The saga of the Greek review that never ended

An assessment of the events that led up to the failed talks between the troika and the previous government, as well as SYRIZA’s rise to power By Eleni Varvitsioti & Tasos Telloglou

It was a sunny morning in Brussels on November 7 last year when Greek Finance Minister Gikas Hardouvelis received an e-mail from the team of inspectors of the International Monetary Fund, European Commission and European Central Bank – collectively known as the troika – that changed everything. In that moment it became clear that the review of the Greek reform process was not about to end anytime soon, as the troika was toughening its stance and demanding that Athens complete all the prior actions outlined in its second bailout deal to the letter.

The government was shocked as the e-mail came just a few hours after a Eurogroup meeting ended with what appeared to be a positive message for Greece. It came at the moment when, if the country passed the review that was being carried out – and is still being carried out – it would be able to turn over a new leaf, free of demands for more austerity, and would be able to apply for a precautionary credit line that would allow it access to the markets.

That e-mail, however, detailed 19 tough measures the Greek government had a month to implement in order to wrap up the review. For the government, those measures were impossible to implement given the political climate at the time.

Seven months after that e-mail, and with a different government in Athens and the same review still pending, Kathimerini seeks answers as to why the talks with the troika stalled by speaking to the protagonists, and attempts to explain what went wrong, ultimately leading the country to elections on January 25. Did the creditors pull the rug from under Antonis Samaras by increasing their demands, as some of the former prime minister’s associates argue? Was it that the Europeans misread the intentions of the opposition SYRIZA party and its chief, current Prime Minister Alexis Tsipras? Or was it fatigue after years of tough fiscal adjustment that prevented the Greek economy from rebounding?

Samaras’s turnabout and the Tsipras factor

After the government’s defeat in the May 2014 local elections and a reshuffle of the Samaras administration that signaled a clear overture to the “popular right,” the Greek political scene was dominated by anti-memorandum and anti-troika rhetoric, with promises that the days of austerity would soon be over and Greece would no longer have to answer to the IMF (the European part of the program was due to end in December).

In Brussels, meanwhile, it became clear that officials were disappointed in Samaras’s choices for his new cabinet. They were frustrated by Greece’s failure to rationalize the tax system and crack down on large-scale tax evasion – something that only reinforced the sense of injustice within Greek society, which was already suffering from the tough fiscal adjustment of previous years – and lost hope that this would happen now. Their interest was naturally piqued by a young politician who vowed to do just that in all of his public appearances: Alexis Tsipras.

Though the leftist leader had originally been viewed as a cause for concern in Brussels, he was increasingly seen as incorruptible and capable of winning over voters in the event of national elections.

“We were concerned when we heard the Thessaloniki Program,” said one European official with knowledge of Greek affairs, in reference to Tsipras’s keynote speech at the Thessaloniki International Fair in September, in which he outlined his party’s key policy points. The sense of mystery that surrounded the leftist leader was enhanced by the fact that he had almost no contact whatsoever with the people of the European Commission.

According to the European official, who declined to be named, then European Commission President Jose Manuel Barroso had never even spoken to Tsipras before that November. “Tsipras had written a couple of letters to him that were almost insulting,” said the official. The only time Tsipras had seen European Commissioner for Monetary Affairs Olli Rehn, meanwhile, was in Strasbourg. Tsipras “placed – if not threw – on the table a file titled ‘Black Bible of the Memorandum’ in Greek and said, ‘Here are the results of your policies on Greece,’” said the official. The folder contained data on the number of people being fed by soup kitchens, the number of poor, the number of suicides etc. Rehn asked the Greek politician, “Do you want to keep Greece in Europe or not?” The meeting between the two lasted just 18 minutes.

At the same time, Berlin also believed that SYRIZA would win if elections were held and hoped that should this happen, the party would contribute toward the idea of Greek ownership of the program.

“We had some idea of SYRIZA’s views from Tsipras’s discussions both with [Finance Minister Wolfgang] Schaeuble and [Economic Affairs Minister Sigmar] Gabriel just after the election of 2012,” a German official told Kathimerini. “Schaeuble explained to Tsipras during a meeting at [the Ministry of Finance on] Wilhelmstrasse that he would not be able to implement a lot of what he was pledging. ‘You will either fail or you won’t carry through on your promises,’ Schaeuble told him.”

This changed gradually. Last June, Tsipras crossed the threshold of the ECB in Frankfurt for the first time for a meeting with Mario Draghi. The impression he made was that he was less radical than the rhetoric he used for domestic consumption and also that he spoke in measured terms. Draghi listened with interest as the Greek politician stated his intention to take the action the New Democracy government had failed to take, to fight tax evasion and corruption as well as the “interests of the oligarchs.”

The moderate image Tsipras conveyed in the few meetings he had with foreign officials gave the impression that he would follow a similar course as the PASOK socialists. His youth also reassured many Europeans that he had not been corrupted like the other two – then ruling – main parties.

Communication breakdown between Athens and Berlin

The first worrying signs for the Greek debt negotiations appeared during Samaras’s meeting with German Chancellor Angela Merkel in September in Berlin. Schaeuble was not present.

“I have spent a lot of political capital on Greece. I also need Schaeuble’s support for a softer review,” Merkel told Samaras.

Samaras paid attention but he did not have a way to reach out to the German finance minister. He had tried in the past to form a closer bond with Schaeuble, even asking him for his personal telephone number once over a breakfast meeting. Even though the two men spoke on the telephone several times after that, Schaeuble had replied, “You speak with the chancellor and I’ll speak with your minister.” Unlike Yannis Stournaras before him, Hardouvelis had never been able to form a closer connection with Schaeuble. Samaras’s team discussed who ought to go to see the German minister but the idea was soon abandoned. Many believe that this was the moment that contact between Athens and Berlin was cut, as Schaeuble later proved to be one of the key figures involved in the failure to close the fifth – and ostensibly final – review of the Greek bailout program.

Samaras’s greatest ally and closest friend in the troika was Luxembourg Prime Minister and Eurogroup chief Jean-Claude Juncker, who was soon to become the new president of the European Commission. The two men met three times in less than two months, and each time the Greek prime minister asked for more time to implemented the necessary reforms. Samaras also warned that if political instability led to Tsipras’s election, not only would the markets punish the eurozone but it would also signal a major victory for the anti-Europeans.

While Juncker was encouraging, some European officials believe that Samaras’s request for more time was an admission of defeat.

Back in Athens, the position of Deputy Prime Minister Evangelos Venizelos, leader of PASOK, the junior coalition party, was that no more austerity measures could be pushed through Parliament. Not a few European officials began thinking that if SYRIZA was bound to come to power, then there was little point in helping the government and then having to restart the evaluation of the program from the start in two months time.

Another factor weighing on the Greek government was that an era had come to its end in Brussels. “Barroso left, Rehn had left in June, [Commission Vice President Jyrki] Katainen was just following orders and Juncker was poised to take over, but there was no team, everything was up in the air,” said the European official. The new Commission took over in early November, less than a month before the last Eurogroup for the New Democracy government and at a time when developments seemed irreversible.

The troika, meanwhile, was expecting Samaras to take a big step in the right direction, according to officials. “What we saw was a step in the wrong direction with the law allowing those with debts to the state to pay their arrears in 100 installments, which was passed in September, after we had made it clear that it was wrong,” said the European official. The troika had tried to convince the government that this scheme should not include the state’s 6,500 biggest debtors, each of whom owed more than 1 million euros, saying that this would give the impression that the government was being soft on large-scale tax evasion. The government agreed to the debt ceiling but the impression in Brussels was still that New Democracy and PASOK were not as committed to reforms as the creditors would have liked. One high-ranking official described the shock in Europe when one of the first things SYRIZA did when it came to power was to include the big debtors in the 100-installment scheme. Samaras’s associates, meanwhile, still argue that the government had not given up on reforms, reminding that some tough prior actions were pushed through in August, such as the privatization of a part of Public Power Corporation.

Change of rhetoric fails to turn the tide

By mid-October, Samaras had shifted the tone of rhetoric from “We’re going to tear up the memorandums” to “We’re aiming at a cautious and cleat exit from the memorandum” in the manner suggested by the country’s European partners, via a precautionary credit line. A successful review was a necessary condition for this to happen. In the prime minister’s office at Maximos Mansion, Samaras’s aides who studied public opinions polls and saw Tsipras’s lead over Samaras growing realized that only a successful review would give the government the majority it would need in a few months to elect a new president in Parliament and stave off early elections.

After that sunny November day in Brussels and the e-mail bombshell, the government tried to convince the troika to return to Athens and wrap up the review. But negotiations had stalled and the representatives of the three institutions – and the IMF in particular – refused, because they believed the government had not made enough progress.

The IMF, ECB and Commission also “did not have a common stance, so it was impossible to finish the review, while every time we came close to a target it shifted,” said one official with knowledge of the talks.

The government’s negotiating team would, for example, ask not to carry out all the measures at once but to hold a few back for June if they were still deemed necessary. The Greeks were much more optimistic about the country’s prospects, while the IMF was preparing for the worst-case scenario. The Greeks also believe that the ECB played a key role in the failure of the review when it sided with the IMF rather than the Commission, which was in favor of a softer approach.

The Hardouvelis e-mail – as the troika’s demand for measures amounting to almost 1 billion euros has become known – was the New Democracy government’s last opportunity to complete the reform and move ahead with the presidential elections having already paved the way for Greece’s exit from the memorandum.

Brussels seeks explanations after SYRIZA win

In February, the Greek program’s main architects met in Brussels in a bid to pinpoint what went wrong. By that point it was clear that the new coalition government of SYRIZA and Independent Greeks not only had no intention of moving ahead with the program but would reverse many of its basic provisions. European Commission officials stressed that this was a bad development and questioned the sagacity of the tough stance adopted with the previous government. The IMF’s representatives responded as they always did, saying it was not their problem Greece had an unpredictable, weak political system with frequent elections. The German representative said SYRIZA would have come into power anyway and done the same thing. Little more is known about that meeting except the atmosphere was very tense.

“There were a lot of delays, a lot of vested interests that weren’t taken on and not enough containment of corruption,” said one high-ranking European official. “But after many sleepless nights, we started to see the light at the end of the tunnel.”

Six months later, Greece is so broke that it asked to pay the IMF its monthly commitments in one lump sum, at the end of June, just the second country to do so after Zambia. The same official believes that the government’s tactics are “hurting the country.” “I feel really sorry for the majority of Greeks today,” he adds.

When Schaeuble and Thomsen pulled the plug

In the final months of the Samaras-Venizelos coalition, Berlin, Brussels, the International Monetary Fund and the European Central Bank had discussed at length whether the review should be completed before possible elections in Greece.

Schaeuble was of the opinion that it should remain open, because the Samaras government had, in his opinion, reached a dead end and could no longer pass, much less implement, any new measures.

According to European officials, the German finance minister took a SYRIZA win for granted, which meant, if the review was completed, that the new government would have the money to do whatever it liked and would ignore the creditors’ demands.

The IMF’s Poul Thomsen, meanwhile, insisted on the official Fund line not to be influenced by domestic political developments, but it was nevertheless clear to many of his interlocutors that he agreed with Schaeuble.

Samaras always believed that Thomsen was the fateful figure in the negotiations. In discussions with his associates he tried to understand the Danish technocrat’s insistence on maintaining a tough stance. He put a lot of thought into the matter but every effort he made to get him to ease off failed.

Telephone calls to Merkel, United States Treasury Secretary Jack Lew and even International Monetary Fund chief Christine Lagarde herself failed to bring results. Thomsen argued that the IMF, and several northern European governments, lost their trust in the Greek government with the departure of the public revenue chief, Haris Theoharis, in June. It was at that moment that he believed the New Democracy-PASOK government had no intention of taking on major vested interests and cartels, or of cracking down on corruption.

It is said that in private conversations Thomsen would often ask: “[Former Prime Minister George] Papandreou failed because he was protecting his clients – the civil service and the unions. Why then did Samaras do the same, protecting the powerful interests that supported him?”

The night that changed everything for Samaras came in early December. The prime minister was scheduled to speak at the American-Hellenic Chamber of Commerce. He had asked one of his aides to get in touch with Thomsen and try to get an idea of what the IMF technocrat was planning to do. After two hours on the telephone it became clear that the IMF would not end the review because it was concerned about the fiscal gap. The prime minister was informed of the discussion’s conclusion while on the way to his appearance. Anyone who saw him arriving knew that something was terribly wrong.

“Ladies and gentlemen, these are difficult hours,” he said as he started his speech. After a pause of a few seconds, he continued, “But rest assured that we will succeed.”