Greece Has a Long History of Debt and Bankruptcy
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Greece Has a Long History of Debt and Bankruptcy

The country filed for bankruptcy before it was even a sovereign state.

This article originally appeared on VICE Greece.

Greece may very well be the birthplace of theater, philosophy, democracy, and the first radical left government in Europe, but nothing outshines the bizarre economic traditions that the small Balkan country has managed to establish since its inception. For instance, it has a long-standing habit of borrowing vast sums of money with painfully large interest rates, only to fork it right back over by buying various goodies from the West—primarily weapons.


The reason behind all this is most likely some sort of compulsion. How else can you explain a state whose borders haven't been threatened since 1922—a state that hasn't suffered a domestic attack since 1944—spending so much money on weapons?

It gets more confusing. To start with, the exact date of the establishment of the Greek state is disputed. Many Greeks maintain that the country was founded on May 1, 1827, during the Fourth National Assembly, held in Troezen. However, the major powers of Europe didn't recognize Greece as a sovereign state until February 3, 1830. Then there are others who claim the conception of the Greek state was, in fact, November 30, 1823. That's when the country—which wasn't actually even a sovereign state yet—took out its first major loan.

On that date, the British Bankers Group granted an £800,000 [$1.3 million] loan to the leadership of the Greek revolution against the Ottomans. Most of this was earmarked for the purchase of munitions, and the remainder was spent covering the basic needs of the rebel territories.


Barely four years after the non-existent Greek state's first loan, the "country" declared its first bankruptcy by failing to pay off the loan's interest.

Sixty-six years later, in 1893, then-Prime Minister Charilaos Trikoupis announced Greece's second bankruptcy with the historic phrase: "Regretfully, we are bankrupt."

"The bankruptcy under the Trikoupis government was different," according to Thanos Vermis, Professor of Political Science and Public Administration at the University of Athens. "The first British loans were spent on the civil conflicts that followed the revolution of 1821. Essentially, the Greek state didn't even exist at that point. The default under Charilaos Trikoupis had separate characteristics. It happened because of over-borrowing, but those loans resulted in infrastructure projects that actually benefited the Greek people—for example, that's when the railways, that are still in use today, were built. It was a bankruptcy that actually gave something back."


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The truth is, for better or worse, historically, bankruptcies seem to be the prerogative for modernizing Greece's politics. "I don't believe that there ever was, or is, a Greek tradition of imprudent lending," countered Yiannis Miols, Professor of Political Economy at the University of Athens, and long-time head of the Economics team.

He continued, "Borrowing always takes two: the lender and the borrower. Loans only appear reckless when things go wrong. The responsibility should be considered to be shared from the get-go. If you scratch the surface, you'll notice that almost all of the countries that have defaulted during peacetime did so during international financial crises. A common mistake of both the creditors and the debtors is that, during good times, they anticipate that things will only get better."

Defaults in Europe between the 19th Century and WWII:

Germany (Prussia) defaulted in 1807, 1813, 1932, and 1939.
Spain in 1809, 1820, 1831, 1834, 1851, 1867, 1872, 1882, 1936, 1937, 1938, and 1939.
Austria in 1868, 1914, and 1932.
Portugal in 1828, 1837, 1841, 1845, 1952, and 1890.
France in 1701, 1715, 1770, 1788, and 1812.

Greece is no exception. In 1932, the country declared bankruptcy due to the inability of another PM, Eleftherios Venizelos, to understand the consequences of the economic crash of 1929 and, instead, continue to peg the country's then-currency (drachma) to gold and the British pound.


Historian Thanos Vermis notes: "The Greek bankruptcy under Eleftherios Venizelos and his opposition leader, Panagis Tsaldaris, forced Greece to turn to their internal market and led to the development of the rural economy. The ordinary person in the countryside didn't feel the effects of the crisis because they were self-sufficient. The problems were mainly shared by those who were trading Greek bonds and the upper class, who were certainly fewer than they are today.

"Greece at that time was a vulnerable economy with a small output and no heavy industry, few exports and no tourism—something that was later developed to fill the gaps in the budget. Today, the absence of national benefits and the explosion of the urban population, coupled with the fact that the Greek countryside has shrunk dramatically, has meant that society is forced to experience a more painful economic crisis."


Both the British and the Americans got a taste of the Greek economic establishment during the 1940s, when they each financed the civil war against the Communists.

Winston Churchill gave up before long, defeated in his efforts, and the US took over, launching their famous " Marshall Plan." US officials watched on for several months as their finances were spent on high society functions and weddings, while the Communists strengthened, until they finally installed a tightly-controlled administration.


Throughout the 1950s, American correspondents in Athens spoke of about 5,000 members of the Greek upper class who were basically siphoning off the country's international financing—even using fuel sent for agricultural machinery for their own cars.

Joseph Harrison, correspondent at the time for the Christian Science Monitor, spoke of a gang that "cries all day for their fatherland, but does not deign to pay taxes and maintains the entirety of their deepest in New York, Switzerland, and Egypt." As a modern Greek, it's hard not to draw parallels to today's situation.

Throughout Konstantinos Karamanlis's eight years of governing Greece (1955-1963), the situation only got worse. The credit system began handing out money, mainly to construction contractors, who became instantly rich thanks to the substandard completion of projects. The results of their work are still visible today: tons of useless concrete scattered throughout Athens and roadwork of poor quality.

During the military dictatorship (1967-1974), the Junta continued the custom of lending out money with high interest rates and distributing it among a the political ruling class and the military machine. In July of 1974, during the invasion of Cyprus, Greece finally got to use some of its weapons, but was defeated by the Turkish military—which meant they needed to take new loans out in order to buy new weapons and recover.



Greece's entry into the European Union in 1981 was a key moment in its history. Paradoxically, it took place at the same time as the takeover of government by the Socialist Party, which, once in power, immediately changed their anti-EEC rhetoric.

All of a sudden, their priority was to claim financing for the Greek economy through their newly established "Mediterranean programs." This was a strategic development plan aimed at improving socio-economic structures in less developed regions and caused a lot of friction between Greek Prime Minister Andreas Papandreou and Margaret Thatcher. Because of that program, Papandreou managed to redistribute the wealth in the country. On the other hand, his decision to nationalize big private industries didn't end well: the public sector grew, and so did unemployment, inflation, and budgetary holes.


In the years that followed, life went on among fiscal austerity programs, while 1996 brought a couple of worrying developments: Greece's Olympic bid and the growing interest in entering the Euro.

Greece's then-Minister of Sport, George Lianis, took advantage of the political instability of the time to submit a bid for Athens to organize the 2004 Olympic Games. Greece's win caused a massive surge in national enthusiasm.

Just prior to the win, the political instability had been calmed by Kostas Simitis—a man who set large goals for Greece and its entrance into a new currency—taking over as prime minister. His modernization program, which aimed to ensure the health of the Greek economy and its entry into the Euro, admittedly spawned spectacular results, but in reality it was all a master-class in faking financial data.


Today, several European leaders blame Greece for its trickery. At that time, however, any voice criticizing either the EU's criteria or government tampering was given a hard time: Europe had to display healthy economies within its borders.


Until 2004, a large section of Greek society floated on a cloud of artificial euphoria. Polished Jeeps lined the streets of Greek provinces, and Havana cigars became popular among Greek men with easy access to credit cards and endless loans.

At that point, banks were handing out money to anyone, even if you were just going to use it to book a holiday. Thanks to this, the Greek banking system methodically inflated its own bubble, which in turn led to bubbles in construction, media, tourism, and elsewhere. This, in turn, sparked an explosive rise within the Greek stock market, which devolved into an even more explosive crash. Its value rose from 1,200 to 6,500 points, only to fall to 666 within a year.

Finance Minister Yiannos Papantoniou brazenly dragged his smile from panel to panel, claiming that "the Greek stock market is still going strong. This summer, Greece has a stock exchange that's the envy of many other international stock exchanges." Just a few years later, €136 billion [$152 billion] had disappeared from the stock exchange.

On January 1, 2002—the Euro's circulation date—Prime Minister Kostas Simitis was photographed holding the country's first note in his hands, ominously looking like a very happy man.


Warning signs were already emerging in 2004 when Greece won UEFA Euro 2004 and played host to the Olympic Games, but, as we all know too well, after the binge comes the hangover. The private debt of Greeks became unsustainable, banks demanded their money back, many had lost a fortune in the stock market, and public finances were going from bad to worse. Blame was exchanged between rival political parties as unemployment began to slowly rise. This was before the US bank crisis had even broken out.


Cheap immigrant labor, meant to finance the Greek dream, was implemented. Rumors of airplanes shipping illegal workers from Asia directly into construction sites, from which they didn't leave until after the completion of the Olympic stadiums, didn't seem to bother anyone particularly; all everyone cared about was not having to see those immigrants in public spaces.

The first far-right groups began forming at the turn of the millennium. When the global banking crisis broke, Greece found itself with an economy that was completely defenseless.

Newly elected Prime Minister George Papandreou didn't exactly handle the situation ideally. The politician, who was elected for promising to continue the work of his father, Andreas, found himself quickly being forced to announce that Greece was in the grip of the IMF, the European Central Bank, and the European Commission—paving the way for the greatest social crisis in 70 years.


George Papandreou's assurances—summed up in his memorable quote: "There is money"—was soon drowned out by Theodoros Pangalos's equally historic phrase: "We all consumed it together."

Pensions and wages fell dramatically, businesses closed, unemployment soared to exceptional levels, and social services shrank. Meanwhile, public debt continued to grow as a result of the collapse of public revenue caused by the policies of the Troika.

When Papandreou inexplicably tried to propose, amid massive protests, a referendum about whether or not to continue these measures, he was made to step down. His position was filled by the former head of the Greek Central Bank, Tassos Giannitsis, who had stood smiling next to Prime Minister Kostas Simitis as he held up the first euro banknote and was seen by many as responsible for the controversial way in which Greece joined the euro. He was hired to the applause of European leaders. In the elections that followed in May of 2012, the neo-Nazi fringe party Golden Dawn was catapulted from a few hundred votes to 7 percent of the national share.

The old political system crumbled. The Socialist Party PASOK collapsed from 43 percent to 12 percent of the vote, and Syriza (Coalition of the Radical Left) quadrupled its strength. The leader of the conservative party, Antonis Samaras, took advantage of the fractured voting and was elected Prime Minister.



Antonis Samaras had made a career for himself as the leader of a failed neo-nationalist party in the 1990s. As Prime Minister, he attempted to rule by creating a neo-conservative hegemony based on repression, racism, and a vitriolic anti-left stance.

We will never know what he could have been capable of under different circumstances, but with the unemployment rate at that point touching 30 percent, and with incomes halved, his justifications sounded very disturbing.

The victory of Syriza in the elections this January (the fourth election in five years) was a comfortable one. The Greek people's expectations of the new government were simultaneously nothing and everything. People seemed desperate for the situation to return to tolerable levels.

The image of the newly-elected Finance Minister Yanis Varoufakias publicly discrediting the country's lenders on television and conversing with BBC journalists in fluent English created a storm of enthusiasm in the country. Suddenly, the whole population felt as if one Greek had taken revenge on behalf of an entire country that had been insulted and harassed by everyone for five years. But that illusion didn't last long.

The minister's bluff of not wanting more funding was poorly thought out, given that he didn't actually have another plan at hand. Prime Minister Alexis Tsipras's claim that he would make German Chancellor Angela Merkel "an offer she can't refuse" proved to be far less effective than when Vito Corleone uttered it in The Godfather.

One month after the election, the government signed a temporary extension of the monetary assistance program. In keeping with tradition, the government put in orders for more military equipment.

"It's clear that the government and opposition aren't pro or anti-bailout. We need to overcome the status quo in order to stop living the torment of Sisyphus," said Pantelis Economou, deputy Finance Minister of PASOK.

Worn out, Greek society constantly plays down the depth of their social struggle and upheaval. It's a society that seems ready to surrender to any sort of a miracle. The debate about whether or not Greece's debt is sustainable has also begun to wear thin: everyone knows that the debt isn't sustainable, but nobody wants to admit it.

Even now, many seem convinced that, in the end, something will be figured out—that something will happen that stops the country from being kicked out of the euro, a scenario they consider a nightmare. Even now, with the country on the edge of a national disaster and with people running to empty ATMs due to the imposed capital controls, many are hoping for a miracle to come along and save their country.

Of course, Greek history shows that these miracles rarely come.

Read more about Greece on VICE.