Greek crisis: Ex-finance minister Yanis Varoufakis defends secret plan for parallel Greek payment system

LEAKED recordings show Greece’s ex-finance minister had a secret plan for a parallel banking system, as creditors begin work on a bailout package.

(FILES) -- A file photo taken on March 4, 2015 shows then Greek Finance Minister Yanis Varoufakis arriving to present his ministry's new secretaries at a press conference in Athens. Revelations by Greece's flamboyant former finance minister Yanis Varoufakis of secret plans for a parallel currency have sparked uproar in the country as the embattled leftist government on July 27, 2015 began to rebuild tattered trust with its international creditors. Kathimerini daily over the weekend reported that Varoufakis had revealed the plan to a group of London-based investors a few days after resigning his post on July 6. AFP PHOTO/LOUISA GOULIAMAKI

THE Greek government and its international creditors have began work on a mammoth new bailout package in Athens.

The talks have been overshadowed by revelations on Monday that Greece’s ex-finance minister Yanis Varoufakis had been secretly planning for a parallel system of liquidity.

As the European Commission confirmed that technical talks on Greece’s third bailout had started in Athens on Monday, the embattled leftist government was put on the defensive by Varoufakis’s claim to have “hacked” into his own ministry weeks earlier to create duplicate files for millions of Greek taxpayers.

Secret plans ... Greek Prime Minister Alexis Tsipras (right) and with then-Finance Minister Yianis Varoufakis on February 18, 2015. Picture: Louisa Gouliamaki/Getty Images

In a conversation with a group of London-based investors after he resigned his post on July 6, Varoufakis claimed Prime Minister Alexis Tsipras had “given the green light” for a Plan B before coming to power in January, according to a recording released on Monday.

The goal, the maverick economist said, was to create a “functioning parallel system” of liquidity in case the European Central Bank cut off support to Greece’s banks, as indeed it did after talks with the hard-left government on new austerity reforms broke down in June.

Statement by Yanis Varoufakis on the FinMin’s Plan B Working Group & the parallel payment system http://t.co/9JTWNyq8JK

— Yanis Varoufakis (@yanisvaroufakis) July 27, 2015

Varoufakis said a five-man team under his orders had hacked into the finance ministry and obtained access to the tax file numbers of Greek taxpayers in order to create duplicate accounts.

The subterfuge, he explained, was necessary to avoid alerting Greece’s EU-IMF creditors who “fully” control the Greek state’s revenue mechanism.

The operation was designed to enable the ministry and also taxpayers to make digital transfers without having to use the banks, which as it turned out, had to be shut down for three weeks this month to avert a run on deposits.

“Of course this would be euro denominated but at the drop of a hat it could be converted to a new drachma,” Varoufakis said. “The work was more or less complete.”

European shares heading for biggest five-day drop of 2015 http://t.co/wKdOgCa7IR pic.twitter.com/K1UOYgVpWT

— Bloomberg Markets (@markets) July 27, 2015

The Kathimerini daily first broke the story over the weekend, and the recording of Varoufakis’s remarks was released on Monday by the Official Monetary and Financial Institutions Forum which has organised the conference call.

The news touched off a political storm in Athens, with opposition parties demanding an official explanation from the government and threatening to put Varoufakis on trial.

During five months in office, the self-styled ‘erratic Marxist’ had exasperated fellow European finance ministers with diatribes during marathon talks on Greece’s new reforms package.

Embattled Syriza party to hold congress

Greek Prime Minister Alexis Tsipras has set the scene for a bruising showdown with his critics by demanding a party congress to tackle a brewing revolt over the unpopular EU-IMF bailout.

Tsipras, who remains popular with the nation but seems to be losing his grip on Syriza, said on Monday the party had to “regroup” and “clarify” its strategy.

“Collective, democratic regrouping procedures are called for. Our strategy must be clarified ... The congress procedure must be set into motion as soon as possible,” Tsipras told the Syriza political secretariat, according to the state agency ANA.

According to reports, the party congress is likely to be held in September.

The 40-year-old premier came to power in January pledging to eliminate austerity and wipe out most of the country’s public debt.

Showdown ... police officers stand outside the headquarters of ruling party Syriza, during a party political committee meeting in Athens. Picture: AFP/Angelos Tzortzinis

But after five months of fruitless talks with Greece’s EU-IMF creditors, who withheld loans and restricted liquidity to banks, Tsipras was forced to accept a draconian three-year bailout accompanied by new unpopular reforms.

Tsipras saw dozens of his MPs mutiny this month in two separate votes in parliament to approve tax hikes, a pension overhaul and administrative reforms tied to the bailout, effectively rendering his coalition a minority government.

Analysts predict that the government is unlikely to survive beyond autumn and early elections will have to be called.

Tsipras is facing a major challenge from his party’s Eurosceptic wing, headed by 63-year-old former senior Communist, Panagiotis Lafazanis.

Ready for battle ... Greek Prime Minister Alexis Tsipras arrives for a political committee meeting of ruling party Syriza, at the party's headquarters in Athens on July 27, 2015. Picture: AFP/Angelos Tzortzinis

Lafazanis, who was ousted as energy minister this month after publicly opposing the bailout deal, is believed to control around a third of the party.

Should a congress be held, his faction could emerge as Syriza’s dominant force.

Lafazanis says the government should carry out its anti-austerity mandate, and respect the result of a July 5 referendum in which Greeks overwhelmingly rejected creditor demands for more cuts.

In a show of force, Lafazanis’ faction on Monday held a rally at a central Athens sports stadium, drawing hundreds of supporters including several senior Syriza party cadres.

“This (hall) is too small to hold the great ‘no’ we want to say again, and say it to the end,” the former minister told the crowd, which chanted ‘No, No’ back at him.

##