It may as well be the title of the next Costa Gavras film – Plan Z. Unlike the 1960’s film of Gavras (Z) which captured the violence and political intrugue of a political assasination, in 2012 we had the halls of power in Berlin and Paris and Washington (IMF) mapping the exit strategy of Greece from the euro. They did so in secret from their own parliaments and (of course) without the Greek government being informed. In the end, Angela Merkel’s camp of economic advisors in 2012 could not agree on whether a Greek exit from the Euro might cause damage outside of Greece itself. So they pulled the plug on that being an option. Its always good to know where the red lines are – Greece can burn, but if the flames might start to lick up towards northern Europe….. quick change the script.
See full Financial Times report
Beginning in January 2012, a team of four top technocrats began full fledged work on the plan. They were ECB official Jorg Asmussen, euro working group head Thomas Wieser, Poul Thomsen, the IMF’s point man in Greece, and Buti himself.
The Financial Times report indicates that the plan was kept top secret, even within the technocrats’ respective bureaus, to avoid a market panic and bank runs that could have equally disastrous effects.
The potential fallout from such a plan was so great that Merkel decided to keep it completely secret from her own parliament. Two weeks before Greece’s May 2012 election, Merkel asked for and received assurances from European Commission President Jose Manuel Barroso that the Grexit plan was ready, but she did not ask to see the relevant documents to avoid being asked to submit it to the Bundestag.
Plan Z was never compiled into a single, comprehensive report, but rather was comprised of a series of inter-related documents amounting to a detailed plan to rebuild the Greek financial system from scratch.
According to officials interviewed, the intention of the plan’s technocratic authors was as much to warn EU leaders of the huge difficulties of managing a Grexit – “something they could not conceivably back once they realised how difficult it would become” – as it was to serve as a blueprint.
Potential bank run disaster
After the first round of the 2012 Greek elections in May, when it was unclear if a government could be formed, Grexit fears were heightened.
The fears were coupled by the prospect that non-payment of a Greek 3 billion dollar bond due in August 2012 could on its own trigger a “hard” default and a Grexit.
But the fear of a bank run before that was an equally terrifying prospect to Greek and European leaders, as that might trigger a collapse of the Greek banking system and a resulting “accidental” Grexit.
Under that scenario, Greek banks would run out of cash, the ECB would not be able to refund them because they lacked the mandatory collateral, and the country would be killed “within hours”.
That would then require the creation of a truly independent Greek central bank and the immediate printing of a national currency.
In that complex terrain, Merkel was receiving conflicting advice from her top advisors, with Finance Minister Wolfgang Schaeuble reportedly being a staunch advocate of a Grexit in the event that Greece proved unable to toe the line.
Schauble’s camp considered that Greece could be cut off like a gangrenous leg, if necessary, so as to save the ailing patient, which was none other than the eurozone itself and the European unification process.
Additionally, German foreign ministry officials believed that if exemplary punishment were meted out to Greece, it would scare other wayward eurozone members into falling in line with Berlin’s austerity policies.
The opposing camp – which eventually won out – argued that a Grexit would produce a domino effect. There would be a panic to sell of the bonds of the troubled southern eurozone members, with massive bank runs in Portugal, Italy, and Spain.
Given the uncertain impact and repercussions of Grexit on the cohesion of the eurozone and of the EU itself, Merkel heeded the warnings of the domino camp. She was, according to the report, determined not to be the leader responsible for the collapse of the European project.
Her decision was aided by the complete about face of Antonis Samaras, after he became prime minister in June 2012.
For two years he had been blasting the bailout memorandum as “the wrong prescription” and had vowed to pressure Berlin into changing it fundamentally.
In yet another revelation, Peter Spiegel reports that it was Barroso who pressured and persuaded Samaras not to keep his main campaign pledge – to renegotiate the bailout deal with Greece’s creditors – at least not immediately.
“Don’t start asking for new conditions; there’s no way,” Spiegel quotes Barroso as saying.
“The first message you have to convey to Germany … you have to say you are going to deliver.”