Greece History Lessons - In the last 200-years
Greeks spend roughly 90 years in default
Welcome to year five (or year 2600, depending on your chosen starting point) of the Greek financial crisis.
Some things worth keeping in mind:
1. Greece invented
finance. It was the starting point of currency and “movable” wealth. It was
the birthplace of banking, personal loans, securitized lending, real estate
loans, credit-based trade, endowment investing, capital levies, interest rate
laws, foreign exchange, annuities and many other related innovations that
helped to give birth to the modern world.
2. If Ancient Greece
invented finance, it also was the inventor of the financial crisis. The first one in
recorded history, during the 6th century BC, was so bad that they actually
resorted to bringing in an academic – a poet, no less – to clean it up. It
seems that the Greeks had engaged in a practice, en masse, in which they pledged
themselves as slaves against the debts they were racking up in support of their
farms. it had gotten to the point that a huge chunk of the population ended up
enslaved, either in-country or shipped off abroad. The wiseman Solon was
brought in to power in Attica and he began canceling debts, freeing his fellow
citizens from slavery and even redeeming some slaves who had been sold abroad.
He did this by devaluing the drachma by one-quarter – something his
counterparts in modern Greece are currently unable to do.
3. Greece has never
been a good credit risk. With the exception of the Athenian
city-state, whose owl coins backed by the local silver mine maintained their
integrity for 600 years, virtually all other Greek governments were seen as
constant default risks. Greek states never lent money directly to each other.
The banks of the day, which were the temples, knew better than to lend to Greek
states directly as well. Instead, loans were made to wealthy individuals and
private citizens of means on behalf of their cities. The Ancient Greeks
understood that personal accountability would be a better guarantor that debts
would be paid as opposed to, say, civic pride.
4. Demosthenes, in
the 4th century BC, said “Of all kinds of capital, the most productive in
business is confidence and if you do not know that you do not know anything.” No one had
confidence that Greek governments would make good on their loans, which is why
productive capital demanded personal responsibility for loans or even the
pledging of bizarre forms of collateral. There was that time when the city of
Cyme pledged its public colonnades – when Cyme defaulted, its citizens were
forbidden to stand under them to get out of the sun or the rain. There was one
notable time that the temples made an exception. The Shrine at Delphi and its
Temple of Delos was the JP Morgan of the ancient Greek world. In the 4th
century BC it made a loan to 13 Greek city-states and ended up taking an 80%
haircut when the majority of them never paid back the funds.
5. Bringing things up
to the modern era, we look at the period from Greece’s independence in the
1830’s to today. In this roughly 200-year period, Greece has been in default to its
creditors during roughly 90 of these years, or half the time. To a person with
any historical awareness, being told that Greece is on the verge of a default
is like hearing Dean Martin is on the verge of a martini. The government of
modern Greece has defaulted five times in 1826, 1843, 1860, 1894 and 1932. It
defaulted on the original loan arranged by creditors on the London Stock
Exchange to win its independence on the battlefield in 1825. So many middle men
skimmed so much money, and there were so many internecine squabbles among the
Greek revolutionaries, that no one even knew where the money went or who was
responsible for it. It wasn’t until 1878 that Greece made good – half a century
later – and by then the approximately 1.7 million pound loan, with accrued
interest, had ballooned to 10 million pounds!
6. There was another
loan made in 1832 by the French, British and Russians. This was
defaulted on 11 years later, effectively freezing Greece out of the
international credit markets for decades. In the late 1800’s, all was forgiven
again and the loans from foreigners once again came pouring in, in search of a
high rate of interest. Once again, the Greeks ended up under an unsustainable
debt burden and the government suspended all payments on external debt in 1893.
Hilariously, they created the “International Committee for Greek Debt
Management” to appease their foreign creditors, which was meant to monitor the
economy and tax collection. If that doesn’t sound familiar, raise your hand and
I’ll come whack you over the head with a croquet mallet.
7. Greece defaulted
again in 1932 (who could blame them, given the world economy) and remained in
default for thirty years until the mid-1960’s.
8. The truth is,
Greece never belonged in the European’s single-currency experiment to begin
with but they were too small and inconsequential to say no to. The statistics
they submitted were largely fudged and Northern Europe willfully overlooked the
country’s well-known culture of black market economics and rampant tax evasion.
It was the late 1990’s – optimism was the pervasive sentiment around the globe,
ushered in by the hedonist-in-chief in the White House. The Euro Zone even
looked the other way when Goldman Sachs enabled the interest-rate swaps and so
forth that cooked Greece’s books to
the point where they were qualified for inclusion. “F*** it, let ’em in,” said
a cigarette-smoking Parisian bureaucrat sometime between his first and second
lunch break that day.
9. There are no
countries in the modern world that have defaulted on their loans more often
than Greece, save for Honduras and Ecuador. Look it up. The fact that history
is repeating for the umpteenth time should not cause you to lose your s***. Not
that this is going to be a good thing. It’s going to hurt some people. But
probably not hurt the world. Greece’s creditors played for time since the
latest crisis began five years ago and used that time to minimize the impact of
what they all probably expected from day one. When Mario Draghi gave his famous
“whatever it takes” speech, he meant whatever it takes to protect the
European Union – not whatever it takes to keep Greece in it. Mark Dow
makes this case – that a Grexit will be the best thing for both Greece and for
the EU in his new post, Greece: It’s Time and It’s Going to Be Okay.
Maybe he’s right. Read it and cool off.
Bottom line – Greece has
given the world many beautiful and important things and its cultural heritage
is among high points in the history of humanity. But finance just isn’t its
strong suit. Fortunately for the world, we’ve had time to prepare and the Greek
economy is about the size of the economy of Atlanta, Georgia. Contagion is a
real risk, but probably not the risk it was when this all began. More to the
point, contagion is always a risk, not just when the
newspapers begin talking about it.
And besides, it’s not like nobody saw
this coming, given the history.
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