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29 April, 2016

Newly independent Greece had an odious debt round her neck

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.

by Eric Toussaint

PART 2 - 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. The Troika added that they would take measures to ensure that the loans of 1824 and 1825 would also be repaid. 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.

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 and for the 3500 mercenaries recruited in Bavaria, as well as 1 million GDR spent on arms.

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. 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. 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. 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.

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.

Source, tables and references:

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