivalent to more than thirty seats. Wherever I saw economic calamity in Greece, there seemed to be a strategically positioned office of Golden Dawn. At the very least, the economic situation seems to have led to an acceptance of openly racist gestures and an escalation of vigilantism – especially in areas where the police decline to act. A leading Greek footballer gave a Nazi salute after scoring a goal. Something extraordinary is happening if Greece, which suffered terribly under Nazi occupation, is seeing its young people increasingly attracted to neo-Nazism.

The rise of political extremism is hardly surprising given the absence of economic hope for Greece’s young. Economic calamity has only served to exacerbate the divisions in Greek society. Some left-wing campaigners insist that there is a low-level civil war going on between violent neo-Nazis and sympathisers among the Greek police on the one hand, and left-wingers, anti-fascists and anarchists on the other. A look at economic historian Brad DeLong’s seminal history of the economic factors behind the democratic rise of Hitler in Germany (
Slouching Towards Utopia
) shows that Greece now ticks many of the same boxes, including surging unemployment, the politicisation of a formerly apathetic electorate, deflationary budget balancing, acute cuts to welfare, fears about banks and saving, the collapse of an international system of fixed exchange rates, and the obliteration of mainstream parties at the hands of the hard left and the hard right. Of course, right now it seems absurd to think that Golden Dawn could ever top the polling in a Greek election. But in 2011 it was absurd to suggest they could have any MPs at all. In 1928 the Nazis won 2.8 per cent of the vote. By 1933 Hitler was chancellor. What propelled the surge in support for the Nazis? A strong showing by the far left, which drove the centre-right to Hitler. It is not unthinkable that history could repeat itself, in a situation where hundreds of thousands of young men and women have been left desperate and desolate.

Greece is not just about economics. When I visited his local polling booth, Alexis Tsipras was mobbed by supporters and non-supporters alike. He tours the world drumming up support for his anti-austerity message. The public face of Syriza has certainly moved to the centre, in what might be called the ‘Syriza shuffle’. After the May election the threat of a disorderly euro exit was Greece’s fundamental bargaining chip in a renegotiation of the EU loan agreement. By June, drachmail had been replaced by pragmatism. Syriza said it would stick to some of the headline targets of the Troika deal, but achieve them through tax rises rather than spending cuts. Within a month, all talk of mutually assured destruction had disappeared.

New Democracy knew their trump card. At their final rally in Syntagma Square before the June election, there were flares, dodgy dance music, and an attempt at an impassioned speech from Greece’s would-be euro saviour, the ND leader Antonis Samaras. ‘The first choice Greece must make,’ he declaimed, ‘is: euro or drachma?’ The mood was not helped when the
Financial Times Deutschland
published an open letter to Greeks, advising them to vote for Samaras, and ‘resist the Demagogue Tsipras’. Samaras had greatly angered the Troika by undermining Papandreou, but now he was the devil they knew and therefore preferred. In the Square the expressions on the faces in the crowd were remarkable. Not of hope, but of fear. As one ND candidate told me, ‘These are the faces of people wondering whether they’ll have to take their life savings out of the bank on Sunday night.’ That is, if they had not done so already. Many in the crowd believed in one simple equation: ‘Syriza win = bank run on Sunday evening.’ Privately, Syriza’s top advisers also believe that, in broad terms, Greece’s electorate is splitting in two, ‘those with bank accounts/savings and those without’.

When push came to shove, Greeks voted to stay in the euro, and Antonis Samaras became prime minister. However unpopular the Troika programme, it was insufficiently unpopular for Grexit. Greece had defaulted on a third of its debt. It voted not to default on the deal to stay in the Eurozone. Instead, like large swathes of the Eurozone periphery, Greece was defaulting on its version of Europe’s social contract. But the New Democracy victory rally in Syntagma Square was far from euphoric. Syriza had hugely increased its share of the vote, and party insiders suggested to me they were relieved not to win, as they had not really prepared for government. But the question remains: can a society survive generational splits like this between savers and those with no hope of being able to save?

Greece also left the Troika with a rather inconsistent approach to dealing with sovereign-debt crises in the Eurozone. Everywhere the ‘sovereign signature’ was to be honoured in full, meaning that banks that had stupidly lent to these nations paid no price – except in Greece, whose foreign bankers were not so much singed as flamed. Indeed, the Eurozone had quixotically placed its own head in the guillotine, in place of private bankers, for any future repeat Greek debt write-off. The Eurozone authorities, or ‘official sector’ in the jargon, are now Greece’s banker. But that is a story for later (see
here
).