By Assoc. Prof. Dr. M. Fatih Tayfur
The question of whether or not Greece can be rescued from the crisis gripping it has become the subject of heated debate. But this is not the first time that Greece has been confronted with such a situation. “The Greek Tragedy” has been watched by a large audience ever since the 19th century.
When trying to understand the financial crisis that Greece is currently immersed in, a glance at the country’s history can make a major contribution to day to day analysis. Can Greece survive? If one begins by looking at objective conditions, one would answer no. But if you look at the country’s past, then there is a good chance that one might reply in the affirmative. The difficulties that Greece is experiencing today are not new. It might be said that it is simply a new problem similar to those of earlier periods.
The leaders of the Greek War of Independence sought their finance in London. The Loans of Independence raised on the London markets produced £8 million in 1824 and £2 million in 1825. Greece offered as a surety for this the income from its “salt production, fisheries, customs, and state lands” and a committee was set up to supervise this. But the leaders of the independence movement forgot the purposes and responsibilities for which the loan was made and used the resources for themselves and their associates and the outcome was that ‘Greece’ could not pay its debts.
When Greece was established in 1830 by the Treaty of London it needed money but because of its debts, no one would make a loan to it. So Greece, in order to get the vital support it needed, proposed that a kingdom be created and that a European prince become king of Greece. The proposal had the desired effect and in 1830 a new credit of £2.4 million was granted, known as the Guaranteed Loan and underwritten by Britain, France, and Russia. But when Greece was again unable to pay up and lurched towards bankruptcy, its debt was restructured. In 1843 the Great Powers asked Greece to restrict all its public expenditures and use its customs revenues to pay off its foreign debt. But this compromise was never put into application because of political instability and falsifying of the budget figures and so in 1847 the British sent naval warships into Greek waters.
In the hope of acquiring further territory Greece supported Russia during the Crimean War and so the British and French occupied the Piraeus between 1854 and 1857 and made their withdrawal conditional on the establishment of an International Financial Investigation Commission aimed at ensuring the discharge of the debt. The commission revealed the fact that government bodies in Greece were falsifying the figures for budgetary revenues and so an agreement was reached. However Greece had further payments difficulties in 1864 and asked for its debts to be restructured again. This was achieved by mortgaging its customs revenues.
Between 1879 and 1890 Greece again entered into a period of heavy borrowing. Foreign loans were received, mostly from France, in 1879, 1881, 1884, 1887, 1889, 1890/91 totalling 630 million French gold francs. In the 1884 borrowing exercise, the customs revenues of virtually all Greek harbours was presented as surety and in 1887 the Monopoly Loan lead to the mortgaging of all alcoholic beverage revenues and the creation of the Regie Administration. But a financial order which was based not on production but on inflows of foreign capital was not sustainable and in 1893, Greece was again unable to meet its commitments and once again asked to declare bankruptcy.
While it was trying to restructure its debts, Greece in 1897 proclaimed a war which ended in a rout by the Ottomans and the Great Powers had to convince the victorious Ottomans to desist. The Great Powers included the repayment of foreign debts in the peace agreement and they set up an ‘International Financial Commission’ or Public Debt Administration in Greece. The Debt Administration was set up on the insistence of Germany and taxes were to be increased in order to pay off the debts. Tax evasion was to be prevented and measures were to be taken to restrict government spending.
In order to pay the 555,716,500 francs owed by Greece, the Debt Administration took over all state monopolies, tobacco, customs incomes and stamp duties, but it had also made new borrowing easier. When Greece came out of the Balkan wars with a large budget deficit, it comfortably raised 500 million francs. After 1916 its military expenditures rose, but Britain, the USA, and France did not hold back from giving large loans. But in the collapse which followed its defeat in Anatolia in 1922, a further debt crisis arose between Greece and its allies and the financial markets were closed to Greece. In 1927 debt repayment agreements were made and then £9 million was paid to Greece via the League of Nations.
In 1928 Greece resumed large scale foreign borrowing and by 1931 its external debt had reached 1 billion francs. Eleftherios Venizelos thereupon demanded the postponement of the payment of debts from the Debt Administration and requested a new loan of $50 million, suggesting that Greece was once again being dragged into bankruptcy. Greece then accepted proposals for a loan of $10 million under the international supervision of the Financial Committee of the League of Nations on condition of restricting foreign expenditure but in April 1932 it again proclaimed that it had gone bankrupt.
In the wake of World War II Greece’s economy was on the point of collapse and it required a gigantic amount of aid. This was the time when it came under US supervision. US Aid committees, established within the framework of Truman and the Marshall Plan, designed the country’s entire financial and trade policies. The government of Greece could not take any important decision without the approval of the Americans. But the Americans gave notice that there were some flagrant abuses in the utilisation of the aid. The USA aimed at transforming its economic assistance to Greece into direct foreign investment. At the start of the 1960s US official economic aid dwindled and up until 1974, American private capital was the most important component of the Greek economy.
After 1974 Greece’s economic and financial policies rested on large volumes of aid fromt the EEC/EC/EU, but though the level of prosperity rose, it continued to experience serious problems in its fiscal policies. EU financing reached $20 billion in 1991 but it was not used productively and tax evasion continued to be a problem. Early in the 2000’s Greece joined the Euro-zone but soon afterwards it emerged that it had falsified its statistics in order to comply with the conditions. Constant rises in indebtedness, large budget deficits, and an unsustainable fiscal policy culminated in a new fiscal and financial crisis and in 2011 Greece was again on the point of bankruptcy.
Can Greece be resuscitated? Historically Greece’s experience in statehood runs parallel to the policy of Europe and the West in channelling capital to the East. In the world of laissez-faire liberalism, Greece has submitted to having its revenues taken under international control in order to stave off state bankruptcy and so it managed to prolong its existence by paying its debts or using new methods to postpone them. In the second half of the twentieth century although it persisted with its former bad habits in fiscal and financial policy inside the International Keynesian world of liberalism, by receiving substantial inflows of American and EU capital it managed to stay afloat and not have problems in paying its debts or facing possible bankruptcy in exchange for the global and regional economic, political, and ideological gains it brought.
In accordance with the relationship between state and market in the Neoliberal deregulated world of the early 21st century, what is today being sought from Greece in the face of its current fiscal and financial crises and possible bankruptcy is the privatisation of income-generating government institutions and the reduction of budget spending in return for extending further loans. It is highly probable that for Greece to carry on, these request will be put into application by striking, as always, a synthesis with the country’s own habits.
Assoc. Prof. Dr. M. Fatih Tayfur is a professor at Middle East Technical University, Department of International Relations.
This article was firstly published in August issue of USAK’s monthly journal ANALIST.