Deciphering the Varoufakis “Plan B”: A couple of hours of my life I’ll never get back


The headline story:

A secret team within the Greek Finance Ministry was working on a Plan B to steal taxpayer IDs and use them take us back to the drachma.

The context:

This was an extract from a live teleconference organised by OMFIF (Official Monetary and Financial Institutions Forum) that was obtained by the newspaper Kathimerini. Contrary to what the name implies, OMFIF is a private membership body with no official role. Its stated mission is to “promote exchanges of information and best practice in an atmosphere of mutual trust” between public and private sector. The discussion in question appears to have been a two-hander between Yanis Varoufakis, Former Finance Minister, and Lord (Norman) Lamont, chaired by David Marsh, Managing Director of OMFIF. We hear only part of Varoufakis’s presentation. 84 people are listening in to the call. At the end, there is a reminder that the call comes under the “Chatham House rule”, which states that while information from the meeting may be passed on, it is not permitted to link it to a specific source. The host gives a more strict interpretation, which is that participants are not permitted to use the information obtained on the call to trade the markets, nor pass it on at all – this is a “private” discussion, “this is not the BBC.” The audio extract was published here at Varoufakis’s request, and a transcript was published by the FT (subscription required).

Here are my key takeaways.

1. Varoufakis is not an idiot. Bracketing the controversial section is some reasonable, if strongly opinionated, discussion of the challenges of operating within the single currency. The analysis he gives of the power politics within the Eurozone and between creditors is astute. The idea of a self-interested French-led anti-austerity front has gained support from events during the preparations and the outcome of the last negotiation, ironically the one from which Varoufakis himself was absent. Of course he would have scored more points for articulating this insight before it became apparent to all, and perhaps using it more effectively during his own negotiations, but this is all the standard 20/20 hindsight fare you would expect a former Finance Minister to dispense at such a forum.

2. For a Marxist, he seems particularly keen to use the old “school tie” network to establish his credentials, or rather the credentials of his successor in the Finance Ministry, Euclid Tsakalotos. He tries too hard but seems unaware of it. Witness this embarrassing exchange:

Varoufakis: “You know Euclid, you met him at that dinner…”

David Marsh: “Yes, actually he went to my college, Queen’s College, Oxford, so we have a strong bond.”

Varoufakis: “Yes and he is a St Paul’s boy, which is where George Osborne also studied…”

… Embarrassed titters from his interlocutors, no doubt reflecting that the main reason this is known is that Osborne didn’t go to the much posher Eton, unlike most of his cohort in the Cameron Government.

3. Varoufakis is playing to the gallery, and particularly his interlocutor Lord Lamont of Black Wednesday fame. No expression of euroscepticism can be too exaggerated, no language too emotive. He explains Greece’s situation as being “in the clasps of the monetary union.” He introduces his own insights as being “controversial” and “fascinating.” “I’m sure that as you’re hearing these words your hair is standing [inaudible].”

4. It is all about making Yanis look good, and important. The “Plan B” is only introduced when he is challenged. David Marsh makes the point that “you didn’t have a Plan B” and that this weakened Greece’s negotiating position. Not to be made to look bad, Varoufakis starts to describe his Plan B.

5. In terms of substance, his introduction makes clear that what he is about to describe was a contingency plan intended to create an alternative payments system in the event that the banks were closed through denial of liquidity from the ECB. It was not necessarily a transition to the drachma, though he makes clear that this capability existed. (Varoufakis has subsequently tried to rationalise this scheme further by describing it in terms of an internal tax credit system to be used under a “business as usual” scenario to ease liquidity in public payments – however, this is not what is described on the call). But, so far, so good. Am I happy there was a contingency plan? You bet I am – one of the great public concerns during the brinksmanship of the past few months was that there was no evidence of planning for alternative outcomes.  What is concerning is not the existence of a plan, especially since it is not explicitly a plan designed to switch us to the drachma – it is the details of the execution, and what they imply for Syriza’s style of government.

6. Now comes the whole cloak and dagger business about hiring his old childhood friend (“a professor at Columbia”, dontcha know) to clone the tax filing system in order to bolt on this parallel payment system. The concept seems reasonable enough. On this system every citizen and every business has a unique identifier, so that would create a link between the parallel system and existing information. Did he also obtain copies of bank account details, as some have suggested? Would this parallel system allow the tax office to reach into bank accounts? This is not evident from this discussion. Was it breaking data protection rules? Almost certainly, but from Varoufakis’s telling, the data never left his friend’s laptop in the Ministry. Was it even workable? That is an open question. So we have an inventive idea researched with limited resources and very sketchy on implementation. At this point we might still award points for intentions and inventiveness, we can be (very) concerned about competence, but we can discount some of the wilder claims that have been mooted.

7. This is where it gets even hairier in my view. The reason given for this plan being executed in such an unorthodox way is that the tax collection system is, according to the former Finance Minister, “controlled fully and closely by the troika.” He elaborates that the Secretary General of Public Revenues is appointed through a process that is controlled by Brussels. We may be missing a subtlety here, but what he is essentially objecting to is the fact that the most senior civil servant in charge of tax collection is not under the Minister’s direct (political) influence. This is a problem, and it is a problem shared by his predecessors. The forced resignation of the previous incumbent in this position was reputedly the result of his perceived over-zealous pursuit of tax evasion and his refusal to bow to political pressure to grant preferential treatment. Given that clamping down on tax evasion by vested interests has been a flagship policy of Syriza, it is very worrying to see the independence of the civil service branch charged with this task being painted in this way by one of the chief architects of the Syriza manifesto.

8. Varoufakis can’t help over-egging his description: the whole plan was carried out “surreptitiously”  and involved “hacking” with the Minister’s express approval. “I will deny it” he says conspiratorially when the suggestion comes up that this might be too sensitive to discuss. A couple of minutes into his account, his host, clearly embarrassed by the revelations, suggests that they move swiftly on. Varoufakis has always sounded in his public pronouncements as if he learned his English from studying Bond villains. This makes him very quotable, so he should not be surprised when he is quoted verbatim; and if he choses his words unwisely, it is disingenuous to accuse the press for sensationalising his statements. One interpretation I have heard is that the call was leaked under the instigation of the creditors to silence Varoufakis; in this case it has backfired, as it has further prolonged his 15 minutes of fame.

9. The biggest loser in this is Prime Minister Alexis Tsipras, who was, after all, Varoufakis’s sponsor in the sensitive post of chief negotiator with the creditors.  In conclusively failing to shut this story down he comes out of it looking like either a dupe or a liar. Either way, this story has handed the opposition a stick to beat him with, at a time when he depends on their votes in Parliament. When it comes to choosing between conspiracy and cock-up, in Greece it is generally the former that prevails. In making this a story about a coup from within, the opposition risk embarrassing themselves. Even if one opts for the cock-up version of history, the Prime Minister emerges as an appalling judge of character.  I am not sure which is the scarier in this case, and what is says for the future.

10. This is another distraction from the real issue which is that nothing is resolved yet. My hope is that we have reached “peak Varoufakis”. Shows you how much I know… As I write this, the latest issue of the New Yorker hits the stands with a profile of the very same. In the first paragraph, the quote “Honey, I shut the banks.” I can’t muster the appetite to read it. If you do, feel free to send me a precis.

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Deciphering the Varoufakis “Plan B”: A couple of hours of my life I’ll never get back

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