Living Under Austerity

Greek Society in Crisis

Evdoxios Doxiadis, Aimee Placas, Evdoxios Doxiadis, Aimee Placas

• Publisher: Berghahn Books
• Year: 2018
• ISBN:
  9781785339349
• Edition: 1
• Topic: Social Sciences
• Subtopic: Cultural & Social Anthropology
• Index: Social Sciences

Since its sovereign debt crisis in 2009, Greece has been living under austerity, with no apparent end in sight. This volume explores the effects of policies pursued by the Greek state since then (under the direction of the Troika), and how Greek society has responded. In addition to charting the actual effects of the Greek crisis on politics, health care, education, media, and other areas, the book both examines and challenges the "crisis" era as the context for changing attitudes and developments within Greek society.

Part I

The Political Dimension of the Crisis

Chapter 1

The “Illegitimacy” of Foreign Loans

Greece, the Great Powers, and Foreign Debt in the Long Nineteenth Century

Evdoxios Doxiadis

Introduction

In February 2016, during the many protests staged by Greek farmers against the new tax and insurance reform measures promoted by the left Greek government of the political party Coalition of the Radical Left (SYRIZA) under pressure from its lenders, farmers from Crete raised a banner calling for the expulsion of the Rothschilds from Greece, which gained some publicity in the extreme-right-wing press (Eleftheros Kosmos gr., 8 February 2016). A few months earlier, during parliamentary debates over the negotiations for a new memorandum of understanding (MoU), Nikolaos Mihaloliakos (the leader of Golden Dawn, an extreme-right-wing nationalist party) tied the new bailout loans to those of the Greek War of Independence, which were contracted, according to him, with “English loan-shark bankers” (Hellenic Parliament 2015: 3907). In early 2015 at the other end of the political spectrum the newly elected SYRIZA government, under the initiative of the then president of Parliament Zoe Konstantopoulou, launched an investigation on the Greek public debt via a Truth Committee on Public Debt whose preliminary report described the Greek external debt as “illegal, illegitimate, and odious” (Truth Committee on Public Debt 2015: 51), while some other members of the cabinet publicly suggested that Greece should suspend payments to the International Monetary Fund (IMF) (E Kathimerini, 5 May 2015). More recently a radical left website also drew analogies between the bailout loans and the robber loans of the nineteenth century (see Fotiadis 2015), while others argued for the colonial origins of the MoUs (Martin 2015), and the newly elected leader of the center-right opposition party New Democracy (ND) referred to the latest agreement between Greece and its creditors as an “unprecedented loss of national sovereignty” (E Kathimerini, 20 May 2016). These references are bound to confuse even informed foreign observers since the Rothschilds, English bankers, or the concept of odious debt do not seem relevant to the current Greek bailout, the largest in history (Tomz and Wright 2013: 257). Yet, they explain to a great degree the public perceptions of foreign debt in Greece, and the reaction of the Greek public and large segments of the political class to the policies implemented by successive governments in order to forestall bankruptcy, perceptions that have been cultivated over a period of two centuries and are often seen even in scholarly work (see Mpaloglou 2001: 183–84; Karpozilos this volume).

This paper will argue that perceptions regarding foreign debt and foreign intervention have been linked throughout Greek history but that the current circumstances are in fact rather unique because of the decision of the Greek governments not to default on its debts. Ironically Greek foreign indebtedness was often seen in the past as an acknowledgment of sovereignty but also as a constant threat to the sovereignty of the Greek state. Greek governments habitually responded to fiscal crises in political rather than economic terms and did not hesitate to default on their obligations. Greek governments rarely chose to respond to the fiscal crises with attempts to drastically curtail expenditures to forestall default—an austerity program, if you will—generally preferring the suspension of servicing the foreign loans to radical cutbacks of expenditure or reforms. On the occasions when such attempts were made the outcome was a dismantling of the existing political order, as experienced in 1843 and 1909. Thus, despite the economic cost of defaults, they were rational choices in terms of domestic politics and the dominant nationalist ideology that has endured through the existence of the Greek state, as long as radical transformations of existing economic and political structures could be avoided. The Greek political establishment was hardly threatened in the nineteenth century even though Greece was technically in default for much of this period. The military interventions of the 1920s and 1930s had little to do with the default of 1932, which barely dented the popularity of the prime minister of the time, Eleftherios Venizelos. As I will argue, it is not defaults that delegitimize the political system but rather policies of austerity, especially if those are perceived to be imposed by foreign actors with the collusion of Greek governments and to affect state employment and expenditures.

What I suggest here is that because the management of many past debt crises in Greece was political rather than economic, those crises did not lead to radical political realignments and transformations in the short term, nor did political change lead to drastic structural change. Although commentators enjoy blaming the Ottoman past for the so-called backward, clientelist, or premodern policies and attitudes that have resulted in the enormous debts of the Greek state, including the patronage system of Greek politics (see, e.g., Lewis 2010), in an often Orientalist—or Balkanist, as Maria Todorova (2009) would say—narrative, it is instead a modern development linked to the emergence of the modern Greek state and its ensuing social and national policies, many of which were tied to a powerful irredentist nationalist program. This process linked from the very beginning foreign loans with the political aspirations of the Greek state and the political ambitions of the Great Powers: France, Great Britain, and Russia. Although Greek governments needed and actively sought out the intervention of the Great Powers in support of their irredentist claims against the Ottoman Empire throughout the first century of Greece’s existence, the constant interventions of the Great Powers in Greek domestic and foreign affairs have led many to see Greece in the nineteenth century as a protectorate that was not completely sovereign (Dontas 1966: 3). Undoubtedly the frequent direct interventions were a challenge to Greece’s national sovereignty but they also had the effect of linking sovereignty to the sovereign debt. Many recent works on the history of Greek debt and bankruptcies uncritically duplicate this narrative, which was very prominent in the work of the highly influential early-twentieth-century historian and occasional government official Andreas Andreades, who is often referred to as a “colossus” (Choumanidis 1990: 387; see also Andreades 1904). They constantly refer to the “epachtheis” (odious) terms of the various loans issued to the Greek state (Skliraki 2015: 48, 54, 127, 162; Tzokas 2002: 93, 98), use the term “lestriko” (robber) to describe such loans (Skliraki 2015: 46, 51, 53, 54, 103, 110, 138, 155, 160–62; Soilentakis 2012: 43) or denounce the “greed” of foreign financiers and their “excessive” demands (Soilentakis 2012: 93, 101). Furthermore, by elevating the irredentist goals of the state above all other concerns, Greek governments rendered the servicing of foreign loans and the policies associated with it, and even economic development, of secondary importance, giving servicing an antinational character in the contemporary as well as in modern discourse.

The Origins of Greece’s Foreign Debt

The origins of the Greek foreign debt dates to the insurrection against the Ottoman Empire that led to the emergence of the Greek state. Following the eruption of the revolt in 1821, the rebellious Greeks were able to hold out against the forces of the Ottoman state in southern Greece and establish provisional governments under a number of liberal constitutions. Although all European governments, acting within the context of post-Napoleonic reactionary politics, initially denounced the revolt, the early successes of the Greeks generated widespread sympathy in Europe, fueled by a hodgepodge of Romantic, Christian, Liberal, and Classicist ideals. This feeling coalesced in a strong Philhellenic movement particularly prominent in Western Europe. In addition to hundreds of British, French, German, and Italian volunteers who joined the fight in Greece, many more contributed financially to the struggle through pro-Greek committees that emerged throughout Europe.

Although significant, the funds from these committees were hardly sufficient to bankroll the war, while the new unstable revolutionary Greek governments proved incapable of creating a functioning taxation system. The early constitutions envisioned that taxation would express the new ideas of popular sovereignty and political freedom, but despite the proclamation of sixty-seven laws dealing with taxation, the Greek authorities never managed a clear account of their income and expenditures (Bozikis 2010: 34–36). The revolutionary governments relied on tax farming and duties, collecting 16.1 million grosia between 1822 and 1827, while other income (domestic borrowing, sales of lands, donations and so on) accounted for a further 8.5 million. In comparison the income from foreign loans discussed below was 27.9 million (Bozikis 2010: 41).1

As the war dragged on, new sources of income were desperately needed to arm and pay the Greek soldiers and sailors, who when left unpaid often abandoned the cause to return to their towns and villages. Lack of funds had significant political ramifications in revolutionary Greece (Kostis 2013: 138). It could undermine the influence of warlords whose troops were tied to them through patronage, and especially could undermine their ability to pay the troops. Warlords who did not receive sufficient funds could turn against the civilian population, despoiling entire provinces or islands, and even reach agreements with the Ottomans and switch sides (Koliopoulos 1984: 171, 175). At the same time peasants often refused the authority of the government-appointed tax agents (Harisis 1996: No 1767, 16 July 1826, 15). In response to these challenges, the Greek revolutionary governments frequently relied on warlords, landowners, and notables for tax-gathering purposes, in a system of exploitation that was similar to the previous Ottoman regime (Bozikis 2010: 40, 52; Levandis 1944: 3).

In these circumstances the idea of resorting to foreign borrowing found eager supporters in Greece when it was first suggested. Some attempts to find foreign funding had been undertaken as early as 1821, targeting wealthy Greek merchants living abroad, while in 1822 the National Assembly authorized the floating of a loan in Italy; that came to naught, however, due to the hostility of the Austrian authorities (Levandis 1944: 6). Although many fanciful schemes of foreign borrowing were proposed to the Greek authorities by certain disreputable individuals immediately following the revolt (Levandis 1944: 6, 7), the serious proposals were originally conceived in Britain by philhellenic circles and by Greek merchants living in Europe. The Greek revolutionary government embraced the idea and a committee was dispatched to Britain to secure a loan through the good offices of British philhellenes.

One must keep in mind that money markets were still in their infancy, and the emergence of a host of new states in the first decades of the nineteenth century, mostly in Latin America, had introduced new lending opportunities to borrowers with no prior credit history. Britain was at the time already the largest money market in the world and the only one with experience of extensive foreign lending. It was also fortuitous for the Greek government that their quest for a British loan coincided with recent developments that made investors willing to consider supplying funds to a government that was as yet unrecognized by any state in the world.

The conclusion of the Napoleonic Wars had robbed investors of their single best client, the British government, which in the ensuing years steadily reduced the interest rates that it was willing to pay to the investors in British debt from 5 percent to 3.5 percent (Levandis 1944: 10). At roughly the same time Baron Rothschild introduced the concept of foreign securities issued in Britain in pounds sterling, an innovation that significantly reduced the cost of foreign lending that was previously governed by fluctuating interest rates, and other political and economic risks (Levandis 1944: 11; Tomz 2007: 47). These changes created a demand in Britain for lending opportunities that would provide higher returns than the British government was willing to consider, while also creating the tools that would make the risk of foreign lending more palatable. The lending boom in Britain began in 1817 with a Baring Brothers negotiated loan to France and by the mid 1820s most European and Latin American countries had raised debt in London, which would remain the center of international finance over the next century (Tomz 2007: 47).

The fiscal needs of the Greek government, however, was only one aspect of the mission sent to Britain. Alexander Mavrokordatos, who was the leading liberal political figure of the revolution, president of the Ektelestiko (executive branch of the government) in 1822, and the main backer of this mission, also had political goals in mind. The mission was supposed to stress the pro-British sentiments of the Greeks and dispel any concerns regarding the revolutionary nature of the government or its support for Russian ambitions in the region (Levandis 1944: 5). Other revolutionary leaders, including Anastasis Tsamados, were also urging international borrowing in order to exert diplomatic pressure on the European powers (Chatziioannou 2013: 45). With these considerations in mind, the Greek mission was indeed successful in securing a loan, though the terms were understandably quite harsh.

The misconceptions at home regarding foreign loans start with this first loan. For the Greeks the conclusion of this loan was heralded as Britain’s tacit recognition of the Greek cause and its revolutionary government, a recognition that inexorably led to British intervention in favor of Greece in 1827 (Levandis 1944: 15; Polyzoidis 2011: 32), a belief that continues to be accepted in modern Greek scholarship (Chatziioannou 2013: 33). The British government, on the other hand, saw the loans as a purely speculative investment on the part of private individuals that in no way involved or constrained the government. The Greek misconception is understandable considering that most other European states would not have allowed such a loan if it contradicted their foreign policy objectives. This, however, was not the case with the London money market, which had been quite willing to finance even dubious countries and hostile powers despite poor investment data and information, until a specialized financial press emerged in the 1840s (Tomz 2007: 49). Loans were extended to the revolutionary Cortes government in Spain, for instance, even after the Congress of Verona gave France a mandate to intervene and restore the absolute monarchy, which immediately repudiated the “odious” Cortes debts (Flandreau and Flores 2009: 658). Greece, at least, was a real place unlike the supposedly newly independent Latin American country of Poyais, which in 1822 was able to issue a bond at rates equal to those of real countries like Chile, Colombia, and Peru before the discovery that it was a fictitious entity devised to defraud gullible investors (Tomz 2007: 51; Waibel 2011: 10).

Although at the time considered a success (Trikoupis 1978a: 245), the first Greek loan has been heavily criticized in historiography for its onerous terms (Skliraki 2015: 19; Soilentakis 2012: 43), but that was to be expected for a loan to a government no other recognized as legitimate. Even in the eighteenth century, investors clearly distinguished between new and established state entities, demanding significant premiums from the former (Tomz 2007: 45, 50). Greece, of course, paid a further premium for being unrecognized as a legitimate state, its rates exceeding those of any other state in the 1820s (Tomz 2007: 49) and had to pledge its “national lands” as collateral (Andreades 1904: 17). The condemnation of the loan also concerns the manner in which the proceeds were mismanaged, in part because of the chaotic circumstances of the Greek revolutionary government and...

Table of contents

• Cover
• Title Page
• Copyright Page
• Dedication
• Contents
• List of Tables and Figures
• Note on Transliteration
• List of Abbreviations
• Introduction: Crisis and Austerity
• Part I. The Political Dimension of the Crisis
• Part II. State Functions, the Welfare State, and the Economic Crisis
• Part III. Changes in Greek Society and Culture
• Conclusion
• Index