ATHENS, July 27ATHENS, July 27 (Reuters) - Former Greek Finance Minister Yanis Varoufakis confirmed on Monday he had made secret preparations to hack into citizens' tax codes to create a parallel payment system after the disclosure provoked shock and disbelief in Greece.

However, the self-proclaimed "erratic Marxist" academic, in office until July 6, sought to play down the initiative as a contingency plan that had never been implemented.

Greece was on the verge of tumbling out of the euro single currency before striking an 11th-hour deal on July 13 that imposes a new round of austerity measures in return for talks on a third international bailout.


Varoufakis' comments prompted the pro-European opposition to demand that Prime Minister Alexis Tsipras disclose the extent of planning for "Grexit" - which his government has repeatedly said it refused to consider. The furore piled new pressure on a premier struggling to contain a leftist party revolt.

In a conference call with the London-based OMFIF think-tank, recorded on July 16 but released on Monday, Varoufakis outlined his secret planning and also accused German Finance Minister Wolfgang Schaeuble of being "bent on effecting a Grexit" - forcing Athens to leave the currency area.

In the recording Varoufakis said Prime Minister Alexis Tsipras had "given me the green light to come up with a Plan B" before coming to power in January and he had assembled a five-person team led by U.S. economist James Galbraith to work covertly.

"We were planning to create, surreptitiously, reserve accounts attached to every tax file number, without telling anyone, just to have this system in a function under wraps," he said, adding that "of course this would be euro-denominated but at the drop of a hat it could be converted to a new drachma."

At one point, the moderator cautioned Varoufakis that other people were listening to the teleconference but would not repeat its contents. The former finance minister replied: "I know they are. And even if they do I will deny I said it."

He went on to elaborate on plans to hack into his own ministry's software to copy tax systems code, saying he had recruited a childhood friend who was a software expert to help with the planning.


In a statement from his office posted on his blog, Varoufakis defended the comments as essential contingency planning and attacked the media for indulging in "far-fetched articles that damage the quality of public debate".

"Greece's Ministry of Finance would have been remiss had it made no attempt to draw up contingency plans," the statement said, adding the unit worked within government policy and its recommendations were aimed at keeping the country in the euro zone.

In a separate statement posted on Varoufakis' blog, Galbraith said he had worked unofficially in an unpaid capacity on the basis that the government was committed to negotiating within the euro zone and the team kept its work secret to avoid jeopardizing that.

Apart from one chat with far-left lawmaker Costas Lapavitsas, who has openly called for a return to the drachma, Galbraith said the group had no cooperation with the radical Left Platform of Syriza and wrapped up its work in May.

Varoufakis has said his proposal for an "aggressive" response to the closure of Greek banks and the introduction of capital controls on June 28, after Athens rejected an earlier bailout proposal, was outvoted, leading to his resignation.

The opposition New Democracy party demanded that Tsipras answer questions in parliament on the plan while the centrist To Potami party also demanded that the prime minister say whether and what he knew of the plan.


"Opportunism which results in criminal action is not a party secret and should not be concealed," To Potami said.

(Reporting by Deepa Babington; Editing by Paul Taylor)