Since 2010, Greece has been the centre of attention. Yet this debt crisis, mainly the work of private banks, is nothing new in the history of independent Greece. The lives of Greeks have been blighted by major debt crises no less than four times since 1826. Each time, the European powers have connived together to force Greece to contract new debts to repay the previous ones. This coalition of powers dictated policies to Greece that served their own interests and those of a few big private banks they favoured. Each time, those policies were designed to free up enough fiscal resources to service the debt by reducing social spending and public investment. Thus Greece and her people have, in a variety of ways, been denied the exercise of their sovereign rights, keeping Greece down with the status of a subordinate, peripheral country. The local ruling classes complied with this.

This series of articles analyses the four major crises of Greek indebtedness, placing them in their international political and economic context – something which is systematically omitted from the dominant narrative and very rarely included in critical analysis.

To fund the independence war it waged against the Ottoman Empire from 1821 and to establish the new state, the provisional government of the Hellenic Republic contracted two loans from London, one in 1824 and the other in 1825. Bankers in London, by far the biggest financial centre in the world at the time, hastened to set up the loan, seeing it as a means of making a huge profit.

Internationally, the capitalist system was in full speculative phase which, throughout the history of capitalism, has generally been the final phase of a period of strong economic growth preceding a backlash. That backlash takes the form of bursting speculative bubbles and then a period of depression and/or slow growth. |1| Bankers in London, followed by those of Paris, Brussels and other European finance centres, were in a frenzy to invest the enormous amounts of liquidity at their disposal. Between 1822 and 1825, London bankers ‘harvested’ £20 million sterling on behalf of leaders of the newly independent Latin-American countries (Simón Bolívar, Antonio Sucre, Jose de San Martín and more) to finalize their independence struggle against the Spanish crown. |2| The two Greek loans of 1824 and 1825 came to a total of £2.8 million, i.e. 120% of the country’s GDP at the time.

Both in the case of Greece and in that of the young revolutionary independent governments of Latin America, the new states were barely emerging and did not yet have international recognition. Spain was opposed to European states giving financial support to the fledgling Latin-American ones. After all, it could reasonably be supposed, at the time, that the independence struggles were not completely over. Lastly, loans were being granted to republics whereas hitherto only monarchies had been admitted to the club of sovereign borrowers.

All that goes to show just how eager bankers were to take financial risks. That banks would lend 120% of a country’s entire annual product to the provisional government of a Greek state only just emerging under wartime conditions is a clear indication of a reckless desire to make juicy profits. Alongside the bankers, big industrial and commercial companies also supported this craze, as the amounts loaned were largely going to be used by the borrowers to buy the new armies weaponry, uniforms and equipment of every sort from the United Kingdom.

How did the loans work?

• 
• Greek Government 5 ­loan of 1825 bond for­ L100 no-1041 signed as contr­actors by J.S.Ricard­o ornate border Athe­na at top

London bankers issued sovereign bonds in the name of the borrower states and sold them on the stock-exchange in the City. Most of the time, bonds were sold for less than their face value (see the illustration of an 1825 bond worth £100). Thus each bond issued on Greece’s account for a face value of £100 was sold for £60. |3| This meant that Greece obtained less than £60, once a hefty commission had been deducted by the issuing bank against an IOU of £100. This explains why for a loan valued at £2.8 million, Greece only received payment of £1.3 million. Two further important facts: if the interest rate on the Greek bonds was 5%, it was calculated on the face value so the Greek government had to pay £5 a year to the bearer of a bond valued at £100, which was an excellent deal for him or her, bringing a real profit of 8.33% (and not 5%). On the other hand, for the borrower state, the cost is exorbitant. In the case of Greece, the government received £1.3 million but had to pay interest each year on the £2.8 million ostensibly borrowed. That was not sustainable.

In 1826, the provisional government suspended debt payments. Studies of this period generally explain the suspension by the high cost of military operations and the continuing conflict.

In fact, the causes of Greece’s default were not only internal; international factors, beyond the control of the Greek government, also played a very important role. For one thing, the first great global crisis of international capitalism began in December 1825, with the bursting of the speculative bubble created in the London stock-exchange over the previous years. That crisis caused a fall in economic activity, bringing down numerous banks and creating an aversion to risk. Starting in December 1825, British bankers, followed by other European bankers, ceased making foreign and domestic loans. The new states, expecting to finance their debt payments by taking out fresh loans in London or Paris, could no longer find any bankers disposed to lend. The 1825-26 crisis affected all the finance centres of Europe: London, Paris, Frankfurt, Berlin, Vienna, Brussels, Amsterdam, Milan, Bologna, Rome, Dublin, Saint Petersburg, and the list goes on. There was an economic depression and hundreds of banks, traders and manufacturing companies went bankrupt. International trade fell through the floor. Most economists consider the 1825-26 slump to be the first of the great cyclic crises of capitalism. |4|

When the crisis broke in London in December 1825, Greece and the new Latin-American states continued to repay their debts. However in the course of 1826, several countries – Greece, Peru and Great Colombia which included Colombia, Venezuela and Ecuador – were obliged to suspend repayments. This was partly due to banks refusing to grant new loans, and partly because states’ revenues were adversely affected by the deterioration of the economic situation, and particularly international trade. By 1828, all the independent Latin-American countries, from Mexico to Argentina, had suspended payments.
In 1829, the provisional Hellenic government made their London creditors an offer to resume payments, on condition that the debt be reduced. The creditors refused, demanding 100% of the nominal value; no agreement was reached.

From 1830 on, three of Europe’s major powers – the United Kingdom, France and Russia |5| – formed the first Troika in modern Greek history and decided to establish a monarchy in Greece with a German prince at its head. Negotiations began over which prince to choose: Leopold of Saxe-Coburg Gotha, Prince Otto of Bavaria or someone else? Finally Leopold was placed on the throne of Belgium which became an independent state in 1830 and the Bavarian prince, Otto von Wittelsbach, was chosen to be the King of Greece. At the same time, the three great powers agreed to give their support to British and other European banks which, through them, bought Greek bonds. The idea was also to exert pressure on the new Greek state to get full reimbursement of the loans of 1824 and 1825.

How did the Troika of the United Kingdom, France and Russia proceed?

The Troika turned to French banks, asking them to issue a loan of 60 million French francs (FF) equivalent to about £2.4 million sterling. The United Kingdom, France and Russia acted as guarantors to the banks, promising to undertake repayment themselves, should Greece default. |6| The Troika added that they would take measures to ensure that the loans of 1824 and 1825 would also be repaid (see below). The agreement between the three powers was made in 1830 but such were the difficulties involved in carrying it out, that it did not come into effect until 1833. The FF 60 million loan was made in 1833 and paid in three tranches.

• 
• Grèce remaniée en 1832

It is particularly edifying to note what the first two tranches were used for. (The loan was issued in French francs and paid in Greek drachma (GDR) at the rate of one gold franc to 1.2 GDR.) Out of a total of 44.5 million GDR, only 9 million ended up in the Greek State Treasury, i.e. 20% of the nominal amount borrowed. The Rothschild Bank in France deducted more than 10% commission or 5 million GDR; those who bought the bonds, including Rothschild, received 7.6 million in advance interest for the period 1833-1835, i.e. more than 15% of the nominal amount; 12.5 million, or a little less than 30% of the nominal amount, was paid to the Ottoman Empire as compensation to offset their losses due to Greek independence; France, the United Kingdom and Russia took 2 million GDR, as creditors of Greece; over 15% of the nominal amount borrowed, or 7.4 million GDR, was paid to King Otto to cover pay and travelling expenses for his suite of Bavarian dignitaries who assured the regency |7| and for the 3500 mercenaries recruited in Bavaria, as well as 1 million GDR spent on arms.

• 
• Protocole de Londres­ 1832 - London Protocol, 1832

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 5^th 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.

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.

• 
• 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 19^th century.

|4| Ernest Mandel proposes the following chronology for the long waves from the late 18^th century to the early 20^th 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 19^th century’. 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 19^th and 20^th 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 19^th-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.