On 7 May 1832 the great powers signed an agreement with the King of Bavaria, father of Otto, the future King of Greece, obliging the newly ‘independent’ state to give absolute priority to repayment of debt (see article XII in the illustration below). As can be clearly seen in the reproduction of part of the agreement of 7 May 1832, this document was signed by the representative of the British Crown, Lord Palmerston; the representative of the French monarchy, Talleyrand; the representative of the Tsar of all the Russias and the representative of the King of Bavaria acting on behalf of Greece before Otto and his suite had even left Munich! Otto was not to arrive in Greece until January 1833. With this document, we have undeniable proof of the odious and illegal nature of the debt imputed to the Greek people from 1833.
The Troika exerted strict budgetary control on the state and its revenue collection. They regularly demanded that taxes and duties be increased and that spending be compressed. We note that the 5th National Assembly which met in December 1831 had adopted a ‘Greek Constitution’ of which Article 246 stipulated that the sovereign did not have the right to make decisions alone regarding taxes, duties, public spending or revenue collection, without observing laws or resolutions adopted by the legislative body. |8| The monarchy and the Troika trampled this Constitution underfoot without ever giving it due recognition.
In 1838 and 1843, the monarchy suspended debt payments, not having enough funds in the Treasury to afford such heavy interest rates. |9| At the time of the 1843 default, when the interest to be paid represented 43% of state revenue, the Troika put maximum pressure on the monarchy to implement a radical austerity plan as dictated by the ambassadors of the three powers (see box ‘The Memorandum imposed by the Troika in 1843’).
Such were the sacrifices imposed on the Greek population that they rebelled on several occasions. In 1843, the revolt was particularly strong. Already outraged by the pomp and extravagance of the ceremonial inauguration of the imposing royal palace (now the seat of the Hellenic Parliament), in September 1843 the population of Athens rose up against yet another tax increase and clamoured for a constitutional regime. The United Kingdom went as far as threatening King Otto with military intervention if he did not increase taxes to fulfil his obligations towards the Troika. The British and French navies occupied the port of Piraeus for two years from May 1854 as a very efficient way of laying hands on customs revenue levied in the port.
The memorandum imposed by the Troika in 1843
|
Otto was eventually overthrown and expelled by popular uprisings throughout the country in 1862. After which, a new constitution was introduced that was only a limited restriction of regal powers. The Troika looked for a new King. London proposed the second son of Queen Victoria. France and Russia were hostile to this proposal, not wanting to see British influence spread further. Finally, agreement was reached on a Danish prince by the name of Wilhelm of Schleswig-Holstein-Sonderburg-Glücksburg.
Since 1843, as promised to the banks, the Troika had undertaken the repayments of Greek debt when Greek revenues were insufficient to cover capital and/or interest repayments. Troika repayments ended in 1871 and the creditors could be well satisfied: they had earned interest and their loans were repaid. The FF 60 million loan was wiped out.
However, Greece continued to devote a part of its revenues to debt repayment. France, Russia and the UK claimed from Greece the sums they had paid out to the bankers when Greece was unable to pay. These payments continued into the 1930s, although Russia received no further repayments after the 1917 revolution.
What happened to the repayments of the 1824 and 1825 loans?
It is worth remembering that repayments were suspended in 1826 and the creditors refused to come to an agreement with the provisional Greek government. The Troika finally deposed and replaced the provisional government with a monarchy. The FF 60 million loan (which was the equivalent of 124% of Greek GDP in 1833) did not replace the 1824 and 1825 loans (which were the equivalent of 120% of Greek GDP in 1833). Once the FF 60 million had been repaid, the Troika insisted that the matter of the 1824 and 1825 loans be settled. That is why, in 1878, Greece was pressed into an agreement with the bankers who held these loans. The old bonds were exchanged for new bonds worth £1.2 million sterling. This was an excellent arrangement for the creditors but more injustice for the Greek people. As the amount effectively transferred to Greece in the 1824-25 loans was no more than £1.3 million, the creditors had every reason for satisfaction, especially as some of them had purchased their bonds for next to nothing. The bankers have continually speculated on Greek bonds, selling when they start to go down and buying back when they start to rise.
It is shocking to see how most of the superficial analysis of Greek debt claims that Greek public spending was too high and tax evasion was rife. However, a rigorous analysis of State budgets shows primary surpluses, with only two exceptions; in other words, all through the 41 years between 1837 and 1877, revenues were superior to expenditure before debt repayment was taken into account. Once debt repayment enters the picture, it becomes clear that it was the sole cause of the unsustainable debt burden. |12| We are not suggesting that the Monarchy managed the State budget in the interests of the population. Throughout history, creditors have typically insisted upon having a primary budget surplus. A primary surplus is a guarantee to creditors that a debt can be repaid, as it provides the funds for repayment. The burden of debt repayment and administrative supervision exercised by the big European powers are among the principal reasons why Greece has been unable to establish a growing economy.
Conclusion of this part
The 1824-25 loans should be considered as illegitimate and illegal because the terms in the contracts were unfair and the manipulations by the bankers clearly deceptive.
The 1833 loan clearly falls into the category of odious debt. |13| The debt was taken on by a despotic regime dominated by major foreign powers consolidating their strategic objectives on the backs of the Greek people, while at the same time catering to the demands of the international bankers.
The refusal of the creditors and the great powers to abolish or reduce the debt has produced long-term effects that maintain Greece in submission and prohibit real economic development.
The people of Greece have remained in the thrall of the odious debt that she was born with.
Several key economic and social points to understanding the historical context in which Greece attained independence in the 19thcentury |
- Grèce 1832 - 1947
Bibliography for the first part:
- BELOYANNIS Nikos, “Foreign capital in Greece” (in Greek) http://iskra.gr/index.php?option=co...
- Truth Committee on the Greek Public Debt, Preliminary Report of the Truth Committee on Public Debt, Athens, 2015 http://cadtm.org/Preliminary-Report...
- JUGLAR Clément. 1862. “Des crises commerciales et de leur retour périodique en France, en Angleterre et aux Etats-Unis, Paris 1862” http://gallica.bnf.fr/ark:/12148/bp...(in French).
- KATSIMARDOS Takis, “L’ancien Mémorandum dans la Grèce de 1843”, published 18/09/2010 in the Greek financial daily Imerisia, (not available in English).
- Mandel, Ernest. 1972. Le Troisième âge du Capitalisme, Paris: La Passion, [1997], 500 p.
- Mandel, Ernest. 1972. Late Capitalism, London: Verso, / 1975. London: New Left Books.
- Mandel, Ernest. 1978. Long Waves of Capitalist Development, the Marxist Interpretation, based on the Marshall Lectures given at the University of Cambridge, Cambridge University Press and Paris: Editions de la Maison des Sciences de l’Homme, 141 p.
- Marichal, Carlos. 1989. A century of debt crises in Latin America, Princeton: University Press, 283p.
- Marx–Engels, 1978. La Crise, col. 10/18, Union générale d’éditions, 444 p.
- Reinhardt Carmen and Rogoff Kenneth, 2011. This Time is Different: Eight Centuries of Financial Folly, Princeton University Press.
- Reinhardt Carmen M., and Sbrancia M. Belen. 2015 “The Liquidation of Government Debt.” Economic Policy, no. 82: 291-333
- Reinhardt Carmen and TREBESCH Christoph. 2015. The pitfalls of external dependance : Greece, 1829-2015 http://www.brookings.edu/ /media/pr...
- Sack, Alexander Nahum. 1927. Les Effets des Transformations des Etats sur leurs Dettes Publiques et Autres Obligations financières, Recueil Sirey, Paris (in French).
- Tsoucalas Constantine. 1969. The Greek Tragedy, Penguin Books Ltd, Harmondsworth, 1969.
Acknowledgements:
The author’s thanks for help and suggestions go to: Tassos Anastassiadis, Thanos Contargyris, Olivier Delorme, Romaric Godin, Jean-Marie Harribey, Daphne Kioussis, Yvette Krolikowski, Christian Louedec, Damien Millet, Giorgos Mitralias, Antonis Ntavanellos, Nikos Pantelakis, Claude Quémar, Yannis Thanassekos, Dimitra Tsami, Eleni Tsekeri, Alekos Zannas.
The author accepts full responsibility for any errors that may occur in this work.
Translated from the French by Snake Arbusto, Vicki Briault and Mike Krolikowski (CADTM)
Footnotes
|1| See the work of Juglar, Marx, Kondratieff, Kindelberger, Mandel and others.
|2| A decisive battle was won by the independentists at Ayacucho in Peru on 9 December 1824, but the conflict was not over. Note that only half the sum of £20 million was actually transferred to Latin America.
|3| This is indeed what happened with the two loans of 1824 and 1825. The bonds were sold at 60% of their face value right from the start. See Carmen M. Reinhart and Christoph Trebesch: The pitfalls of external dependence: Greece, 1829-2015, p. 24. It is still common practice to sell bonds below their face or nominal value when they are first issued in order to attract buyers, even if the discount is much less than it was in the 19th century.
|4| Ernest Mandel proposes the following chronology for the long waves from the late 18th century to the early 20th century: 1793-1825 was a period of strong growth ending with the big crisis that broke in 1825; followed by a period of slow growth from 1826 to 1847 with a major crisis in 1846-47; a period of strong growth from 1848 to 1873 with a major crisis in 1873; slow growth from 1874 to 1893 with a major banking crisis from 1890-1893; strong growth from 1894 to 1913. See E. Mandel, Late Capitalism, London: Verso, 1972/ London: New Left Review, 1975. The phases of strong expansion and those of slow expansion are in turn subdivided into shorter cycles of between 7 and 10 years, which themselves end in crisis.
|5| On the complex and tense relations between the United Kingdom and Russia, see the box entitled ‘Keys to understanding the historic context of the birth of the independent Greek state in the 19thcentury’. See also Olivier Delorme, La Grèce et les Balkans, du Ve siècle à nos jours, Gallimard, Paris, 2013 (in French).
|6| This is largely what also happened in 2010-2012 when 13 Eurozone countries guaranteed the loan made by the European Financial Stability Facility. Should Greece decide to default, these countries undertook to ensure the repayment of bonds held by private banks. See the Preliminary Report of the Truth Committee for the Greek Public Debt, Athens, 2015 http://cadtm.org/Preliminary-Report... chapters 3 and 4.
|7| Until Otto reached the age of 20 (in 1835), a Regency Council was appointed, composed of two Bavarian aristocrats and a general. When he first arrived Otto settled in Nafplion, a town of 6000 inhabitants, before deciding with the approval of the Regency Council that Athens, then with only 5000 inhabitants, would become the capital. See https://en.wikipedia.org/wiki/Otto_...
|8| See Nikos Beloyannis, “Foreign capital in Greece” (in Greek). http://iskra.gr/index.php?option=co...
|9| On 31 December 1843, Greece had already paid the 33 million GDR of interest plus capital due. But she still had to pay the sum of 66 million GDR to the three Troika powers guaranteeing the 1833 loan. This was far more than Greece had actually received in 1833. (Information provided by Dimitra Tsami.)
|10| This was the historic episode that gave its name to Syntagma Square, meaning Constituion Square.
|11| From Takis Katsimardos “The Former Memorandum in the Greece of 1843”, published 18/09/2010 in the Greek financial daily, Imerissia, now discontinued.
|12| According to Reinhart and Trebesch, 2015, The pitfalls of external dependence: Greece, 1829-2015, p. 23, Appendix B.
|13| Several times during the 19th and 20th centuries, debts that were considered odious were abolished. The jurist Alexander Sack, who was the authority on odious debt, describes a number of case references in a study published in Paris in 1927,
See: Sack, Alexander Nahum. 1927. Les Effets des Transformations des États sur leurs Dettes Publiques et Autres Obligations financières, Recueil Sirey, Paris (in French):
(http://www.worldcat.org/title/effet... ). In this treatise Sack, a Russian émigré and legal theorist, formalized the doctrine of odious debt. It was based on two 19th-century precedents—Mexico’s repudiation of debts incurred by Emperor Maximilian, and the denial by the United States of Cuban liability for debts incurred by the Spanish colonial regime.
See: Sack, Alexander Nahum. 1927. Les Effets des Transformations des États sur leurs Dettes Publiques et Autres Obligations financières, Recueil Sirey, Paris (in French):
(http://www.worldcat.org/title/effet... ). In this treatise Sack, a Russian émigré and legal theorist, formalized the doctrine of odious debt. It was based on two 19th-century precedents—Mexico’s repudiation of debts incurred by Emperor Maximilian, and the denial by the United States of Cuban liability for debts incurred by the Spanish colonial regime.
|14| All citations are from Chapter 1 (“The Emergence of Independent Greece (1821-1909”) of The Greek Tragedy by Constantine Tsoucalas, Harmondsworth: Penguin Books Ltd, 1969.
Other articles in English by Eric Toussaint (358)
http://cadtm.org/Newly-Independent-Greece-had-an#pagination_tous_articles_auteur
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http://cadtm.org/Newly-Independent-Greece-had-an#pagination_tous_articles_auteur
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