Greece's Yanis Varoufakis prepares for economic siege as companies issue private currencies

By Ambrose Evans-Pritchard, in Athens 03 July 2015

Greek finance minister says the country has a six-month stock of oil and four months of pharmaceuticals

A demonstrator wears 'No' stickers during a rally in Syntagma Square in Athens on Friday Photo: Reuters

Greece has stockpiled enough reserves of fuel and pharmaceutical supplies to withstand a long siege, and has set aside emergency funding to cover all the country's vitally-needed food imports.

Yanis Varoufakis, the Greek finance minister, said the left-Wing Syriza government is still working on the assumption that Europe's creditor powers will return to the negotiating table if the Greek people don't agree to their austerity demands in a referendum on Sunday, but it stands ready to fight unless it secures major debt relief.

• Time for Europe to face reality: Greece needs mass debt relief now

"Luckily we have six months stocks of oil and four months stocks of pharmaceuticals," he told The Telegraph.

Mr Varoufakis said a special five-man committee from the Greek treasury, the Bank of Greece, the trade unions and the private banks is working feverishly in a "war room" near his office allocating precious reserves for top priorities.

Food has been exempted from an import freeze since capital controls were introduced last weekend. Grains, meats, dairy products, and other foodstuffs should be able to enter the country freely, averting a potential disaster as the full tourist season kicks off.

The cash reserves of the banks are dwindling fast as citizens pull the maximum €60 a day allowed under the emergency directive - already €50 at many banks. "We can last through to the weekend and probably to Monday," Mr Varoufakis said.

Yanis Varoufakis

Despite assurances, the crisis is likely to escalate fast if there is no resolution early next week. Businesses in Thessaloniki and other parts of the country are already creating parallel private currencies to keep trade alive and alleviate an acute shortage of liquidity.

Vasilis Papadopoulos, owner of the Maxi paper mill in Katerini, said the situation was becoming desperate for his industry. "I have enough raw materials to last until July 14. If I don't get any more pulp, I will have to close the factory. It is a simple as that. I have 183 employees and I will have to start laying them off," he said.

Mr Papadopoulis, who manufactures paper towels, napkins, and toilet paper - partially for export - said a consignment of 3,000 tonnes of pulp from Finland was stranded in the port of Salonica. "I can't pay the suppliers because the bank is blocked, so they won't release it," he said.

His firm has reached an accord with regional supermarkets to accept coupons or private scrip money in lieu of payment as soon as next week. His workers will then be able to use this paper as a parallel currency at the supermarket to buy goods.

In the meantime, people are trying to offload their bank holdings as fast as possible. (Electronic bank transfers within the country are still allowed). "Everybody is afraid of a haircut. Our clients are trying to pay us as much as possible, and transfer their problems to us. We, in turn, are paying everything in advance: taxes, gas, anything we can."

"It is like musical chairs because nobody wants to be the last one left standing with money in their account when the music stops. Before all this happened we were about to invest €5m to build new warehouses and buy a new cutting machine from Italy. It is totally suspended," he said.

The Greek crisis is likely to come to a head one way or another soon after the referendum. The European Central Bank is expected to restore emergency liquidity for the Greek banking system almost immediately if there is a "yes", an outcome likely to trigger the downfall of the Syriza government and the creation of a national unity administration.

The ECB has given strong hints that it will tighten the tourniquet yet further if there is a "no" vote - probably by raising collateral requirement - pushing Greek banks that it also regulates towards the abyss. This is a legal minefield since the ECB has a treaty duty to uphold financial stability. Syriza has said it will consider legal action at the European Court of Justice if this occurs.

Mr Varoufakis warned that the EU institutions are courting trouble if they respond to a democratic vote by the Greek people in such a way. "I find it hard to believe that Europe will continue to insist on an impasse because their own money will go up in smoke," he said. The Eurozone has well over €300bn of exposure in one form or another.

Apart from normal bail-out loans, the ECB itself has €27bn of Greek bonds and has extended roughly €120bn in liquidity support through ELA funding for the banks and Target2 payments support. "They are very vulnerable. Target2 becomes a real loss if a country leaves the euro," he said.

Alexis Tsipras, the Greek prime minister, called on the nation to reject the creditors' demands in a televised address on Friday, insisting that a "no" vote does not mean ejection from the euro. "I urge you to say no to ultimatums, blackmail and fear," he said.

Mr Tsipras said a debt sustainability study released by the International Monetary Fund on Thursday was a "great vindication" of the core argument made by Syriza over the past five months that the country needs drastic debt relief.

A man raises an 'OXI' (No) sign as Greek demonstrate outside the parliament

The report said Greece's debt would still be 150pc of GDP in 2020 even if all goes well, far higher than the earlier Troika estimate of 124pc. While the IMF text has plenty of criticism for the Greek side, it clearly makes it much harder for EU leaders to continue blocking debt relief.

For now, Syriza and EMU creditors remain poles apart. Mr Tsipras is sticking to his campaign line that a "no" vote would simply be a stage in the negotiating process, while the European side is stepping up warnings that would mean Grexit and an economic cataclysm.

Jean-Claude Juncker, the European Commission's chief, said the negotiations have expired and that Greece is on its own. "The Greek position will be dramatically weakened by a No vote,” he said.

Mr Varoufakis dismissed this as pre-vote bluster. Behind the scenes, there are signs that Europe's leaders are preparing a fall-back position if Greece votes no. "Unofficially, we are getting very interesting proposals, through by-ways and back-alleys," he said.

If there is a "no", Syriza will agree to reforms - never really in dispute - and to austerity provided that there is a big enough debt restructuring to restore the economy to long-term viability. "It will have to be a legal contract," he said, adding that the Greeks have already been burned once by pledges of debt relief in late 2012 that came to nothing.

The Greek proposal is a debt-swap involving no new money. It simply switches high-interest bonds held by the ECB for low-interest bail-out bonds (EFSF), along with other steps to stretch out debt maturities from 20 to 40 years.

The latest polls show that the referendum is too close to call. "I am amazed that the 'no' side is still doing so well since we have done no campaigning and there have been no rallies. The party is still in shock," he said.

If it is a "yes" vote, he will vacate his airy office on the 6th floor of the finance ministry immediately and end "five months of nightmares in full technicolour" that have made him a cult figure for the global left, and a reviled villain for defenders of the established order everywhere.

"I will resign on Sunday night and retreat to the backbenches. I am almost looking forward to it. I have never been on a back-bench before," he said.

Greece's Yanis Varoufakis prepares for economic siege as companies issue private currencies - Telegraph