Born In Debt: Greece’s History of Borrowing

Debt_Greece's History of Borrowing“From the beginning, our state had no other choice than to live on credit. We were born in debt.”
– Gerassimos Notaras, head archivist, historical archive, National Bank of Greece

The debt history of Greece begins well before an official Greek state was created.

The preparations for the Greek War of Independence saw two foreign loans being contracted with Britain. From a total of 800,000 pounds negotiated, the Greeks only got 300,000 pounds after commissions, interest rates and other charges were subtracted. As security for the repayment of the loan, the Greek side had to mortgage all public lands and all public revenue.

In 1827, independent Greece’s first governor Ioannis Kapodistrias asked the European allies for a new loan so as to meet the repayment of a part of the previous loans and to help the recovery of the Greek economy. His request, however, was turned down and the Greek government was forced to declare bankruptcy in the same year.

At the time, Greece was reduced to a handful of provinces and islands around Athens and Peloponnese. Its situation was similar to today, as Greece was shut out of capital markets. Its “spreads” would skyrocket with the slightest rumor, calculated on the backs of envelopes by money lenders in muddy back alleys at the foot of the Acropolis.

Back in the 19th century, Germany, today’s thriving power, was not among the money lenders. The debts were signed by France, the Netherlands, Russia and the U.K..

The Bavarian King Otto who was brought to Greece as King of the Hellenes by the “protecting powers” Britain, France and Russia, contracted new loans of 60 million French francs. The first two installments were mainly used for repaying the previous British debt and maintaining the Bavarian army and bureaucracy. However, as the economy couldn’t recover, the three powers refused to pay the third installment. Eventually Otto was forced to declare bankruptcy.

The reign of Otto also saw the first financial restructuring of the Greek state. The “phoenix,” the first Greek coin, was demonetized and replaced by the “drachma,” which would be used for 169 years until replaced by the euro.

During the following decades, despite developments in shipping and industry, the public debt continued to grow, with the compensations paid to the Ottomans for ceding Thessaly and Arta further increasing it. On October 30, 1893, the Greek PM Charilaos Trikoupis stood before parliament and exclaimed the historic sentence, “Unfortunately, my dearest gentlemen, we went bankrupt.” It was the third consecutive bankruptcy for Greece.

charilaos trikoupis parliament
PM Charilaos Trikoupis announcing that Greece has gone bankrupt once again

After the unsuccessful Greek-Turkish War of 1897, Greece was forced to pay war reparations and got itself under international financial control.

From 1824 to 1897 Greece had contracted 10 foreign loans totaling 770 million francs, receiving though, only 464.1 million francs. The rest of the amount was kept back for paying the issue price of the loans and other commissions.

At the beginning of the next century PM Eleftherios Venizelos, despite his successes in foreign politics, took up four external loans totaling 521 million francs. The new loans were used for servicing existing external debt, for participating in the Balkan Wars and for incorporating the new territories claimed after the war.

The Asia Minor catastrophe in 1922 forced Greece to accept 1.5 million refugees from the territories along the eastern side of the Aegean Sea. In 1929, the Great Depression caused the fourth Greek bankruptcy as the country was relying mainly on foreign capital, thus making it vulnerable to international financial upsets. At the time, the Greek public debt totaled 286.8 billion francs.

During the Second World War Greece was conquered by Nazi Germany. Its productive structures were destroyed and the resources were over-exploited. As the Greek gold reserves had been smuggled out of the country prior to the occupation, the devaluation of the national currency dropped daily and was noticeable even in small transactions. In Athens, a coffee had a cost of 1 million drachmas. After the end of the occupation one pound was equivalent to approximately 7 billion drachmas.

An occupation loan of 400 million marks that Greece was forced to provide to Hitler for financing his military operations further burdened the debt of Greece. It is noted that the war reparations which were paid to Greece by Germany after the war, never included this loan. Until today, the German government claims that this loan has been already repaid and is not up for discussion.

By the end of the Second World War Greece had to deal with a Civil War and excessive military spending, the third largest in Western Europe. Greece joined the Marshall Plan but the funds were unable to generate economic growth due to the ongoing domestic conflicts, while a part of them was used for armed battles. Nevertheless, the post-war Greek governments managed to settle up to 90% of the pre-war external debt amounting 6.41 billion drachmas.

During the 50’s and 60’s, Greece was able to improve the life quality of its citizens and invest in big infrastructural projects, while demonstrating the second fastest growth rate after Western Germany. The “miracle of the Karamanlis’ governance,” as the 8-year administration of New Democracy politician Konstantinos Karamanlis went down in history, was followed by the Greek regime of the colonels, the 7-year military junta. This period coincided with the shift of the Greek economy from agricultural to industrial production and with more foreign capitals flowing into Greece mainly by the U.S..

In 1979, Greece acceded to the European Economic Community, the forerunner of the modern European Union.

The nationalization of many highly profitable industries initiated by the socialist government of PASOK in the early 80’s, led to the inflation being reduced by 11% within 9 years. In 1990, though, inflation rapidly increased again reaching 20.4%. The public debt was increased by 30%, climbing to 110% of the GDP.

In 2001 Greece joined the euro. Nowadays, the Greek state has a public debt of 436 billion dollars, or 161.3% of the GDP.


  1. Well I am out of hot water today, I paid my AMEX with Visa ! True Greekonomics. We are the smartest

  2. In Greece in the last 40 years of rule we have had 2 “Criminal Gangs” from PASOK and New Democracy Parties running a government of Thieves, Liars & Crooks who created all these problems today.

    It was PASOK & ND Parties who created all the financial problems in Greece
    by their corrupt rule and mismanagement– (Akis Tzahadzopolous and Yiannos
    Papantoniou are ex-MPs from PASOK who are an example of their horrific

    1.) Why isn’t PASOK’s MP Venizelos in jail for hiding the Legarde List 2 years
    in his home? And what about Venizelos’ controversial submarine bribery deal, he
    signed in 2010?

    2.) Why isn’t PASOK’s Finance MP Papconstantiou in jail for removing his
    relative’s names on the List?

    3.) What about PASOK & ND Parties still owing 250 million Euros to the
    Banks in phony loans they have not paid back a penny yet?

    4.) What about Health Minister Georgiades who got caught cheating on his taxes
    the other day and was let off with a minor fine of 1200 Euros. Whys is he still
    a Minister and not fired??

    5.) Why aren’t Kyriakos Mitsotakis and his sister Dora in jail after taking
    BRIBES from Seimens?

    It seems to me the Gov’t and Press here is using ANYTHING as a DISTRACTION to take attention away from the Massive Crimes these two corrupt Parties have committed as well as Treason against the whole Greek nation after 39 years of corrupt rule– They MUST ALL BE IMPEACHED and JAILED for high crimes and TREASON against the Greek People and State!

  3. The phenomenon of corruption in Greece is very ancient and is one of the
    characteristic of Greeks nature. History is full of examples verifying this assumption. The great legislator Solon established in the 5th century BC the Seisachtheia, i.e. the debt cancellation. As Aristotle writes, just before the announcement of the debt cancellation, he informed his friends to rush and get large loans, which eventually were cleared of any debt, hence making them really rich. Themistocles claimed that it has no value to be a leader if you cannot enrich your friends. Agisilaos, King of Sparta believed exactly the same thing. Even the monuments on the Acropolis were connected to the biggest scandal of abuse during the Golden Century of Pericles (5th century BC). The main issues were both, using money from the treasury of the Athenian Alliance by Pericles and the suspicion that Phidias had distorted the gold in the statue of Athena. Ploutarch writes that Pericles introduced the “secret funds” by taking 10 talents, an enormous sum for that period. When questioned in Pnika he answered “I gave them where they were needed”, without explaining further.

  4. This should be more about Greece’s history of debt repayment. Near the of the film Zorba the Greek after death, business and financial failure Basil asks Zorba to teach him to dance.
    “I felt once more how simple and frugal a thing is happiness; a glass of wine, a roasted chestnut, a wretched little brazier, the sound of the sea. Nothing else.”

  5. I guess the main question facing Greece is,what will happen when the country runs out of willing lenders to borrow “loans” from on which to Default? Unfortunately for Greece,this moment had arrived.

  6. They’re smart with their money thats for sure… I guess the main question facing Greece is,what will happen when the country runs out of willing lenders to borrow “loans” from on which to Default later.. tell their people to turn to companies ? I’m Curious.

  7. The Greek state appears not based on any “contract social” but conspiracies.
    The EU might as well accept the mafia as a regular member.

  8. This article leaves out the fact that these loans in the early years were contracted in Greece’s name but without Greece signing the papers or agreeing to the loans. The money was paid to Turkey so that the Great Powers could curry favor with the Ottomans. The Greek side never signed or saw a dime of that money. It was supposed to be reparations from Greece to Turkey, but Greece had won the war of independence which makes the issue of reparations ridiculous indeed. The second loan was a bribe to the Germans to take on the monarchy of Greece. Otto didn’t want to do it so he was bribed. The money was given to the German family and Greece was told to repay the loan. In WW2, Germany reneged on outstanding loans to Greece in a far greater amount than Greece owes to Germany today. The single greatest debtor in history is Germany.

    I think this speaks to a huge failing in German morality and psyche (ignoring the murderous part of that nation’s history). They became civilized so long after the great classical civilizations that they never really developed a sense of having to repay what they took and destroyed.

  9. Tedi – What will happen when the “country” runs out of willing lenders. You mean what happens when the “government” runs of willing lenders.

    When this happens the Greek government will be forced to treat taxpayers with respect because they will be its only source of revenue!!!

  10. What do you think Greece did before the Euro? Since you have the NY Times at your disposal you can to do a little research to find the answer, it should not be difficult to determine.

  11. If Greece’s government could collect revenue from its citizens,it would not have to revert to international bailouts.At some places in Greece/islands/the tax avoidance approaches 100%!!!Also the Greece government represent Greece,not Mars.

  12. Borrowing is a way to ensalve soverign EU nations by financial tricks & fraud!
    The EU. IMF & ECB are a FARCE- What a joke Olii Rehn, Merkel & Schauble are ! — Did you know IMF head Legarde had her house raided by French Police for financial fraud? Same with Junker who is in trouble for Fraud, and then we have ECB’s Mario Draghi worked for corrupt Goldman Sachs group in Europe—- It is absolutely incredible the Criminals we have running the IMF & Euro Zone, who have been using Greece and Cyprus as a “test case” to see just how dumb and gullible EU citizens are!

    People are amazing if they support the IMF because they are a cartel of
    criminals working for the Rothchilds, Rockafellers and JP Morgans out to strip
    every citizen on earth of their incomes and dignity, working with the phony US
    Federal Reserve Bank that is not even run by the US but owned and operated by
    those same 3 Bankers, who are simply “printing up money” with no one
    to stop them!

    They must be brought down at all costs or they will destroy humanity
    without the slightest conscience! — GET RID OF THEM & all fools who
    support them!!

  13. Tedi, you have no clue about Greece which makes me wonder why you want to comment on it.

    To give you some facts from the OECD. The Greek government collects 32% of GDP in taxes, Germany 38% UK 36%.

    The government is plainly NOT having an issue collecting taxes.

    The government in Greece is bankrupt because they have over borrowed, they have received bad advice and they have bought votes. In short they are corrupt incompetent.

    The Greek government has not represented the people for a long time, 30% of Greeks do not vote and the ruling party is lucky if it gets 50% of the vote. Lets say the Greek government was voted for by 45% of the population. The other 55% are compelled to subsidise policies they do not agree with.

    The Greek government represents money centre banks in the Eurozone. Their actions since 2008 has enriched banks holding Greek government debt at the expense of Greek who see their wages slashed, government spending slashed and taxes increased to the point of being unpayable.