Download Greece`s Economic Deja Vu Teaser: The current debt crisis in

Greece's Economic Deja Vu
Teaser:
The current debt crisis in Greece is nothing new to Athens, which has been in debt
since Greece won its independence from the Ottoman Empire.
Summary:
The current economic crisis in Greece is nothing Athens has not seen before. The
country has been in debt since its independence and has gone through numerous
cycles of borrowing and defaulting. Foreign powers have always had an interest in
maintaining Greece's stability, so in the past they have always agreed to refinance its
debts. The only new factor in Greece's ongoing crisis is that the country is not as
strategically important to outsiders as it was before the Cold War, so foreign
governments are not as interested in loaning Athens money.
Analysis:
The ongoing financial crisis in Greece is actually a familiar situation for Athens.
Greece has been in debt since its war for independence from the Ottoman Empire in
the 1820s -- which means international creditors and foreign sponsors have played
a role in Greek finances, politics and economic development since then. Even though
Greece has failed at the reforms its Western creditors have demanded it make in
order to pay back its loans, foreign powers have always had a strategic need for
Greece and have thus refinanced its debts, regardless of numerous defaults.
<h3>Indebted from the Start</h3>
Greece declared its independence from the Ottoman Empire after eight years of allout war. The war was not decisive until France and Great Britain decided that a
power vacuum in Greece could threaten Eastern Mediterranean commerce and
allow Russian influence to spread, and so agreed to give Greece the military
assistance it needed to win its independence.
During the fighting, Greece accumulated a huge external debt. The Great Powers
(the United Kingdom, France and Russia) agreed to loan the new country 600
million francs. In exchange, the three countries were allowed to write several
treaties formally declaring the conditions of Greece's independence. As another
condition of their loan, the three countries maintained diplomatic representatives in
Athens who were heavily involved in the creation and oversight of the Greek
government.
Despite the nationalist origins of the war for independence, in 1832 the Great
Powers declare Greece an absolute monarchy and appoint a Bavarian prince, Otto,
as monarch. Since the 17-year-old Prince Otto was a minor when he was named
monarch, a council of regents consisting of three Bavarian advisers who came to be
known as the "Troika" -- incidentally, the same term used for the International
Monetary Fund, European Central Bank and European Union officials today -- were
appointed to rule in Otto's name. One member of the Troika was particularly
instrumental in establishing the framework for the new country: former Bavarian
Finance Minister Josef Ludwig von Armansperg, who ultimately was appointed
prime minister of Greece when Otto assumed the throne.
The Great Powers wanted to see immediate returns on their loans after the new
country began taking shape. However, the only immediate source of internal
revenue for Greece was agriculture. Loans were given to farmers to expand
cultivation on land that was nationalized after the war. Those loans were then taxed,
creating a cycle of debt in which the state passed on its debt to the farmers. This
overtaxation of farmers created social and political tensions within Greece.
Repeated armed struggles between Greek citizens and the monarchy led to years of
weak political authority and military interventions, while Greece's constant state of
indebtedness hindered economic development.
<h3>Heading Toward Default</h3>
Greece's economic growth stalled altogether in the 1870s. The country's limited
success at servicing its external debt prohibited it form accessing international
credit markets and threatened to spark an income crisis. However, in 1879, the
United Kingdom, France and Germany -- concerned about instability in the Balkans
and wanting Greece to increase its military development -- agreed to a guarantee of
Greek debt, allowing the country to once again access international credit markets.
Greece used some of the credit for defense spending, but also built a large public
debt which went primarily toward servicing its pre-existing debt. Then, in 1893,
Greece defaulted.
Following a humiliating military defeat at the hands of Turkey -- a loss largely
facilitated by a devastating naval blockade of Greece by its initial creditors, the Great
Powers, who opposed Greece's involvement in the conflict -- Athens had too little
political authority at home or abroad to negotiate on its debt. Greece thus had to
surrender its economic development and fiscal authority to an International
Financial Control Committee, which imposed strict fiscal discipline. This committee
administered Greece's monetary and fiscal policy for the first decades of the 20th
century. Under this supervision, Athens makes progress in rationalizing its budget,
reforming its banking system and making other changes. However, the combined
effects of the First and Second Balkan Wars, World War I, the Greco-Turkish War
and the Great Depression were too much, and Greece defaulted again in 1932.
From 1932 until 1940, Greece was once again shut out of international credit
markets. However, an authoritarian government -- assisted by Germany's
agreement to pay well above market price for Greek exports -- allows Greece to
experience its greatest economic growth and development. This period of relative
prosperity ends when Germany invades.
These same trends continue after WWII, throughout the Cold War and up to
Greece’s accession into the EU.[I'll work on spelling this out more.]
<h3>The Pattern Continues</h3>
It has been in major powers' strategic interest to ensure Greece's stability since its
independence from the Ottoman Empire. However, it seems that nearly 200 years of
international interest in developing the Greek economy simply has not been enough,
as the current crisis bears striking similarities to Athens' first round of borrowing
and defaulting.
**(See if there’s a good way to draw direct parallels between Greece’s first round of
debt & default right after independence with what’s going on right now, to show
that the current round is a repeat of the round that began at independence.)**
**(Close with something reiterating the point that outside powers have always had
an interest in helping Greece remain stable, but post-Cold War Greece is not as
significant as it once was, so those outsiders do not have the same level of interest in
giving Greece money that will never be seen again.)**