July 27, 2015

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Varoufakis plan B sets Tsipras up for failure

So Yanis Varoufakis did plan a parallel currency after all, in all detail. Eurointelligence readers will probably not be surprised to hear this, but the Kathimerini story has a lot of juicy details about what was going on behind the scenes. More importantly, it tells us about the coming battle in Greek politics. Varoufakis is telling the Greeks that there was an alternative to austerity, and that Tsipras rejected it. 

The plan goes back to December, a month before the elections. Varoufakis now provides those details himself - not to Kathimerini directly but to a group of international investors, whose chairman was Lord Lamont, a former British chancellor of the Exchequer with a lot of experience himself of being ejected from a currency system.

Varoufakis, on orders from Tsipras, assembled a small team of people who began their work in early January. Varoufakis told the investors that the election had not given the Tsipras government a mandate to pull out of the euro, but enough of a mandate to drive the negotiations against a wall, at which point a euro exit would become necessary.

The technical plan had several components. The parallel currency would become necessary on the day when the banks were closing and capital controls imposed. The big idea was to use the tax numbers of each citizen, and to create secret bank accounts linked to those numbers. It is through these accounts that the parallel currency scheme would have worked. Varoufakis gave the example of a transaction between the state and a pharmaceutical company. The state could have transferred the parallel currency to the company's new account in exchange for pharmaceuticals. The company could have used the cash to pay taxes to the state, or for any other transaction it wanted. The idea was to develop smartphone apps to facilitate broad-based access to the system. The denomination of the new currency was initially the euro, but it could have been converted to a new drachma at any time. 

A big technical problem was that the inland revenue's computer system was controlled by the troika, but the head of the information technology section stood under Varoufakis' own control. He then hired an old childhood friend, now a IT professor at Columbia, who told him one day that he controlled the hardware, but the software was under the control of the troika. There was no way they could ask the troika for access, which would have revealed the plan. So they ended up with a decision to hack the software. By the end of June, the parallel currency plan had been worked out in detail, but Tsipras did not give the go-ahead. 

We learn from the Daily Telegraph, a paper with a morbid interest in the eurozone, that Varoufakis confirmed the quotes but said the Kathimerini story gave the wrong impression that he wanted to prepare Grexit from the outset. The goal of the parallel currency was to create a liquidity instrument that was denominated in euros. And the goal of the computer hacking was merely to set up secret accounts that were ready immediately when the banks were closed. This is what he said about Tsipras:

"I always told Tsipras that it will not be plain sailing but this is the price you have to pay for liberty...But when the time came he realised that it was just too difficult. I don't know when he reached that decision. I only learned explicitly on the night of the referendum, and that is why I offered to resign."

Varoufakis also quoted at length from conversations with Wolfgang Schäuble, which left him convinced that Schäuble was planning a revolution of the eurozone itself. He needed Grexit to put pressure on the French to accept a transfer of sovereignty from Paris to Brussels. More importantly, Varoufakis said he has a "strong suspicion" that there will be no deal on August 20. By the end of the year, it will be clear that tax revenues are vastly undershooting the target, and debt-to-GDP will be at 210%.

"Schäuble will then say it is yet another failure. He is just stringing us along. he has not given up his plan to push Greece out of the euro."

Our other stories

Today we also have stories on tension between the Greek government and the technical teams; what is happening to inflation; Spain's employment; what to make of the latest proposals for the future of the euro; what the Brexit referendum date means; and making up rules for the eurozone.

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