Greek bailout talks poised to start as government reels from Varoufakis’ ‘Plan B’ confirmation

The Greek government was poised Monday for the imminent start of intricate bailout discussion but faced rebuke following revelations that former finance minister, Yanis Varoufakis, formed a secret committee to plan for the possible conversion of euros into drachmas “at a drop of a hat.”

ATHENS, Greece — The Greek government was poised Monday for the imminent start of intricate bailout discussion but faced rebuke following revelations that former finance minister, Yanis Varoufakis, formed a secret committee to plan for the possible conversion of euros into drachmas “at a drop of a hat.”

The talks have been delayed but are due to start Tuesday with technical teams paving the way for high-level discussions possibly by the end of the week.

While the final touches were being put in place for the start of the technical talks in Athens, a recording of Varoufakis discussing a parallel currency plan was made public.

Opposition parties have criticized Varoufakis and have urged Prime Minister Alexis Tsipras to explain to lawmakers what he knew of his former finance minister’s actions.

In the recording of a telephone briefing for investors on July 16 in the wake of his resignation days earlier, Varoufakis claimed he and a childhood friend who was a computer expert hacked into his ministry’s computer systems as a first step to creating “a parallel banking system” in the event Greek banks were shuttered.

The Greek banks were closed on June 29 to avoid a bank run amid fears that Greece was heading for a euro exit. In theory, a parallel system formed from the effective cloning of tax accounts would have allowed the finance ministry to continue payments in the form of so-called IOUs.

Varoufakis said he had been authorized by Tsipras to undertake the planning prior to the general election in January when the radical left Syriza party swept to power. And he insisted that his actions were legal, in the public interest and aimed at keeping the country in the 19-country eurozone.

In essence, the plan, which Tsipras ultimately blocked, would have created a “functioning parallel system” to give the government “some breathing space.”

“It would be euro-denominated but at the drop of a hat it could be developed to a new drachma,” Varoufakis said.

Varoufakis confirmed the authenticity of the recording, which was released by the briefing organizers, London-based Official Monetary and Financial Institutions Forum.

The revelation that Varoufakis was working on a Plan B over Greece’s future was one of many in a wide-ranging discussion on the Greek crisis. He also said that German Finance Minister Wolfgang Schaeuble wanted Greece to leave the euro but that his boss, Chancellor Angela Merkel, was against so-called Grexit.

The recording prompted an outcry among opposition parties.

The main conservative opposition, New Democracy, accused Varoufakis of “dark methods that threaten democracy” and summoned Tsipras to brief parliament.

Tsipras, who is already facing a revolt within his radical left Syriza over a raft of austerity measures required by creditors for the talks to actually begin, is under pressure to call early elections once the bailout discussions are completed.

The technical discussions on a wide array of issues such as pensions and labour market reforms are designed to clear the path for high-level discussions between Greek ministers and senior European Union and International Monetary Fund officials later this week.

After passing a series of reforms demanded by creditors, such as steep sales tax hikes, the Greek government is hoping negotiations will be completed by Aug. 20 when the country has a big debt repayment of around 3.2 billion euros ($3.5 billion) to make to the European Central Bank.

Without the money from the expected three-year bailout totalling around 85 billion euros, Greece would be unable to make that payment — a development that would likely trigger fresh fears over the country’s future in the euro.

But the reforms have come at a price for Tsipras. One in four of his lawmakers refused to back them in two votes in parliament, arguing that they flew in the face of Syriza’s anti-austerity platform in January’s election.

The laws were passed with solid backing from pro-European opposition parties, but left Tsipras without an effective parliamentary majority. That has stoked talk of early elections, just six months into Tsipras’ four-year mandate.

“We must seal the (bailout) agreement and immediately afterwards launch an electoral process,” said senior Syriza official Dimitris Vitsas, who is the deputy defence minister. “After that (there will be) a new government with a fresh mandate.

Mina Andreeva, a spokeswoman at the European Commission, said teams from the institutions are “now already on the ground in Athens and work is starting immediately.”

She added that, while Athens has already delivered “in a timely and overall satisfactory manner” the reforms demanded for the talks to start, more will be required to secure a swift rescue loan disbursement.

“And this is also what is being discussed right now.”

Greece has relied on bailout funds for a little more than five years after being locked out of international bond markets. In return for around 240 billion euros worth of rescue money, successive Greek governments have had to enact a series of income cuts, tax hikes and economic reforms.

Though the measures drastically contained budget overspending, they hit economic activity hard and drove unemployment to record peacetime highs. And because the Greek economy is around 25 per cent smaller than it was, the country’s debt burden has increased to around 170 per cent of Greece’s annual GDP.

Some sort of debt relief for Greece is up for negotiation though a direct cut in the amount owed is off the agenda. The IMF has said Greece needs big relief and has advocated delaying Greek debt repayments to European creditors for many years.

ECB executive board member Benoit Coeure said in an interview published Monday that Greek debt relief “is no longer a matter of debate” but must come alongside measures to turn the Greek economy around.

“In truth, the question is not whether Greek debt should be restructured, but how to do it so it really benefits the country’s economy,” he told French daily Le Monde.

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