The Cycle of Over-indebtedness

From the Loans of Independence tothe Memoranda of Borrowed Prosperity

George J. Georganas#

Thucydides, writing about his History, sets himself this task : ... he that desires to lookinto the truth of things done, and which (according to the condition of humanity) may bedone again, or at least their like, shall find enough herein to make him think itprofitable .... That is, that Thucidides will be satisfied if his work were to be judgeduseful by the people who wish to ascertain the events of the past with accuracy and, also,those events that will occur in the future, since these, too, will be the result of the deeds ofmen. Also, Paparrigopoulos, in the preamble to his History of the Greek Nation (firstpublished between 1860 and 1874), sets forth the apothegm of the French statesman andhistorian Guizot that a people studying their own history judge better, both about theirpresent conditions and about their future fortune. Karl Marx starts The 18th Brumaireof Louis Bonaparte with the famous aphorism : Hegel remarks somewhere that all greatworld-historic facts and personages appear, so to speak, twice. He forgot to add: the firsttime as tragedy, the second time as farce. Hegel, of course, wrote neither the former northe latter. He did, however, write that what experience and history teach is this, - thatpeoples and governments never have learned anything from history, or acted on principlesdeduced from it. Heraclitus, in a similar vein, argued that one cannot swim twice in thesame river - . Christian philosophy, too, in itsworldly reading, unknown to the many, yet having brought great influence to bear onphilosophy overall, together with modern science, do most emphatically state : the worldhas started at a certain point and is on the way to another.1 I t d o e s n o t r e p e a ti t s e l f . Time itself is temporal, a creation of God. Ioannis Metaxas, as much a man ofaction as of reflection, wrote in his Diary (in the Notebook of Thoughts) that going backinto the past, examining the past, has no other value than the one assigned to it by theneeds of the present. Cicero attributes to Cato the Censor, who predated him, the viewthat there is no opinion, however absurd, but has been proposed by some philosopher.

After such a deluge of incompatible views, one would lean to agreeing with Cato. Andyet, there are circumstances in History when the knowledge, the memory of whathappened in the past, for example when we had our fingers burnt in a fire, does protect usfrom suffering the same fate in the future. Besides, let us consider what each one of uswould have been but for our memory, both of our skills and of our knowledge and ourexperiences. Without our memory, we would be nothing.

# The present text was first read, in preliminary form, in the lecture hall of the Piraeus Lighthouse onTuesday, 20th May 2014.

1 Basil N. Tatakis makes the point very eloquently in his Studies in Christian Philosophy.

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Our point of departure for this lecture is the book by Andras M. Andrads NationalLoans and Greek Public Finance of 1926. Andrads, a professor of Public Finance at theUniversity of Athens, was the first Greek economist of international renown. In that, hedoes not seem to have been equaled to date. He did lend many times his prestige and hisknowledge to the governments of the country at various instances. He took part in manydiplomatic and quasi-diplomatic missions and wrote opinion editorials to enlighten worldopinion on several of our national causes. In his time, he was one of the world classauthorities in the field of the rules of law that apply to sovereign borrowing, together withhis fellow professor and fellow native of Corfu, Nicholaos Politis, who served many termsof duty as Minister of Foreign Affairs. The unhappiest instance of their work together wasthe signing of the Politis-Kalfoff Pact that recognised, without any compelling reason, aSlav minority with extended rights in Macedonia. Theodore Pangalos, dictator in 1925-1926 and grandfather of the present-day eponymous politician, had offered the Pact to theSerbs, so that he could have his hands free to take revenge on the Turks for 1922.Fortunately, Pangalos was removed from power and Parliament rejected ratifying the Pactby loud stamping of the members' feet. It is, of course, rare that men of the pen should beconsistently successful in the merciless field of diplomacy.

Andrads, a rather eccentric man, is a delight to read thanks to his language, a languagefully worthy of his maternal uncle and eccentric extraordinary, Emmanuel Rodes, ofwhom he was the biographer and literary executor and, thus, the editor of Rodes'Complete Works. The biography of Rodes' mother, Cornelia Rodou, is a true story ofadventure. Of course, Andrads writes in katharevousa Greek, a language much honouredby his uncle, in reality an Anglo-Franco-German dialect, with Greek words ! Andrads,though, is not so intimately familiar with German culture as Rodes. Andrads wasproclaimed a doctor of philosophy of the University of Paris in 1899 on the strength of histhesis On consecutive or parallel punishments. Two years later, the study of criminallaw lost him and public finance (and later theatre critique) won him over. In 1901, hepublished his most erudite History of The Bank of England a work that nobody hassurpassed since, not even an Anglo-Saxon !

The book of Andrads on the national loans of Greece ends on the eve of the First WorldWar. Yet, the world economy in our days is similar in many respects to the economy of theera that Andrads analyses. The great, almost complete, freedom of commerce andcommercial transactions, the almost fully free circulation of money and men, theworldwide appeal of certain ideas, were all features of the world that was shaken by thehistoric earthquakes of 1914. No doubt, though, that for each similarity, there exist manydifferences.

The French Christian-Socialist economist Charles Gide, with whose work our most beloved physician ofPiraeus, Polycarpos Papaspeliopoulos, is familiar, was an uncle of Andr Gide, the writer who wasawarded the Nobel Prize for Literature in 1947. Perhaps the rule by nephews, nepotism, has not alwaysbeen as unsuccessful as we got to know it in our country of late. Harilaos Tricoupis, for instance, was, onthe side of his mother, a nephew of Alexander Mavrocordatos.

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All the authorities in historiography do agree on one thing, which is that historicalresearch is laborious and that its findings are not terribly entertaining for most people.This is why the great works of historiography are also monuments of world literature.Perhaps, one would legitimately state that historiography is a branch of literature.

Economic history is even less entertaining. Worse, it lends itself to multipleinterpretations, if not to misinterpretations. Andrads, for instance, plays into the handsof many crass commentators when he appears to protest the fact that the proceeds of anational loan2 prove to be inferior in size to the amount that the country must disburse topay it off. Nevertheless, this is the quintessence of borrowing : unless the borrowerdefaults or declares bankruptcy, he does not just pay back to the lender the principal of theloan, but, also, interest. This is neither corruption nor mismanagement nor treason.

The Loans of Independence the first default

The first two National Loans, later to be named the Loans of Independence, werecontracted in the London money market by the 2nd National Assembly sitting in Astros ofCynouria - of the insurgent Greek nation in 1824 and 1825. After the victories of 1821 and1822, there were no Turks (Muslims to be exact) any more in Old Greece except, perhaps,in the south of the island of Euboea. Renascent Greece was able to get those loansbecause :

First, the London capital market was in a state of speculative euphoria. The Britishgovernment had just managed, thanks to fortunate coincident historical circumstances, tobring its economy back into a largely gold-based monetary regime, that is, to stabilise itscurrency for the first time after the end of the Napoleonic Wars. It was the very beginningof the English economic and political hegemony that was strongly contested but managedto endure nonetheless, up to the beginning of the First World War. It was the golden ageof liberalism, free competition, free trade, minimal state interventionism andparliamentary government. Of course, there were dark spots in the history of that period,such as the continual antagonism of the Great Powers of that time, the harsh colonialismand the political battles for universal suffrage, a right that, of all the states of the world,small Greece was the first to institute for its citizens, even if the people who instituted itwere driven by ulterior motives.

A second factor that allowed the contracting of the loans of Independence wasphilhellenism, the preference of public opinion, at that time quite romantic, in the rest ofEurope, for a nation that had arisen from the dead and the repugnance towards Ottomanobscurantism. The license to contract those large loans in the London market wasconsidered, by friend and foe alike of the fighting Greeks, a diplomatic victory equal inimportance to the recognition by George Canning, the Foreign Secretary of England, of thebelligerent status of the Greek government. Up to that point, the insurgent Greeks were,

2 calculated to a precision of a hundredth of a drachma

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formally speaking, rebels that were disturbing the fragile European balance of power thatthe European Concert of the Great Powers was aiming to preserve.

The proceeds of the loans arrived in Greece at a moment when the resources of theinsurgent Greeks were coming to an end. The regular sources of income, those formerOttoman taxes that had not been abolished for their slavery-related features, were nolonger providing much revenue in a time of war. The war booty that had been taken fromthe Turks had run out as well as the wealth of the more prominent citizens, especially ofthose of the seafaring islands.

Besides, the legal status of the Greek government was uncertain, since that governmentwas far from having reached a definite and uncontested form, even inside Greece, muchless was it recognised abroad. This uncertainty and the great danger of the Revolutionfailing meant that the terms that the loans would carry would be onerous. Even so,despite the high real interest rate, despite the fact that a great proportion of the proceedsremained in England to service the first payments of interest and principal, the money tobe applied to the fight of Greece was sufficient for the country to field a regular army anda steam-driven navy. If Greece were able to use those forces to gain victory, it would haverevenues and the accumulated wealth from the properties of the departed Turks to paythose loans off.

So, the loan contracts were drawn up and the large amounts specified in them werecollected from an investing public of savers, capitalists and speculators, as well as of manyidealist philhellenes. The use of the money, however, was and remains a point of dispute.The loan proceeds enabled the civilian leaders to prevail over the military. The politicianswere led by Alexandros Mavrocordatos, who managed to gain the attention and the trustof the English philhellenes and skillfully directed the representatives of Greece, Louriotisand Orlandos, during the negotiations in London. Thus, we can claim that Greece escapedthe fate of, say, Serbia, where, for decades, rival dynasties of warlords were fighting for thethrone, resorting to murders, the last of which took place in 1903 (and we have seen veryrecently how the tradition of political violence has remained alive in that country). Ourblessings, however, stop at that point. Not one of the millions of golden sovereigns of theloans was used for the fight against the Turks, except for a small amount that was used toequip the fleet of admiral Miaoulis for the eight naval engagements of the summer of 1824.

The money that remained in England was put to even worse use. A large part of it wasused to buy back bonds of the loan that had been bought by philhellenes, the influential -at that time - and ambitious politicians Hume and Bowring among them, at prices muchhigher than the ones obtaining at the time in the money market, in a vain attempt tomaintain their philhellenic zeal ! Greece ordered six steam warships from an Englishshipbuilder, the son of whom was serving as an officer in the navy of Mohammed Ali, theruler of Egypt and vassal of the Ottoman Sultan. As was to be expected, only one, theKarteria (Perseverance) was belatedly delivered to Greece and got to fight somewhateffectively, thanks mainly to the technical and naval ingenuity and the self-denial of itscommander, Hastings, who, also, fell in the service of Greece. Greece got terrible value

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from the two wind-powered warships that it tried to get built in America, while ships ofequal fighting strength were on offer, ready-to-be-delivered in Europe. Only one everreached Greece and only after the government of the United States of America waspressured by pro-Greek public opinion into tacitly breaking its policy of neutrality andinto buying one of the two ships, so as to finance the completion of the other. The shipsailed to Greece only after besieged Messolonghi had fallen.

Thus, in the words of the Genevan banker and philhellene Eynard, the loans that couldhave saved Greece resulted in a small immediate benefit and multiple losses. Thishappened because, neither as a nation nor as individuals, had we had any instruction orexperience in managing so much money. The temporary over-abundance of moneyreduced our patriotic and self-denying zeal and deepened the ever-lurking schismsamong the Greeks. We also erred, chiefly because of our inexperience, in hiring ourforeign advisors, both financial and military. We were offered, as volunteers, some of thevery best, such as the future marshal of England Charles James Napier3, the sole, so far,conqueror of British India (that included, at that time, Pakistan and the stillunsubordinated, to this day, Afghanistan)4, but we failed to hire them.

The 3rd National Assembly that gathered in Troizen in 1827 acknowledged that the nationhad no money to honour the upcoming service payments of the two Loans ofIndependence. Besides, such money as could be scraped together had to be channeled,first, to the army so as to keep free as many areas as it could and to control internal strife,second, to rebuilding a minimum of public buildings to replace the ones that had beendestroyed in the Revolutionary war and, third, to succouring the needy and the refugees.Nevertheless, the National Assembly did not entirely disown the loans. Given thevanishingly small benefit that the country had obtained from them, the country could havebranded them odious debt, as some would have us call them today. It could have triedto reduce the amount owed by arguing that the loans had been contracted by a previousNational Assembly in which had sat delegates from provinces that remained, in the end,unliberated. On the contrary, the National Assembly did acknowledge not only thatGreece was liable to those who entrusted it with their money in difficult times but, also,that ruining its public credit through bankruptcy would bring it immense difficulties inthe future. Thus, it sought to come to a settlement with its creditors. The definitivesettlement was achieved only after 51 years had passed. In the place of the oldphilhellenes, it was a number of Jewish speculators from Amsterdam that collected most

3 Hero of the Napoleonic Wars, Governor of the island of Cephalonia in the early years of the EnglishProtectorate over the Ionian islands, he supervised the building of a dense road network on the islandthat, in gratitude, displays his bust in one of its squares to the present day. His statue, also, stands inTrafalgar Square in London.

4 His contribution to the practice of multi-culturalism remains relevant to this day. Since he hadpromised to the natives in India that the life together of several different nationalities under English rulewould respect the customs of each one of them, he was asked to sanction the continued practice of thesati, the cruel custom that called for the burning of the widow on the funeral pyre of her dead husband.He replied that he, too, in keeping with his promise of multi-culturalism, would have to practice theEnglish customs that required him to condemn to death by hanging those who would dare to commitsuch inhuman acts.

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of the proceeds of the settlement. They had bought their bonds around the year 1830 at5% and 10% of face value. Their grandchildren, thus, got a return ofbetween 2,9% and 4,3% in gold on the investment of their grandfathers. Not a bad rate ofreturn, but only for the few that can afford to wait that long.

The triennium of the Governor The Quest for a Loan

The three years of rule by Governor Capodistrias showed that, despite the bitterexperience of the Loans of Independence, Greece had a dire need of new foreign loans.Capodistrias showed how much the country could achieve w i t h o u t foreign loans.Those achievements were many and great but, ultimately, not enough. One can get anidea of the meticulous frugality of the Governor by noting that there were 7 ministersand 185 chief secretaries in the government when he took it over. He got them replaced byone secretary-general and 11 clerks. One can understand how much poison against theGovernor flowed from the pens of the fired most-learned men. Capodistrias did notintroduce new taxes. He only took care to enforce the taxes already legislated. There werethree principles buttressing his economic policy : First, tax equality ; everybody wascalled to pay up. Second, the merciless pursuit of corrupt officials. Third, public orderand security, through the lightning-fast suppression of piracy and banditry. Moreover, headhered to the ancient Roman fiscal doctrine : economy is the greatest of all taxes, thuslimiting public spending to those expenditures that were absolutely necessary. Lookingupon those matters from our present-day point of view, we would expect those policies tohave depleted the Governor's political capital. Yet, the great masses of the people stayedfaithful to him to the very end.

Capodistrias, as a skilled diplomatist, was able to take full advantage of the (petty)jealousies of the Protector Powers, England, France and Russia, so as to extract significantamount of aid from France and Russia, at the necessary price of allowing the politicalparties in Greece that were allied to each of those foreign powers to grow, somewhat, ininfluence. All the same, neither the donation of his entire family fortune to the state northe great donations of his close billionaire-friend Eynard could meet the enormous need offunds to finance the building of a new state. Since we were unable to contract for a loan inthe free market, given our disorderly default on the Loans of Independence, theGovernor conceived the idea of contracting a loan endowed with a guarantee of theProtector Powers. That would be a loan by the official sector, as we would call it today.The Powers did not rule out that option but were marking time, while the needs wereaccumulating. Thus, Capodistrias was forced to borrow the money that had been set asideby investors as capital for a bank to be founded in Greece. This act of desperation stifledin its cradle the prospect of a large national financial institution. It would take ten yearsfor the project to be revived. Worse, the delays in contracting the loan forced PrinceLeopold of the House of Saxe-Coburg, who had been voted King of Greece and was arelative of the royal houses of England and France, a mature man, well versed in mattersadministrative, diplomatic and military, to decline the throne of Greece. The size of the

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loss to Greece can be gauged in comparison with Belgium, where Leopold reigned as thefounder of its royal dynasty.

The Allies' Loan the second default

When Capodistrias was assassinated, the state coffers contained very little money. Theanarchy that followed his death finally convinced the Protector Powers to do what thephilhellenes in their countries were calling for insistently and what logic dictated : Tocommit significant financial resources to make of liberated Greece a functioning state.Thus was the great Allies' Loan of 1832 contracted under the several guarantee, by eachone of the Protector Powers, of one-third of the loan. The loan contract of the Powers withthe Kingdom of Bavaria (the home country of the new king Otto of Greece and not withGreece) recognised explicitly the right of the diplomatic representatives of the Powers inGreece to see to it that : fiscal revenues, in priority over any other expense, becommitted to the payment of interest and to the repayment of the principal of the loan. Aswe can see, the idea of the troka, of international financial surveillance of Greek statefinances, is not at all modern. That particular clause in the contract was repeatedly andabusively used by the three erstwhile Protector Powers as the legal basis for interventionsin Greece during the Crimean War (1855-1856), the revolutions of Crete (1841, 1866-1869,1878, 1897-1898, 1904 and 1908), the Eastern Crisis (1875-1886), down to the initial periodof the National Schism, in the years 1915, 1916 and 19175.

King Otto, when he ascended the throne of Greece was but a boy. Thus, the power tomanage the resources of the loan was initially vested in the Regency, a council of highlyqualified civil servants from Bavaria. About one-fifth of the Allies' Loan was paid toOttoman Turkey as compensation for the confiscated private property of the displacedTurks of Euboea, Attica and Phthiotis. Turkey paid half of that amount right away toRussia in reparations for the Russo-Turkish War of 1828-1829. Much has been writtenabout the mismanagement of the proceeds of the Allies' Loan by the Regents of king Otto.It is certain that they were worthy and well-intentioned men but were hardly prepared torule over Greeks.6 Their critics charge them with wasteful administration. However, ifone were to evaluate their policy objectively, one should not set them against the idealtrustees of morality-improving books but against those that Greece could have put in theirstead. In such a comparison, the Bavarians come out as wasteful, but less wasteful than

5 Their attempt to mediate between the two quarreling political parties in Greece , while the great coup-d'-tat of the venizelists of the 1st March 1935 was in progress, brought the angry riposte by antivenizelistMetaxas : Better that (Eleftherios, of course,) Venizelos prevail, than foreigners' intervening.

6 The famous pronouncement of Charles James Napier, incidentally (?) a true philhellene, is apposite : soperverse is mankind that every nationality prefers to be misgoverned by its own people than to be wellruled by another. Maybe because, despite their, sometimes, good intentions, foreigners end upgoverning badly. The verdict of revolutionary general and hero Theodore Kolokotronis is, also,germane : Were (Athur Wellesley, the 1st Duke of) Wellington to give me 40,000 troops, I would be ableto command them, but if he were given 500 Greeks, he would not be able to command them for longerthat one hour. Every single Greek had his whims, his own God, and, in order for one to manage withthem, one had to browbeat some and to cajole others, depending on the character of each one.

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their Greek predecessors and successors. The Regency, aiming to restore public order, asCapodistrias had done in a very short time, spent the greater part of the loan on soldiersand officers of dubious quality from Bavaria. As a result, the Allies' Loan did not help tomeet the dire need of money for economic development of the country. Nevertheless, atgreat cost, the country obtained a mechanism to collect regular taxes. Howeverinsufficient that mechanism may have been, it assured the continued operation of the state.It is even quite probable that it collected higher taxes than the rudimentary Greekeconomy of the time could yield. Thus, when, in 1843, the Powers sent a committee thatrecommended, instead of further aid, a programme of economies, the spectre of publicspending cuts gave rise to a wave of discontent against the king. It resulted in a veryinopportune change in the constitution of the country on the 3rd September 1843. Thatchange included the granting of universal (male) suffrage. It was inopportune, because apeople to which it had not been possible to distribute the public estates nor any farmequipment to start farming them could not but sell their newly-acquired votes to thehighest bidder. If sufficient resources, even borrowed, had been committed to distributingto peasants part of the public estates, as Capodistrias had planned to do, the land-usecondition and policy of our country would have been different and our whole economicand political history would have been different, too.

After the first two defaults

This is a good point to remind ourselves that the Loans of Independence and the Allies'Loan were carrying as collateral the national estates. Therefore, there existed, right fromthe time of the founding of the modern Greek state, the truest quarrel, though least inspeech to prevent the national estates from being distributed or sold in a transparentmanner, but to remain in public ownership, ostensibly to secure the loans, but, in reality,so as to be appropriated at any one time by those with the most gall.

The Allies' Loan, along with the Loans of Independence was subjected to a definitivesettlement in 1879. The Powers had since 1859 already imposed on Greece an interimsettlement, whereby it was paying 900,000 gold francs per year, and had not even botheredto specify whether that money was to be paid against interest only or whether it, includedalso repayment of principal, so that the debt would be paid out one distant day.

The sad truth is that modern Greece managed not to service the first large loans that it got,except partially. We did not pay up ! Yet, the cost of this failure in terms ofuntrustworthiness was much heavier. Private bondholders tended to conveniently forgetthat most of the blame for the mismanagement of the Loans of Independence lay mostlywith those outside Greece who managed them. Gradually, they managed to carry publicopinion in their countries to their view. The guarantor-states, the Powers, were pulling outof their drawers the question of the Allies loan, whenever they wished to be mean toGreece. Worse yet, in the course of the fifty years of uncreditworthiness, Hellenism gotassociated in the minds of world opinion with default and, thus, lost its former precious,

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centuries-old, spiritual primacy among the Orthodox Christians of the Balkans. Itappeared that liberty was a sour grape in its teeth.

The deliberately vague interim settlement of the Allies' Loan in 1859, imposed by Englandand France, the victors of Russia in the Crimean war, was meant to be a punishment forOtto's lukewarm pro-Russian stance. It appears that the settlement weakened the positionof the king in the political scene of Greece and contributed to his ouster in 1862.

Indeed, it took 17 more years before Greece was able to borrow again from abroad. In thattime period, just like in most years of Otto's reign, the country had to make do with whatlittle it could produce. The small loans that the state was able to contract in the localmoney market or, even, from wealthy individuals, were very expensive. Public works andimprovements, in an appropriately large scale, could not be financed. The scarcity ofmoney resources was, though, calamitous in the field of foreign policy. Crete rose inrevolution in 1866 and, despite the first victories of the Ottomans in Vafe and Arcadi,remained in a state of guerrilla war up to 1869, causing enormous financial strain to theOttoman Empire. Greece, of course, had no army or navy to help militarily the insurgentCretans. It limited itself to sending reinforcements and supplies to help with asymmetricwar operations. When the great Cretan Revolution was in its last throes, Turkey sent itsnavy, led by Hobart Pasha, an English apostate, to blockade the raider ships, formerlymail-carrying steamships, inside their Greek ports. Those ships were the Panhellenion,the Arcadi, the Crete, and the Enossis (Union, of Crete with Greece, of course)and had been carrying supplies and volunteers to Crete. Parliament, in a state of patrioticand war paroxysm, voted to authorise the Voulgaris7 ministry to borrow an amount equalto the quadruple of the regular annual budget receipts, that is, in practice, to issueinflationary currency. However, as Ioannis Valaoritis (son of the poet and patriot AristotleValaoritis and, as we will see an even more outstanding patriot than his father) wrote : ifarmies cannot be conjured from one moment to another through a simple legislativeresolution, yet harder is it to produce resources and to issue currency. The Great Powers,in conference in Paris (where countless words had been written by prolific intellectuals infavour of Crete) addressed a note to Greece that, in essence, vindicated Turkey.Fortunately, writes Andrads we had the prudence to bend to the unavoidable.Voulgaris resigned and the fifth ministry since the start of the Cretan Revolution, that ofthe prudent, as Thrassyboulos Zamis was subsequently called, , salvaged the wrecks.Without a doubt, the patriotsof that time branded it as slavish to foreigners, treasonousand such like, just as we have seen recent governments called in our days.

Support for the Cretan Revolution, as was to be expected, was a heavy burden for thefinances of the state. Money was needed to support the revolutionaries, to feed and tohouse the numerous refugees, mainly women and children from the great Turk-battlingCrete. At least, though, the country enjoyed five years of relative calm before the outbreakof the great Eastern Crisis of the years 1875-1886. Many commentators considered thatshort period to have been a time of good housekeeping. In reality, this was a case offorced good housekeeping, since nobody would lend to us in tolerable terms. On top of

7 he was an authoritarian, without love of order, and a rebel, without love of liberty

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the uncreditworthiness carried forward from the previous two defaults, of 1827 and 1843,there was now added the political instability naturally accompanying unbridledparliamentary rule, as well as the military and diplomatic weakness of the country. Thiswas, thus, a period of true stagnation.

Fortunately (or, maybe, unfortunately), in our part of the world such periods of calm donot persist for long. In 1875 the Ottoman Empire defaulted and the strong shock itsustained as a result was followed by the Serbo-Turkish and the Russo-Turkish wars.Making a virtue out of necessity and trusting the word of the English, we stayed on thesidelines. We all know that the Greek position in the Balkans ran the ultimate danger withthe Treaty of San-Stefano. The national humiliations added up to a critical mass, so,finally, in 1879, we conceded at last to come to terms with our foreign lenders.8

Return to the markets the third default

The Treaty of Berlin of 1878 awarded Thessaly and a large part of Epirus to Greece withoutwar. However, in order to make sure to occupy the territories awarded, we had to wait forthree years and call out the armed forces to mobilise twice, march into Thessaly and makewar preparations. The country covered those expenses from the proceeds of the first twolarge loans that it contracted, after its return to the world financial markets. Since theneeds of the country were pressing, the terms of the loans were pricey. Still, the firstterritorial expansion of the Kingdom of Greece since the years of the 1821 Revolution, andthe realisation that, with the money of the new loans, much of what was wrong in thecountry could be put right, had created an air of optimism. This optimism reached itapogee, after the elections of 1882 brought to power, with an unprecedented majority,Harilaos Trikoupis, a well-educated man with much talent and prestige, both inside andoutside Greece.9 During his first long premiership, until the outbreak of the crisis of 1885that included the Bulgarian takeover of the autonomous Ottoman province of EasternRumelia, Trikoupis endeavoured to correct the distortions that the long isolation from theworld economy had entrenched into the Greek economy. The trouble was that, as usual,reforms are slow to bear fruit.10 The tax reductions of Trikoupis reduced the state tax-receipts right away, while his new, much more rational customs tariff and his new taxesyielded revenues only after long years, at the time of his successors. Thus, instead of thesmall surplus that was written into the budgets of Trikoupis, the state ran large deficitsevery year. Already in the first year of Trikoupis premiership, his Treasury minister, the

8 The charg d' affaires of Greece in London, Ioannis Gennadios, negotiated relatively advantageous termsfor the definitive settlement. He was the second-born son of George Gennadios, revolutionary hero,public intellectual and docent of the nation. The library of the two of them, that Ioannis donated to theAmerical School of Classical Studies of Athens in 1922, was the kernel of the current-day GennadiosLibrary.

9 There were cooler observers, such as the Thessalian bey who summed up his impressions from a meetingwith Trikoupis with the Turkish dictum : At var, meydan yok. That is, that here was, indeed, a horse,but not a field in which the horse would be able to show its abilities.

10 According the Holy Gospel of this past Sunday of the Samaritan Woman, one sows and another reaps.

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jurist and historian Paul Calligas, who had refused to budget for new expenditures againstrevenues not yet proven, resigned. Trikoupis, though, was not a man who would giveup. His task was, indeed, very hard. On the one hand, he was expecting a new externalcrisis that, in fact, broke out in 1885 and resulted in Bulgaria proclaiming itself as the risingpower in the Balkans boiling with burning ambition11. We needed, therefore, an armyand a navy. On the other hand, there was a dire need for reforms that had already beenpostponed for decades, but which could no longer be put off because a state that wished toenter as a worthy competitor for mastery of the Balkan arena just had to appear, in theeyes of world opinion, to have cast oriental backwardness behind it. Trikoupis met theshortfall in state revenues by issuing inflationary currency. Even though the sum of theexpenditures of Trikoupis was exorbitant, and, therefore, worthy of blame, thoseexpenditures, if examined one by one, were truly necessary. Even so, they were notproperly sequenced. Instead of giving priority to building the Piraeus - Borders (Larissa)railroad, to buying the battleships Hydra, Spetses and Psara (named after theislands that provided most of the ships and men to the Revolutionary navy) and toequipping the army, during the first long premiership of Trikoupis, we chose to buildroads for horse-drawn carts and coaches, under the guidance of a rather expensive staff ofFrench and Swiss engineers. Thus, the Bulgarian takeover of Eastern Rumelia forced us tospend this money in a haste and after the fact. Thus, we ended up not with the benefits ofthose military expenditures but only with their costs. The responsibility for the failuredoes not rest solely on the shoulders of Trikoupis but, also, on the shoulders of theparliamentary opposition to Trikoupis and of the people, too, who resisted ferociously anyattempts by Trikoupis to rein in the deficits.

Trikoupis, in the course of his first three-year premiership, had been authorised byParliament to contract a large external loan, that he only managed to arrange partially. Itwas then that he spoke the famous words there is success yet in failure ! Presumably, hemeant that partial success was better than total failure. And yet, the phrase would soundcruelly ironic after only six years. Trikoupis lost the elections of April 1885. TheodoreDiligiannis came to power pledging to reverse the taxes and also to reduce the spending ofTrikoupis. He had convinced the people that Trikoupis had overextended. He was torealise soon that, as Gladstone (a great fiscalist) had stated : it is easier for one to increasespending by one pound than reduce it by a shilling. In September 1885, Bulgariaannexed Eastern Rumelia in a coup d' tat. Greece had had its rights in that provincerecognised by the Treaty of Berlin of 1878. The Powers, however, accepted the faitaccompli and, moreover, subjected Greece to a naval blockade to maintain peace. Wechose armed beggary, mobilised threatening war, but not daring to declare it. The

11 An ambition, moreover, hardly in accordance with its true strength. By the Treaty of San-Stefano (it wasnever implemented, as it was entirely lopsided in favour of Russia and Bulgaria, but kept reinforcingBulgarian national aspirations and the consequent national disasters for decades) Bulgaria was tobecome the most populous Balkan state, even though the Bulgarian nation was inferior in numbers to theGreek, Serbian and Romanian nations. The reason is that this mastery was obtained (fortunately onpaper only) by a grant from Russia, while the Serbs and the Greeks, labouring for decades separatelyfrom one another, alone and without allies, had only achieved very modest results.

11

finances of the country had gotten to an absolute impasse. Thus, Trikoupis returned topower in May 1886. In a masterpiece of a speech in Parliament he set forth his programmeof expenditure cuts and new taxes. In January 1887, in spite of his self-avowedlycontractionary fiscal policy, voters gave him a majority that would enable him to governfor four full years, such as no Greek prime minister had ever won up to that time (andprecious few since).

It is even more amazing that Trikoupis had not only managed to convince the voters buthad, somehow, cast a similar spell on foreign investors ! In the four years between 1886and 1990, the country contracted loans of a total amount that was more than double theamount of the loans it had contracted in the previous 75 years. The credit of Greeceappeared to be excellent in itself and continually improving. That miracle wasperformed by the instruments that we have come to know through our recent economichistory. First, Trikoupis used accounting stratagems, creative accounting, as wewould call it today, consisting of budgeting for small surpluses and realising large deficits.For him, it was natural indeed to seek to gather money by any means, since he wasforeseeing that Bulgaria was not going to stop in Eastern Rumelia. What about the foreignbankers, though ? Certainly, the strong will of Trikoupis must have appealed to them. Inaddition, however, he had to concede to them a large part of the most secure customs andtax revenues of the state. Here was a material concession of national sovereignty, muchgraver than the privatisations that the troka keeps proposing to us, in vain, during the lastsix years. In order to avoid hurting the sense of national pride of the Greeks, thoserevenues would be collected by the Monopolies Corporation, a company founded andoperating under Greek law. It appears that the commissions and other collateral benefitsof the loans, some of them not quite blameless, quasi-corrupt as we would call themtoday, were fairly important to the foreign investors, as must have been the low rates ofreturn of investments safer than the Greek debt.

Starting already in 1890, the money markets, after four, unhoped-for, good years, closedfor Greece. Given the debt burden that the country had taken, it was only possible to deferdefault, not avoid it. Diligiannis, after getting elected prime minister at the end of 1890,only managed to pay one installment of the loans without having recourse to newborrowing. What ought to have been everyday practice had ended up being a remarkableachievement for the country. The drachma, though, was under pressure. Confidence inthe Greek economy collapsed. The king, following the (basically unfounded) outcry ofpublic opinion, fired Diligiannis and his party got routed in the elections of May 1892.Trikoupis, elected prime minister for the fifth time, managed to muddle through for oneyear, by drawing on the support of wealthy Greeks of Alexandria (in Egypt). In April 1893he offered to concede to the lenders substantial additional customs and tax resources. Theking asked that the concession be ratified by Parliament, just as someone, in recent times,asked that the memorandum outlining the the terms of the financial rescue package forGreece be ratified by a referendum. Economic historians debate, to this very day, whetherthe parties to that negotiation, especially the king, went into it in good faith. It matteredlittle to the result. A further attempt by the caretaker extra-parliamentary government of

12

Sotiropoulos12 to issue a capitalisation loan failed. It would have been a default in thindisguise, since, in the place of cash interest, we would have converted interest to capital(hence capitalisation) and only given lenders new bonds13. In September 1893,Trikoupis, prime minister for the sixth and last time, acknowledged, albeit not in public aspopular legend would have it, that unfortunately, we have gone into default.

Declaring default, however, is never the end of the matter. As tycoon Andreas Syngrostold Trikoupis : Mr. President, default requires a special skill of its own. On thisoccasion it became evident that we did not have that particular skill and this is, perhaps,an honour. Trikoupis unilaterally reduced cash interest on the loans to 30% of what wascontractually owed and suspended entirely the repayment of principal. Further, he statedthat those arrangements were provisional and that a final settlement would need acompromise and the agreement of the creditors. He hoped, in this way, to show his goodfaith, since further taxation could not be made to yield more that 35%. However, he onlyensured that settlement would be difficult and belated. He ought, either to havesuspended cash payments entirely, so as to pressure bondholders into agreeing to asettlement as soon as possible, or to not even call for further negotiation with the creditors.A second blunder he committed was exempting drachma loans contracted in the domesticmarket from that particular round of cuts. This was fair, since their holders had sufferedas much or worse in previous rounds of cuts and as a result of the depreciation of the(paper) drachma, the currency in which domestic bondholders had been forced to collecttheir interest. That perceived difference in the treatment of foreign versus the domesticcreditors, entirely justified in itself, did attach to Greece the unjust stigma of bankruptcyfraud.

The consequences of default were dire : Charitable houses and other national foundations,especially in Turkey, lost immense amounts of money. The default appeared to have beena punishment for patriotism. The exchange rate of the drachma fell so much that payingthe reduced interest on the pared-down loan coupons ended up costing, in paperdrachmas, as much as it had cost before. Imports, including cereals, because at that timewe were not self-sufficient in cereals (as, indeed sadly, we are not, again, today) soared inprice. Worse, nearly all the domestic banks collapsed. And yet, there was to be evenworse : In the foreign affairs of the country there awaited dishonour, war and theInternational Financial Control.

One would not exaggerate in asserting that one of the causes that encouraged Turkey toprovoke us to the War of 1897 was the long delay in arriving at a settlement with ourcreditors. The narration of Stephanos Streit, successor to Calligas in the Governor's post atthe National Bank, is worthy of Thucydides for its drama. The telegram detailing theagreed terms of the settlement had made its way through the telegraph cables to Melite(Malta as mentioned in the Acts of the Apostles), when prime minister Diligiannis asked

12 He was called the patriarch of economists because, according to Trikoupis, his ideas were outdated.13 The newspaper Scrip was founded at that time by Kousoulakos and got its title from the provisional

titles (scrip) of the proposed capitalisation loan that were to be offered to bondholders. It started outas a satirical paper, was successful and very soon extended its coverage over all current affairs.

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for its transmission to be suspended. In the evening of that same day the Greekgovernment got delivery of the diplomatic note of the Great Powers stipulating that theGreek government not recognise nor aid the revolutionaries of Crete. All this, while asubstantial contingent of Greek Army soldiers had already arrived in Crete, whosepresence, however, had not induced Turkey into declaring war against Greece. Germany,though, encouraged Turkey to take that step, not because, as subsequent events proved, itsstance was particularly anti-Greek, but because the delay in reaching agreement with theGerman bondholders had driven it to exasperation.14

The International Financial Control the Economic loan

Having been roundly defeated in the war, Greece provided the Great Powers with a blankcheque to negotiate with Turkey on its behalf. They found it expedient to introduce intothe peace treaty between two, supposedly, sovereign states provisions to serve theinterests of private persons, that is, of the holders of Greek debt. Greece was to besubjected to full International Financial Control, through which substantial staterevenues were to be collected and delivered, in absolute priority, to the service of theforeign debt of the country.

Alexandros Zamis, prime minister, and Stephanos Streit, Finance minister, negotiating insincerity and good faith managed to elicit a similarly sincere and fair-minded responsefrom the excellent men whom the Powers appointed to institute the Control. Thus,while the terms were onerous15, they were much lighter than those that loomed, were theTreaty of Constantinople to have been applied to the letter. In part, there was an intentionon the part of the Powers to check, at no loss to them of course, the noble nationalobsessions of Greece for its own good. But, also, because philhellenism had surgedagain, in opposition to the perceived strict treatment of Greece in the hands of the Powers.The Powers deigned to guarantee, jointly and severally, a large loan, later named theEconomic loan, so that Greece could finance large reparations to Turkey and take back, inreturn, Thessaly, that was being held hostage. Out of the proceeds of the loan the countrywould be able to resume the newly reformed servicing of its old debts, to cover, in part,the expenses of war, to provide assistance to the victims of the war and, for the first time,to revamp its entire economy16, so as to be able to service its debts with some leeway. Herewas a very detailed memorandum, as we could call it today, that put under tutelage ourtax, customs, foreign exchange and, even, our monetary policies. Law 2519, of February1898, the law of the Control or of the Settlement, voted by Parliament willy nilly17, was tobe the economic constitution of the country for the next 15 years.

14 By coincidence, the chief spokesman of the German bondholders was called Roesler, and he bore the same name asthe former Vice-Chancellor of Germany (of Vietnamese origin and adopted by German parents) during the Greekdebt crisis of 2008, who heaped much reproach on the Greek people and their government, much of it perfectlywell-deserved.

15 bearable according to Syngros16 whence that loan got to be called Economic17 All the speeches, without exception, dwelt on the futility of arguing.

14

In compensation, the new loan, armed with the security of the International FinancialControl and with the joint and several guarantee of the Powers, was issued at par and boreinterest (in gold) of only 2,5%, making it the safest investment paper in Europe at thattime.

Even so, the years following the default were hard going. Most of the time during thatperiod the country was governed by George Theotokis, one of the lieutenants of Trikoupis,the maternal grandfather of prime minister (1980-1981) George Rallis. He based hisforeign policy of irreproachable stance with the Powers to such prestige as the GreekRoyal Family carried in the royal courts of the rest of Europe. The effort to restore tohealth the state finances evolved around the interpretation and the implementation of therules of the International Financial Control. Both the Greeks and the foreigners realisedthat a faster economic recovery of Greece would, also, serve the narrower interests of thelenders. Thus, they arrived at the idea of using the same institutional mechanism that wasbuilt to secure the interests of the past lenders in order to secure the interests of any newlenders of the country. The increasing surplus of the pledged revenues could be used bythe country to contract fresh loans. By degrees, and with fits and starts, frugal prudencestarted having beneficial results.

Yet, as we have noted above, normality in our part of the world does not last long.Already since 1904 Greece was in a low-intensity war with Bulgaria over Macedonia. Theputsch of the Young Turks in 1908 brought about a temporary calm in Macedonia butshook otherwise our country. Crete, at the time an autonomous Ottoman province under aChristian governor, declared for the umpteenth time its Union with Greece. The Theotokisadministration had its attention fixed on economic reconstruction and did not consider itprudent to intervene in the crisis at all actively. Of course, in agreement with therebellious Cretans, it recalled the Administrator of the Powers, Alexandros Zamis.Theotokis inclined towards accepting the dictates of the Powers and refusing, once more,the Union, the more so since he needed to contain somehow spending on the armedforces. The 1909 draft budget included provisions for funding, in the medium term, of theNational Defense and the National Fleet Funds (whose budgets appeared annexed to theordinary budget) with an amount equal to one half of a year's budget. The governmentwas forced to cancel this funding, since it could find no resources to finance it. Theotokis,having resigned before the impasse, was succeeded, without an election, by DimitriosRallis, leader of the second largest party and, also ( ! ), paternal grandfather of primeminister (1980-1981) George Rallis. Despite his fame of a fiendish temperament (he wascalled the crazy little Rallis by his supporters) Rallis failed to quell the people or tomaintain discipline in the armed forces, who clamoured to have the cancelled fundingrestored. A dynamic minority among armed forces officers staged a bloodless coup at thearmy base of Goudi near Athens on the 15th August 1909. Those officers were asking forresources for the armed forces, invoking the interests of the country, of course, but, also, intheir narrowly parochial, professional interest. Mavromichalis, leader of the third andsmallest of the parties in Parliament, the party of local notables, was appointed primeminister for three months. He promised the military that he would accede to their

15

demands. The Finance minister, Athanassios Eutaxias18, introduced a draft budgetproviding for a reduction in ordinary spending of 7% and for a nearly equal amount in taxincreases. Parliament, with the officers in uniform watching from the spectators' galleries,voted, willy nilly once again after 1898, the Eutaxias budget. That was, in all probability,the sole genuinely revolutionary act of the Goudi putsch. With one drastic stroke ofmessianic character it restored long-term stability to the public finances that had beenshaky ever since the latest default. Neither the voters, nor his fellow politicians ever reallyforgave Eutaxias his salutary budget. The country, though, would be able again to borrowon its own strength. Before making way for the successor government of StephanosDragoumis, the Mavromichalis administration ordered the battle cruiser Averoff, thatwas to play a crucial role in the future Balkan Wars.

The slaves of the foreigners and the corrupt get vindication Balkan Wars

While the ever-yielding Greece of the irreproachable stance was subservient to theInternational Financial Control, the proud and defiant patriots of rival countries in theBalkans were throwing unilaterally away their own international controls. They wanted tobe free to spend without limits, to create strong armies. With a smaller population ofmilitary age, Bulgaria and Serbia had larger armies. We had no money to clothe and armour young men who were eligible for military service. Building on the bases laid by thepreparations of Theotokis, the economies of Eutaxias allowed us to train, in a very shorttime, many more soldiers than were provided for in the budgeted 60.000 strong ceilingof the army. Even so, money was so scarce that the ammunition for the Averoff onlyarrived in Greece after the outbreak of the 1st Balkan War.

All the General Staffs were expecting the war to last a few days. It lingered on, however,for eight months. The patriotic Bulgarians, mobilised to a man, were starving. In theBulgarian capital, Sophia, Metaxas, on a mission to negotiate a military pact, could notfind a bakery open to buy bread. And they could not borrow, since they had hastened tothrow away the control over their economy. The patriotic Young Turks had achievedas much. On the other hand, the subservient and corrupt Greeks sent IoannisValaoritis abroad to borrow, in the space of six months, an amount equal to four annualbudgets ! While all this was happening, the Greek securities were appreciating and theexchange rate of the drachma was rising, too. Quite unprecedented events ! Here is proof

18 A priest's son from Dadi, a smal town of Phocis. He studied at the Rizareios Ecclesiastical High School,together with his brothers, Charalambis and Ioannis. All three secured scholarships to study inuniversities in Germany. Athanassios and Charalambis got elected to parliament with the party ofMavromichalis, while Ioannis became a university professor and married the daughter of StamatiosDekozis-Vouros, a very wealthy man. Lambros Eutaxias (notorious in the opinion of some, but a greatfacilitator in politics with some notable achievements and patron of the arts, of nonprofits and ofcharity) was their son. Ioannis Eutaxias succeeded Ioannis Valaoritis at the head of the National Bank.In Novemeber 1914, he clashed with prime minister Eleftherios Venizelos over his refusal to help thegovernment with loans against the issue of inflationary currency and was forced to resign. Thatprecedent of government interference into the management of the bank was to do much harm both to thestate and to the National Bank

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that borrowing is not always a curse nor are surpluses always a blessing, as the Germansappear to believe19. Alas, those sterling fiscal practices were not to outlive thevictories.20

Without the drastic, constitutionally illegitimate, fiscal reform of Eutaxias and the prudenthusbanding of the resulting surpluses by Lambros Coromilas, the Finance minister ofEleftherios Venizelos, it is very doubtful that the boldness and the diplomatic genius ofVenizelos alone would have brought the borders of Greece to the river Nestos. On theother hand, without Venizelos, the prudence and the methodical work of Theotokis wouldhave taken us to Katerini, at the most. It was the combination of prudence and boldness, afelicitous coincidence, that brought about such admirable results.

The bisection of the paper currency The fourth (virtual) default

The First World War remains in the conscience of men as a pointless shedding of bloodthat deprived Europe of its world primacy, not only in the political, but, also in thespiritual and moral sphere. It was, in reality, a civil war between peoples who had becomeone people, but, like the ancient Greek city-states or the city-states of Renaissance Italy orthe states of pre-Bismarck Germany, would not conceive of ever setting rules to theirmutual antagonisms. In Greece, the war took the additional mode of internal dissension,of the National Schism. The venizelist party, a significant minority of the mass of thepeople, was forced to rely on the Allies of the Entente for economic support, while theirroyalist opponents secured loans from Germany. The Finance ministries of the Alliesattributed many abuses to the Greeks, although they were themselves guilty of waste in analtogether grander scale. What is certain is that, by the end of the war, the victoriousEuropean Allies had brought themselves to the same dire financial position as thevanquished. The vanquished, moreover, had a better case for renouncing their debts.

Except that, for Greece, the war did not end in 1918. In May 1919, the Greek army landedin Smyrna. Its legal position there, however, was settled only after 15 months, with theTreaty of Svres. In the meantime, Greece had to meet the immense expense of theexpedition and the occupation alone. Exactly on the first anniversary of the landing inSmyrna, the victorious Allies gave the Venizelos government permission to issueinflationary paper currency, contravening the provisions of the law of Control (law 2519).They tolerated breaching the law to allow the Greek government to meet the financialneeds of the expedition and the occupation. That hasty remedy, although damaging froman economic point of view,21 had the counterfeit advantage that it freed the Allies fromhaving to lend to Greece even one pound of real money, although Greece was in Asia

19 The do not truly believe this, however, as has been proven by their copious borrowing aimed atintegrating the economy of the former East Germany into the advanced economy of the former WestGermany. The ensuing rise in world interest rates led to increases in the borrowing costs of all countries,who, thus, contributed mightily, if indirectly, to the cost of German unification.

20 Shortly after the signing of the Treaty of Bucharest, that doubled the land area of Greece, IoannisValaoritis, who had a great share in the triumph and had added great glory to his already very illustriousfamily name, got drowned in a sea accident in the port of Piraeus. An ill omen ?

17

Minor as their mandatory. They were as much in default as Greece was. One cannot takesomething from one who has nothing.

Two months after the signing of the Treaty of Svres, on the 1st November 1920, the hated-by-the-people, slave-of-foreigners, dictator Eleftherios Venizelos was gleefully votedout of office. His successors, although they had opposed his Asia Minor policy, did,however, espouse, as did all Greeks, the vision of the Great Idea, of the Greek Asia Minor.The only one who could see the impasse and was bold enough to say so was a major-general of the Engineers Corps, Ioannis Metaxas, who had just then been pushed intoretirement.22 His diary preserves for us the content of two long discussions he had hadwith the post-November-1920 rulers in March 1921. The financial impasse of isolatedGreece is evident in this document, as is the powerlessness of the nominal victors of thewar, the English. The desperate (and failed) attempt of the army to force quickly adecisive battle and a victory, by pursuing the Turks to the ends of Asia Minor in July andAugust of 1921 is due to the lack of money. Greece had no money, so as to fortify the areasit had occupied and to await, even partially mobilised, the Turks to attack, as Metaxas andVenizelos, bitter opponents in everything but this, were unanimously counselling at thatmoment.23

In March 1921 we had money allowing us to stay in Asia Minor for three more months.We stayed for 17. Greek inventiveness devised a quick fix. By law, introduced by Financeminister Petros Protopapadakis and voted by Parliament on the 25th March 1922 ( the dayof the national holiday, a tragic coincidence) all banknotes in circulation were cut in half,physically bisected. The left halves, the Stavroi, that bore the figure of the first governorof the National Bank, George Stavros, were kept in circulation for a value equal to half theprevious face value of the entire banknote, while the right halves were converted intobonds of a forced loan to meet the needs of the state and of the expedition in Asia Minor.This was a highly unconventional move24, a policy of despair and, yet, most expertsconsider it ingenious and successful. I wonder, though, whether that stratagem led thegovernment into hoping, while, without that temporary fix, it would have consideredretiring the army from Asia Minor in some order and not in total disarray. Because the six

21 In the three years following the breaching of law 2519, until March 1923, the drachma lost 95% of itsvalue.

22 He had made himself unpopular with his friends who were royalist politicians and had won theelections. He was unable to find a newspaper that would print his unpopular and inconvenient truthsuntil the very eve of the Asia Minor Disaster, a sign of the extent to which the vision of Ionia hadinebriated the Greek people.

23 In view of those facts one cannot but wonder at the decision of the government, profusely applauded bythe opposition, to reject the compromise proposals put forth by the Allies and to entrust everything tothe Greek bayonet. They probably feared that public opinion would accuse them of treason, selling thecountry short and the like. They did, however, take advantage of war censorship so as to hide from thatvery same public opinion the impasse and the compromise proposals of the Allies. The end result wasthat they did not escape from the very fate they were trying to avoid.

24 My paternal grandfather, whenever he detected a spike in inflation, rushed to convert as many paperbanknotes as he could lay his hands on into coins, because her remembered that, although all paperbanknotes had been bisected, metallic coins had been spared.

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months gained by the Greek government through that strange default were also gainedby the Turkish leader Kemal.

The Refugee loan the Stabilisation loan

The Asia Minor Disaster brought a large part of the nation into the utmost penury. Therefugees had to get fed, get medical attention, get lodgings, if only for a time. Theresources of the indigenous people had been exhausted after ten years of wars. It took onemore year for peace to be agreed in Lausanne. And it was fortunate that EleftheriosVenizelos conceived the idea of a sophism that he proposed to the Turks : Greece wouldstate that it owed them war reparations but that it was unable to pay. Thus, he convincedthem to accept only moral compensation, otherwise we might have had to go to war again.Political instability in Greece (there were five administrations in the year 1924 alone, due toinfighting between venizelist factions) would not let the country negotiate for a loan theneed of which was undeniable. There were infants and old people dying every day in therefugee camps. Once again, Greek inventiveness thought up a solution : The loan wouldnot be contracted by the Greek government but by an International Commission for theResettlement of Refugees. Its chairman, Henry Morgenthau Senior25, an American,Israelite in religion, was an experienced banker. Even so, there occurred one of thosestrange historical coincidences that Thucydides loved to point out. Morgenthau,according to his memoir of the matter, secured the Refugee Loan, carrying the guaranteeof the League of Nations, in September 1924, in return for his discretion, after recognisingon the walkway along the coast of Lake Geneva the eccentric, agoraphobic Governor of theBank of England, Montagu Norman, who was visiting that city incognito ! Such was thecoincidence that saved the life of many a refugee child in the winter of 1924-1925 26

The political turmoil of the years 1923-1926 came to an end with the elections of November1926. Proportional representation and the multiple misfortunes that the country hadsuffered dictated a political compromise. The Ecumenical (all-party) administration ofAlexandros Zamis kept at its core the moderate venizelist parties of Kaphantaris andMichalakopoulos and the Free Opinion party of Metaxas, in essence the party of themoderate royalists. In the field of the economy, it managed to balance the budget. Itfounded a central bank, the Bank of Greece, in which alone it vested the power to issuecurrency. In the one-and-a-half year of its life the coalition government contracted theStabilisation loan, meant to stabilise the international value of the drachma. That loan, too,required the guarantee of the League of Nations.

25 His son, Henry Morgenthau Junior (III), holds, to the present day, the record of the longest-servingTreasury Secretary of the USA, during the Presidency of Franklin D. Roosvelt. The Morgenthau Plan, aproposal to turn Germany after the 2nd World War into a pastoral country, so that it would no longerbe a threat, was prepared under his auspices.

26 Had the chance encounter not taken place, the loan, in all probability, would have gotten delayed until atleast March 1925, when the following session of the League of Nations was to be convened.

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The Quadrennium of Venizelos the fifth default

Eleftherios Venizelos overthrew the coalition government in 1927. In the elections of 1928,he got such an overwhelming majority that he was able to write his wife that the peopleappointed him parliamentary dictator. He was sincere in his wish to bridge the schismand to offer the nation peace and prosperity. He was not, however, able to earn the trust ofneither his opponents nor of his supporters. One complication was that the internationaleconomic environment had by then moved far away from the liberalism that Venizelosunderstood. There had come the time of commercial and exchange controls, ofprotectionism, of bilateral commercial agreements and of dictatorial political regimes. Thestabilisation programme that Venizelos continued to implement had started bearing fruitbut the rest of the world was getting submerged in the great economic crisis of theinterwar years. The mortal blow was dealt to Greece by the drastic devaluation of theBritish pound against the dollar in 1931 which followed the unilateral suspension byEngland of the convertibility of sterling into gold. The Greek government and the Bank ofGreece had not foreseen the devaluation27 and lost a lot of money they had earmarked inorder to service the loans of the country. Just like Trikoupis, Venizelos had no notion ofthe technique of default. At the height of the crisis, in September 1931, he disagreed withhis Finance minister, Georgios Maris, (over the purely political matter of the date of theforthcoming elections and of the electoral fallout of the needed policy of spendingreductions) and fired him, as, indeed, he fired the Governor of the Bank of Greece,Alexandros Diomedes (for a non-existent foreign exchange infraction). He spent the lastforeign exchange reserves paying interest and principal on foreign loans in an attempt tosupport the creditworthiness of the country. Venizelos went on a desperate tour of the restof Europe seeking loans, but his prestige in the rest of Europe was no longer as high as ithad been before, because the leaders with whom he had worked together in earlier timeshad now left the stage. In May 1932, Greece went again into default.

Kyriakos Varvaressos, a German-trained economist of some international standing,devised and implemented a system of currency and foreign exchange controls that wasdestined to isolate and protect, as much as that was possible, the Greek economy from thestorms (but also to deny the opportunities) of the world economy over the long time spanof 60 years.

Under the dictatorial regime of the 4th August (1936-1941), the Greek economy appeared tobe adjusting adequately to the more restrictive world economic environment. Metaxas, itsleader, sought a compromise with the creditors of Greece but his utmost priority was toprepare the country for a war that he considered imminent. He used to answer theinsistent queries of the creditors, most of whom came to Greece from London, thus : We

27 It was, nevertheless, clear to all that England would not be able to maintain the exchange rate of thepound against the US dollar and gold at the prewar levels. Churchill, an amateur in charge of HisMajesty's Treasury, wanted, with his usual strong will, to repeat the historic achievement of Englandafter the Napoleonic Wars. England paid that insistence with unprecedented, in both size and duration(in excess of a decade), unemployment and consequent misery. All the same, knowing that the poundwould get devalued at some time does not mean that one could forecast with any accuracy when thatwould happen.

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are spending this money to arm ourselves for their good, so it should be enough for themthat we are their friends. He went to the Permanent Court of Arbitration in the Hague 28

and got it to issue a decision whereby, in the case of a settlement of a default, any specialprivileges of certain lenders are brought to exactly the level set by the settlement for theremaining lenders. This decision has since been recognised as precedent and an essentialprovision of the international law governing the defaults of sovereign states. It has been inforce to the present day. However, in an era of geopolitical earthquakes succeeding oneanother, Metaxas was unable to come to a definitive settlement, so that the pending matterof the non-serviced loans that had been guaranteed by the League of Nations was totrouble Greece for long years, as late as the decade of 1960.29

The Government of Liberation the sixth (virtual) default

The government of the Liberation of 1944 arrived in Greece in a haste to preclude thetakeover of the capital by the communists. Its financial plans had not matured. TheOccupation had drained the last of the little resources that the Greek economy couldproduce through the issuing of inflationary currency. The occupation authorities got itinto circulation and acceptance by force of arms. The economics management staff of thegovernment of the Liberation, professors Alexandros Svolos, Angelos Angelopoulos andXenophon Zolotas were, it seems, carried away by the spirit of euphoria and theexpectations of immediate relief. Varvaressos was disliked by the politicians because hehad allegedly collaborated with the 4th August regime and because he had been absentfrom Greece, together with the government in exile, during the Occupation.30 They werehoping to terminate rapidly the policies of currency and exchange restrictions thatVarvaressos had devised and implemented. In practice, though, since the reserves, in goldand pounds sterling, that the government had brought along were finite, they thought itprudent to hoard them, instead of releasing them in some ample quantity into the market.Of course, their chosen policy made that money much more desirable. This was the exactopposite of the policy recommended by those very same professors in their voluminoustextbooks. Faced with generalised distrust, they were forced to print inflationary currencyin quantities that exceeded many times over such printing as had been undertaken by thecollaborationist governments of the Occupation. From that point on, matters went out of

28 Greece was represented in the Court proceedings by Kyriakos (Kokos) Tenekides, maternal uncle of theNobel-winning poet George Seferis, a scion of the historic family of the island of Naxos (the town ofPhiloti) and Smyrna, father of Panteios Graduate School of Political Science professor, GeorgiosTenekides. Metaxas, unlike many dictators of the interwar period, did not foud a political party ofmovement and, therefore, was not obliged to appoint any people recommended by the party to postsin which he would rather appoint others, even if he knew they were his political opponents.

29 at which time it was obliged to came to terms with the United Nations Organisation, that had inheritedthe assets (down to the premises in Geneva, as well as such of the staff that had survived the 2nd WorldWar) of the League of Nations .

30 The extent to which the three professors had felt the ills of the Occupation is an open question, given thattwo of them were scions of extremely wealthy families, while the third, because of his extremely simpleand frugal, indeed ascetic, way of living before the Occupation, is unlikely to have noticed anyadditional privation due to the Occupation.

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their control. The currency of Greece, for nearly the next ten years, would be the goldsovereign. We would not have banks, in the real sense of the word, for, maybe, fifty moreyears. By converting the occupation drachmas into new drachmas at the rate of one newdrachma against fifty billion old drachmas, all money liabilities vanished, to the benefit ofthe debtors, whose debts in occupation drachmas were not converted new drachmas thatimmediately lost most of their value. Law 18 of 1944 was drafted in such a hurry thatnobody took care to put in an exception for the Occupation Loan, about which we get tohear a lot these days. The loan had been forced by the Germans on the Greekcollaborationist government. It is quite possible that it is, also, subject to the provisions oflaw 18 of 1944 that erased all debts.

It is worth noting that only one of the perpetrators of the sixth default, Alexandros Svolos,the one who was least responsible and only really put his name and signature under thetext of the law, suffered any consequences to his reputation. Zolotas31, who bore theheaviest responsibility, did have a great career as Governor, for nearly 20 years, of theBank of Greece, cabinet minister and even got to be prime minister. His readiness to setaside the teachings of his academic field, those that he himself had professed in severalvoluminous textbooks, in favour of what the political leadership of the day perceived to beits interest, appears to have been acknowledged and rewarded.32

Post-dictatorship era ( 1974- date ) European Union the seventh default - bankruptcy

The adhesion of Greece to the European Communities, as the European Union was calledthen, stemmed from a mainly political and not economic logic. There was an economicrationale, though. The Greek economy and society had lived and grown since 1932 withina narrow, limited, but, also, protected horizon. That experience was radically differentfrom the conditions in which the Greek economy had been operating since at least the eraof the New Greek Enlightenment in the late 18th century. The consequences of lookinginwards, of the various restrictions on economic activity and of the ensuing distortionswere evident to us through the artificial and temporary well-being of the years 1967-1973and the rough awakening of 1973-1974 brought about by the first oil crisis and by theTurkish invasion of Cyprus in 1974. It was only logical that we sought to accede to anenvironment in which the restrictions could be relaxed under somewhat controlledconditions.

Anyone can easily ascertain that the material standard of living of the Greek people and,even, their educational achievements have taken great strides since 1981. Even the periodof economic stagnation that started in the decade of 1980 brought to most of the Greekssignificant material benefits through a redistribution of income and wealth, even as a largepart of our productive base withered in the name of a supposed social sensitivity andjustice, that only vainly tried to mask the underlying covetousness of an overwhelmingmajority of the citizens.

31 He, like Eutaxias, had studied at the Rizareios Ecclesiastical High School.32 One wonders as to what this precedent implies for the incentives of public servants in Greece ...

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As we have seen in reviewing the entire history of the Greek economy, developments inthe world economy cannot be made to await, neither Greece, nor any other country. Theremaining countries in the European Union, however much they wanted to help Greece,felt they had to proceed quickly with the economic and monetary integration of theireconomies. The Greek economy cast away the last vestiges of protectionism in 1992.However, instead of taking advantage of the low cost of capital to restructure theproductive base of our economy, we chose to invest in more jobs in the public sector,many of them useful, but, really, beyond our economic means. We did invest in socialservices, too, and reacted fiercely when reform of our social security system becameoverdue. Those distortions created further distortions in the private sector of oureconomy. There too, the ample financial resources were placed in the production of non-internationally-tradeable goods and services, to the detriment of the tradeables, that hadbeen exposed to world competition somewhat clumsily and prematurely.

The distortions became more rigid in the six years 2002-2008, during which the cost ofmoney, due to our membership of the Eurozone, was extremely low.

The world financial crisis of September 2007 was the quarter-hour of Rabelais for theGreek economy, the time at which the check for the meal comes. Given the immense sizeof our debt over-exposure, the only possible, and maybe tolerable, option was a controlledcrash. Our partners forgave us a debt of 100 billion euro, substituted for our privatelenders to the tune of 220 billion euro, refinanced our banks through the European CentralBank with an amount exceeding 100 billion euro. This was the largest debt settlement andfinancial rescue package in the history of the world.

The afterword of the entire operation to rescue the Greek economy cannot be written yet.One mustnote, though, that, in comparison to Spain and Portugal, who went through acrisis of a similar nature, the rise and fall of the standard of living in Greece in the years2002-2014 were much greater. Even so, Greece is in a better position, as regards its averagestandard of living, in comparison with the two countries above, than it was in 2002.Taking into account the fact that Greece, under pressure from the troka, has implementedmany more economic reforms than those two countries, it is probable that it will be able torecover, in the three years to 2016, one-half of the well-being that it lost in the collapse ofthe five years 2008 2013. Then, we might be able to say that we managed to fool the dim-witted Franks once more.

The Cycle of Over-indebtedness

The Finance minister of Louis XV of France, Joseph Marie Terray, a defrocked monk,notorious for debauchery and obscene language, but, also, a man of exceptional abilitiesand decisiveness, had pontificated that a frequency of defaults inferior to three in everycentury is a sign of fiscal timidity. This is the information relayed by Andrads, for, onthe internet, one reads that Terray recommended a default only once in every hundredyears. In any case, the modern Greek state, having defaulted seven times in 193 years,

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cannot be accused of any fiscal lethargy. Are, though, those defaults unavoidable ? Mustevery generation get a taste of them ?

If we get to look at matters more carefully, we will notice that, in six out of the sevendefaults, our state can point to very serious extenuating circumstances. It was to itsadvantage that it chose to sacrifice its crediworthiness in order to save the greater goods atstake, in most cases its very existence. However, this latest default, the one that we areliving through today is different. It might even be a bankruptcy. The defaulter does notpay because he cannot, while the bankrupt chooses not to pay, even if he could.

The sad truth is that our economic policy in the years 2002-2010 was the exact opposite ofthe one we needed. There were voices warning us but we chose not to heed them. Eventoday, we shut our eyes and ears so as to shut out the bad news. This is our truebankruptcy today, the one of the spirit and the mind. Any comparison with the noblenational obsessions of previous generations is not at all flattering for us.33

Over one hundred years have passed and we still resemble The Beggar of AndrasKarkavitsas, who acknowledges that he could work and be of service, but that people,with a minimal bother on his part, are prepared to offer him charity that it would not berational to refuse. Is the conduct worthy of a nation that has kept its language and faith,after going through trials much harder than default ? Of a nation that has shone the lightof its values for long centuries and instructed the peoples of the whole world ? I foundone answer in a memory of my spouse, Sophia Mourouti-Georgana, recalling MotherlandDay in the Christian summer camp for teenage girls of Vravron, a few years ago. Howeverhard the two of us searched, we were unable to find a precise citation. Maybe a member ofthe audience could help us. The oration of the young girls of the camp ended with thedilemma at the end of this text, a dilemma that, I believe, we ought to set and keep settingto ourselves : To be a torchbearer or, rather, a beggar to the ends of the earth ?

33 Andrads attributes to Thucydides the assertion that rarely have the Greeks, having been fortunate,shown themselves prudent. I have not been able to locate the passage and I hope it is not inThucydides. And if it ever held true, at least that it not hold in the future.

Alas, the quotation is correct. It is in Book VIII, chapter 24 of Thucydides, who qualifies it slightly. I still hope we shall be able to prove him wrong one day.

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