Plan B and the leaked tape

July 29, 2015

Over the last few days a tape has leaked of a teleconference that Yannis Varoufakis had, after his resignation, with a group of potential investors in Greece. The teleconference had been organised by Norman Lamont, who is a friend of Varoufakis, and was conducted under Chatham House rules of confidentiality, however someone leaked the transcript of the tape and a controversy blew up about an alleged attempt by Varoufakis and his team to hack the the Greek Finance Ministry IT system. There is a link to the entire audio recording of the teleconference below.

The audio recording is here.

Varoufakis has responded to the controversy over the tape and the revelation of a Plan B on his personal blog.

As well as the fascinating details about the Plan B there are also some very interesting comments, based on his conversations with Wolfgang Schaeuble the German Finance Minister, about what he thinks the German strategic plans is for the eurozone (starting at 13 minutes into the recording). Varoufakis says that Schaeuble is perfectly aware that the current eurozone architecture is unsustainable and that a degree of political and fiscal union is now absolutely necessary and that this will involve transfers of funding from the richer to the poorer regions of the eurozone. However in order for the political and fiscal union to work France will have to substantially cut its public expenditure (i.e. massive austerity) and that Paris is terrified of the domestic political consequences of doing that and have been playing for time. As a result Schaeuble wants a Grexit not just because he thinks Greece should not be in the eurozone but also because he wants to use Grexit as a way to force Paris to adopt massive austerity.

There are also some interesting comments from Varoufakis (starting at 16.15 minutes into the recording) about the role of the ECB in the Greek crisis.

The Greek Plan B

What Varoufakis revealed in the tape was that a few days ahead of being elected to power on January 25, Tsipras asked him to come up with a Plan B that would allow the government to get around Greece’s banks being shut down due to a lack of liquidity from the ECB. Everybody in Syriza expected the ECB would at some point to turn off liquidity support for the Greek Banks and thus shut down the Greek banking system.

In the tape Varoufakis describes using a friend who was an expert in IT to “surreptitiously” clone the Finance Ministry’s tax system, which would involve hacking into it, because, he argued, Greece’s general secretariat for public revenues is “controlled by Brussels” and he did not want lenders to know what he was doing. The shadow system would work as follows: If the state owed money to a company or individual, it would make the euro-denominated payment in the parallel accounts of the shadow system created by Varoufakis. The recipients could then use the money that had been created by the government to make payments into other parallel accounts of other taxpayers or businesses.

Although Varoufakis does not suggest that this was being done specifically to prepare for an imminent Grexit, clearly the system could be switched to work in drachma at the “flick of a button,” as the economist described it. While some people have interpreted the ex-finance minister’s revelations as an admission that SYRIZA had been preparing an exit from the euro for months, this is not the message we should walk away with from the latest story being recounted by Varoufakis.

In fact, it is perfectly natural that a Greek government in the grip of a deep crisis and unpredictable negotiations should have a back-up plan. There is little doubt that every other finance ministry in the euro area has a clear idea of how it would deal with a Grexit if it comes. It would be absurd and negligent for Greece not to have its own plan.

Varoufakis clearly believed in his plan and was keen to use it. On the night of July 5, when the “No” vote won the referendum with a convincing 61.3 percent, Varoufakis hinted that he had such a scheme ready and was itching to deploy it. “If necessary, we will issue parallel liquidity and California-style IOU’s, in an electronic form. We should have done it a week ago,” he told the Daily Telegraph.

A few hours later, Varoufakis was out of a job. He said he resigned when he realised Tsipras was not willing to stake the country’s future on the plan, preferring to go the more conventional route of reaching an agreement with lenders.

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