On a hot summer day in late June 2015, I stood in a long queue that wrapped around Athens’s busy Stadiou Street hoping to withdraw some euros from an ATM. After what felt like an eternity under the blazing sun, I was just two people away from the machine when I heard some Greek expletives and saw a commotion in front of me. The ATM ran out of money. I spent the next several hours scouring the city, but every bank was closed and every ATM was empty.

A line at the National Bank of Greece in 2015 with a “vote no” poster in the background for the referendum to decide if Greece would accept the bailout conditions proposed by the European Commission.

What felt like a scene from some apocalyptic movie was the result of Greece’s ongoing debt crisis. The day I had embarked on my search for an ATM, Greece defaulted on its payment to the International Monetary Fund (IMF). The result: in order to prevent the collapse of the banking system, the Greek government ordered banks to close their doors and limited the amount of accessible cash to just 40 euros a day per individual. For tourists, luckily, this monetary restriction did not apply. However, finding an ATM with cash proved a challenge.

Flash-forward to June 2018 and the announcement of a debt resolution, with some headlines going as far as to proclaim the Greek debt crisis over. The current mood in Greece is mixed. While some seem to agree that a new debt resolution will free Greece from its economic woes and prevent a fall over the cliff, others perceive any resolution offered as further kicking the can down the road and delaying an inevitable exit from the Eurozone (the countries in the European Union (EU) using the Euro as currency).

A 2015 march against the financial measures the European Commission, European Central Bank, and International Monetary Fund have demanded of Greece.

Whether or not debt relief will provide Greece with the opportunity to improve unemployment rates and prevent further economic collapse is yet to be seen, but what is not debatable is the long and complicated history that led Greece on a trajectory to the crisis plaguing the country today. By understanding the origins of the Greek debt crisis, we can better understand the interconnectedness of the global economy.

The Greek economic crisis made headlines in 2010. The world became aware that Greece’s economy was an ongoing casualty of the 2008 global recession and that the country would need to borrow billions to prevent governmental and economic collapse.

A 2015 projection on the German Embassy in London by the Global Justice Now organization.

This fragility in turn stoked fears that allowing Greece to fail would result in a domino effect and cause the demise of the Eurozone. Simultaneously, it created an anti-German movement within Greece itself as Angela Merkel became synonymous with plans to implement stifling austerity measures in Greece by cutting government pay and pensions while increasing taxes.

However, to designate Greece’s financial woes as a byproduct of the 2008 global economic crisis would be to misunderstand the country’s complex financial history. Economic troubles began with its creation and were compounded by 150 years of economic instability, debt, predatory lending by global powers, bankruptcies, political corruption, a faulty tax system, wars and refugee crises, and financial mistakes—problems that might be far from over.

Out From Underneath the Ottomans

Debt and default were with Greece from the very beginnings of its modern independent history.

In the popular imagination, Greece is an ancient place. We are taught that it was the birthplace of democracy and Western Civilization.

However, in terms of statehood, Greece is much younger than the United States and was born out of a revolution against the Ottoman Empire with the assistance of Britain, France, and Russia. For the 400 years it was under Ottoman rule, Greece remained a poorer territory of the empire and most of the population were farmers forced to pay heavy taxes to their local Ottoman proprietors.

A map showing Greece’s territorial gains and losses from 1832 to 1947 (left). A painting depicting the slaughter of thousands of Greeks on the island of Chios by Ottoman troops in 1822 during the Greek War of Independence, an event that increased support for the Greek cause throughout Europe (right).

The only wealth to flow into Greece during this period was from prominent merchant families spread throughout Europe. Members of these families spearheaded the revolution for independence that erupted in 1821. The territory of Greece had no army and very little funds to finance military campaigns against the Ottomans.

Many Europeans and Americans, however, were sympathetic to the Greek cause. In light of these pro-Greek sympathies, representatives of Greece were able to procure two loans from Britain between 1824-1825 totaling 1.5 million pounds. Just two years later, and still in the middle of war, Greece was unable to make the interest payments on the British loans and the default resulted in bankruptcy.

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A Bavarian prince, Otto became the first modern King of Greece in 1832.

Greece gained its independence in 1832 when Britain, France, and Russia created the country’s constitution, outlined its territory, and installed the Bavarian-born Otto as king. To allow the new country to integrate itself into international capital markets, escape bankruptcy, and modernize infrastructure (seaports, railways, sanitation, and government buildings) France loaned Greece 60 million francs.

With this new financing, Greece repaid the British loans and began to modernize the country through building infrastructure. But overspending led to a default on the French loan and resulted in a second bankruptcy in 1843, making two in just 20 years.

This second default resulted in public demonstrations and rapid political turnover as taxes reached a level above that experienced under the Ottomans. In 1862, Otto was deposed by the Greek people and Britain, France, and Russia crowned the Danish prince, William, George I of Greece.

King George spent the next decade improving Greece’s sociopolitical environment and putting the country back on track by chipping away at debts while digging out of bankruptcy. However, this period of fiscal progress was not without consequences. During the later period of George’s reign, the Greek state’s domestic and foreign policies were characterized by the costs of early industrialization, military spending, and territorial expansion that strained an already fragile economy.

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A Danish prince, the Greek National Assembly elected George I King of Greece in 1863 after Otto was deposed.

To finance these policies, Greece again looked to Western Europe for more money, and from 1879 to 1893, Greece received six loans under usurious terms. These loans ranged from 135 million francs for military spending to 190 million francs for railway construction. In total, Greece borrowed more than 659 million francs in less than 15 years.

In what seems like a cyclic fashion, borrowing, overspending, and loan defaults once again led the country to its third bankruptcy in 1893. Unable to make interest payments, the Greek state was forced to accept the creation of the International Commission for Greek Debt Management.

The commission was allowed full control of Greece’s finances with the purpose of ensuring that all loans were repaid. The commission was to oversee the Greek tax system to guarantee the country was producing revenue at a maintainable level, as well as collecting the incomes from monopolies such as tobacco and salt. Part of the financial restructuring agreement was also a massive loan of 151 million francs. The commission remained in Athens until 1936, but Greece continued to suffer economic stresses during this period.

In 1912, war erupted on the Balkan Peninsula when Greece, Serbia, Bulgaria, and Romania pushed the Ottoman Empire out of Europe. When the Balkan Wars ended in 1913, Greece had emerged as one of the largest victors, increasing its territory by more than 40 percent.

King George I of Greece and Tsar Ferdinand of Bulgaria meeting during the Balkan War in 1912 (left). A map of the territorial changes from the Treaty of Bucharest in 1913 (right).

Not unexpectedly, war and territorial expansion put a strain on Greece’s coffers, but the country managed to stay financially solvent under the commission.

World War I and Still in Debt

It was only a year later that the outbreak of the First World War tested Greek resolve. Although Greece did not formally enter the conflict until 1917, the country was forced to support foreign troops along its northern borders when Britain and France employed a blockade of grain into southern Greece.

When Greece did enter the war on the side of the allies, the 1918 armistice did not spell the end of conflict. Rather, after being awarded territory on the Asia Minor coast, Greece was once again at war with the Ottoman Empire. This Greco-Turkish War lasted from 1919 to 1922, and the atrocities committed against civilians caught the world’s attention.

A painting of Greek military units in Paris for a victory parade in 1919.

To eliminate what they saw as religious and ethnic conflict between Greece and the incipient Turkish Republic, the world powers imposed a compulsory population exchange. Turkey would receive 500,000 Muslims from Greece, whereas Greece was to receive 1.5 million Orthodox Christians from Asia Minor.

The cost of war and accepting over 1 million new citizens put enormous pressure on Greece and created the perfect storm for another default.

A map of Greater Greece after the Treaty of Sévres in 1920 in which the Ottoman Empire was partitioned.

By 1930, the Great Depression caused many countries to default. Already stretched to its limits from the events of the previous decade, Greece once again failed to pay its loans and the Greek government put a moratorium on payments of all outstanding debts.

With a bleak outlook and an economic depression causing ripples across Europe, the International Commission dissolved in 1936 and Greece ignored its foreign debt, choosing instead to focus internally to prevent social unrest.

A Greek lithograph of the Battle of Sangarios River in 1921 during the Greco-Turkish War.

Surviving World War II

Just as the world began to recover from the Great Depression, it was plunged into another conflagration: the Second World War.

Unfortunately, Greece had territory that Italy wanted to annex and on October 28, 1940, Italy issued an ultimatum that Greece hand over territory or face an occupation by the Italian army. To Italy’s surprise, the Greek prime minister, John Metaxas, responded to the ultimatum with a no.

On the same day that it delivered the ultimatum, Italy invaded northern Greece, bringing the war to the Balkans. Greek forces managed to prevent a complete Italian invasion for nearly six months until Nazi Germany came to the aid of its ally. The Greek army was no match for the might of the Axis Powers and was forced to surrender. By the summer of 1941, the entire country was occupied by Nazi Germany, Bulgaria, and Italy.

German soldiers raising their flag over the Acropolis in 1941 (left). A crowd during the deportation of one of the oldest Jewish communities in Greece in 1944. Nearly all of the people deported were murdered at Auschwitz-Birkenau (right). 

The Nazi occupation of Greece during World War II virtually destroyed an already fragile economy. The occupying forces drained the country’s resources, subjecting Greeks to famine and mass starvation. To make matters worse, the Nazis demanded that the bank of Greece finance the occupation.

By the time Nazi troops were forced out, the country was in shambles. An estimated 90 percent of the country’s infrastructure was destroyed and 300,000 Greeks had either starved to death or been executed during the occupation. The country was drained financially and faced the expensive task of rebuilding.

200,000,000 drachma banknote issued in 1944 during a time of rampant inflation.

Much of the anti-German sentiment regarding the debt crisis observable today stems from this occupation. Germany was ordered to pay heavy reparations, but Greece still disputes that the German payments were ever fully made. That history, paired with the perception that Germany controls the money within the European Union, fuels animus today towards Merkel and the German government.

Just as the country began the task of reconstruction after the occupation, a civil war erupted in 1946 between the liberal government in Athens and communist partisans, plunging Greece into a three-year crisis. With the backing of Britain and the United States, the government of Athens was victorious over the communist partisans, but the country was left in a state not much better than it that of 1944.

From the end of the civil war until 1951, Greece received $700 million as part of the Marshall Plan. While the money undoubtedly helped to put Greece on the path of reconstruction, there is still much debate over how much Greece benefited from the aid.

A 1946 anti-communist poster in favor of George II declaring: “This is what they fear! Vote for the King!” (left). A donkey carrying Marshall Plan supplies in Greece in the 1950s (right).

The intent of the Marshall Plan was to help prevent the spread of communism while rebuilding the economies of Western Europe. In the case of Greece, however, when the aid ended in 1951, the country still had an unemployment rate of 20 percent, a worthless currency, and an economy that could not sustain itself.

Therefore, what was intended to be a plan to finally break Greece’s cycle of borrowing and defaulting failed to ensure a positive outlook for the country’s future.

By 1955, Greece was able to stretch Marshall Plan aid far enough so that they only had to take out three additional loans totaling $145 million. The Greek deficit continued to grow during the late 1950s and early 1960s because Greece exported very little while relying on imports to sustain its population, as well as overspending to keep the country in line with western standards.

A graph depicting GDP growth in Greece from 1961 to 2010 (left). The emblem of the Greek military junta featured a phoenix rising from flames, a soldier, and the date of the coup d’état (right).

Overspending led to more borrowing­—28 loans, to be exact, from 1955-1965—and social and political unrest ran rampant. Violent protests exploded in the streets as many Greeks could not find work or obtain a livable wage. Declining public confidence and the fissures remaining from the civil war led to the takeover of the country by a military junta in 1967. This dictatorship, which lasted until 1974, saw the abolition of the monarchy, reliance on domestic borrowing rather than foreign, and political corruption regarding finances.

More public unrest and demands for liberal freedoms led to the collapse of the dictatorship, but financial corruption under the regime dug the hole even deeper. Internal borrowing had resulted in shady business deals and unfinished building projects since many projects were halted once funding was secured and remained abandoned when the junta ended.