The perils of relying upon debt to balance one’s books has been clearly demonstrated by the current financial crisis engulfing the Western economies. A particularly striking example is Greece, where revelations of gross misconduct on behalf of the state has transpired; a prolonged period of government debt-financed overspending leading to it’s rather unenviable current position as Europe’s financial pariah.
Thankfully for the Greeks and the European Union’s single currency, Germany agreed to bail the aforementioned country out by providing €22.4 billion to the international rescue package. However this is neither the first time the Hellenes are in a financial Hades nor indebted to the Germans.
‘Regretfully we are bankrupt’
An ambitious modernisation programme financed through excessive government borrowing coupled with a fall in the price of the country’s principal cash-crop; currant*, led the prime minister Trikoupis to declare his country bankrupt in 1893. Trikoupis’ modernisation programme included heavy infrastructure investments, but it failed to restructure the Greek economy. The nominal debt burden of 630 million francs, with principal and interest repayments absorbing half the 1893 national budget could not be sustained.
The low interest rates that came as a result of the 1873-1895 Long Depression would make cheap capital too lucrative to resist for a prime minister with grand designs for Greece’s economic future. Unfortunately it also reduced international demand for Greek exports, a contraction which rampant international protectionism did nothing to ease. The following debt spiral sees its parallel today but hopefully for the Greeks the Germans won’t insist on yesteryear’s method of ‘incentivising’ repayments.
Bleeding a Stone
Her Britannic Majesty’s Ambassador to the Imperial Court in Berlin was a Sir Edward B. Malet, a Foreign Office mandarin since the tender age of seventeen he would retire later that year after 41 years of Crown service. In a private letter to Lord Salisbury dated 27th July 1895, who would just win his third premiership that summer, and after a conversation with the French ambassador, Sir Edward made a remark that is distinctly interesting with regard to today’s Greek situation.
“In a moment of expansion he told me that the German Govt had begged him to induce his Govt to join with that of Germany in a Naval demonstration against Greece to force her to come to terms about the debt. The French Govt however stood firm in refusing to go in for such a policy, saying that it was no use to try to bleed a stone.”
Hopefully for the Greeks there will be no Teutonic demand for a ‘Naval demonstration’ off the port of Pireaus in order to induce them to meet their financial commitments. The French displaying remarkable restraint and realism in approaching the problem of Greek default, perhaps on behalf of their own frequent experiences with ill-minded creditors. In both instances of Greek financial trouble there was social unrest and political upheaval, but where Trikoupis failed in reaching a compromise with the capital owners, losing the 1895 election and dying a year later, Papandreou has managed to secure a bailout and has not been forced to declare to the Greek parliament like his predecessor in 1893: “Regretfully we are bankrupt.”
*Interestingly the price of currant had reached such levels three years prior to the bankruptcy that there had been calls in the House of Commons for a reduction of the duties levied on the grape, as reported in The Times 9th May 1890:
“Mr Labouchere scouted the idea that the consumer in England would gain anything by the reduction of the duty on currants. If the duty had been taken off raisins then there would have been a reduction to the consumer, owing to the competition from various countries; but currants came from Greece alone. Currants came from Greece and could not be produced by any other country in the world, because if the currant vines were transplanted to other places they produced large grapes with stones in them. The Greek people, therefore, having a monopoly of the production of the article, and being a very intelligent commercial race (laughter), would raise the price of currants to an amount corresponding to the duty remitted.”
Private Letter from Sir Edward B. Malet to Lord Salisbury, Berlin 27th July 1895, FO 343/13
The Times, Friday, 9th May, 1890; pg. 6; Issue 33007; col B House Of Commons. Thursday, 5th May.