The Greek Foreign Debt and the Great Powers 1821–1898 9780231894258

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T H E GREEK F O R E I G N A N D T H E GREAT 1821-1898

DEBT

POWERS

THE

GREEK FOREIGN DEBT AND THE

GREAT POWERS 1821-1898 By JOHN A. LEVANDIS

1944

COLUMBIA UNIVERSITY PRESS NEW YORK : M O R N I N G S I D E

HEIGHTS

A W A R T I M E BOOK THIS COMPLETE EDITION Μ FMDWSD IN FULL COMPLIANCE WITH THE GOVERNMENT» REGULATIONS FOR CON t EBV INC PAPER AND OTHER ESSENTIAL MATERIAL«

COPYRIGHT 1944 COLUMBIA UNIVERSITY PRESS, NEW YORK Foreign agent: OXFORD UNIVERSITY P R E S S , Humphrey Milford, Amen House, London, E.C., 4, England, AND Β. I. Building, Nicol Road, Bombay, India M A N U F A C T U R E D

IN

T H E

U N I T E D

STATES

OF

A M E R I C A

PREFACE

T

HE writing of this book owes its inception to two eminent scholars—the late Professors Edwin R. A. Seligman and Thomas Parker Moon of the Graduate Faculty of Political Science of Columbia University—each of whom it had been my privilege to call a teacher. It also owes much to the late Professor Andreas Andreades of the University of Athens, whose unrivaled knowledge of Greek finance contributed greatly to clearing up many controversial points. Without their encouragement, assistance, and inspiration, this study would not have been undertaken and completed. It is difficult to acknowledge adequately the guidance and help which many friends and former teachers have given me. To Professor Carlton J. H. Hayes, now United States Ambassador to Spain, under whose direction the work was carried on, I am deeply grateful for scholarly criticism and wise counsel. I am likewise indebted to Professor Shepard Clough for discussing with me the original draft of the study, and to Professors Charles Cheney Hyde, Jacques Barzun, and Charles Cole, who carefully read the manuscript and gave me the benefit of their suggestions. To the late Nicholas Polites, for many years Greek Minister to France, I owe many thanks for introducing me to M. Maurice Lewandowski of the Comptoir National d'Escompte, who placed at my disposal invaluable material. For having access to the diplomatic files of the Greek Ministry of Foreign Affairs, I owe many thanks to the late Andreas Michalacopoulos, Secretary of Foreign Affairs in the last Venizelos ministry. Words are inadequate to express my deep gratitude to my wife, Edna H. Levandis, for her patience in enduring many inconveniences in her household during the writing of this study and for devoting countless hours in checking and correcting the text. Limitation of space prevents individual mention of the staff members of numerous libraries here and abroad, where courteous cooperation made research a pleasure. For any errors and shortcomings in this study the author is alone

vi

PREFACE

responsible. He hopes that the following pages may fill a gap in the literature of Greek diplomatic history and finance. But if they do no more than point out to scholars the rich possibilities for future research in this field his efforts will have been amply rewarded. JOHN A . LEVANDIS

New York, December, 1943

CONTENTS I.

FOREIGN BORROWING DURING T H E REVOLUTION OF 1 8 2 1

II.

SOVEREIGN L E N D I N G : T H E GUARANTEED LOAN OF SIXTY

1

M I L L I O N FRANCS

29

III.

T H E EXPANSION OF T H E FOREIGN D E B T , 1 8 7 9 - 1 8 9 0

55

IV.

DIPLOMATIC INTERVENTION AND IMPOSITION OF F I N A N CIAL CONTROL

88

BIBLIOGRAPHY

117

INDEX

131

INTRODUCTION

T

HIS study tells a tale of Greece, not of Greece of classical grandeur and bygone glories, but of modern Greece, which today lies prostrate under the brutalizing jackboot of ruthless conquerors and despoilers. It is a story of economic struggles which a resurrected but exhausted Greece waged during the last three quarters of the nineteenth century. Its central theme is the growth of the Greek external indebtedness and the periodic interference which sovereign and private lenders resorted to in order to force an impotent debtor to discharge solemnly contracted obligations. In tracing the development of the foreign debt of Greece an account is given of the circumstances under which this indebtedness was contracted and the purposes for which the imported funds were expended. The terms of the loan contracts with their tying clauses gave rise to transactions which might be justly called financial depredations. Practically all Greek loans, in spite of the many safeguards offered, were floated at 30 percent and often at 40 percent discount; their yields ranged from 5 to 8 percent, and interest and sinking fund charges were payable in gold. The acceptance by the borrowers of such onerous terms was due to urgent need. As a result the foreign debt was hastily and disadvantageously contracted. Most of the loan proceeds were appropriated to nonincome-creating purposes and particularly to expanding debt charges which could not be met by an enfeebled Greek treasury. This eventually led to debt defaults. On such occasions the aggrieved creditors appealed to their respective governments, and demanded restitution through interference in the financial affairs of the borrowers. These interferences varied from simple interpositions to concerted diplomatic intervention which finally resulted in the imposition of an international financial control. Such control was justified on the pretext that the borrowers could not manage their financial affairs in a manner satisfactory to Western tenets of fiscal administrative efficiency. In recounting the causes and extent of foreign interference in the

χ

INTRODUCTION

financial affairs of Greece the narrative does not confine itself to the enumeration and elucidation of diplomatic reprimands and threats instigated by a set of hectoring creditors. The constant accumulation of capital abroad and the search for higher remuneration beyond the country's own confines and the repercussion of an ardently espoused Greek expansionist policy on the economic and financial structure of Greece will be introduced and commented upon. All these factors contributed their share in shaping the course of events. But the single potent factor which precipitated ministerial crises, affected tax policies and determined political and diplomatic alignments was the perenially unsolvable foreign debt question. It was the question which gave many a headache to the guardians of the Greek exchequer and to the representatives of European high finance.

C H A P T E R

I

FOREIGN BORROWING DURING T H E R E V O L U T I O N OF 1821 T H E MATERIAL CONDITION

OF I N S U R G E N T

GREECE

W

HEN Archbishop Germanos and a band of intrepid Greek mountaineers unfurled the flag of revolt against the Sultan's authority on the 25th of March, 1821, they could not foresee the serious consequences of that challenge. Wars, then as now, required not only stalwart hearts but ample means. Such ample means insurgent Greece did not possess. It must be remembered that the insurrection was an unorganized and leaderless movement with no vital resources or national exchequer upon which it could draw with regularity in a protracted struggle. Its original supporters were the landless and underprivileged who had nothing to lose but their chains. 1 The well-to-do, the Kodjabasis (native primates), the merchants, and shipmasters were reluctant to join a movement that would jeopardize life, position, and fortune. By inclination and self-interest they were committed to a policy of postponement and denounced all undercover machinations as entirely premature. Their apparent hesitancy was not hard to explain. The insurgents lacked organization, means, and all prospect of foreign assistance, while on the side of the Osmanli rule, there was power, vast, bloated, overwhelming. At first the insurgents relied on their own paltry resources to finance the war. 2 When internal borrowing 3 failed, they tried the system of voluntary contributions and compulsory lending. 4 But voluntary contributions raised by an appeal to patriotic motives could not meet the imperative needs of the moment: "patriotism as a motive to conduct, while strong during the period of its activity, is uncertain 1 2 3 4

Phillips, The War of Greek Independence, 1821 to 1833, p. 47. Frantzes, Epitome tes Istorias tes Anagennetheises Ellados, II, 182 ff. Archeia tes Ellenikes Paligenesias, I, 157 ff. Tsagares, Symvole eis ten Demosionomiken Istorian tes Epanastaseos, p. 18.

2

F O R E I G N B O R R O W I N G I N 1821

and unreliable." 5 Internal borrowing based on compulsion was abandoned as soon as it was realized that the exhausted and impoverished domestic money market could not absorb any public securities, even when these were offered at a heavy discount.6 Requisitions and proceeds from the sale of booty and spoils of war were disappointing. The net proceeds from the sale of seized enemy property were negligible and in large part were appropriated for personal enrichment.7 The only sources of revenue that the insurgents could rely upon with any degree of certainty were the lease and sale of national lands, custom duties, and taxes on agricultural produce.8 But even the yields of these sources were at times doubtful and irregular. "The war was becoming predatory and straggling." 9 The nature of the struggle rendered possession of ports and national domains very precarious. Possession followed the fluctuating fortunes of war, and war in its wake left only ruins. There were periods during which "hardly a crop was gathered," and throughout the Morea "scarcely a ploughshare turned the rank and blackened soil." 10 The constant drain upon farm labor through its diversion to war work brought about a decided slump in agricultural production, and in consequence, a gradual decline in national revenue. The once-flourishing maritime trade, backbone of Greek prosperity in the prerevolutionary era, was entirely suspended, as owners, crews, and craft were mobilized for war. The Greek merchant fleet, in its attempt to serve the needs of war as well as the fortunes of shipmasters and those associated with the shipping industry and trade, seriously felt the impact of an anomalous situation. All branches of enterprise felt the repercussion of war and began to show signs of economic exhaustion. Insurgent Greece badly needed a trained and disciplined leadership; it also needed money and an equitable and appropriate tax system for raising it. Under the system then in vogue, taxes were farmed out and often collected in kind, a common practice under Turkish financial administration. 11 The revolutionary regime, in spite of its 5

Adams, The Science of Finance, p. 548. Raptarches, Istoria tes Oikonomikes Zoes tes Ellados, p. 47; also Orlandos kai Louriotes, Apologia eis ten kat' auton ekdotheisan apophasin tou elenktikou synedriou, I, 19. 7 Mamoukas, Ta Kata ten Anagennesin tes Ellados, II, 486; Raptarches, op. cit., p. 93. 8 Andreades, Istoria ton Ethnikon Daneion, p. 10. 9 10 Raptarches, op. cit., p'. 135. Sargeant, The New Greece, p. 40. 11 For the tax system of the period see Andreades, L'administration financiire de la Grece sous la domination turque. 6

F O R E I G N B O R R O W I N G I N 1821

3

sincere promises to do away with all that savored of Turkish origin, had retained many administrative practices and methods inherited from its oppressors. The tax system in particular was similar in pattern to that of prerevolutionary days. In the hands of the new tax collectors that rigid system often became an instrument of ruinous, legalized exactions. Though laws were enacted to curb the practice of high-handed methods and prevent the collection of unauthorized levies, tax collectors behaved like public extortioners. To the landless agrarian and pastoral classes, these "tax renters" were more obnoxious than their Turkish predecessors had been. This aversion was due in part to a new interpretation of social responsibility. The tearing down of Turkish authority and the acquisition and taste of political liberty led the insurgents to believe that under the new dispensation they were to be absolved from fiscal obligations. They failed to comprehend that their freedom rested on a willingness to assume additional burdens and on a readiness to discharge them promptly and regularly. To a large extent the economic difficulties and confusion of the time arose from the lack of proper direction and control. Most of the leaders of the movement, unschooled as they were in the conduct of public business, tried to exploit the situation to their own advantage. 12 Their factional struggles were waged for the acquisition of key positions and particularly for control of the public purse. Once at the helm, the different factions fought for exclusive hold on the public exchequer, so as to divert revenues to the strengthening of their position and indirectly to the enrichment of themselves and their cohorts. 13 Thus was inaugurated the reign of a vicious internal factionalism that delayed, and at times nullified the chances of immediate success. From circumstances that hardly admit explanation, insurgent Greece did not produce a single leader who could lay the foundations of an efficient administration on the existing communal system. Even as late as 1823 foreigners who visited the country observed that all the leading cliques which assumed governing power were regarded by the populace "as alien in sentiment and unworthy of the nation's confidence." 14 12

Phillips, op. cit., p. 47. "Beware the Moreotes" was the characteristic warning which Orlando sent to his brother-in-law G. Koundouriotes on the question of control over foreign funds. Archeia Kountouriotou, IV, 147; Oikonomos, Istoria tes Ellenikes Paligenesias, pp. 4S2 ff. 14 Finlay, History of Greece, VI, 232 ; Emerson, Pecchio, and Humphreys, A Picture of Greece in 1825, II, 221. 13

4

F O R E I G N B O R R O W I N G I N 1821 T H E ATTITUDE

OF REACTIONARY

EUROPE

In spite of scant funds and inefficient administration, the insurgents nevertheless succeeded in winning the first rounds. As time went on, the exhaustion became more apparent and those in a position to appraise the outcome began to doubt ultimate success. Only effective foreign assistance could rescue the rebels from the wrath of their former masters; but under the prevailing international conditions this seemed, for the moment at least, a remote possibility. The reactionary foreign governments, terrified by the phantom of revolution, had bound themselves in a solemn compact to uphold arbitrary power. Post-Napoleonic Europe "half-exhausted and half-expectant," 13 fatigued by a long and destructive struggle, was reluctant to assist in a movement likely to jeopardize the peace of the Continent. The only elements in sympathy with the revolutionary cause were the impotent liberals. As the rebellion synchronized with the most rigorous phase of the policy of maintaining peace by repression, it assumed a symbolic significance. To those not in accord with the Vienna settlement, it epitomized the counteroffensive of liberalism against reaction; and in that light it was viewed with apprehension by the potentates of Europe. To Metternich and to the mystical Alexander I, the supposed champion of his oppressed coreligionists, the Greek revolt appeared in its organization, in its external relations, and in its immediate repercussions, as in no respect distinguished from the other revolutionary movements of the Continent and "hence deeply and inevitably tainted with revolutionary danger." 16 There was, therefore, from the outset a marked aversion to countenancing any revolt against constituted authority, even when that authority was represented by an infidel.17 The British foreign secretary, in particular, argued that the rebellion was evidence of an organized spirit of insurrection "and that the Greeks must rely upon the hand of Providence to achieve their aims." 18 As for Metternich, his alter ego, Gentz, was gleefully reporting that "not one voice was raised in favor of the insurrectionary cause." 19 15

Crawley, The Question of Greek Independence, p. 1. Cambridge History of British Foreign Policy, II, 85. 17 Letter of Castlereagh to Alexander I, July 16, 1821, Londonderry, Memoirs and Correspondence of Viscount Castlereagh, X I I , 403-8. 18 Webster, The Foreign Policy of Castlereagh, p. 376. 19 Gentz, Dipeches inidites du Chevalier de Gentz, II, 157. 16

FOREIGN BORROWING IN

1821

5

Greek diplomats, anticipating renunciation and condemnation of the movement and anxious to avoid a compromising affinity to Jacobinism, tried to dissociate the rebellion from demagogic lawlessness by stressing its national and emancipatory character and aims. They hoped by this dissociation to convert the progressive elements of Europe into active support of their cause, and at the same time to placate English commercial interests,20 which were at the time inclined to link the Greek rebellion with Russian designs in the Near East. Russia had been all along the "bete noire" 21 of the English diplomatists. This conviction sprang from the perennial British fear that an independent Greece "might become a vassal of Russia and serve to secure her a foothold in the Mediterranean." 22 The difficult task of allaying these fears and of enlisting British support fell on the shoulders of Alexander Mavrocordatos, one of the most astute and Western-minded Greek politicians of the time. 23 He sponsored the idea of sending a mission to London. To the commissioners ultimately sent to negotiate a Greek loan there, his instructions were to "appear diligently pro-English and cleverly anti-Russian." 24 He told them to stress the fact that the emergence of a strong Greece could be the most effective counterweight to Russian ambition.25 He was obviously anxious to enlist British support; without it, as he intimated in his instructions, the revolt was destined to fail. CONTINENTAL

L O A N PROPOSALS A N D

SCHEMES

Though the Greek revolt was officially denounced and its success doubted, it did not lack supporters confident of its ultimate triumph and consequently willing to risk their funds in financing it. Numerous lending schemes, mostly of a dubious complexion, were submitted and taken up for consideration by successive provisional governments. These proposals came from self-appointed European emissaries who flocked into Greece and from Greek delegations who had been sent abroad "in search of European lenders." 26 20

For evidences of opposition of British commercial interests to the Greek revolt see Keightley, History of the Greek War of Independence, I, 178. 21 Villele, Mimoires et correspondance, V, 177. 22 Seton-Watson, Britain in Europe, p. 131. 28 Kordatos, Neoellenike Politike Istoria, pp. 334-337. 24 Oikonomos, op. cit., p. 40S; see also Mamoukas, op. dt., IV, 88. 25 Paparregopoulos, Istoria tou Ellenikou Ethnous, VII, part 1, 148. 26 Andreades, Istoria ton Ethnikon Daneion, p. 11.

6

FOREIGN BORROWING IN

1821

The first official measure providing for the raising of a loan abroad was voted by the Areios Pagos of Continental Greece on November 23, 1821. It authorized Baron Theochary, Kephala Olympios, and Chroni Drossinos to borrow abroad 150,000 florins of Augsburg in the name of Continental Greece, exclusively. Through the influence of Mavrocordatos and Bretzy, prominent Greek merchants on the Continent, the sum of 102,000 florins was realized. 27 A year later, under the law of March 9, 1822, the Greek National Assembly authorized the Greek delegation at Ancona to negotiate a loan wherever it seemed advisable. The authorization provided for borrowing 1,000,000 Spanish dollars and, as a safeguard for servicing the loan, pledged all the national lands in the possession of the insurgents. 28 The delegation tried to enlist the support of German capitalists and merchants. But search for funds in the Austrian dominions met with failure; "wherever the Austrians exerted influence nothing could be done for the Greeks." 29 Because of the evident opposition in the regions under Metternich's sway the loan authorization was annulled by the decree of October IS, 1823, 30 and the delegation was recalled. While all kinds of loan negotiations, both official and unofficial, were in the air, the provisional Greek Government was constantly receiving various loan proposals from agents sent by foreign groups. Most of these schemes contained such onerous terms that even the hard-pressed insurgents were reluctant to accept. Frequently the proposals were accompanied by enticing promises to furnish the rebels with "movable fortresses, frigates and armies." One such proposal came from Robert Peacock, "a gentleman not in good odor." 3 1 Accompanied by Baron de Wuitz, a retired Russian general in the service of the India Company, 32 and by the Greek merchant and financier S. Coriallenio, Peacock proceeded to Tripolitza. In presenting their terms the trio stressed the fact that their mission was supported by a powerful banking group, the identity of which they refrained from divulging. As doubt existed concerning the sincerity and strength of the promoters, the proposals were rejected. The rejection 27 Mamoukas, op. cit., I, 91-94. This was not strictly a public loan. It was rather an accommodation made possible by the response of Greek merchants on the Continent. 28 Archeia tes Ellenikes Paligenesias, I, 1S3. 29 Letter of Metropolitan Ignatios to Mavrocordatos; Pisa Aug. 18, 1823, Sathas, Islorikai Diatrivai, p. 84. 30 Roma Istorikon Archeion, I, 221. 31 Letter of Hobhouse to Byron, Byron, Life, Letters and Journals, II, 291. 32 Orlandos kai Louriotes, op. cit., p. 21.

F O R E I G N B O R R O W I N G IN

1821

7

antagonized the leader of the group; on his return to England he attempted to frustrate other loan negotiations then under way in London by spreading malicious and defamatory information about insurgent Greece. 33 A proposal of similar complexion came from one Roupenthal, an agent who posed as having financial connections with the French banker Laffitte. His terms envisaged the flotation of a loan of £4,000,000 at 50 bearing a 6 percent annual interest. As a tangible guarantee for servicing the loan, Roupenthal demanded the hypothecation of all national lands, over which an exclusive superintendence was to be granted to the lenders or their accredited agents. The majority of the Executive, in view of the sum involved, were inclined to accept. But A. Kanakaris, vice president of the Legislative, rejected the proposals as "extremely crushing," and as not in consonance with the best interest of the struggling nation.34 A most curious proposal, which was tied up with an arrangement for an alliance, came from the moribund order of the Knights of Malta. Now, the readiness of Greek emissaries to give a listening ear to any loan proposal was prompted by the desperate need for funds. Thus, while on a mission to the Congress of Verona where he was delegated to plead the cause of Greece, Count A. Metaxas was persuaded by Captain Jourdain, an avowed philhellene, to seek the assistance of the Order. 35 Accordingly, Jourdain submitted a plan for an alliance along with a promise of securing financial backing. Metaxas consented to the plan and invested Jourdain with full powers to conduct negotiations.36 Without delay Jourdain proceeded to Paris and presented his proposition to the influential members of the Order. 37 To enlist the support of the hesitant banking circles, as well as the support of the mercantile and shipping interests, Jourdain drew up a mbmoire in which he stressed the incalculable advantages that French interests in the Levant would derive from the resurrection of the Order and the establishment of French commercial outposts in the Greek Archipelago. These "dazzling advantages" failed to bring French economic interests into line. This, however, did not prevent the Knights from signing a dubious loan contract and a treaty of Archeia Kountouriotou, op. cit., II, 228. 3 5 Sathas, op. cit., pp. 46 ff. Orlandos kai Louriotes, op. cit., pp. 20 ff. 3 6 An account of Jourdain's connections with the revolutionary movement and his negotiations with the officials of the Order of Malta is given in his Mtmoires historiques et militaires. 3 7 De Lavigerie, L'Ordre de Malte, p. 133. 33

34

8

F O R E I G N B O R R O W I N G I N 1821

alliance with the insurgents. 38 The treaty provided for immediate recognition of Greece as an independent state and for a close alliance which guaranteed the integrity of the territories of the signatories. In Clauses 8 and 9 it was stipulated that Greece should cede in perpetuity to the Order the islands of Rhodes, Carpatho, and Astypalea, then under Turkish rule, and until the islands could be liberated, the Knights should be allowed a temporary occupation of the island of Syra. 39 In return for these territorial concessions the Order engaged to contract in the name of insurgent Greece a loan of 10,000,000 frs. at 5 percent; four millions were to be given to Greece outright, while the balance was to be pocketed by the patronizing allies as recompense for services rendered. Such was the eagerness of the Order to conclude the contract that it resorted to all sorts of machinations to impede another loan negotiation that was being simultaneously carried on in London. 40 The success of the London negotiations, coupled with the failure of the Order to find financial backers, terminated all talks with the Knights. The scheme was destined to failure anyway, for it never received the support of French interests. The reluctance of the French to back insurgent Greece was natural, as France at that time was committed to an unqualified support of Mohammed Ali of Egypt. 41 The court circles were also opposed, and Louis XVIII was openly disinclined to extend any assistance whatsoever. Consent to an arrangement for financing a revolutionary movement would have amounted to acquiescence in knocking down the props of the Holy Alliance, to the preservation of which the French king was at that time strongly committed.42 THE

S P E C U L A T I V E ERA I N

GREAT

BRITAIN

At the time that insurgent Greece ventured abroad to borrow, Great Britain was in the throes of speculation. Foreign loans flashed 38 D e Lavigerie, op. cit., pp. 134-140 (text of treaty), pp. 13-19 (loan contract); see also Sathas, op. cit., pp. 31-94. 39 There was much bargaining among the negotiators over the distribution of territories they did not possess. Because of its remoteness, the Greeks preferred the cession of Cyprus instead of Rhodes; Kontoyannes, Istorika Engrapha Anapheromena eis ten Elleniken Epanastasin, Document No. 120. 40 Foreign Quarterly Review, 1829, pp. 278 ff.; see also Letter No. 36, Stanhope, Greece in 1823 and. 1824. 41 Millingen, Memoirs of the Affairs of Greece, p. 268. 42 De Lavigerie, op. cit., p. 132.

F O R E I G N B O R R O W I N G I N 1821

9

in continuous display upon the Stock Exchange. In fact, some of the proceeds procured in England were destined "to finance the frustration of British foreign policy upon the continent." 43 This was true in the case of the Greek revolt, for in supplying insurgent Greece with funds the English bankers were assisting in the mutilation of the Ottoman Empire, the integrity of which British diplomacy strove to preserve. During the era of revolutionary finance the English public was eager to nibble at seductive baits. Dazzling visions of large and immediate profits were too tempting to be resisted; all the gambling propensities of human nature were drawn into action and crowds of individuals of every description, the credulous and the suspicious, the crafty and the bold, hastened to venture some portion of their savings in schemes of which they knew nothing. With a few guineas in their purse and a resolute determination to increase them at any cost, dabblers in funds pounced upon foreign securities with great avidity. A vivid description of the scenes which occurred at the time was furnished by John Francis, who had the opportunity of writing with the evidence of personal reminiscences before him: With huge pocketbooks containing worthless scrip; with crafty countenance and cunning eye; with showy jewelry and threadbare coat; with well-greased locks and unpolished boots; with knavery in every curl of the lip, and villainy in every thought of the heart, the stag, as he was afterwards termed, was a prominent portrait in the foreground. . . . In every corner and in every vacant space might be seen men eagerly discussing the premium of a new company, the rate of a new loan, the rumored profit of some lucky speculator, the rumored failure of some unlucky financier, or wrangling with savage eagerness over the rate of the shilling.44

Upwards of £47,815,000 had been advanced to foreign governments by the end of 1824, a part of it to be irretrievably lost or entirely unremunerative because of the financial impoverishment of the borrowers.45 To understand the early migration of British capital to finance revolutionary ventures abroad, a glance at conditions in England is necessary. In 1823 Great Britain was emerging from a financial and 43

Jenks, The Migration of British Capital to 1875, p. 44. Francis, Chronicles and Characters of the Stock Exchange, p. 96. 45 The Times, Oct. 14, 1824. For the amount of foreign loans issued in England in 1822-25 see Journal of the Statistical Society of London, X L I (June, 1878), 313. 44

10

F O R E I G N B O R R O W I N G I N 1821

economic slump and entering into a period of unprecedented boom. The prosperous state of the country was a subject of congratulation in the King's speech.46 Unusual activity pervaded every branch of commerce and manufacture, and even agriculture was recovering from the depression. Much of the improvement and extension of trade was due to the relaxation of the Navigation Laws, and the resultant opening of commerce with the South American states—a trade that until 1823 had been hampered by the failure of Great Britain to recognize the independence of these states. By the end of that year, however, consuls and commercial agents were appointed to the principal stations in Mexico, Colombia, Peru, and Chile, and by 1825, most of the new republics were recognized.4'' British banks "looked with favor if not with direct encouragement" on participation in the economic development of these areas. 48 The event, however, that hastened the exodus of British savings abroad was the conversion of the 5 percent government bonds to 4 percent in 1822 48 and the subsequent conversion in 1824 of the 4 percent bonds into percent. 50 This fall in the rate of interest helped to render investments in foreign stocks very attractive. It induced investors to part with their savings and venture their money in any schemes offering a higher return. The speculative mania of the period reminds one of the days of John Law. Such was the tide and range of wild scheming that Parliament was besieged with applications for private bills for companies formed with every conceivable object, such as, among others, "bringing salt water from Brighton and fresh air from Bognor." 51 The negotiation and flotation of foreign loans followed well-defined lines. The representatives of the borrowing state approached one or more issuing houses and, after agreement upon the terms, arranged a contract embodying the conditions of issue. Thenceforth the responsibility of marketing was under the exclusive direction of the loan contractor. The risk involved in underwriting large and precarious issues was too great for individual firms to shoulder alone. To minimize the element of failure the syndicate plan was introduced. At first confined to the issue of loans for large amounts, it was soon adopted in all cases where there was any doubt of success. These 46 48 60

Hansard, New Series, X, 1. Patterson, The New Golden Age, II, 93. Stat. S, George IV, Cap. 11.

47 49 51

Annual Register, 1825, p. 3. Stat. 3, George IV, Cap. 9. Hansard, New Series, XII, 613.

F O R E I G N B O R R O W I N G I N 1821

11

capitalistic combinations by dividing the risk made possible loans which otherwise would in all probability never have been undertaken. In the majority of cases the syndicate guaranteed the placing or disposal of a certain portion of the loan, and the part so guaranteed was the first portion that might be offered to the public. As soon as the amount guaranteed was subscribed for or placed through the market, the syndicate's liability was at an end and the participants had only to receive their share of profit on the transaction. Profits arose as a result of the difference between the issue price as stated in the prospectus and the syndicate price, invariably a difference of 5 or 6 percent. As a first step to launching and disposing of new securities, syndicates instituted selling campaigns accompanied by the circulation of prospectuses and other reading matter extolling the political stability and economic vitality of the borrowing state. Pamphleteers inundated the financial market with elaborate studies analyzing the resources and forecasting the rapid economic solvency of the borrowing state. 52 "Specious statements were held forth of the great resources and capabilities of revenue of those states and assurances were held out, and believed, of the good faith and power of the governments to raise and appropriate the sums requisite for the payment of the dividends." 53 Previous to the advent of Nathan Rothschild, foreign loans were somewhat unpopular in England as the interest was receivable abroad, subject to the rate of exchange, and payable in foreign coin. The Rothschilds popularized foreign securities by inaugurating the system of paying interest in sterling. It was essential to the success of the loans that they run in sterling. They were thus rendered independent of currency manipulations on the part of the borrowing governments. The retention of the business of agents in remittance of dividends was important to the contractors, not only for the brokerage fees but also for keeping them in contact with increased exchange facilities arising from the monopoly of government remittances.64

The terms of flotation varied widely. Revolutionary governments preferred to borrow at a low interest no matter how large the discount at which their loans were issued. The low-issue price did not 52 For a description of economic conditions prevalent in Greece see Blaquiere, on the Present State of the Greek Federation. 53 54 Tooke, A History of Prices, II, ISO. Jenks, op. cit., note, p. 353.

Report

12

FOREIGN BORROWING IN

1821

scare the investor, who was promised a handsome bonus at maturity. Nor were contractors averse, their commission being computed upon the nominal rather than the real amount of the loan. This was not all. In their agreements with foreign states contractors secured option on loans to be contracted in the future and were—as in the case of the Greek loans—appointed agents for all mercantile transactions on behalf of the revolutionary governments. "They received a commission for raising the money, a commission for spending it and a commission for paying it back." 65 LOMBARD STREET RESPONDS

While all kinds of loan negotiations were being carried on at home and abroad, the Greek Government, early in 1823, sent A. Louriotes to England to appraise the possibility of obtaining a loan. On his arrival in London, he was introduced to Captain E. Blaquiere, an active philhellene, and to the members of the London Philhellenic Committee. Louriotes' information concerning conditions at home excited interest and prompted the expression of wishes for the liberation of Greece. Practical philhellenes had discerned that Greece could not rely alone on charitable munificence; to attain eventual emancipation, the enlistment of foreign financial support was necessary. To prepare the ground, the London Philhellenic Committee 56 sent E. Blaquiere to the scene of the revolution. 57 In company with Louriotes, Blaquiere arrived at Tripolitza where he conferred at length with Mavrocordatos and other eminent leaders. During his sojourn in Greece he devoted his time to collecting all kinds of information relative to the resources and needs of the country. On his return to England, he drafted a rather glowing report for the guidance of the 55

Jenks, op. cit., p. 49. The London Committee was formed on Feb. 28, 1823, at a meeting in the Crown and Anchor Tavern. Those present were H. G. Bennett, E. Ellice, W. Evans, J. C. Hobhouse, J. Hume, C. H. Hutchinson, J. Maxwell, W. Smith, all members of Parliament, Dr. Gilchrist, and Dr. John Bowring. Gradually the membership was enlarged until its roster included about forty members of Parliament, predominantly liberals, and representatives of the academic, clerical, and business profession. For a description of the rise of Philhellenic sentiment in England and the formation and membership of the London Committee, see Westminster Review, May 26, 1826, pp. 113 ff.; Edinburgh Annual Register, 1824, Part II, p. 238; V. Penn, "Philhellenism in England: The London Committee." Slavonic Review, April, 1936, pp. 647-660; E. S. De Beer and W. Seton, "Byroniana: the Archives of the London Greek Committee," Nineteenth Century, Sept., 1926, pp. 396-412. 57 Blaquiere, The Greek Revolution, pp. 10 ff. 56

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58

London Committee. With exaggerated optimism, the report affirmed that given a chance liberated Greece would become "one of the most opulent nations of Europe" and that Greece's "physical strength" was equal to that "of the whole South American contiment." 59 A similar view was expressed two years later in a second report in which the same author did not hesitate to insist "that the resources of Greece entitled her to a high credit in the London Stock Exchange." 60 This exaggerated view concerning Greek economic strength was also entertained by the prospective borrowers. Ardent patriots told Colonel Stanhope, another agent of the London Committee, that the fertility of the soil of northern Greece was such "that if a human was planted there, he would assuredly thrive and grow." 61 Naturally these appraisals aroused the ire of all Turcophile elements in Britain. They branded the Committee as a group of "belligerent agitators and their agent a professional revolutionary" and "a mouthpiece of partisan liberalism." 62 This manifestation of pro-Turkish sentiment is not hard to explain. The Levant merchants viewing the situation from a purely economic standpoint saw in the mutilation of Turkey a disruption of trade and the endangering of their commercial privileges. To their support came also the timid lovers of order, who had never ceased to dread the effect of the Greek example on the operatives of Manchester and the weavers of Glasgow. The London Committee, in spite of evident opposition, placed unqualified reliance on its agents' reports, and proceeded to prepare the ground for launching a Greek loan in the London money market. To expedite the negotiations it advised the Provisional Greek Government to send representatives invested with powers to sign contracts and other necessary agreements. Accordingly, three Greek envoys— John Orlandos, Andrew Louriotes, and John Zaimes—arrived in London on January 21, 1824, where they were feted by the entire Whig aristocracy. Shortly after their arrival a banquet was given in their honor at 58 "Report of the Present State of the Greek Confederation and Its Claims to the Support of the Christian World, Read Before the Committee on Sept. 23, 1823." The Pamphleteer, X X I I (1823), 553-570. 69 Blaquiere, op. cit., p. 303. 60 Blaquiere, Narrative of a Second Visit to Greece, p. 16. β1 Kasomoules, Enthymemata Stratiotika, 1821-1833, p. 364. 62 "Mr. Blaquiere's Report on Greece," Blackwood's Edinburgh Magazine, 1823, pp. 465-467.

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the Guildhall under the auspices of the London Committee. Present at this function were Canning and Wynn, members of the Cabinet, with the Lord Mayor Waithman acting as toastmaster. The attendance of Canning displeased the King, who administered a severe reprimand. 63 Canning justified his presence by asserting that the welcome tendered by the city of London could not be construed as an official espousal of the Greek cause.64 In spite of this veiled renunciation, the British foreign secretary was favoring the efforts of the Committee, 65 but always in an unofficial way. Canning's policy on the Greek question was swayed by motives purely British, but this did not restrain him from inquiring about the problems that confronted the Greek National Government and the prospects of securing a loan. 66 At the banquet the efforts of Greece were lauded and her imperative needs were emphasized. In reality, the affair served as an occasion for the formal launching of the first external loan of insurgent Greece. Through the influence of those present and through some adroit maneuverings of Lord Erskine a loan agreement was signed on the 15/27 of February, 1824, with Loughman, O'Brien, Ellice and Company, London bankers. Two days later the formal flotation was announced in Lombard Street. 67 The amount contracted was for £800,000, a rather sizable sum for a revolutionary enterprise whose fate hung in the balance. The price of issue was fixed at 59; the rate of interest at 5 percent on the nominal capital, with a 1 percent annual sinking-fund charge. The actual sum realized amounted to £472,000. From this, £123,000 was withheld for "negotiation expenses" and promoters commissions, and for interest and sinking-fund charges for the two ensuing years. The total net actually credited to the account of the Greek Provisional Government did not exceed £348,000.68 For 63 George IV was angered not so much by Canning's display of sympathy for the Greek cause as by the fact that his minister was present at a function in which the Lord Mayor presided. The Lord Mayor was disliked by the King because of the prominent part he had played in the trial of the Queen. For details of this episode see Yonge, The Life and Administration of the Second Earl of Liverpool, III, 279-283. Also Wellington's Despatches, II, pp. 250, 261, and the Private Letters of Princess Lieven to Prince Metternich, 1820-1826, p. 259. 64 Letter of Canning to Lord Liverpool, May 5, 1824, Letters of King George IV, 1812-1830, Vol. I l l , No. 1163. 65 Broughton, Recollections of a Long Life, I, 34. ββ Bowring, Autobiographical Recollections, pp. 280-288. 67 Archeia tes Ellenikes Paligenesias, II, pp. 205, 255. 68 Gervinus, op. cit., VI, p. 14; Andreades, Istoria ton Ethnikon Daneion, pp. 17-18.

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the service of this debt Greece assigned all her revenues and specifically the proceeds "from customs, fisheries and salines." 69 As a safeguard for the ultimate payment of the principal all the national domains were offered as a pledge.70 The successful flotation of the first external loan was regarded by the Greeks as "a financial triumph" of incalculable significance.71 Some interpreted the event as an indirect recognition of their cause and a virtual acknowledgment of their independence.72 Others appraised it as an expression of foreign generosity and munificence, little thinking of the burdens that such an obligation entailed. "The majority of the Greeks," wrote a contemporary, "do not rightly comprehend the meaning of a loan, but simply conclude that it is some European method of making a present." 73 Foreign impartial observers considered the transaction "a pitch and toss" investment. To the resident English consul at Patras such a grant of British funds was incomprehensible: Although I can perfectly comprehend that the present like many other loans has been raised in London, not in the view of the investment of capital, but for the purpose of speculation, still, if we look to the actual state of Greece, it is difficult to imagine how the proposition could have been entertained for a moment. Here on the spot in the centre of the Revolution we know of no real security that can be given for the payment of the debt. 74

The influx of foreign funds into Greece exerted both a beneficent and a detrimental influence on the revolutionary movement. It gave to the people new courage 75 and the belief that they were not alone. At the same time it caused and fostered long factional struggles over control of the public purse—struggles which destroyed the unity of purpose so essential to the prosecution of the war. 70 The desire for 60

Tricoupes, Istoria tes Ellenikes Epanastaseos, III, 131. The guarantee as it is written on the face of the bonds reads as follows: T o the payment of the annuities are appropriated all the revenues of Greece. The whole of the national property of Greece is hereby pledged to the holders of all obligations granted in virtue of this loan, until the whole of the capital which such obligations represent shall be discharged, and to effect which a sinking fund will be provided. Banker's Magazine ( L o n d o n ) , L X I I I (1863), 858. 71 Archeia Kountouriotou, op. cit., II, 288. 72 Prokesch von Osten, Geschichte des Abfalls der Griechen vom türkischen Reiche, I 332. 73 Emerson, Pecchio, and Humphreys, op. eil., I, 108. 74 Green, Sketches of the War in Greece, p. 170. 75 Emerson, Pecchio, and Humphreys, op. cit., II, 218-221. 76 Oikonomos, op. cit., p. 36S. 70

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1821

77

a share in the imported wealth was universal. Sums were dissipated to satisfy private claims and remunerate services rendered. A new era of fictitious affluence had suddenly dawned, and the purpose for which these valuable funds were borrowed was speedily forgotten. The money poured into Greece by loans suddenly created a demand for Albanian equipment: the bazaars of Tripolitza, Missolonghi and Athens were filled with gold embroidered pockets, gilded yataghans and silver mouthed pistols. . . . Phanariots and doctors of medicine, who in the month of April, 1824, were clad in ragged coats and who lived on scanty rations, threw off the patriotic chrysalis before summer was past and emerged in all the splendor of brigand life, fluttering about in rich Albanian habiliments, refulgent with brilliant and unused arms, and followed by diminutive pipe bearers and tall henchmen.78

The Greek envoys were now encouraged to consider the possibility of negotiating a larger loan. The new project was at once endorsed by the sponsors and promoters of the first loan, who were not actuated by any unselfish motives; their object was to secure commissions and quick profits and by manipulating the market to keep at high levels the price of outstanding bonds. The motive of the Greek envoys was different. Aware of the speculative temper of the English money market, they very strongly recommended to their government the sanctioning of additional borrowings. Their idea was to saddle Greece with large obligations so as to bind the financial interests of Great Britain to the Greek cause; in their anxiety to safeguard their investments, British bondholders could not but espouse the cause of Greek freedom. To convince and impress the prospective lenders of the economic strength of the borrower, the Greek emissary to London, J. Orlandos, urged the Greek Government to expedite to England "neat Hydriot boats laden with choice Greek products." 79 These shipments were intended to serve as a concrete evidence of Greece's economic strength, sufficient to reassure the old investors and convincing enough to evoke the interest of new ones. While informal negotiations for a second loan were carried on, the Greek envoys resorted to "some clever maneuvering," in order to obtain better terms.80 One of them went to Paris and commenced 77

Letter of Rodios to G. Kountouriotes, Oct. 18, 1824, Archeia Kountouriotou,

288.

78

79 80

Finlay, op. cit., VI, 338. Archeia Kountouriotou, op. cit., IV, pp. 58, 341, 411, 449. Ibid., Letter of Orlandos and Louriotes to G. Kountoriotes, Feb. 16, 1825.

III,

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negotiations with the French bankers Andre Gottier and Gabriel Odier et Cie. The object was to create competition between rival financial groups, so as to release Greece from an exclusive dependence on the London money market. 81 Behind this movement were the Paris Philhellenic Committee and the ardent supporter of the Revolution, John Eynard, a Swiss banker, who sincerely believed that Paris could outbid London and offer more favorable loan terms. 82 The factor, however, that actually determined the choice of London over Paris was the amount involved: the British bankers were disposed to lend £2,000,000 or 50,000,000 frs. against the paltry 10,000,000 frs. of their French rivals. The reluctance of the French money market to extend such credit was due to several reasons. In the first place, the commercial and banking interests, as well as the official attitude of the government, were professedly anti-Greek. The court circles "infinitely preferred the Turks to the Greek heretics, for the former believed in absolutism." 83 In the second place the French capital market was cautious and hesitant to risk its funds in a cause which at the time seemed to have but a remote chance of success. In strength and prestige it could not compare with that of London. The heavy outlays consumed by the Napoleonic wars and the sizable indemnities exacted by the victorious allies had considerably weakened French resources.84 Besides this evident inadequacy, the Paris bourse was not yet as familiar as London with taking risks in the underwriting of foreign securities. Up to 1823 transactions in the bourse were confined to royal bonds. The investment of funds in foreign securities was done only by curb brokers. 85 It was not alone the inadequacy and backwardness of the Paris money market that impeded the flotation of Greek loans in France. Self-interest shaped policies and determined preferences; business and shipping interests were in accord with the official attitude of giving all-out aid to Egypt. 86 France, by 1824, was committed to unqualified support of Mohammed Ali Pasha. French officers like Colonel Seve 81

Philos tou Nomou, No. 104. Theotokes, Allelographia I. A. Capodistria—I. G. Eynardou, 1826-1831, p. 13. 83 84 Boigne, Memoirs, 1820-1830, III, 1S4. Liesse, Portraits financiers, p. 280. 85 Vidal, History and Methods of the Paris Bourse, p. 175; Jannet, Le Capital, la speculation et la finance au XIXe siecle, p. 52 2. 86 Commenting on the commitment of French trade and shipping interests to Ali's support, the Duchess de Dino wrote to Barante: "The commercial spirit reigns alone here; and it is not of the elevating type either," Barante, Souvenirs, III, 289-292. 82

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(Soliman Pasha) were organizing Ali's army. 87 In the port of Marseille, frigates were under construction for the Egyptian navy. 88 In actuality, France had become the arsenal from which Ali drew all his war material and military talent for the invasion of Morea. 89 The promoters of the second loan felt that fresh borrowings were the surest safeguard to their investments. Part of these borrowings could be used as a "manipulating fund" to support and steady the price of the bonds of the first loan whenever occasion demanded it. In fact one of the provisions in the contract of the second loan was that a sum of £250,000 be set aside as a "rejuvenating fund" to purchase Greek securities "whenever their price declined." The second loan was floated in London in February, 1825. It was brought out by Jacob and Samson Ricardo, prominent City bankers. The amount contracted was £2,000,000. The price of issue was fixed at £55.50, at 5 percent with 1 percent annual sinking fund charge. Its success was very revealing: it was oversubscribed four and a half times. Insurgent Greece, with nothing to offer except a vague promise to pay, could borrow on the same if not more favorable terms than the independent Kingdom of Spain.90 From the realized amount of £1,100,000, £200,000 was withheld to meet the maturing interest of the first two years; £20,000 for the sinking fund charges for the first year and £64,000 was distributed to the promoters and negotiators in the form of commissions. The net sum available to the Greek Government amounted to £816,000.91 The pledges for service and repayment were similar to the loan that preceded it. But as time went on and the fortunes of the conflict swayed, the bankers requested definite guarantees, that is, the assignment of specific national lands, whose produce was to be exclusively appropriated in meeting annual debt charges. The problem, however, of assigning specified lands was not easy. Greece, at the time, was overrun by enemy troops and the 87

Layard, Autobiography and Papers, I, 258. Douin, Les Premieres Frigates de Mohamed Aly, 1824-1827. 89 On the commerce of France with E g y p t about this time, see Julliany, Essai sur le commerce de Marseille, II, 283. 90 Spaniolakes, Paratereseis epi tes Apologias I. Orlandou kai A. Louriotou, p. 40. The highest issue price of a foreign loan floated in London about this time was that of the Kingdom of Naples, which was brought out by N . R. Rothschild at 92 and the lowest, that of Spain underwritten by A. F. Haldimand at 56; both were 5 percents. Pari. Papers, 1831-32 (Vol. VI, App. 95). Report from Committee on Bank of England Charter, App. 95. 91 Andreades, Istoria ton Ethnikon Daneion, pp. 23-24. 88

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extent of its territorial possessions was constantly changing with the fortunes of battle. One of the apparent reasons for the delay in releasing the loan funds for pressing needs was that the borrowers constantly failed to comply with the banker's request. The repayment of the contractual obligation and the meeting of annual charges depended, however, not so much on the strength of ephemeral arrangements, as upon the eventual emancipation of the borrowers. Had Greece failed to win her freedom, all elaborate provisions dealing with the punctual discharge of obligations would have had no value whatever. EXPENDITURE

OF T H E

PROCEEDS

After the conclusion of the loan transactions the London Committee and the bankers arrogated to themselves control over the expenditure of available loan funds. Accordingly, they appointed S. Ricardo, J. Hobhouse, E. Ellice and F. Burdett to act as a Board of Control, investing them with power to deal with the allocation and release of money. The designated persons constituted a Committee of Management and Control whose authority was absolute. They, in turn, sent three commissioners or agents to Greece to act as an advisory body with power to recommend transfers of funds as they deemed necessary. 92 When the borrowers denounced this arbitrary assumption of control, the Committee defended its course as an adoption of "precautionary measures," and alleged that the loan contracts implied that the lenders should sanction the proper expenditure as well as superintend the wise application of funds upon their arrival in Greece. Such safeguards they contended, were necessary "for the safety of the lenders and the reputation of the borrowers." 93 The Greek envoys refused to admit this interpretation on the ground that it was an unwarranted inference. All their protests, both written and verbal, were of no avail. The only effective measure to compel release of funds would have been a legal authorization obtainable by resort to court proceedings. It was belatedly discovered, however, that the Greek delegates could not have recourse to law, for their loan contract 92

Gordon, History of the Greek Revolution, II, 277. The Kountouriotes Archives and the London Committee Archives are replete with provocative and acrimonious correspondence between the Greek envoys and the controllers of funds over the jurisdiction of moneys. Some of the letters appeared in the daily press and often evoked editorial comment. See The Times, May 24, 1826. 93

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was drawn up in the name of an insurgent government which was not yet recognized and therefore had no legal status. The only course open to them was to cooperate as much as seemed feasible. The adoption of precautionary measures did not necessarily connote wise and diligent expenditure on the part of the custodians of the funds. Their lack of judgment became evident by: a) their unorthodox manipulations in the stock exchange to "rejuvenate Greek credit"; b) their injudicious and indiscreet procurement of war materials; and c) their unwise and unsupervised construction of naval craft in England and in America. The appropriation of £212,000 for the purchase of bonds of the first loan was resorted to, not to confirm the soundness of Greek credit, but to levy heavy commissions and unload at high prices an abundant supply of Greek securities, which were in the hands of an intimate group. 94 Thus hard cash urgently needed was squandered in an attempt to bolster the public credit of an unborn state. The truth of the matter was that the stability of the price level of Greek securities mainly depended on the progress of the war, and no bullish manipulations, however dexterously conducted, could check their fall. Nevertheless, close to a quarter of a million sterling was wantonly expended "to enhance the price of the bonds" at a time when the fate of the borrower was in the balance. In the purchase of war materials the Committee displayed "ignorance and dilatoriness" rather than cupidity; the sum expended amounted to £67,000, and involved a series of transactions from which those in charge drew very sizable commissions.95 Some of these materials were so belatedly dispatched that they reached the shores of Greece when the conflict was over. 06 But the greatest display of waste was in the expenditure of considerable sums for the purchase of nonessentials. Unfortunately, there were in the ranks of the Committee a few doctrinaire liberals who insisted that those in charge, besides sending muskets, cannon and medical supplies, should also expedite the shipping of printing presses, brass bands, and Newman's water colors, 97 in order "to enlighten and develop the martial spirit 0 4 The Committee appointed to inquire into the dealings of the bankers who issued and handled the loans stated in its report that "the purchase on account of the unfortunate Greek government was set down at the price of 53J/i and 54J/2 when the value in the market was no more than half the amount paid." The Times, Oct. 25, 182S. 9 5 Spaniolakes, op. cit., pp. 14-17. 9 6 Orlandos kai Louriotes, op. cit., pp. 59-61. 9 7 For the advocacy of diversion of funds to nonmilitary purposes see the letters (Nos. 13, 15, 16, 18, 86 and 108) of Colonel Leicester Stanhope, an agent of the Com-

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and artistic talents of the people." 9 8 Press comments on the subject were frequent and acrimonious. The social innovators were often ridiculed "as incompetent advisors . . . treating the new Hellas as a vile body . . . upon which they essayed their experiments." 9 9 In general, the policy of the Committee was compared to that of the shortsighted but sanguine individual who hitched his cart before the horse.100 The greatest misappropriation of funds occurred in the attempt of the Committee to construct for insurgent Greece naval craft in England and in America. Early in 1824, Captain Habney Hastings, one of the most sincere friends of the Greek cause, had recommended to the Provisional Government the strengthening of the Greek navy "with steamers armed with heavy guns." 1 0 1 A year later, Hastings arrived in London with authorization from the Greek Government ordering Ricardo Brothers to appropriate £10,000 for the vessels. Thereupon, Edward Ellice, representing the Committee, contracted with the Gordon and Brent shipyards for the construction of a 400ton corvette, the Karteria. The installation of engines and other mechanical equipment was awarded to the London Engine Manufactory of Alexander Galloway and Son. As the contract contained no stipulation fixing forfeiture of bond for nondelivery on time, there was occasion for procrastination. Instead of being ready to sail by August, 1825, as originally agreed upon, the vessel was willfully delayed and did not depart till a year later.102 Galloway's failure to live up to his contract is explainable by the fact that his son, a member of the firm, was in the employ of the Pasha of Egypt, the avowed enemy of the Greek cause.103 This initial failure did not discourage Burdett, Ellice, and the Ricardo Brothers from undertaking independently the construction of mittee, in his Greece in 1823 and 1824. Colonel Stanhope, son of the Earl of Harrington, though a soldier by profession, was an ardent disciple of Bentham and became involved in such questions as chancery reform, the Lancastrian system of education, and a free press for India. 9 8 Bruce, The Lije of General Sir Charles Napier, I, 93-96. Napier's estimate of the Committee was "that their ignorance was signal, their pretentions great, their absurdity almost incredible" (I, 338). This scathing criticism may have been colored by the fact that the Committee refused to hire his services for an annual stipend of £12,000. 89 Asiatic Journal and Monthly Register, Feb. 1827, p. 218. 100 The Times, Sept. 4, 5, 1826. 1 0 1 His memorandum in Finlay, op. cit., VII, App. No. 1. 1 0 2 Gordon, op. dt., II, 274. 1 0 3 Annual Register, 1826, p. 372.

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other ships and hiring expert talent to man them. Accordingly £150,000 was set aside for a flotilla of five steam vessels. Out of that sum £37,000 was paid for securing the services of Lord Cochrane, who withdrew from the service of the Brazilian Government and assumed command of the Greek naval forces. 104 After his appointment, he was given authority "to construct, supervise and reject." Of the five vessels originally ordered, and which according to the contract should have been ready by November, 1825, only the Enterprise was ready to take to sea. After a checkered career of unseaworthiness, it arrived in Greece at the termination of the struggle.105 The Irresistible blew up and was destroyed by fire during the trials. Of the remaining three, the Mercury rather belatedly found its way to Greece; because of mechanical deficiencies the other two rotted in the wharves of London. They were anchored there as a sad reminder of an ill-fated and badly financed naval enterprise. 106 This gross mismanagement elicited severe public condemnation against all those connected with the affair. The English press made accusations of roguery and greed. The Committee was attacked for having ships built instead of buying them outright; their obvious intention in constructing vessels was to hold some tangible asset as security. All along, the bankers were uneasy about the fate of Greece and were anxious to retain whatever tangible property they could lay their hands on, for the protection of the bondholders. A cry for retaining the ships came also from the Levantine interests, who used all their influence to impede departure. So strong was the pressure exerted that the government was forced to "make a parade of neutrality." A royal proclamation denounced the contemplated expedition and an Order in Council forbade the exportation of implements of war "a measure easily eluded and fraught with no real hostility." 107 Speculation and unaccountable reckless expenditure of funds were not exclusively confined to the ranks of English philhellenes. Beyond the seas the Greek cause afforded opportunity to self-styled friends 104 An additional stipend was to be paid to Cochrane upon the ultimate liberation of Greece. H e was also to share all prizes taken from the enemy and adjudged as lawful by the maritime tribunals of Greece. For provisions of the contract see Correspondence Respecting the Steam Vessels Intended for the Expedition to Greece, pp. 9 ff. 105 Spaniolakes, op. cit., Appendix H . loe F o r the opinions of the Greek Government on the conduct and management of this enterprise see Kontoyannes, op. cit., N o . 113. 107 Gordon, op. cit., II, 277.

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to outdo their London rivals in soliciting commissions and profits. The story of how the last remnants of borrowed funds were spent forms a sad epilogue to a series of depredations that had been committed "with a degree of baseness." 108 This final "unfortunate business incident" 109 occurred when the Greek deputies in London turned to America for ships. Arrangements were made with two New York mercantile houses, Leroy Bayard and Co. and Gardner G. and Samuel S. Howland, to negotiate the purchase. Assurances were given that the cost of frigates "built of live oak, sheathed with copper and including guns and carriages would amount to $247,000 each." 110 This was satisfactory, and the Greek deputies in London instructed their New York agents to go ahead. As no vessels were available the mercantile houses advised the building "by day's work"—a scheme praised as advantageous and economical. Authorization was given to proceed with the building of the vessels. In order to expedite construction, shipyards were rented, materials purchased, labor hired and expert technical talent engaged. No advance estimates were submitted and no contracts were signed to peg the cost at an approximate figure. It was obvious from the very beginning that the two mercantile houses were not sufficiently experienced or qualified to superintend this type of enterprise. Nor was General L'Allemand, a cavalry officer by profession, sent from abroad, competent to take charge. It is true that Captain Walcott Chauncey was hired as an expert, but his duties were to supervise the technical construction and not to make estimates or control costs. The Greek deputies originally had placed at the disposal of their New York agents the sum of £150,000, a figure then appraised as more than sufficient to defray the cost of construction and outfitting. But, as no arrangements were made for limiting the costs, there were opportunities for collusion, reckless spending, and exorbitant profits. The agents were getting 10 percent on all disbursements on transactions. Workers, jobbers, subcontractors, technical supervisors, navyyard owners, all were munificently rewarded. 111 As the original ap108

Niles Register, Oct. 21, 1826. Cline, American Attitude toward the Greek War of Independence, p. 210. "The Greek Controversy," The American Quarterly Review, I (1827), 263, 284. 111 Contostavlos, A Narrative of the Material Facts in Relation to Building of the Two Greek Frigates, pp. 26 ff.; Sedgwick, A Vindication of the Conduct and Character of H. D. Sedgwick, p. 17. 109 110

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propriation did not suffice to complete construction, requests were made for additional advances when it was discovered "that the frigates would cost more than twice the sum" originally "calculated" and "expected." 112 At this juncture, A. Contostavlos, acting in the capacity of official representative of the Greek envoys in London, was dispatched to New York to straighten the matter and salvage whatever he could. To his great dismay he discovered that, in spite of the heavy outlays, there were claims for unpaid bills that had to be met at once. Unable to raise the money to complete either of the ships, he was advised to sell one in order to save the other. The frigate Liberator, which had cost insurgent Greece $440,606.41,113 was sold. Through the intercession of influential friends of Greece 114 and the consent of the Secretary of the Navy, S. L. Southard, 115 the ship was bought by the American Government for $233,570.97.116 This sum was arrived at after a careful and "liberal" evaluation had been made by a committee of experts appointed by the Navy Department. With this newly acquired "asset," the frigate Hellas was completed and released, and under the command of Captain Gregory arrived in the port of Nauplia in November, 1825. Again the press scored the mismanagement and malpractices committed by the negotiators and promoters of the loans. 117 The revelations paraded in the journals of that time form one of the most amazing narratives in the history of financial depredations. For months the newspapers carried accusations that involved the integrity and reputation of influential philhellenes.118 A cry for an inquiry was raised, and a demand for restitution of ill-gotten funds was sponsored by an organized group of holders of Greek bonds. 119 Discussing the wisdom of instituting an inquiry to discover the culprits and retrieve the squandered funds, the Times remarked editorially, "The affair 112

Contostavlos, op. cit., p. 20. To show the gross mismanagement and peculation involved in this transaction the London Times (Nov. 9, 1826) pointed out that the frigate Brandywine, constructed of unquestionably superior materials and completely equipped and armed, had cost the American Government only $273,300. 114 Thomas Benton, Daniel Webster, and Edward Everett. 115 Memoirs of John Quincy Adams, VII, 124. The purchase was authorized by an "Act supplementary to an Act for the gradual increase of the Navy of the United States" (May 17, 1826, 19th Cong., 1st Sess., App. X I X ) . 11β Contostavlos, op. cit., App. 5. 117 King, The Greek Loans of 1824 and 1825. 118 John Bidl, Oct. 29, 1826; Times, Sept. 5, Oct. 24, 26, Nov. 8, IS, 1826. 119 Times, Sept. 4 and 5, 1826. 113

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25

of the Greek loan plunderers is not suspended here, whilst foreign papers teem with British iniquities on this score and blazon British shame; the proceeding if it were taken as a sample of our integrity would disgrace us forever." 120 Other newspapers made endless fun of the Greek loans and particularly of those who managed them. 121 A poem, "The Greek Bubble," satirizing the affinity of sympathy with pecuniary interest, was published in many a journal of the time. 122 SETTLEMENT

OF T H E

LOANS

During the revolution, Greece failed to meet the maturing charges of the Loans of Independence. Service payments were made only during the first two years, by retaining the necessary sums from the proceeds of the loans. Because of the original default and the continued inability to meet payments, the bonds passed from the original investors into the possession of professional Dutch speculators and were for half a century the football of the European stock exchanges. Upon winning her independence, however, Greece recognized the sacredness of her early obligations 123 but because of financial impotence treated them as a deferred debt. Attempts both to resume payment and to reach a settlement were first made by Capodistrias in 1829 and by the Bavarian regency a few years later, 124 but failed of success. The main difficulty in reaching an agreement arose from the unwillingness of the bondholders to scale down the outstanding debt and to lower the rate of interest. The borrowers, on their part, insisted on a reduction to correspond with the amount actually obtained and on an annual service charge in consonance with the 120

Nov. IS, 1826. Weekly Register, Oct. 28; Nov. 4 and 11, 1826; John Bull, Oct. 29, 1826; also Oriental Herald, Jan., 1826, pp. 76-80; the Times, Nov. 8, 1826 (the satirical poem "The Ghost of Multiades"). 122 An excerpt from the poem, as it appeared in the Quarterly Review, Jan., 1827, follows: Roused by the sound of Liberty scrip, Loud rings the cry of freedom far and wide; Stocks and subscriptions pour on every side, Contractors, weeping over Grecian wounds Pocket their four sixty thousand pounds. Still freedom called—the cry was still maintained Till not one purse remained to be drained, The patriot fury made a sudden pause And prudent rats escaped from Athens' crumbling cause. i 2 » Mamoukas, op. eil., II, 342. 124 Andreades, Istoria ton Ethnikon Daneion, p. 54. 121

26

F O R E I G N B O R R O W I N G I N 1821

paying capacity of the state. Their argument for an appreciable reduction was that the loans were contracted in the name of all the Greek provinces then in arms (Crete, Samos, Thessaly, Epirus), and since one third of these regions were included in the new kingdom, a fair proportion of the incurred indebtedness should rightly be borne by the free state. 125 As Greece persisted in deferring the settlement of the claims, her creditors appealed to their government for support. Upon her emergence as an independent state, Greece was granted a Guaranteed Loan of 60,000,000 frs. 126 The bondholders tried to get an allotment from this loan, but were refused. They then addressed memorials to the Foreign Office in the hope of enlisting official support. The first appeals were made by the banker Loughman, promoter of the first Loan of Independence in October, 1829, and March, 1830.127 In reply, the Earl of Aberdeen stated that His Majesty's government are not in strictness called upon to interfere in speculations of this kind, which are of a purely private nature and upon which in fact, as a matter of right, they cannot claim to exercise any authoritative interference with foreign states; they are nevertheless far from viewing with indifference the interests of the numerous individuals involved in such transactions.128

When a similar appeal was made two years later, Lord Palmerston declared "that he could not with propriety, propose to the plenipotentiaries of France and Russia to take any measures for enforcing the personal claims of British subjects on a third government." 129 The Foreign Office, while refraining from official countenance and support to these appeals, promised always to use its good offices at the opportune moment in bringing the matter to the attention of the debtor government. As a matter of policy, the British Government continued to send such reminders down to 1846,130 but without result. What eventually proved effective in forcing the Greek Government to a settlement was the unwillingness of foreign capital markets to extend 125

126 Andreades, Istoria ton Ethnikon Daneion, p. 57. See Chap. II. Pari. Papers, 1847 (Vol. L X I X ) . Correspondence . . . Relative to Loans by the British Subjects, N o . 72. 128 Ibid., N o . 73 (Backhouse to Loughman, March 25, 1830). 129 Ibid., N o . 74 (Backhouse to Ricardo, March 13, 1832), N o . 75 (Sir George Schee to Ricardo, Oct. 8, 1832). 130 Ibid., N o . 82 (Addington to Ricardo, April 22, 1846). 127

F O R E I G N B O R R O W I N G I N 1821

27

further credit. Financially isolated, Greece was from time to time compelled to fall back upon the last resource of nations in economic difficulties—the injection into her monetary system of a forced paper currency. 131 The settlement in 1859 of the Guaranteed Loan 132 with the Powers served as an incentive to the different Greek administrations to undertake seriously in settling also the debts of the Revolution. The Cretan revolt of 1866 and the oriental crisis that followed it had forced Greece to appropriate sizable sums for military preparations. Her financial strength was not sufficient to assume such extraordinary burdens. The need for lifting the financial ban which the European money markets had maintained for almost half a century was urgent. It had become evident that new credits from abroad could be obtained only upon presentation of a clean slate. To break down the barriers and entice the continental money markets to extend new credits, the Greek finance minister, Christides, made in 1866 the first real attempt to reach a settlement with the aggrieved bondholders. He and his successor, Kehaya, strove to find a basis for an agreement but failed because of the rapid changes in administration, an occurrence which often prevented the pursuit of a consistent policy. A few years later, John Gennadios, for many years Greek minister to London, tried earnestly to reach a solution. Early in 1878 he approached Playdell-Bouverie, chairman of the British holders of Greek bonds, and submitted the following proposals: 1. The original indebtedness, which by the end of 1878 would amount to £10,030,000 was to be reduced to £1,200,000. New bonds equal in value to this reduced sum and bearing 5 percent interest were to be issued for the liquidation of the Loans of Independence. 2. Every £100 bond issued in 1824 was to be exchanged for £31.12 s. in new 5 percents. Every £100 bond issued in 1825 was to be exchanged for £30.10 s. in the same 5 percent bonds. The detached coupons were to be funded at the rate of £11.12 s. percent in bonds of the same issue. 3. All interest on bonds not exchanged was to be added to a £15,000 annual sinking fund for the redemption of bonds at par. 131 A brief account of the state's periodical resort to forced currency is given in Dyovouniotes, Ellenikoi Kodikes, Elenchos, Monopolia, Demosion Chreos, pp. 108 ff.; Kalogeropoulos, Ε Prote en Elladi Anagastike Kyclophoria; Bickford-Smith, Greece under King George, Chap. X . " 2 See Chap. II.

28

F O R E I G N B O R R O W I N G I N 1821

4. An annual sum of £75,000 was to be set aside and applied semiannually for the servicing of the converted debt. This amount was to be derived from two sources of assigned revenue: the custom receipts of Cephalonia, estimated at £71,400, and a partial allotment of the yield of stamp duties, evaluated at £4,400. 5. The proceeds of the hypothecated source of revenues were to be turned over regularly to the National Bank of Greece for remittance to the designated agencies charged with the servicing of the debt. 6. If for any reason the governing committee of the London Stock Exchange refused to list Greek securities on its official list, the agreement was to be null and void. 133 At first the British creditors hesitated. They insisted on fixing the new reduced indebtedness at £1,500,000, but, fearing that a resort to bargaining tactics might cause a collapse of negotiations, finally accepted the proposals.134 The terms of the agreement were embodied in a bill which received the ratification of the Greek Chamber on December 10, 1878. The settlement of the Loans of Independence broke down all obstacles which for half a century kept Greece in a state of financial isolation. It prepared the ground for a belated entry to the new European capital markets which were considerably stronger than those of fifty years before, and were reared on new traditions and practices. Upon conclusion of the settlement, the ill feeling that existed between a stubborn debtor and a much-tried creditor faded away. The very circles which had lost heavily in Greek securities and had probably vowed never to touch them again stood ready to lend still greater sums to an erstwhile delinquent debtor. 133

Gennadios, The Greek Loans of 1824 and 1825. Greek bondholders meeting of Oct. 10, 1878; Corporation of Foreign Bondholders, Sixth Annual Report, 1878, p. 29. 134

CHAPTER

II

SOVEREIGN LENDING: THE G U A R A N T E E D L O A N OF S I X T Y MILLION FRANCS MATERIAL

CONDITION

OF T H E

EMERGING

STATE

A FTER eight dreary years of bloody strife, Greece emerged free but x\_exhausted. The scars of destruction were everywhere in evidence. Athens, the future capital of the new state, presented "a frightful picture of desolation." 1 Writing to his wife from the Poros Conference, Sir Stratford Canning described the impoverishment and exhaustion of Greece in these words: "Here is this poor country of Greece mangled and panting like a frog just torn from the jaws of a serpent, with scarce enough life in its veins to make it capable of sustaining the preservation so miraculously offered to it." 2 Agriculture, shipping, and trade, the cornerstones of Greek prosperity in the prerevolutionary era, were approaching exhaustion.3 The long and destructive conflict had dealt such paralyzing blows to the economic structure as to give rise to doubts of its ability to recover. Samuel Howe, an eyewitness, appraising the impact of war on the economic and social fabric of the new state records the following observation:

For seven years commerce had been at a standstill; the vessels lay stript of their sails, the rotting cordage dropping upon their decks; the merchant was counting over the little that was left of his gains to see if it would suffice him for his flight; the sailor had turned free-booter and thought only of getting a subsistence; the peasant had become a homeless wanderer in 1 P o s t , A Visit to Greece and Constantinople, p. 32. Post was a representative of the New York Greek Committee. 2 Lane-Poole, Life of . . . Stratford Canning, I, 470. 3 Zographos, Istoria tes Idryseos tes Ethnikes Trapezes, I, 16-19. Sideres, £ Georgike Politike tes Ellados kata ten Lexasan Ekatontaetian, pp. 24-26. An accurate account of the prevailing social and economic conditions on the eve of Greek emancipation is contained in Capodistrias' Report to the Poros Conference submitted in Oct., 1828; in Betant, Epistolai I. A. Kapodistria, IV, 342-406.

30

LOAN OF S I X T Y M I L L I O N

FRANCS

the mountains, from whence he saw the plains and once fruitful valleys a barren and blackened waste.4 The impact of the war was not felt by the combatants alone. The many prosperous Greek communities within the empire, on which redeemed Greece looked with expectancy, were deprived of all their fortunes and commercial preeminence. Bankers, merchants, and shipmasters, in their desperate flight from the fury of the Moslems, had abandoned all their material possessions. The Turks had considered this Greek element in dispersion as a group of conspirators meriting severe punishment. Instead of being a source of strength, the scattered and victimized remnants fleeing back to Greece were a source of burden that the new state could not evade. The gigantic task of reconstruction required adequate means and an efficient administration, one able not only to mend but to guide and plan for the future. The prospects for success depended not so much on the inherent strength of the liberated people as upon the munificence and generosity of Europe. But Europe doled out help with a niggardly hand. Guizot discerned this inadequacy, and was skeptical as to whether the original endowment would suffice to sustain the newborn state. He praised the European efforts for assisting "the Greek people to rise from their tomb," but questioned the wisdom of confining "the resurrected members to a very narrow prison." 5 These apprehensions of the French statesman were not unfounded, for as a result of a compromise, Greece emerged free but territorially circumscribed and with initial resources of little importance.6 Excluding the narrow coastal plains, the territory of the new state was barren and rocky. Its total area was 45,516 square kilometers; its extreme length was 216 miles, while its greatest breadth hardly reached 186 miles.7 The number of its inhabitants was about three quarters of a million, mostly women and children. These, in brief, were the original endowments in territory and the human element with which Greece was joining the ranks of the sov4 Howe, An Historical Sketch of the Greek Revolution, p. 445; Thiersch, De l'etat actuel de la Grece, I, 265 ff. An informal account of the difficulties confronting the new state is contained in the intimate letters of Thiersch to his wife and to King Ludwig of Bavaria in F. Thiersch's Leben (ed. Η. J. W. Thiersch, 2 vols., Leipzig, 1866), Vol. II, Chap. XII. 5 Guizot, Memoires, VII, 267. 6 Phillips, The War of Greek Independence, pp. 397 ff. 7 Kladas, Ε Statistike en Elladi, p. 119. Strong, Greece as a Kingdom, pp. 2-3.

LOAN OF S I X T Y M I L L I O N F R A N C S

31

ereign states. Her leaders, particularly Capodistrias, discerned that in its first steps, the new state would require some external assistance. On his way to assume the office of Provisional Lord-Protector, he visited London and Paris with the object of enlisting European financial support. The British, suspicious of his Russian background, gave him a very frigid reception. Greece, whose cause he had come to plead, was branded by Huskisson as a "great humbug," not meriting the confidence of the British exchequer.8 The French, though well disposed, were not ready as yet to offer a helping hand; 9 only Russia was predisposed to extend immediate assistance—but her readiness was interpreted by the other Powers as self-interested generosity and as a bid for influence in the affairs of Greece. The hesitancy of Britain is not hard to explain. Her statesmen of that period, particularly the Earl of Aberdeen and the Duke of Wellington, considered Greece pro-Russian. 10 The London money circles were also strongly opposed to any offer of financial aid. When they were privately approached to undertake the flotation of a new loan for one million pounds, they asked a collective guarantee from the protectors of Greece, and the consent of the borrower to the appropriation of a sizable sum from the prospective loan for the retirement of the Loans of Independence. 11 Because of the continued failure of Greece to meet the maturing charges of her old indebtedness, the bondholders, whenever the occasion presented itself, clamored for redress. Under such circumstances negotiations for new credits had but little chance of success. No help, official or private, could be expected so long as British lenders held in their portfolios unpaid Greek coupons. To allay British fears and reestablish Greek credit abroad, Capodistrias, on his arrival at his new post, urged the Panhellenion to initiate measures that would recognize the sanctity of past contractual obligations arising from debts. 12 He branded all those who accused him of pro-Russian leanings as malefactors eager to create distrust in him and thus to retard the recovery of his country. His 8

9 Greville, Memoirs, I, 189. Paparregopoulos, op. cit., VI, 203. P r o k e s c h von Osten, op. cit., II, 327; Betant, Epistolai, I, IS. 11 Recommendations of Capodistrias in Betant, Epistolai, I, 159. 12 Mamoukas, op. cit., X I , 151-155. This recommendation was unnecessary, for the Third Greek National Assembly sitting at Epidaurus, had on April 14, 1826, solemnly recognized the sanctity of the contractual obligation. Apparently the new recommendation aimed at a reaffirmation of Greece's good faith. Ibid., IV, 14. 10

32

LOAN OF SIXTY MILLION

FRANCS

correspondence and his official acts attest that above all he had at heart the interests of Greece and that his European preferences were determined by the exigencies of the moment; he was thus pro-Russian one day and pro-English the next. His devotion to Greece was unquestionable; the motto Salus patriae lex suprema guided him in all his efforts to bring order out of chaos. 13 Capodistrias advocated the nomination to the Greek throne of a prince who would inspire the confidence of all the divergent European interests, particularly the British. Probably hoping that the prospect of a dynastic tie would please the British, he supported the candidature of Prince Leopold of Coburg, demonstrating at the same time "how unjust was the prevalent abuse of him as a mere tool of Russia." 14 Conscious of the petty rivalries and mutual jealousies among the great protectors, he steered a straight course among them, believing that the sincerity of his motives would win their aid in establishing political and economic stability. 15 The cumbersome administrative machinery was at the time on the verge of financial collapse. 16 To keep it functioning, Capodistrias received periodic support from the Powers in the form of advances or subsidies. By the end of 1830 Russia had advanced 3,000,000 frs. besides sizable consignments of war material. 17 Charles X contributed 250,000 frs. for the "Vendee du Christianisme." 18 After many refusals, England sent a belated contribution of 500,000 frs. 1 9 But these doles were completely inadequate to remedy a desperate situation. 20 During this period the Greek treasury was practically empty. When the ultimately chosen King of Greece, Otho I, arrived at Nauplia, the public coffers held exactly 2,186 phoenix or approximately £60. 21 13 Paparregopoulos, op. cit., IV, 205. See also, Mendelssohn-Bartholdy, Graf Johann Kapodistrias. 14 Crawley, The Question of Greek Independence, p. 149. 15 Letter to Leopold, May 18, 1829, Betant, Epistolai, IV, 310. 16 The resources available to the Capodistrian regime from Jan., 1828, to March 1832, were only 23,600,000 frs.; they consisted principally of state revenues and of subsidies advanced by the Great Powers. Betant, Epistolai, I, 94. " Ibid., III, 120. 18 Phillips, op. cit., p. 319; Speech of the Due de Broglie before the French Chamber on May 18, 1833, Archives Parlementaires, L X X X I I I , 761-781. 19 For totals of foreign advances see Leconte, Etude economique de la Gr ice, p. 176. 20 Genike Ephemeris tes Ellados, April 13, 1829. 21 Strong, op. tit., p. 234.

LOAN OF S I X T Y M I L L I O N F R A N C S EUROPEAN

FINANCIAL

33

ASSISTANCE

When the Conference of London communicated the offer of the crown of Greece to Prince Leopold of Coburg, one of his conditions of acceptance was that the Guaranteeing Powers should furnish aid to Greece until she could rely on her own resources.22 The Duke of Wellington, still dominated by the conviction that Greece was and would continue to be under Russian influence, deemed that "such aid was not required." 23 His objections were speedily overcome by the prompt consent of France and Russia. The Duke feared that an exclusion of Britain in any transaction, whether political or economic, would mean the ascendancy of Franco-Russian influence in the affairs of Greece—a concession which he was not as yet ready to make. However, a change in British attitude was brought about by the unqualified confidence that certain members of the Cabinet placed in Leopold. Though he did not share the support of the Crown or of the Tory party, Leopold could be trusted to promote British interests in his new post. Both Whigs and Tories were ready to grant not so much to Greece, but to the Prince himself, the necessary means to restore and strengthen waning British influence.24 Accordingly, the plenipotentiaries consented to grant to the new state a guaranteed loan.25 The funds were to be advanced in installments and were to be used exclusively for the equipment and maintenance of foreign troops to accompany the monarch to his new post. But as the terms of the European offer were rather vague, Leopold took the initiative and submitted a definite plan for a loan of 60,000,000 frs. (£2,400,000), to be jointly or separately guaranteed by the three participants in the conferences of London. The advances were to be made in installments according to the needs of the borrower. As a pledge for the regular servicing of the loan, certain earmarked revenues were to be set aside, six months after the arrival of the new sovereign in Greece.26 The delegates to the conference were, 22 British and Foreign State Papers, Communications with . . . Leopold, Vol. XVII (1829-30), No. 7 (Leopold to Wellington, Feb. 9, 1830. 23 Ibid., No. 8; Crawley, op. cit., p. 180. 24 The Duke of Wellington lukewarmly supported the nomination at first, but eventually became an ardent supporter of Leopold and threatened to resign if the King failed to withdraw his objections. Wellington, Despatches, VI, 358. 25 British and Foreign State Papers, Communications with . . . Leopold, No. 14, Incl. 2. 29 Ibid., No. 21.

34

LOAN OF SIXTY MILLION

FRANCS

however, reluctant to approve the terms in their entirety. Lord Aberdeen in particular, considered the sum exorbitant. In a counter proposal, he reduced English participation to £500,000 or 12,500,000 frs. These funds, he contended, furnished in six annual installments, would be ample to meet the long-range needs of Greece. 27 Leopold was not satisfied with this arrangement· He objected particularly to the provision which seemed to limit the use of the funds to maintaining foreign troops, and threatened to relinquish "the trust which the favor of the Allied Sovereigns had conferred" if the funds could not be applied as the needs of the Greek state required. Compliance in this respect was the sine qua non to his acceptance of the proffered crown. 28 Alienated by the bargaining tactics and attitude of the English government, Leopold went to Paris, where he hoped to gain the hand of an Orleans princess and enlist, at the same time, French support for the flotation of the proposed loan. 29 His mission abroad met with disappointment; in a letter to Stein he speaks of "the hard struggle carried on for months against ill will and a mistaken policy," and of "the vain and obstinate men" with whom he had to deal. 30 Confronted with the threat of resignation the Conference of London accepted the Prince's demands as they were set down in his memorandum of March 10, 1830. In a communication dated M a y 3, 1830, each Power pledged to guarantee separately one third of sixty million francs. The advances were to be made in installments as need arose and the Greek Government was to be the judge of the extent and urgency of the need. 31 Though the terms of the Powers seemed generous, the stipulation dealing with the separate guarantee afforded opportunities for evasion. Judging from what actually occurred later, the separate guarantee clause was inserted to offer the guarantors an escape from the spirit of their engagements. In spite of the conference's compliance with his demands, Leopold refused to accept the proffered crown. His withdrawal was attributed by historians to the sinister machinations of Capodistrias, who in his letters to the Prince had painted a very somber picture of the hard task confronting the new ruler in organizing a state circumscribed in 27

28 28 Ibid., No. 24. Ibid,., No. 33. Stockmar, Memoirs, I, 104. Pertz, Das Leben des Ministers vom Stein, VI, 866. 31 British Foreign and State Papers, Communications with . . . Leopold, Incl., in Nos. 32, 34, 3S. 30

LOAN OF S I X T Y M I L L I O N F R A N C S

35

territory and destitute of natural resources. This allegation against Capodistrias was not true 32 for Leopold was well informed by Stratford Canning and by Charles Stockmar, of conditions in Greece.33 Leopold's withdrawal 34 was prompted rather, by the possibility of a regency in England and the pressure exerted by his intimate Whig friends, particularly Lord Durham. 35 His friends were grooming him for a regency post at home. Had the Duke of Clarence died before George IV, Leopold, as widower of Princess Charlotte and uncle of the prospective heir Victoria, might perhaps have become regent for his niece during her minority. At least he would have had great influence with his sister, the Duchess of Kent, who after King George's death was in fact designated for the regency. FINANCIAL

PROVISIONS

OF

THE

TREATY

OF

MAY

7,

1832

Upon the resignation of Leopold, the British retracted their loan agreement and declared that a renewal of the offer hinged on the nomination of a prince approved by their government.36 The crown was then offered, with British approval, to Prince Otho of Bavaria. The Bavarian Plenipotentiary, Baron de Cetto, acting for Otho, asked that the Powers maintain unaltered the financial agreement entered into with Leopold. With one exception this was done. The lenders reserved the right to determine the amounts and intervals at which the loan funds were to be made available. In a project of a convention drafted by the London Conference on April 26, 1832, the Powers specifically stated the conditions under which financial assistance was to be granted. 37 These provisions were embodied in Article X I I of the Treaty of May 7, 1832, receiving thereby an international treaty sanction. Article X I I of "The Convention between the Courts of Great Britain, France and Russia on one part, and the Court of Ba32 Betant, Epistolai, IV, 47; Mendelssohn-Bartholdy, Graf Johann Kapodistrias, p. 272. Stockmar, Memoirs, I, 127. 33 Charles Stockmar, brother of Baron E. Stockmar who was the confidant of Leopold, was sent to Greece in M a y , 1829, to survey conditions on the spot. Stockmar, op. cit., p. 83. 34 Gervinus, Geschichte des neunzehnten Jahrhunderts, VI, S32; Corti, Leopold I of Belgium, p. 57; Kaltchas, Introduction to the Constitutional History of Modern Greece, p. 70. 35 Durham drew up the letter of resignation. See N e w , Lord Durham, p. 185. 36 Letter of Aberdeen to Wellington, Aug. S, 1832, Wellington, Despatches, VIII, 379. 37 Pari. Papers, 1831-32 (Vol. X L V I I I ) . Protocols of the Conferences of London Relative to the Affairs of Greece, N o . 44, Annex Β and F.

36

L O A N OF S I X T Y M I L L I O N

FRANCS

varia on the other part, relative to the sovereignty of Greece," reads as follows:

38

In execution of the stipulations of the protocol of the 20th of February, 1830, His Majesty the Emperor of all the Russias, engages to guarantee, and their Majesties the King of the United Kingdom of Great Britain and Ireland, and the King of the French, engage to recommend, the former to his Parliament, and the latter to his Chambers, to enable their Majesties to guarantee, on the following conditions, a loan to be contracted by the Prince Otho of Bavaria, as King of Greece: 1) The principal of the Loan to be contracted under the guarantee of the three powers shall not exceed a total amount of sixty millions of francs. 2) The said loan shall be raised by instalments of twenty millions of francs each. 3) For the present the first instalment only shall be raised and the three Courts shall each become responsible for the payment of one third of the annual amount of the interest and sinking fund of the said instalment.39 4) The second and third instalments of the said loan may also be raised according to the necessity of the Greek state, after previous agreement between the three courts and his Majesty the King of Greece. 5) In the event of the second and third instalments of the above-mentioned loan being raised in consequence of such an agreement, the three courts shall each become responsible for the payment of one-third of the annual amount of the interest and sinking fund of these two instalments, as well as of the first. 6) The sovereign of Greece and the Greek state shall be bound to appropriate to the payment of the interest and sinking fund of such instalments of the loan as may have been raised under the guarantee of the three Courts, the first revenues of the State in such a manner that the actual receipts of the Greek treasury shall be devoted, first of all, to the payment of the said interest and sinking fund, and shall not be employed for any other purpose, until those payments on account of the instalments of the loan raised under the guarantee of the three Courts, shall have been completely secured for the current year. The diplomatic representatives of the Three Courts in Greece shall be specially charged to watch over the fulfilment of the last-mentioned stipulation. The Article bound Greece to meet punctually the maturing charges of the Guaranteed Loan. To forestall a possible failure it gave to the loan a prior claim on all Greek revenues; for the fulfillment of these stipulations the diplomatic agents were charged to act as overseers. 38

British and Foreign State Papers, X I X , 13. Protocol No. SS of the Conference of London explains that the responsibility of the Powers is not collective for each bond, but separate for one third of the bonds issued for each installment. 39

LOAN OF S I X T Y M I L L I O N F R A N C S

37

Though specific in respect to safeguards, the Article does not state the punishment to be meted out or the type of sanctions to be imposed in case the borrowers failed to live up to the terms of the debt contract. In that event was financial supervision to be imposed on Greece? What type of a control did they intend to devise without infringing upon her sovereignty? Could each Power interfere independently and demand restitution without any previous agreement with the other signatories to the treaty? The late Professor Andreades was of the opinion that Clauses 5 and 6 of Article X I I contain provisions from which the institution of financial control could "germinate." 40 The implied right to interfere in case of non-fulfillment of treaty obligations, however, would have amounted to an infringement on Greek sovereignty, which the guarantors in their capacity as High Protectors were bound to preserve and respect. The enforcement of the provisions in case of Greek default would have amounted to an annulment of Article IV of the same Convention and of Clause 1 of the Protocol of February 3,1830: that "Greece shall form an independent state and shall enjoy all the rights, political, administrative and commercial attached to complete independence." As a matter of record, though Article X I I was cited with unfailing regularity by the lenders in all their protests and appeals, as the instrument that gave them the right to interfere and seek redress, no direct attempt had ever been made to enforce its provisions. It is true that during the Crimean War a combined AngloFrench force landed and occupied for almost three years the port of Piraeus, but the step was ostensibly taken to keep Greece from attacking Turkey rather than as a coercive measure to exact a debt arrangement. At times, threats of coercion were made but never was there a resort to direct financial surveillance. Baron de Cetto, before accepting these provisions, insisted on a joint guarantee and the immediate availability of the entire sum. 41 He contended that the pressing needs of Greece were such as to require a modification of Clause 4 of Article XII. His demand for reconsideration was prompted by doubts of the future unanimity of the Powers in guaranteeing the remaining loan installments. He feared that during the interval "circumstances may change, and that 40

Andreades, op. cit., p. 82. Pari. Papers, 1831-32 (Vol. XLVIII). Protocols of the Conferences of London, No. 44, Annex A. 41

38

LOAN OF SIXTY M I L L I O N

FRANCS

an alteration in government by one of the Powers, may impose insurmountable difficulties to its consent to the guarantee." 42 His apprehensions were not unfounded; for that is exactly what occurred when the Greek Government pressed for the advance of the third installment. In replying to De Cetto's request the Powers insisted that the provisions of Article X I I must remain unalterable; that the clause which stipulated a gradual advance of funds in accordance with the requirements of the borrower "must remain as the indispensable guide to any arrangement." The immediate availability of large sums the Powers argued, "would not suit the interests of Greece. To saddle the Greek state with the burden of an unnecessary debt, would be equal to committing a gross financial folly." The diplomatic consent to a guarantee given by the different foreign offices did not necessarily carry with it approval of the respective legislative bodies. Approval or rejection depended on the opinions of the guardians of the public purse. They were to authorize appropriations and assume financial responsibility in any eventual defalcation on the part of the borrower. In recommending a "Bill to guarantee the Greek Loan" Lord Palmerston assured Parliament "that the guarantee contained in the treaty would not involve England in the liability of paying one shilling," 43 as sufficient precautions had been taken to insure the servicing and liquidation of the debt. In a subsequent reading of the Bill, in the same reassuring tone, Palmerston affirmed his confidence in Greece's ability to meet the debt charges punctually. But this optimistic view was not shared by all the members of Parliament. Opposition came from the ranks of those who held Greek bonds in default. The aggrieved advocated "that the parties who had formerly advanced their money for the benefit of Greece were entitled to some consideration, and if the revenues of the country were to be appropriated to the liquidation of her debts these creditors ought, in fairness, to receive a portion of it." 44 The cry for the satisfaction of old claims is not hard to explain. For eight years the demands of the holders of Independence bonds had remained unheeded. Now an opportunity was afforded to exact a 42 43 44

Ibid., Protocol No. 48, Annex A, and No. 55, Annex A. Session of July 20, 1832, Hansard, 3d Series, XIV, 561. Session of Aug. 14, 1832, ibid., p. 1166.

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39

settlement or at least a partial satisfaction. The grant of a guarantee was also combated on the ground that a pledge given by sovereign lenders gave to the loan a privileged character at the expense of previous claims. In the provisions of Article XII, the old bondholders saw the hand of Russia aiming "to circumvent their prior rights," 45 which long antedated the new obligation. To these contentions the sponsors of the Bill responded with the argument that the reason for raising this loan was to relieve the borrower of great difficulties, and not to satisfy old claims that were originally gambling ventures.46 These isolated objections were speedily overcome and the measure was passed on August 16, 1832. It enabled the King to guarantee the loan and directed that a statement of receipts and expenditures be annually laid before Parliament by the Treasury.47 In the French Chamber the discussion was more animated. The proposal was debated in three sessions during which many amendments were introduced for the purpose of securing more specific pledges. 48 Some deputies saw in the proposed enactment a satisfaction of claims of the other two guarantors at the expense of the French treasury. The British were suspected of desiring to satisfy the claims of the old creditors; while the Russians, through the hurried confirmation of the authorization by an imperial Ukase, were expecting to receive a sizable compensation in the form of indemnity from Turkey. 49 These objections were overcome by the eloquent appeal and strong arguments of the Duke de Broglie.50 At first he assured the Chamber of the borrower's ability to discharge the obligation; he spoke of the past contributions of France to the cause of Greek liberty and closed by arguing that the grant of financial assistance would bring about the emergence of a strong and independent Greece able to resist the meddling of ambitious Powers. (The allusion was to Russia whose actions at this time aroused French suspicions.) The 45

48 The Portfolio, V, 564. Annual Register, 1833, p. 287. Statutes 2 and 3, Will. IV, Cap. 121. 48 Seance, Mai 18, 1833, Archives Parlementaires, LXXXIV, 93. 49 The Conference of London (Protocol No. 52) agreed to indemnify Turkey to the extent of 40,000,000 Turkish piastres for the extension of the northern frontier of Greece. This provision was embodied also in Art. X I I I of the Convention of May 7, 1832, and a sum of 11,220,598 frs. was paid to the Porte from the first two installments of the Guaranteed Loan. These funds Turkey turned over to Russia to satisfy longpending claims. 00 .Archives Parlementaires, LXXXIV, 190. 47

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measure passed with a sizable majority and a Royal Ordinance, signed on May 25, 1833,51 by Louis Phillippe, bound the French treasury to a 20,000,000-franc guarantee for the benefit of the Greek state. FLOTATION AND APPROPRIATION OF THE GUARANTEED LOAN

After the official grant of guarantee by the Powers, a loan agreement was reached with the house of Rothschild. In a contract signed in Paris on May 1, 1833, by Soutzos, Greek minister to France, the price of issue was fixed at 94 at 5 percent with 1 percent annual sinking-fund charge. The bankers, besides realizing a sizable profit by underwriting the loan at 6 percent discount, received a 2 percent commission on the transaction; they also reserved to themselves additional benefits connected with the servicing of the loan.52 In the original agreement with the Powers there was only authorization for the issue of the first installment. But as the needs of Greece were urgent, the Powers consented to the flotation of the second series. In granting their consent for the use of these additional funds the plenipotentiaries reminded the Greek regency of its duty to exercise "the strictest economy in their employment" and in such a manner as to serve "the real wants of the Kingdom of Greece." 53 This recommendation of prudence in handling public funds appears with recurring regularity in all the communications addressed to the different Greek administrations. The guarantors deemed that the funds from the two installments were more than sufficient to meet current needs. The borrowers, on the contrary, felt that what they actually got was negligible compared with the burdens with which they were saddled. Immediate Deductions Dr. Commission and flotation expenses 3,150,540 Indemnity to Turkey for extension of northern frontier 12,531,174 Held in advance for subsidies made by the Powers 2,238,559 Travel expenses of Regency 1,397,654 Expenses of transportation and maintenance of Bavarian troops for the first year 4,530,035 Total 23,847,962 61

Archives Parlementaires, L X X X I V , 192 ff. Contract of the Loan, in Parish, Diplomatic History of the Greek Monarchy from the Year 1830, pp. 209-216. 53 Pari. Papers, 1843 (Vols. L I X - L X ) . Protocols of the Conferences of London Relative to the Affairs of Greece, No. 52, Annex D, Aug. 30, 1832. 52

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41

The itemized account above indicates that the contention of the recipients was not a misstatement of the case. The amount of the first two installments (negotiated at 94 francs) was 40,059,390 dr. The balance available was, therefore, 16,211,428 dr. 54 From this balance, little was expended for the rehabilitation of Greece and the improvement of its resources. Most of it was devoted to unproductive enterprises. The army, the civil list, and a richly rewarded Bavarian bureaucracy were the principal beneficiaries. According to the official estimates of the Greek Ministry of Finance for that period, the army expenditure during the first five years of independent life averaged about 7,300,000 dr. annually. 55 In fact, the two war ministries during the first decade of their existence consumed practically half of the entire state revenue.56 But the charge which began to weigh inordinately on the weak structure of Greek finances, assuming in a short time extraordinary proportions, was the service of the Guaranteed Loan. In the first ten years the interest and sinking fund consumed the entire third installment, together with an additional 6,300,000 dr. made available by a direct appropriation of the Greek treasury. By 1843 this obligation with its cumulative charges amounted to 66,842,126 dr., that is, it overshot the original debt by almost 7,000,000 dr. 57 About's observation that Greece, in spite of this generous European accommodation, found herself poorer fifteen years after, contains a modicum of truth. 58 EUROPEAN

DISCORD OVER

FURTHER

LOAN

ADVANCES

The first two series of the loan were quickly expended. The Greek Government was again in dire pecuniary need and pressed (June 1835) for the issue of the third installment, hoping that the remaining balance would materially assist in the development of the country's resources. In response to this appeal, the Powers began to resort to dilatory tactics and petty rivalries, thereby preventing the una51 These figures were obtained from Leconte, Etude iconomique, pp. 175—181; About, La Grece contemporaine, pp. 332-334; Sicherer, Das Bayerisch-Griechische Anlehen. 55 Metaxas, Genikoi Logariasmoi tou Kratous apo Ianouariou 1833 mechri Dekemvrtou 1843. 56 Strong, Greece as a Kingdom, pp. 312-317. 57 Andreades, Istoria ton Ethnikon Daneion, p. 91. 58 About, La Grece contemporaine, p. 335.

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nimity essential to the issue of the third installment. 69 By the end of 1835, Greek affairs received a great amount of attention from European cabinets, and Athens became for some years the stage on which diplomatic intrigue was a never-ending play. France supported Colettis, England inclined to Mavrocordatos, while Russia favored the remnants of the Capodistrian regime.60 The rival Powers stood ready to acquiesce in an extension of assistance whenever their favorite clique in Athens was at the helm. Three years before, imperial Russia had been inclined to give a guarantee even without English participation; now that her influence was on the wane she was pointedly refusing further advances. 61 On the contrary, Palmerston, now that British influence was in the ascendant, was reassuring Armansperg "that England would bring him and Greece through all difficulties." 62 But this official and unqualified pledge of assistance gradually lost its original validity. In 1838, when the Greek throne showed a disposition to free itself from the dominance of foreign factions, British diplomacy resorted to a policy of hectoring. In an unguarded statement made to his Austrian colleague Prokesch, Lyons boastfully declared that a really independent Greece is an absurdity. Greece is either Russian or English and since she must not be Russian she must be English. . . . England's role is outlined in these words—be sure she will carry it out and she will smash every obstacle that she meets in the way. It is not a Tory or a Whig question. . . . I am openly waiting for March 31st, when the interest and capital repayment of the debt are due. He [the king] thinks that he has done well with his budget of 1838. Well, I have written to Lord Palmerston that the whole thing is a lie. Bankruptcy is imminent, I assure you, and I am delighted.63

Similar views were shared by the English press, which in a provoca69

Driault, Histoire diplomatique de la Grece, II, 124-137. Betant, Epistolai, I, 202. 61 As a pretext for refusing, Russia cited the mismanagement of funds already advanced. Her real motive, as Talleyrand records, was to use the financial difficulty of Greece as an excuse for "interference in Greek affairs." Memoirs of Prince de Talleyrand, V, 220. See also Protocol 60 of the Conference of London, submitted by Pozzo di Borgo. 62 Letter of Palmerston to Lyons, Dec. 1, 1835, in Lardley-Wilmot, Life of Vice Admiral Edmond Lyons, p. 79. See also the reassuring letters of Lyons to Palmerston. Additional Papers Relating to the Third Installment of the Greek Loan, 1836, No. 5. Pari. Papers, 1836 (Vol. L ) . 63 Despatch of Metternich to Hummelauer, Austrian Ambassador to London, quoted in Bower and Bolitho, Otho I, p. 106. eo

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43

tive tone forewarned "that mendacious set of fabulists" of an impending reprimand. 64 In such an atmosphere of fluctuating sympathies, Greece renewed in the spring of 1836 its demands for the issue of the third series of the loan. The Greek minister to London pressed the London Conference to consent to an immediate advance of the remaining funds, and in case it failed to concur, to grant at least an advance of 3,000,000 frs. Palmerston was aware of the financial difficulties of Greece; 65 he instructed the Earl of Granville to ask Thiers to authorize Sebastian!, French representative at the London Conference, to concur in guaranteeing the flotation of the remaining series. The French were advocating a policy of small advances and were inclined to follow Russia in asking for the retention and appropriation of funds to the service of the bonds already issued. Because of the refused accommodation and because she lacked the necessary funds, Greece failed in March, 1836, to meet the interest and sinking-fund charges of the outstanding debt. This initial failure furnished the guarantors with a pretext for escaping from their engagements. Citing the default as an indication of bad faith, the Russian representative, Pozzo di Borgo, declared that "his government reserved to itself the full right to watch over the execution of the reciprocal engagements enumerated in the convention of 1832, and would consent to no further advances except for sums that were necessary for the service of the outstanding two installments." 66 The noncoöperative attitude of France and Russia left Britain alone in the field. Palmerston became so incensed at the display of opposition to the British views that he threatened to act without the assistance of the other guarantors. He warned them that in case "they declined to grant a guarantee," it was the intention of His Majesty's Government to propose a Bill to Parliament to enable His Majesty to guarantee to the full extent "its share of the third installment without the concurrence of his Allies." Accordingly, bills were introduced 64 "The Bankruptcy of the Greek Kingdom," Blackwoods Edinburgh Magazine, Sept. 1843, pp. 345-362. 05 The budgets of the State for 1833 and 1834 closed with a deficit of 15,475,690 frs. Pari. Papers, 1836 (Vol. L). Additional Papers Relating to the Third Installment of the Greek Loan, No. 1, Incl. 1. 6e Protocols of the Conferences of London, Pari. Papers, 1843 (Vol. I X ) . Protocol No. 60, Annex, Apr. 16, 1836.

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67

in Parliament to authorize such an action. The firm representations of Palmerston failed, however, to alter the views of the other guarantors. As a result—and as a matter of self-protection—all three of them were eventually compelled to appropriate the entire unissued installment for the service of the two already issued. The first failure of Greece to discharge her obligations was not, as has often been intimated, due to irresponsibility or deliberate default; it was rather due to inherent financial inadequacy. The first two installments of the Guaranteed Loan did little to aid in the rehabilitation of the country. Her internal resources, in spite of official pronouncements to the contrary, remained undeveloped.68 The slow pace of recuperation is reflected in the inadequacy of state revenues to meet administrative needs.69 The apparent economic backwardness and the delay in developing the country's resources may largely be traced to the misapplied efforts of the Bavarian bureaucracy. In a letter addressed to Hummelauer, the Austrian Ambassador to England, Prince Metternich commented on the situation thusly: The Regency committed the great error of occupying itself merely with the formation of a Government and neglecting to busy itself with forming the country. We are accustomed, Sir, when we want to build a house, to start with the foundations and end with the roof. Not till then do we busy ourselves with furnishing it. The Regency proceeded to do the opposite. By creating heaps of employees and of light blue uniforms, and by raining financial regulations upon empty coffers and laws on taxation without even having thought of drawing up regulations governing the conditions of property, the Regency considered it had set up a country.70 CONCERTED DEMANDS

FOR

SETTLEMENT

In the first eight years of independent statehood, with the sole exception of 1836, the state budget closed with a sizable deficit; 71 in 1837 the deficit was enormous. Payments on the Guaranteed Loan were deferred until 1840, when Greece commenced to meet the debt charges. The servicing appropriations were kept up for three years 67

Statutes 6 and 7, Will. IV, Cap. 194, Aug. 19, 1836. "Ekthesis Aphorosa ten Oikonomiken Anaptyxin tes Choras apo tes Engathidryseos Taktikes Kyverneseos mechri tou 1857" in Evlambios, Ε en te Ethnike Trapezei tes Ellados kai to Koinovoulio Drasis Ejthymiou 1. Kehaya, I, 212-220. 69 Accounts submitted to the London Conference by the Greek Minister to London in Pari. Papers, 1836 (Vol. L). Additional Papers Relating to the Third Installment of the Greek Loan, No. 4, Incl. 2. 70 Letter dated April 14, 1839; quoted in Bower and Bolitho, Otho I, p. 128. 71 Strong, Greece as a Kingdom, p. 281. 68

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and amounted to 6,300,000 dr. In 1843, payments were again suspended. In January of that year the Greek Foreign Minister Rizos appealed to the guarantors to resume debt servicing, until the recovery of Greek finances warranted the assumption of extra burdens. 72 In answer, the Russian Government instructed its diplomatic representative to demand an immediate reimbursement for advances already made. The other Powers followed suit. To forestall possible intervention, the Greek Government acknowledged the justice of the demands, and to create the necessary surplus for future payments promised to introduce measures of economy and retrenchment in all the administrative services of the state. These assurances were unsatisfactory and the Powers referred the matter to the Conference of London. Accordingly, Lord Aberdeen, the Count of Saint-Aulaire, and Baron Brunnow met in conference in May, 1843, and discussed the financial difficulties of their protege. Their protracted deliberations culminated in the drafting of a note in which they requested the Greek Government to scale down all public expenditures and, as an effective guarantee for the future service of the loan, to assign the custom proceeds of the port of Syra. The economies which Greece could effect by retrenchment were estimated at 3,742,000 frs.—an amount sufficient to meet the service of the loan. 73 The demands of the Powers for specific assignments caused consternation in Athens. The Greek Government pleaded for moderation, for it viewed the adoption of the recommendations as an encroachment upon its sovereignty. This apprehension was shared also by the Greek public. Crowds gathered before the legations of the three guaranteeing Powers and shouted their displeasure; participating in the popular indignation, the faculty of the University consented to serve without compensation and the crown acquiesced in a reduction of the civil list.74 Guizot attempted to allay all fears by explaining that the Conference was primarily concerned with the debt problem and that its recommendations did not intend any infringement upon the political sovereignty of Greece.75 These assurances, however, were viewed as palliatives aimed to appease an excited people and 72 France: Ministere des Affaires fitrangeres, Correspondattce Politique, Dossier 38, fol. 130. 73 Driault, Histoire diplomatique, II, 232. 74 Driault, Histoire diplomatique, II, 233. 75 Instructions of Guizot to Piscatory, May 23, 1843, France: Ministere des Affaires Etrangeres, Correspondattce Politique, Dossier 39, fol. IS.

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not as a sincere expression of European intentions. But official pleas and popular protest were not convincing enough to force the Powers to a withdrawal or even to a mitigation of their demands. They stood by their original requests. This unyielding attitude brought Greece to terms. On September 14,1843, the Greek ministers Rhalles and Rizos signed with the representatives of the guaranteeing Powers a Financial Convention embodying the recommendations of the Conference of London. 76 To render the agreement valid the Greek Government was requested to ratify it within two months after signing. The Revolution of September 3, 1843, against the monarchy postponed the ratification and consequently the execution of the loan convention. The Powers then awaited the establishment of political stability. In the spring of 1845 they deemed that the time had come to resume pourparlers, and in a note dated April 7, 1845, asked the new regime to speed up the long-delayed ratification. The new prime minister, Colettis, was not in accord with the arrangements of his predecessors, and tried to avoid ratification by resorting to perennial delays. The English Government regarded his tactics as an attempt to rescind a concluded agreement. The French, on the other hand, were rather tolerant, for Colettis was the leader of the French faction, and shared both the confidence and support of the French Foreign Office 77—which only added to the annoyance of the British. 78 It was not surprising that their patience was sorely tried. Speaking before Parliament on the refusal of Colettis to ratify what had formally been agreed upon, and of the apathy and indifference of the Greek Government in discharging overdue obligations, Lord Aberdeen declared that "these infractions gave Britain the right to interfere so far in the internal affairs of that State, as to see that the English Government be released from those obligations as rapidly as possible." 79 More severe in his denunciation was Lord Palmerston. He viewed with utter distrust the subservience of Colettis to the French minister, Piscatory, and in order to prevent the ascendancy of French in76

The Convention specifically fixed the annual debt charge at 3,635,922 frs. Certain ceded sources of revenue were to be under the direct supervision of the representatives of the three Powers and the realizable receipts were to be turned over to an agent of the Rothschilds residing in Athens. 77 Report of Palmerston to Prince Albert, quoted in Bower and Bolitho, Otho I, pp. 154-167. Palmerston characterized Colettis as "chef de tous les brigands de la Grece" and as disposed to be subservient to France and insulting to Britain. 78 Haussonville, Histoire de la politique exterieure, II, 103 ff. 73 Session of July 31, 1845, Hansard, 3d Series, L X X X I I , 1280.

LOAN OF SIXTY MILLION FRANCS

47

fluence in Athens, openly advocated the employment of coercive measures. 80 Peel, admitting the rights of Great Britain to interfere and enforce her claims, was of the opinion that Britain "could not resort to that extreme power which it possessed under the treaty, without bringing on a crisis, fatal perhaps, to the existence of that popular government which it had been instrumental in creating." 8 1 The airing of grievances in Parliament was followed by an official warning to Athens by Lord Aberdeen two months later. The British foreign secretary without mincing words gave notice that "in default of ratification of the Convention of the 14th of September, 1843, Great Britain as one of the guaranteeing Powers will insist . . . on the strict execution of engagements which flow from the 12th article. . . . Out of respect for the independence of Greece, Great Britain is unwilling to interfere in her internal affairs. But it is manifest that if Greece desires to be exempt from external control she must place herself in a position to discharge her own financial obligations without having recourse to the aid of the guaranteeing Powers." 82 To appease the British, Colettis officially declared that "his government never intended to dispute the validity of the Convention of the 7th of May [Treaty of 1832] or to escape from obligations thereby imposed." In a long note addressed to the British Foreign Office he attributed the failure of Greece to meet her financial obligations to the slowness of the economic recovery of his country and to lack of sufficient state revenues. The financial impotence of Greece "arose from causes entirely independent of the will of the King's government; and the Cabinet of London is too enlightened, not to admit how difficult is the position in which Greece has been placed by past events." In an emphatic manner he assured the British Government that Greece in due time shall discharge her obligations "and justify all the hopes which the protecting Powers have formed as to its future career." 83 As this reply was considered vague and evasive, Lord Aberdeen countered with a new warning. He stressed once more the right of Great Britain to take such measures as might appear to be necessary for insuring the establishment of such a state of things as should afford a fair security to Great 80

81 Ibid., pp. 1321-34. Ibid., p. 1336. Instructions of Aberdeen to Lyons Oct 2, 1843, Pari. Papers, 1846 (Vol. L I I ) . Correspondence Respecting the . . . Greek Loan, No. 1. 83 Colettis to Lyons, Nov. 1, 184S, ibid., No. 2, Incl. 2. 82

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Britain that the sums which ought to be applied and should be applied annually to the service of the loan, should no longer be squandered by negligent or corrupt administrators, to the prejudice of British rights.84 No less vehement in his denunciation of Colettis was the Prince Consort. In a letter addressed to King Frederick William IV of Prussia, uncle of King Otho, Albert complained of the burden imposed on the British treasury by Greece's continued default and of Colettis' proFrench leanings. We are as certain as we can be that Greece has all the time been making secret payments to the French. And, moreover, that the failure to pay is not due to lack of means, is further proved by a declaration of the Greek Finance Minister in person that the revenues of the state have shown a surplus. Colettis deliberately falsified the state accounts in order to conceal the surplus from the creditors, whom he is putting off.85 Palmers ton was determined to bring Francophile Colettis to terms. Accordingly, in the spring of 1847 three British men of war were ordered from Malta to Greek waters in a tour of naval demonstration. 86 The French became alarmed at such a display of power and appealed to Vienna, Berlin, and Petersburg to use their influence in Athens and prevail upon the King and his minister to yield. The British, as Thouvenel wrote, "came to attack an empty public treasury; they were offered 200,000 frs. instead of the millions they demanded." 87 The unyielding attitude of the British Government, the conciliatory advice of France, and the sharp criticism incurred from the opposition party convinced Colettis of the necessity for compromise. He was now disposed to meet one third of the interest charges for the year 1848, and consented to a progressive annual increase of payments extending to 1860. From then on, debt charges were to be assumed in their entirety. 88 In spite of these assurances and the insertion into the annual budgets of itemized appropriations professedly for the service of the loan, not a drachma was advanced by the Greek treasury to its creditors. As long as British influence was on the decline in Athens, representations and threats for the nonfulfillment of obligations connected 84

Aberdeen to Lyons, March 22, 1846, ibid·., No. 6. 86 Albert, Prince, Letters, p. 1X0. Guizot, Memoires, VII, 368. 87 Letter to Cuvillier Fleury, May 20, 1847, Thouvenel, La Grece du Roi pp. 125-127; Ashley, Palmerston, 1846-1865, 1, 180. 88 Haussonville, Histoire de la politique extirieure, p. 110. 85

Othon,

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49

with the Guaranteed Loan were constantly forthcoming from the Foreign Office. The passing of Colettis,89 however, softened the tone of British demands at least till the advent of Lord Palmerston's intemperate championship of the civis Romanus sunt. The intervening events of 1848 and the impending Eastern crisis had relegated the adjustment of debt claims to a position of secondary significance.90 It is true that representations were made but they now took the form of reminders. EMPLOYMENT

OF

COERCIVE

MEASURES

During the Crimean War, Greece sided with Russia, as this power championed the claims of Orthodoxy and had offered vague promises of resuscitating an Hellenic empire in the East. 91 The Greek nation, forgetting its internal animosities, and its economic impotence,92 was for the moment fired by the "Great Idea"— the dream of reestablishing a Greater Greece. To the militant nationalists and to the court circles, it seemed essential that Greece "should play her part in the Orthodox crusade, directed not only against the Moslems, but also against the heterodox Western Powers." 93 Fiery articles by Soutzos and Vamvas in the Aion evoked protests from Turkey and her allies.94 At the initial stages of the conflict the Powers did their best to frustrate Greek participation, but all their efforts proved unavailing. When skirmishes occurred in the Epiro-Thessalian frontier, Turkey sent an ultimatum demanding the cessation of warlike manifestations. Disregarding all warnings and threats, Greece conducted an undeclared war which immobilized a large part of Turkish troops needed 95 to stem the impending onrush of the Russian armies. Naturally the allies of Turkey branded this ill-timed and "unreasonable attempt" 90 of Greece as an act di80 Palmerston and Stratford de Redcliffe hailed his death as an "event that came too late to check the progress of evil." Letter of Stratford to Sir Richard Church, quoted in Lane-Poole, Viscount de Redclißc, II, 172. 90 Seton-Watson, Britain in Europe, 1789-1914, p. 272. 91 Sir Hamilton Seymour was told by Czar Nicholas "that such an extension would never be permitted for it would make Greece a powerful and dangerous state." Sir Theodore Martin, The Prince Consort, III, S3. 92 Ο Vasileus Othon: Istorikon Erantsma, p. 165. 93 Bower and Bolitho, Otho I, p. 191. 94 Pari. Papers, Correspondence Respecting the Relations between Greece and Turkey, 1854 (Vol. L X X I I ) . N o . 38. 95 Aspreas, Politike Istoria tes Neoteras Ellados, I, 220-227. 96 Session of March 13, 1854, Hansard, 3d Series, C X X X I , 724.

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rected not only against her traditional enemy but also against her old protectors. Failing to argue their old protege out of her course, France and England decided to use coercion. They reminded Greece of her unpaid debts and warned her of their intention to enforce the provisions of Article X I I of the Treaty of 1832 if she persisted in pursuing an "annoying policy." Acting on instructions from Lord Clarendon, the British minister to Athens, Sir Thomas Wyse, addressed a note to the Greek Government, stating in clear and concise language that Her Majesty's government will no longer allow the revenues of Greece, the first proceeds of which should by Treaty be appropriated to the payment of the charges of the Greek loans, to be diverted from that object and applied to the promotion of schemes in the interest of a Power with which they are at war; and that if it persists in its present misguided policy the Greek government must not be surprised if measures are taken by England and France . . . to control the receipts and expenditures of the Greek exchequer, and to deprive the Greek government of these pecuniary resources which are so wantonly misapplied.97

A note of similar tenor was handed to the Greek Government by the French Minister Rouen. He also claimed that, because Greece had not discharged her old obligations, France "had the incontestable right to interfere in the affairs of Greece." 98 The official warning contained in both notes went unheeded and Greece continued to adhere to an alternating policy of compliance and of "diligent defiance." 99 This vacillation and insincerity infuriated the Powers. At the end of May, 1854, an Anglo-French military force occupied the port of Piraeus. The Allied ministers forced Otho to declare that Greece would remain strictly neutral during the war with Russia. The ministry resigned and Mavrocordatos, leader of the English faction, took office, with Kalergis as minister of war. These measures proved effective; Greece curbed her warlike demonstrations and her active support of Russia. 100 The allied occupation continued for three years with no sign of withdrawal, even after the conclusion of peace. Alarmed by the prolonged stay of the Franco-British forces, the new Greek foreign minister Rangaves addressed a note to the "Puissances Bienfaitrices," 97 Pari. Papers, 18S4 (Vol. L X X I I ) . Correspondence Respecting the Relations between Greece and Turkey, No. 2S0, Incl. I, May 10, 18S4. 83 Ibid., No. 250; Le Moniteur, Mai 14, 18S4. 99 Ο Vasileus Othon: Istorikon Eranisma, pp. 159—163. 100 Cambridge History of British Foreign Policy, II, 381. Abbott, Turkey, Greece and the Great Powers, p. 280.

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entreating them to evacuate Greek territory, as the reestablishment of normal international relations had removed all cause for suspicion.101 But Palmerston was not to be placated with evasive assurances and "vaines paroles." As a condition for retirement of the troops, England and France asked Greece to permit the installation in Athens of a Financial Commission endowed with extensive supervisory and administrative powers over Greek finances. Rangaves protested and appealed to Gortshakoff. The Russian diplomat remonstrated; eager to assist the weak and unjustly chastized ally, he characterized the proposed application of such rigorous measures as "vexatious and wounding," not meriting the approval of Russia. 102 The official declaration of the Russian foreign minister and his reluctance to collaborate with the other members of the Concert forced France and England to reconsider the original scheme of control. In place of it, they accepted a modified plan, setting up a financial committee to act as a Board of Inquiry with recommending and advisory powers only. 103 The Greek Government adhered to the modified plan and formally invited the guaranteeing Powers to proceed with the inquiry. It assured them that it would readily collaborate in the proposed survey to ascertain the actual and potential financial capacity of the Kingdom—information essential in the evaluation of payments to be made in the future for the service of the Guaranteed Loan. FINANCIAL

INQUIRY AND

SETTLEMENT

The International Financial Commission of Inquiry consisted of T. L. Wyse, A. Ogeroff, and C. de Montherot, diplomatic representatives at Athens of England, Russia, and France, respectively. The investigations extended over a period of two years, from February 18, 1857, to May 24, 1859. In determining the capacity of Greece to make payments on the debt the Commission took as a guide the financial returns of the period commencing with the year 1845, and proceeded to consider: 1) the administration of the resources and revenues of the country; 2) the receipts and their mode of collection; 3) the nature of public expenditures; 4) the formulation of recommendations and suggestions of financial reforms which the Greek Government was instructed to adopt. 101 102

Rangaves, Apomnemeneumata, Driault, Histoire diplomatique,

II, 355-357. II, 416. 1 0 3 Finlay, History of Greece, VII, 240.

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LOAN OF SIXTY M I L L I O N

FRANCS

The Commission of Inquiry discovered that the governmental agencies charged with collecting and administering public revenues had entirely failed to exercise proper surveillance and control. It pointed out that the Chamber, which ought to have watched with diligence over all fiscal agencies of the state, had been remiss and that, because of its lack of judicial control, the accounts actually produced by the administration were inaccurate and lacking in authenticity. The second topic of inquiry brought to light the necessity for an equitable tax system. The land tax in particular received a scathing criticism as containing abuses injurious to the public treasury and as checking and retarding the development of agriculture, then constituting the backbone of Greek prosperity. Tax arrears were constantly increasing, and the laws intended to remedy or liquidate them had failed to improve the situation. Referring to expenditure, the commission found in the annual budgets no provision whatsoever for reimbursing holders of bonds of the Guaranteed Loan. Though the public revenues of the state had shown a regular increase, no attempt had been made on the part of the government "to satisfy engagements contracted under the sanction of treaties or promises solemnly reiterated to the three Powers." The commission, having arrived at these conclusions, proceeded to consider the question of fiscal reforms. To eliminate further encroachment on the national domain, they proposed the institution of a cadastre, or national land survey, based on the verification of titles of property and on such other evidences as might best insure such a result. To do away with tax abuses and accumulation of tax arrears, they recommended modification of the land tax and a revamping of the entire tax system. Finally, to insure effective control by judicial and legislative agencies over the national finances they recommended full publicity of fiscal measures. Printed copies of the general report of the Office of Accounts were to be transmitted periodically to the legations of the guaranteeing Powers. 104 The commission next proceeded to determine the capacity of Greece to pay an annual sum for the service of the debt. I t agreed that, without hindering her development or impairing her public service, Greece could allocate annually for that purpose a minimum sum 104 Pari. Papers, 1860 (Vol. LXVIII). General Report of the Commission; Finlay, History of Greece, VII, 238-244.

L O A N OF S I X T Y M I L L I O N F R A N C S

53

of 900,000 frs. This sum constituted a minimum only and was to be increased proportionately with the capacity of the state to pay. This display of moderation, the Commission asserted, entitled the Powers to count on effective reforms in the Greek administration. "If their hopes were deceived" they would insist "on the strict execution of the Convention of 1832." 105 After the ascertainment of the annual minimum charge to be paid, the Powers in concert requested the acceptances of their recommendations and demands. The Greek Government in a note dated June 21, 1860, in lieu of the provisions of the Treaty of 1832, accepted this arrangement and as a gesture of compliance informed the representatives of the protecting Powers that the sum of 900,000 frs. voted by the Greek Chamber was at their disposal.106 The initial payment was not followed by others in the next three years. The temporary suspension was due to the economic strain caused by the dynastic question and the internal political instability of that period. Upon the reestablishment of normal conditions, the Greek Government, anticipating diplomatic remonstrance, in a note dated January 24,1864, pleaded for forbearance, requesting at the same time the nonenforcement of the agreement of 1860 for the ensuing five years and for a reduction in the annual minimum of 900,000 frs., so as to enable the Greek exchequer to make appropriations for the service of the Loans of Independence, the settlement of which was pending. The Powers granted an extension of time but pointedly refused any decrease in the fixed minimum. To forestall a possible default, they requested the assignment of specific sources of revenue for the service of the annual charge. For this purpose the Greek Government hypothecated one third of the customs revenues of the port of Syra.107 In the meantime the Great Powers, realizing the economic strain under which the different Greek administrations were laboring, consented on the occasion of the union of the Ionian Islands to the Kingdom of Greece "to relinquish in favour of His Majesty, King George I, each four thousand pounds sterling a year," in virtue of the arrangement of 1860. It was expressly understood that these three sums, forming a total of £12,000 annually, were to 105 pari papers> i860 (Vol. LXVIII). General Report of the Commission, p. S. 108 Pari. Papers, 1864 (Vol. L X V I ) . Papers Relating to the Arrangements Concluded at Athens, No. 3, Ind. 1. 107 Letter of Finance Minister Voudouris to French Minister Comte de Gobineau, dated Jan. IS, 186S, France: Ministere des Affaires fitrangeres, Documents Diplomatiques, 1866, p. 76.

54

LOAN OF S I X T Y M I L L I O N

FRANCS

constitute a "personal dotation" to the King during his reign, in addition to the civil list fixed by Greek laws. 108 This last gesture of generosity brought to a close negotiations that had caused much bad feeling and had perplexed the parties involved for over a quarter of a century. In addition, the settlement encouraged the different Greek administrations of that time, to take up with zeal the conduct of similar negotiations with the holders of bonds of the Loans of Independence. In doing so, they hoped to reestablish Greek credit abroad and thus to entice additional funds from the continental money markets. 108

Article VI of the Treaty of March 29, 1864.

CHAPTER

III

T H E E X P A N S I O N OF T H E F O R E I G N D E B T , 1879-1890 T H E PRESSURE FROM

WITHOUT

T

HE year 1879 marks the reappearance of Greece in the continental money markets. It ushered in an era of rapid debt expansion which eventually led to another disastrous default. Prior to 1879 Greece's external indebtedness consisted of the Loans of Independence and the Guaranteed Loan of 1832. After the conversion of the first and the settlement of the second, the combined annual foreign debt service amounted to approximately 3,000,000 frs., that is, it consumed about one fifteenth of the budgetary receipts.1 With such a light foreign debt service and with a clean slate, Greece knocked again at the door of the continental money markets. Her reappearance as a borrower coincided with a tremendous accumulation of capital surpluses abroad. The advent of the new industrial age had contributed to the piling up of vast capital reserves. "Scientific and technological developments were reaching revolutionary proportions throughout western Europe, when 'progress' was being popularly associated with a rapid multiplication of material things . . . and with a phenomenal increase of wealth and power for individuals and nations." 2 The earnings of industry, commerce, and shipping could not be absorbed rapidly and profitably by enterprises at home. Hence large sums were available for investment in backward and undeveloped countries, or for purchase of foreign securities which netted the investor a higher return than the low interest yields of domestic enterprises. Even the most conservative, "who would rather have invested their money at three per cent at home than risked abroad at 1 This calculation was based on the budgetary receipts of the year 1880, amounting to 46,716,857 dr. 2 Hayes, A Generation oj Materialism, p. 5.

56

E X P A N S I O N OF T H E D E B T , 1879-1890

fifty" were, by the early seventies, ready "to place it abroad at fifteen rather than keep it at home for five." 3 It was commonly admitted that foreign government securities were on the whole profitable and that they were more remunerative than colonial bonds, in spite of the fact that the latter were never in default.4 In his study of the returns of domestic, colonial, and foreign issues for the period of 1888-1913, Lehfeldt brought out that the difference in yield of the foreign over domestic securities was lyi percent.5 A similar investigation made on the return of French domestic and foreign investments shows that the difference in the yields between the two types was in most cases negligible.6 Though the overall survey shows a variation in yields ranging from percent to 1 yi percent, the return on certain foreign issues was much higher; for example, in the case of the Greek securities floated abroad during the decade of 1880-1890 the yields were 2l/2 percent to 4 percent higher than those of French home issues. The disparity is shown in the following table: Y I E L D S OF GREEK

Year

Loans (in jrs.)

Realized Sum (;in jrs.)

1879 1880 1884 1887 1889 1890

60,000,000 120,000,000 100,000,000 135,000,000 155,000,000 60,000,000

44,000,000 89,500,000 69,786,000 90,000,000 111,436,000 53,000,000

BONDS

Nominal Interest (in percent)

6 5 4 4 4 5

Real Interest (in percent)

8.19 7.35 7.16 6 5.75 5.70

These yields are very high when we consider the different safeguards with which these obligations were secured. In the first place, Greek securities were tax exempt and subject to retirement within the short time of thirty years. Secondly, their service was assured through special assignments of revenues and, above all, they were immune to any exchange disturbances, since provisions had been 3

"Five Percent," Edinburgh Review, C X X I (Jan., 186S), 223-251. "A Sketch of the History of Foreign Loans," Banker's Magazine, Journal of the Money Market, X X X V I (1876), 424-430; Hobson, The Export of Capital, p. 143. 5 R. A. Lehfeldt, "The Rate of Interest on British Investments," Journal of the Royal Statistical Society, 1912-13, pp. 196 ff., 415 ff.; 1913-14, pp. 432 ff. 6 White, French International Accounts, p. 105 ff.; compare with Pupin, R. La Richesse de la France devant la guerre, p. 59. 4

E X P A N S I O N OF T H E D E B T , 1879-1890

57

made for payment in gold. By this last provision the exchange risk was thrown on the debtor. A safeguard from prospective derangement in monetary values was a factor of prime importance to the international mobility of capital. Discrepancies in money values always tended to paralyze ordinary international credit operations and in fact gave rise to the flight of capital from particular countries. The willingness of debtors to discharge their obligations in gold should have narrowed the margin of yields and should have given these securities a decided advantage over home issues payable in paper currency that was always subject to fluctuations and depreciation in time of impending international upheavals. The invasion of the different parts of the world by the capital surpluses of western Europe was made possible by the development of a new technique in financial direction and strategy. All over the globe new banking agencies, international in scope and connections, directed the transfer of funds from countries where the interest was low to countries where it was high. They constituted that part "in the economic mechanism through which the tendency to an equalization of interest rates makes itself felt." 7 In the meantime, at the center, a new type of financial organization, the investment trust, was acquainting investors with the securities of foreign states. 8 In conjunction with the old private banking houses they commanded the vast resources that made up the new money market. To their headquarters were drawn all those in need of cash or credit. "Here foreign governments sent their finance ministers, foreign railroads their executives or banking representatives, foreign mining syndicates their founders." 9 The pace of migration of European capital may be better gauged by a comparison of the period of the sixties with that of the seventies. "In 1862 there were quoted upon the London Stock Exchange foreign stocks to the amount of £697,000,000, while the quotations ten years later show the same class of securities to have expanded to the enormous figure of £2,430,000,000." 10 This tendency toward expansion did not necessarily imply that the exodus was steady and regular. It rose and fell according to the conditions that swayed the investors' 7

Baster, The International Banks, p. 1. Feis, Europe the World's Banker, p. 8 ; Henderson, L'Exportalion des capitaux anglais, pp. 32-36. 8 Feis, Europe the World's Banker, p. 10. "> H. C. Adams, Public Debts, p. 5. 8

58

E X P A N S I O N OF T H E D E B T ,

1879-1890

judgment; a war scare, a bank crash, a business depression, the financial condition of the foreign applicants, a fall or rise in discount rates —these were but a few of the many influences that determined the volume and direction of funds at any one time. 11 Nevertheless, capital accumulation manifested a tendency toward consistent expansion. By far the most important among the capital-exporting countries was Great Britain. London had become the banker of the world. It had at its immediate command not only an inexhaustible supply of capital and credit but it possessed also a long tradition in financial dealings; above all, it could absorb severe losses without feeling the effects of the strain. For acting as a middleman, a clearing house, and a lender of money and credit it was generously compensated. It was estimated that for services rendered in the domain of international trade and finance the British people received during the early eighties an annual gross income of not less than £50,000,000.12 The capital market to which Greece turned, however, was Paris. By the end of the century, Paris was becoming a real rival to London. It is true that it did not command the same capital resources or enjoy a like financial preeminence, but it was more responsive to the needs of foreign applicants than its competitor across the channel. Whereas British capital sought rich returns in enterprises like railway building, mine exploitations and the opening up of new and distant regions, French savings went mostly to fill the needs of foreign sovereign borrowers. The French investing class was by tradition and habit a conservative rentier class. It preferred a placement that promised a safeguard of the principal and a regular and moderate yield.13 To the thrifty French investor, foreign bonds, with a steady yield, a relative liquidity and a presumed safety were more attractive than a participation in speculative schemes promising high remuneration but involving an element of risk. This new orientation and direction of capital flow was to a large extent due to the influence exerted by the French banking institutions. The big French banks of deposit, like the Comptoir National d'Escompte, the Societe Generale and the Credit Lyonnais with their many branches, acted as intermediaries 11

For a study of the factors that affect the mobility of capital see Levy, "Psychologie des Placements," Revue d'&conomie Politique, 1905, pp. 116 ff.; Kock, A Study of Interest Rales. 12 Crammond, "British Investments Abroad," Quarterly Review, July 11, 1911, pp. 43-67; Feis, Europe the World's Banker, p. IS. 13 Clough, France, a History of National Economics, pp. 2S3-2S6.

E X P A N S I O N OF T H E D E B T , 1879-1890

59

between provincial lenders and potential borrowers; their role was that of a selling agent on a commission basis. Very often, however, the banks bought the loans outright at heavy discounts, or on option, and then marketed them to their clientele. "So effective was their distributing power . . . that large issues of securities could be disposed of without public offering, by direct sale to their customers over the counter." 14 It is not within the scope of this study to give an account of the growth and volume of French investments. In their expansion they often manifested lags and spurts, but grew steadily in volume. New accretions of wealth were added to the surplus, and the earnings from what was already invested were regularly ploughed back into new fields. Leroy-Beaulieu, in evaluating French investments abroad in 1880, was of the opinion that France probably had at least 12 or possibly 15 billions placed abroad. "We believe she draws an average annual income of 600 to 700 millions of francs. In 20 years she will be drawing a billion and a half, and very likely two billions annually." 15 These figures are significant when it is remembered that prior to the fifties her foreign investments were negligible.16 To the ever-expanding volume of British and French surplus capital should be added the belated accumulations of Germany. This newcomer, though slow in making a start, had in a quarter of a century achieved a financial and economic position which France and England had labored for more than half a century to attain. The rise of the German money market to international prominence was slow indeed. In the seventies Germany was comparatively a poor country. Native capital was absorbed by domestic enterprises and projects, 17 and in consequence, the funds available for foreign investments were negligible. In 1863, only a few foreign bonds were traded in the Frankfurt bourse. 18 Before the Franco-Prussian war, Germany was a capital-importing country; for financing new industries, she leaned heavily on English, French, and Belgian capital. The cotton industry 14 Feis, op. cit., p. 42; A. Huart, "Le Developpement des operations de credit," Revue £conomique Internationale, Aug., 1912, pp. 253 ff. 15 £conomiste Fran(ais, Oct. 23, 1880; Brion, L'Exode des capitaux franfais a I'itranger, p. 63. 16 Neymarck, Finances contemporaines, VII, 240 ff.; White, French International Accounts, Chap. V. 17 Bensch, "Deutschlands Verschuldung an das Ausland," Handbuch der Politik, IV, 7 β. 18 Steinitzer, Oekonomische Theorie der Aktiengesellschaft, pp. 36-38.

60

E X P A N S I O N OF T H E D E B T ,

1879-1890

of Saxony was financed by English capital and the mining enterprises of Westphalia were made possible by the support of French and Belgian funds. But as the needs of the home markets decreased and the profits from an unprecedented industrial expansion began to pile up, 19 German capital sought opportunities in foreign fields. The trend was stimulated by the initiative of financial institutions anxious to further the government's political and economic aspirations. 20 This intent was evident in the placement of German capital in Greece in the early nineties. For a time it seemed that German investments in this new region were prompted by the dynastic rapprochement, that is, by the marriage of the Kaiser's sister to the Greek crown prince, 21 and by a quest of profits for the satisfaction of middle-class investors. As was the case of all German investments in the Balkans, surplus funds were invested to further German imperialistic policy and were protected by the foreign office whenever the need arose. THE

GROWING DEMANDS

FROM

WITHIN

For the negligible material advance made by Greece during her first half century of independent life there were many reasons. Upon her emergence she devoted what was left of the remnants of her resources to repairing the ravages of war. She diverted to this end the strength which, under different circumstances, she might have devoted to cultural and economic advancement. It is true that in the initial steps the Great Powers extended financial aid to her, but with the progress of time this help became a crushing burden. Whatever material strength was available was recklessly squandered to promote an irredentist policy, which under the then prevailing international conditions had but little chance for success. Greece needed more elbow room; her attempt to acquire rich territories populated by an unredeemed Hellenic element had grounds for justification. But the justice of her claims should never have tempted her into premature ventures. Her camouflaged participation in the Crimean War and in the Cretan revolution of 1866 are but two examples of misdirected effort. Responsible, of course, for the misdirection of na19

Diouritch, VExpansion des banques allemands a I'etranger, p. 96; A. Siegfried, Les Grands 'Etablissements de credit en Allemagne et en France, pp. 111-125. 20 Stolper, German Economy, 1870-1014, pp. 48-54; Feis, Europe the World's Banker, Chap. VI. 21 Driault, Histoire diplomatique, IV, 305.

E X P A N S I O N OF T H E D E B T , 1879-1890

61

tional policy were those in power. They all had agreed on a policy of national expansion, but all had failed to make the necessary economic preparation. This led inevitably to frequent material setbacks, which kept the country in a state of perpetual economic stagnation. On no occasion during that period of fifty years was a broad project of rehabilitation adopted by a responsible political leader. All vital state effort was directed toward acquainting the country with the parliamentary practices and the progressivism of the West, as if these alone were the requisites for economic advance. The backwardness of Greece in the early seventies was particularly evident in the field of agriculture and industry. Though predominantly an agricultural country, she was perennially confronted with the problem of agricultural insufficiency. 22 The scarcity of productive land forced the bulk of the peasant population to produce the means of bare subsistence by a tremendous outlay of effort. To aggravate matters, the scanty and enfeebled agricultural resources were not exploited to the best advantage. The lack of training and conservatism of the peasant farmer, coupled with state indifference, tended to perpetuate crude and primitive traditional agricultural methods. 33 The farmer still used the wooden plough of Hesiod's time; 24 he knew very little of how to make good use of fertilizers and scientific crop rotation; his livestock, for lack of forage, were small and scrawny, with proportionately low draft power. 25 Another major problem was the heavy burden of peasant indebtedness. This was common at the time in every predominantly agricultural country, but nowhere had it assumed such permanency as in Greece. The debt-ridden peasant had come to look upon this condition as a normal state of affairs. The exorbitant rates 26 on past indebtedness led to fresh borrowings in a never-ending series. 22 The insufficiency of Greek agriculture is evidenced by the importation of agricultural products from abroad: the value of grain imports was 5,048,088 dr. in 1852, 7,026,277 dr. in 1861, and 21,894,882 dr. in 1872-75. Gennadios, Ε Ellenike Georgia, p. 173. 23 Strong, Greece as a Kingdom, p. 163. 24 Orphanides, "Kato to Esiodeion Arotron." Geoponika, III (1877), 92-100. Chali. kiopoulos, Peri Tonoseos kai Empsychoseos tes en Elladi Georgias, p. 81. 25 Strong, op. cit., p. 161. 28 During the early years of independent statehood the rate of interest on mortgage loans ranged between 20 percent and 24 percent. Interest charges on personal loans varied from 36 percent to 50 percent. Ibid., p. 108; also Zographos, Istoria tes Jdryseos tes Ethnikes Trapezes, I, 12.

62

EXPANSION OF T H E D E B T ,

1879-1890

Despite these serious handicaps, Greek agriculture was called upon to sustain a large and ever-increasing population. It has been estimated that between 1828 and 1875 the total population of Greece increased from 753,400 to 1,695,160. The density of population rose from 15.85 inhabitants per square kilometer to 31.40. 27 As the pressure of numbers increased and agricultural resources remained the same, relief was sought in the cultivation of marginal lands and a shift of population to other centers. There was no migration to urban communities, as Greece had made little progress toward industrialization. Emigration, slow at first, then coming in great waves 2 8 brought immediate relief, and its indirect benefits in the form of substantial remittances contributed to the improvement of the standard of living and to the betterment of agricultural production. In appraising the slowness of agricultural progress in the first fifty years of independent life, A. E. Sideres, a well-informed student of this topic, attributes it mainly to the gross negligence and indifference of the state and to the tendency to waste limited strength in premature attempts to expand. Though the majority of the population depended for its existence upon the returns of the soil nothing had been done by the state for the security, promotion and development of agriculture. Communications with rural communities . . . agricultural credit and the clearing up of agricultural property titles was never established. . . . Agricultural education was never introduced and taxation was empirical, heavy, unjust and for purposes of raising revenue. The national lands were utilized in a manner decidedly anti-agricultural; animal husbandry was neglected . . . and the communal lands were continually becoming smaller by state encroachment; in general the agrarian population had been totally abandoned to its own fate. The vital powers of the state were consumed by internal factional strife in disputes between an autocratic ruler and political parties that owed allegiance to one person; in intrigues instigated by the Powers, and in vain attempts at promoting an irredentist policy lacking in military strength and in inherent economic power.29 When one weighs the immense difficulties with which agriculture was confronted in the seventies, it becomes clear that the immediate future did not promise any substantial relief. At best, the spread of agricultural training, the adoption of basic principles of agricultural 27 28 28

Charitakes, Ε Ellenike Viomechania, p. 21. Fairchild, Greek Immigration to the United Sideres, op. cit., pp. S8-S9.

States.

EXPANSION OF T H E D E B T , 1879-1890

63

science and the all-important changes in agrarian traditions and customs were slow processes. Ignorance, illiteracy, primitive equipment, low yields, unsatisfactory landlord-tenant relations, indebtedness, poverty—all these reacted upon one another and were inextricably intertwined. Such a condition militated against wholesale reforms. It was impossible for example, to introduce improved methods of cultivation without first reducing ignorance and illiteracy. The state, which should have taken the initiative in instituting the necessary reforms, was callous and indifferent. As a result agriculture languished and waited for the advent of new leaders to bring about new orientation of policy. A similar backwardness was evident in the sphere of industrial activity. Mansolas, in his survey of industrial development, records that in 1875 there were in Greece proper 89 establishments using steam-propelled machinery, with a total of 1,887 units of horse power. The scattered factories employed 7,342 workers, primarily occupied in the manufacture of cotton fabrics, leather goods and the processing of agricultural products—the total annual value of which was about 51,000,000 dr. 30 When one examines the relevant content of commercial guides,31 chronicles,32 and special studies 33 of that period he is inevitably led to the opinion that Greece in the seventies could hardly lay any claims to industrial advancement. The bulk of her population lived in small isolated pastoral and agricultural communities. The combined population of cities of over 10,000 inhabitants was 126,000, or only 11.6 percent of the country's total population. If urbanization is an index to industrial development then certainly these figures prove that Greece had not yet felt the effects of an industrial spurt. The factors that kept Greek industry perennially in swaddling clothes were many. In the first place, she lacked essential raw materials and motive power. Domestic capital was scarce 34 and in80

Mansolas, "Istorike apographike epopsis peri Ellados." Deltion epi tes Empsychoseos tes Ethnikes Viomechanias Epitropes. 1877, I, p. 45 ff. Dosios, L. Peri Viomechanias en EUadi. Athenai, 1871. Demathas, V. "Peri viomechanikes proodou en Elladi," Attikon Smerologion. 1876, pp. 396-438. 31 Bocas, Odegos Emporikos, Geographicos kai Istorikos. 82 Merimna, Jan. 7, 8, 26; Feb. 12, 24, 26; March 2, S, 9, 1876. 33 Vernardakes, Peri tou en Elladi Emporiou, pp. 48 ff. Skaltsounes, Skepseis peri tes en Elladi Viomechanias, pp. 3 ff. 34 Zolotas, £ Ellas eis to Stadion tes Ekviomechaniseos, pp. 92 ff.

64

E X P A N S I O N OF T H E D E B T ,

1879-1890

vestors were not inclined to back enterprises that demanded large outlays, technical skill, and trained managerial ability, and that promised an initial period of small profits or none at all. By predilection the small Greek capitalist of that period was a tradesman, an entrepreneur, who sought quick profits in a business that required little capital, and could be personally managed and supervised.35 Foreign capital might have provided the necessary impetus, but was inclined to finance the extractive industries—quarrying and mining— and railway construction, undertakings which though risky, offered promise of high returns. 36 The country possessed in abundance one element—unskilled labor. But to compete with industrial rivals long in the field, the available labor supply had to undergo a period of industrial apprenticeship. The feeble and uncoordinated industrial structure hardly sufficed to meet this need. Moreover, the peasant farmer on whom industry relied for labor was averse to industrial employment. Whenever he was forced by circumstance to abandon the rural community, he sought his living and fortune in distant lands that offered uncertain but dazzling rewards. By nature and predilection the Greek was a rover, a seafarer, a trader, always depending on his own efforts, his native intelligence, his frugality, his perseverance, and fortuitous chance to give him the independence and security his homeland had denied him.37 Briefly stated, Greece of the early seventies, presented the picture of a region whose development was stunted. It was a country with a weak pattern of economic structure, and an unwholesome condition in the domain of public finance. The taxation system was of the most rudimentary sort, the revenues slender, and the bulk of the public expenditure was devoted to the so-called unproductive outlays—the army, the navy, and the public debt. There were sharp economic and social differences in the several regions, all of which could look back upon a history filled with accidents and interruptions. Occasionally, half-hearted attempts were made to improve the situation, but these were ineffective. The thing that was in evidence, however, was the diffidence and extreme poverty of a hard-working peasantry, the squalor and helplessness of a growing artisan class, and the tenacious 35

Charitakes, Ε Ellenike Viomechania, pp. 19 ff. For an account of foreign investments in Greek industrial enterprises at this time, see Stephanides, Ε Eisroe Xenon Kefhalaion, pp. 174-179. 37 Charitakes, op. cit., p. 21. 36

E X P A N S I O N OF T H E DEBT, 1879-1890

65

attachment of a slowly rising and comparatively opulent bourgeois aristocracy to its acquired privileges. INTERNATIONAL

POLITICS

AND

REALITIES

The evident material backwardness and gloomy prospects for advancement gave the necessary impetus to a reorientation of national policy. The event which more than anything else forced the adoption of a new politico-economic policy was the disappointment of Greece in securing support of her territorial claims from the Powers assembled at the Congress of Berlin. At the Conference she received evasive half assurances and her aspirations were branded as "egotistical illusions." 38 In recommending the cession of Thessaly, the Congress had advised the Porte "to come to an understanding with Greece" and indicated its opinion as to what an equitable rectification of the frontier should be. 39 These recommendations were mere opinions, of course, which the Porte might accept or reject; they were not an international decision to be enforced by the Conference in case of noncompliance. 40 The Porte, taking advantage of the situation, procrastinated. A conference between Turkey and Greece broke up without results; a subsequent one, meeting under the sponsorship and direction of the Powers at Constantinople, likewise led to no settlement. 41 Though the European Concert appeared to have agreed that Greece should receive some territorial compensation, it was averse to bringing pressure on Turkey, fearing that such action would reopen the Near East question. 42 This hesitancy of the Powers to commit themselves to any definite policy gave Turkey the opportunity to utilize the situation to her advantage. 43 "One Power in earnest would have frightened the Porte more than the six, if the Porte were convinced that the five others would not restrain the energetic one." 44 Postponement and lack of assertiveness on the part of the Powers in compelling Turkey to make the promised cession forced both disputants into military preparation and mobilization—occasions which necessitated large monetary outlays. Greece was drawn from her per38

Elliot, George Joachim Goschen, I, 205-206. 40 Medlicott, Congress of Berlin, pp. 52-53. Elliot, op. cit., I, 211. 41 Sargeant, Greece in the Nineteenth Century, pp. 308-317. 42 Lascaris, La Politique exterieure de la Grece, pp. 123-151. 43 Medlicott, Congress oj Berlin, pp. 352, 354; N . Saripolos, "La question grecoturque," Revue de Droit International, 1879, pp. 119-143. 44 Newton, Lord Lyons, a Record of British Diplomacy, V. II. p. 226. 39

66

E X P A N S I O N OF T H E D E B T ,

1879-1890

ennial economic isolation and forced to seek the assistance of the European money markets. Professor Andreades has estimated that the average annual expenditure of Greece for military preparations before the crisis of 1876 was 10,000,000 dr.; at the acute period of the dispute it rose to 64,000,000 dr. and after the rectification of the frontiers it fell to 17,600,000 dr. 45 It was unfortunate that political boundaries yielded so grudgingly to logic, but such has been their stubborn habit since the dawn of history. Once set by process of war or treaty or convention they resist, except in certain minor phases, every argument for alteration, however cogent. The forces of tradition, the jealousies of the disputants, the inertia of popular sentiment and the intricacy of the diplomatic machinery all contribute to this inelasticity. "The long-drawn question of the northern frontier cost Greece, from first to last, two loans amounting altogether to 180 millions of drachmai, caused an aggregate deficit of 140 millions in her budgets and led to the introduction in 1877 of the forced paper currency." 48 Thus ominously the new decade began. The demands of the age for military expenditures and the conscious attempts of new leaders to "Europeanize" and "modernize" the whole structure of Greek economic life led to dependence upon foreign capital. The eighties were to usher in a new era of heavy external borrowings. LOANS

C O N T R A C T E D ABROAD,

1879-1890

The debt assumed by Greece in the eighties was hastily contracted and aimlessly applied.47 It grew so rapidly that there was scarcely time to revamp the tax system in order to meet the constantly mounting debt charges. Most of the borrowed funds were spent for unproductive purposes, 48 contributing little to the material improvement of the country or to the enhancing of the paying capacity of the recipients. As the debt increased, additional borrowings were contracted to meet the growing debt charges. Practically all the new loans were offered at heavy discounts and contracted at high rates of interest. Prices of issue usually ranged from 25 to 30 percent below par and real interest rates varied from 5 to 8 percent. The banking institutions that under45

Andreades, Mathemala Demosias Oikonomias, P a r t A, p. 187. Compare Eutaxias, £ Ellas en Chreokopia. 46 Miller, The Ottoman Empire and Its Successors, p. 410. 47 48 Angelopoulos, To Demosion Chreos tes EUados, p. 79. Ibid., Table I.

E X P A N S I O N OF T H E D E B T , 1879-1890

67

took the promotion and underwriting were predominantly French, acting in close collaboration with Greek and English financial interests. The customary method of marketing was to offer the issues directly for public subscription; the role of the sponsoring banks was that of promoter or agent receiving an appropriate commission for services rendered. Whenever there was a lag in responsiveness on the part of the investing public, the securities that remained unmarketable were underwritten by the bankers at 3 percent (often 10 percent) below the price of emission. Such onerous terms were contained particularly in the contracts of the first three external loans. 1. The 6 percent 60,000,000 fr. Loan of 1879 was authorized by the Law of January 3, 1879. Its proceeds were to be expended "in facilitating the retirement of the forced currency and to meet other pressing needs of the state." 49 The loan was to be retired in forty years by semiannual drawings at par. Flotation was undertaken by the Comptoir National d'Escompte in collaboration with the Greek financier Syngros, who represented Greek banking interests. One third of the loan was directly purchased by the bankers at 73.50 and the balance was offered to public subscription, but at a price that could not be below 76 frs. 50 The net amount realized was 44,000,000 frs. As specific pledges for service, certain proceeds from stamp duties were assigned. 2. The 5 percent 120,000,000 fr. Loan of 1881, authorized by the Law of December 30,1880, 51 was designed "to meet the extraordinary needs of the country." The sum to be borrowed was fixed at £4,800,000 or 120,000,000 frs. bearing 5 percent interest and repayable in forty years by semiannual drawings at par. The price of issue was fixed at 74.60, the banks reserving to themselves the right of underwriting half of the sum at 68.52 The flotation was undertaken by the Bank of Constantinople acting on behalf of the Comptoir National d'Escompte and other French banking interests. The service charges were secured by a lien on the revenue of the national domain and the unassigned proceeds of the customs of Athens, Piraeus, Patras and Zante. The net sum realized amounted to 89,520,000 frs. 49

Ephemeris tes Kyverneseos, No. 1 (Jan. 4, 1879). Hereafter cited as EX. Loan Contract of April 2/14, 1879, EX., No. 32 (May 29, 1879). « EX., No. 1 (Jan. 5, 1881). 52 Loan contract signed in Paris, Dec. 4, 1880; text in Liakopoulos, Kodix Ellenikes Nomothesias, Ethnika Daneia, pp. 273-276. 60

tes

68 ,

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1879-1890

3. The 5 percent 170,000,000 fr. Loan of 1884 was authorized by the Law of January 4, 1884, "for the retirement of the forced currency, for the payment of outstanding state obligations to the banks of issue, and for the construction of local railways." The underwriting syndicate consisted of Greek and French banking institutions, which by this time were acting in close accord in monopolizing the flotation of Greek issues. The sponsors were the Epiro-Thessalian Bank and the Bank of Constantinople. The collaborating underwriters were the Comptoir National d'Escompte, the Societe Generale, the Bank of Egypt, the Banque de Paris et des Pays-Bas and the National Bank of Greece. Though offered at a heavy discount the loan was not taken up by the investing public and only bonds to the amount of 100,000,000 frs. were issued. The price of issue was fixed at 69.80. The pledges offered for its service were the custom proceeds of Volo, Arta, Tsagezi, and the unassigned surpluses of the customs of Piraeus, Athens, Catacolo, Cephalonia and Kalamai. 53 The net amount realized did not exceed the sum of 69,786,000 frs. 4. The 4 percent 135,000,000 fr. Monopoly Loan of 1887 was authorized by the Law of May 28, 1887,54 for the purchase of military supplies, and for meeting maturing debt obligations. Each bond of 500 gold frs. was taken up firm at 337, by the Comptoir National d'Escompte. The Greek Government was released from all expenses connected with its flotation except the costs of registering the bonds. It was repayable at par by 150 semiannual drawings, or by purchase in the open market at the option of the borrower. Of the net proceeds of the loan (amounting to 90,990,000 frs.), 26,000,000 frs. were expended for the construction of three ironclads by a concern in which the underwriting syndicate had an interest; 55 the balance was devoted to the retirement of long-standing obligations, particularly to the redemption of undisposed bonds of the 170,000,000 fr. Loan of 1884. For its service were ceded the revenues of the monopolies of salt, petroleum, matches, playing cards, cigarette paper, and Naxian emery. The Monopoly Loan of 1887 is noteworthy for the reason that it introduced in the Greek financial system a radical fiscal innovation 53

54 Liakopoulos, op. cit., pp. 290-315, 428. E.K., No. 136 (June 3, 1887). The contract for the construction of naval craft was awarded to the Forges et Chantiers de la Μediterranee and was signed by the president of the Comptoir, DenfertRochereau; E.K., No. 148, June 6, 1887. 55

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69

which was destined to become the cornerstone upon which the financial control of later days was reared. In addition to the hypothecation of the monopoly revenues, the underwriting syndicate was given the right to organize a company with the object of collecting, administering, and supervising the assigned revenues. By the Royal Decree of June 10, 1887,56 a group of banking establishments both native and foreign (Le Comptoir d'Escompte, the Privileged Epiro-Thessalian Bank, the National Bank of Greece, the Bank of Constantinople, and the Hambro Bank representing British financial interests) were authorized to found La Societe de Regie de Monopoles de Grece to collect and supervise all the movement of funds from the ceded revenues. The life of the Regie was terminable upon the retirement of the debt. It was subject to the jurisdiction of the Greek State, but no law could be enacted encroaching upon the sources of revenue already mortgaged. Whenever the proceeds of the assigned monopolies did not suffice to meet the annual charges of the loan, the state was required to make up the difference by advances from the public treasury. Besides these fiscal concessions the company enjoyed other privileges of an administrative nature, such as the right to appoint, discharge and fix the salary schedules of persons in its employ, the right to stamp the assigned cigarette paper with its own seal, and the prerogative of taking measures which would safeguard its own interests. 57 Sponsored under such terms the Monopoly Loan was heralded in the continental money markets by a continuous advance in the price quotations of former Greek issues. Between the end of January and the end of May, 1887, the 5 percent bonds of Independence rose IS percent and the 5 percent issues of 1881 and 1884 registered a similar advance. 58 5. The 4 percent 155,000,000 fr. Loan of 1889 (rentes) was authorized by the Law of February 2, 1889.59 The nominal sum to be borrowed was fixed at £6,200,000 or 155,000,000 frs. emittable in two series. The first allotment of £1,200,000 was underwritten (jerme) by 56

Dyovouniotes, pp. 164-166. For the terms of the convention and constitution of the Societe de Regie see ibid., pp. 163-180; Liakopoulos, op. cit., pp. 427-438. 58 Economist, June 25, 1887, p. 913. ™EX., No. 52 (Feb. 6, 1889), No. 296 (Dec. 12, 1889). 57

70

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1879-1890

the Bankers Hambro and Son of London at 68}4 at 4 percent. The •balance of £5,000,000 was underwritten at 72.75 at 4 percent by the bankers Anthony Gibbs and Sons of London, S. Bleichröder of Berlin, and the Bank of Constantinople (then controlled by French banking interests). The realized sum of 111,373,500 frs. was to be expended for the retirement of the 60,000,000 fr. loan of 1879 and some shortterm obligations due to railway construction companies.60 This was the first unredeemable or perpetual loan with no revenues whatever assigned to its service. Though floated at a heavy discount, the loan of 1889—because of its low rate of interest, its perpetuity and its lack of claim on material guarantees—was considered by the borrowers as the most reasonably contracted loan. 6. The 5 percent Railway Loan of 1890-1891 for the PiraeusLarissa Railway was authorized by the Act of April 19, 1889. The total capital was fixed at £3,595,000 or 89,875,000 frs. redeemable at par in 198 semiannual drawings, the government reserving the right to anticipate repayment. The contractors, that is, the National Bank für Deutschland of Berlin and the Hambro Banking House of London, agreed to market half of the nominal sum first, with option on the balance. The unresponsiveness of the money markets forced the contractors to forfeit the option and as a consequence only part of the loan was disposed of. The first allotment of £1,800,000 was offered in London, Athens, Frankfort, and Berlin at 89 and a sum of £600,000 was taken up by the General Credit Bank of Greece at 86. The unmarketed balance remained in the hands of the Greek Government. The available net of the two series was 52,950,000 frs. As a guarantee for the service of the loan all the railway property and the net profits from the operation of the line were pledged. According to the contract the proceeds were to be expended in the construction of a trunk line having as its terminus the Greco-Turkish frontier, with a branch line to Chalkis. The administration of Tricoupis, then in dire need of money, diverted the funds to the service of other loans. The creditors objected, questioning the right of the government to apply the proceeds to purposes other than the construction of the line. The Greek Government contended that it had full right to appropriate the loan to any purposes it deemed advisable, and that the only obligation assumed was to complete the rail40

Liakopoulos, op. at., pp. 473-478.

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71

way line. It argued that since five years were required to complete the line, it would have been unreasonable to keep large funds unemployed and charged with interest until such time as they might be needed. The total of new obligations contracted during the twelve-year period of 1879-1890, amounted to 630,000,000 gold francs or a debt

GREEK FOREIGN LOANS,

1879-1890

Loan of 1879 Net realized 44,000,000 For general state requirements 24,000,000 To the Greek treasury 20,000,000 Loan of 1881 Net realized 89,500,000 For cancellation of advances 15,500,000 For purchase of military supplies 44,000,000 To the Greek treasury 30,000,000 Loan of 1884 Net realized 69,786,000 Expended abroad for state supplies 35,786,000 For retirement of forced currency 34,000,000 Loan of 1887 Net realized 90,000,000 For the purchase of three iron clads 26,000,000 For the service of the public debt 13,000,000 For cancellation of old debts 51,000,000 Loan of 1889 Net realized 111,436,000 For the service of the public debt 28,436,000 For retirement of Loan of 1879 55,200,000 For Railway Loans 27,800,000 Loan of 1890 Net realized 53,000,000 For interest on debt and other external obligations 38,000,000 To the Greek treasury 15,000,000

72

EXPANSION OF T H E DEBT,

1879-1890

assumption equal roughly to 52,000,000 frs. annually. The actual net realized amounted to 458,622,000 frs. Out of this sum, 359,622,000 frs. remained or was expanded abroad, and the balance of approximately 100,000,000 frs. entered the Greek treasury. The table above gives an approximate idea of the disposition and application of the imported capital. All figures are in francs. 81 If we exclude the insignificant sums appropriated for the construction of railway lines and public works, the biggest portion of the borrowed funds was consumed by the pyramiding charges of the growing indebtedness, the huge outlays in armaments, 82 and the covering of recurring budgetary deficits. The figures show (in drachmai) the consistent recurrence of budgetary deficits.83 BUDGETARY

Year

Ordinary

1883 1884 1885 1886 1888 1889 1890 1891

9,258,000 22,600,000 28,000,000 28,366,000 6,861,000 2,197,000 10,237,000 2,746,000

DEFICITS

Extraordinary

8,000,000 35,700,000 39,200,000 10,050,000

With the progress of time the service of the debt preempted one third of the annual state receipts. This heavy requirement coincided with increased expenditures necessitated by the extension of public functions. It seemed that only continuous borrowing could keep the financial mechanism of the country going. But this policy of obtaining relief through constant borrowings could not go on indefinitely without impairing an overburdened financial structure. From 1879, a year that marks the beginning of importation of capital from abroad, to the year 1897, which signalizes the advent of the international financial control, 470.4 million francs were paid for the service of the debt, an amount that corresponded approximately to the total actually bor61 Georgiades, La Grece economique et financiere en 1893, pp. 60-63. Compare Angelopoulos, op. cit., p. 26. 62 Professor Angelopoulos in his analysis of the application of imported capital estimated that one quarter (24.19 percent) of it was expended for armaments, mobilization, and preparations for war. Angelopoulos, op. cit., p. 27, Table II. 63 Bickford-Smith, Greece under King George, p. 138.

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73

rowed.64 In other words, in a period of scarcely twenty years the borrower had paid in service charges the amount actually received, while the largest portion of the contracted indebtedness still remained unliquidated. The accompanying figures65 illustrate the heavy load forced upon the already overburdened taxpayer. COMPARATIVE GROWTH OF DEBT AND TAX BURDENS, (in drachmai) Year 1869 1875 1882 1887 1892 1893

Tax

Receipts

23,203,421 24,090,733 41,599,661 64,071,126 75,204,135 86,246,653

Per Tax

Capita Burden 15.22 15.16 20.50 30.06 33.16 37.63

Public

Debt

137,719,833 163,602,113 331,133,906 525,090,620 720,188,644 823,252,581

1869-1893 Per Debt

Capita Burden

94.50 102.75 163.19 246.35 317.65 363.20

While tax burdens doubled, per capita debt burdens practically quadrupled. Even assuming that the tax-paying capacity of the nation could be increased, this would have been impossible at the rate of growth of the debt, without dislocating the country's economic equilibrium. The yield from increased or newly imposed taxes had always failed to meet the abnormally expanding requirements. Public response to fresh burdens was laggard. Only in periods of grave peril were the so-called nonpromotive expenditures supported and approved. In evaluating the debt-carrying capacity of Greece, reference should be made to a fundamental factor which approximately reflected the vigor of the economic organism. This was her balance of trade. It was intimately connected with the maintenance of the parity of the drachma and, in the long run, determined the arrangements for making the necessary fund transfers to meet debt requirements abroad. There was not that regularity about Greek export trade which characterized countries of a maturer industrial status. Her main exports were luxury products of agriculture, like currants, oil, figs, tobacco, the demand for which was never constant. War fever, 64 P. Dertilis, "Le Probleme de la dette publique des etats balkaniques: 1'endettement de la Grece," Les Balkans, December, 1934, p. 741. 65 From Law's Report on Greek Finances, Tables BI and EI. Great Britain: F.O., Diplomatic and Consular Reports, Annual Series, 1893, No. 1169; Georgiades, op. tit., p. 47.

74

EXPANSION OF T H E DEBT,

1879-1890

elections, and periodic agricultural depressions were causes for sharp decline. The perpetual seesaw of good and bad years, and the convulsive interseasonal fluctuations due to the vagaries of weather, determined the volume of production. On the other hand, import requirements mounted as a result of the demands of an expanding population and of the inadequacy of the home markets to supply the growing needs. The accompanying table 66 shows that the persistency of unfavorable balances portended an eventual economic collapse. GREEK BALANCE OF TRADE (in drachma!) Year

Imports

1881 1882 1883 1884 1885 1886 1887 1888 1889 1890 1891 1892

116,294,438 142,554,406 121,339,930 115,952,760 113,574,680 116,760,000 131,749,325 109,149,182 132,653,248 120,785,604 140,359,674 119,306,007

Exports

69,887,106 76,334,303 82,642,730 73,620,800 76,337,080 79,096,080 102,657,477 95,653,741 107,777,808 95,791,684 107,489,713 82,261,464

Unfavorable

Balance

46,407,332 66,210,103 38,697,200 42,331,960 37,237,600 37,663,920 29,091,848 13,495,441 24,875,440 24,993,920 32,869,961 37,044,543

The average excess of imports over exports during the period of the eighties was approximately 33 million drachmai annually. For reasons explained above, export deficiency had persisted steadily. The consistent increase in the importation of food products, fuel, and other raw materials essential to a budding industry was the chief reason for the gap between imports and exports. The external claims created by an unfavorable trade balance and the necessary gold transfers for servicing the external loans forced Greece to maintain perennially an unfavorable balance of payments. As long as the government could borrow freely, affairs went on smoothly and the settlement of international accounts was rendered possible. In the last analysis, however, it was upon the productive capacity of its people that the nation's credit rested. The importation of new capital could be of immediate benefit only if in the long run it enhanced the national income. 66

Zolotas, op. cit., p. 151.

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75

While it would be of interest to review the state and character of Greece's international accounts for the last quarter of the nineteenth century, it is hardly possible to go back beyond 1900. The only available data for that period are those pertaining to foreign trade. The other items, such as income from tourist trade, emigrant remittances, shipping returns, and income from investments abroad, are scarcely to be obtained even for a later period. It is safe to state, however, that the international outgo surpassed international income by a figure ranging between 40 and 50 million francs annually. This figure corresponds to the amount of annual borrowings from abroad for the twelve year period of 1879-1890. It was through this continuous capital importation that Greek international accounts kept their equilibrium. The moment the flow was stopped the difficulty was apparent in the inability to meet debt charges. Default could not be avoided; it could only be postponed. SUSPENSION OF THE DEBT SERVICE

The service of Greece's foreign indebtedness in 1893 consumed 33 percent of her budgetary receipts.67 Reduction of the debt burden could be effected either by rapid retirement and a scaling down of the outstanding indebtedness or by the expansion of the national income. The persistence of budgetary deficits for the years 1882-1892, averaging about 30,000,000 dr. annually 68 entirely eliminated such a possibility. To aggravate matters, the weak structure of Greek economy felt the impact of the recurring economic crises. This was particularly true in 1891, a year that ushered in a period of financial and industrial depression that seemed to affect the whole world. Greece could hardly hope for extension of new credits at such a time. Her own agriculture, and particularly the currant crop, on which her economy relied, had fallen to unremunerative levels owing to an increase in production and to the declining demand of the French wine market. 69 The protective measures of France, by cutting off importation, glutted and paralyzed the Greek market. Prices fell precipitously. In 67

E. F. G. Law, op. cil., p. 16; cf. A. Angelopoulos, op. cit., p. 49. Law, "Report on Greek Finances," op. cit., tables F IV, and F V, also Andreades, Mathemata, Part A, p. 1S6. 69 J. Challey, "La Grece contemporaine," £conomiste Franfais, June 3, 1888, p. 744. For the policy of France in restricting the importation of currants see Antonelli, Protection de la viticulture, p. 26S; Sempi, Le Rigime tconomique du vin, p. 192. 68

76

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1879-1890

May, 1893, the lowest price quotation in the London produce market was 21 shillings per hundred-weight; six months later it tumbled to 6 shillings.70 The situation was further aggravated by the fact that the banks and individuals, who had advanced seasonal credit to currant planters could not be repaid without forcing the debtors into liquidation. 71 The consequences of the crisis, therefore, were felt by both creditors and debtors. The immediate repercussion manifested itself in the breakdown of confidence and a sudden liquidation on a large scale. The drachma began to lose ground. In April, 1891, the premium on gold rose to 30 percent. From that date on, the strain was intensified, and by the commencement of 1893, the premium rose to 60 percent. 72 It was becoming evident that the progressive depreciation of the drachma rendered the transfer of funds problematical. Because of it, the service of the debt, which required an annual exportation of 31,000,000 gold francs, now laid claim to half of the state revenues. To forestall impending bankruptcy Tricoupis once more essayed the London money market; in the spring of 1892 he entered active negotiations with the Hambro banking interests for a new loan to meet the maturing debt charges and the unavoidable budgetary deficits. The London capital circles were rather hesitant. Before making any commitments they desired accurate information on the state of Greek finances. Tricoupis believed that the crisis was temporary and that the financial structure could support additional strain. He therefore consented to an impartial investigation. Accordingly, Major E. F. G. Law was commissioned to survey the entire Greek financial situation. 73 The French Foreign Office viewed the appointment of Law as an undue extension of English influence in the finances of Greece and requested the granting of a similar favor. To appease France, Tricoupis extended the same privilege to a French investigator, Roux, who reached Athens on November 13, 1892, just three weeks after the arrival of Law. The appointment of Law and Roux as financial investigators caused considerable excitement among the Greek opposition, and the event was looked upon as a prelude to the 70

Andreades, "The Currant Crisis in Greece," Economic Journal, March 1906, p. 41; "Les Vins artificiels et les raisins sees," Hconomiste Frangais, Jan. 19, 1889. 71 Evlambios, The National Bank o) Greece, p. 91. 72 Law, op. cit., p. 16; also Aspreas, Politike Istoria, II, 180. 73 Driault, op. cit., IV, 297.

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77

74

installation of foreign financial control. These suspicions were unfounded. The survey did not contemplate such a drastic measure; it was undertaken simply with the object of ascertaining whether the economic and financial position of Greece could justify the issue of a new loan.75 On the termination of the investigation, Law affirmed that new borrowings could be justified only under exceptional circumstances. A loan of this kind, he said, "should be considered in the light of a drug administered to secure to the patient immediate required repose, that time might be gained to allow recuperative capacity to exercise its power and complete cure. Such remedies, however useful and even necessary in special cases, always have some injurious effect, and their application should be restricted within the narrowest limits, sufficing to obtain the required immediate relief." 78 To expedite negotiations, Tricoupis was disposed to offer valid guarantees. Before the prorogation of the Chamber he had obtained the passage of a bill (December 22, 1892) providing for the collection in gold of certain taxes estimated to produce 8,600,000 dr. He was ready to offer this sum as security for the new loan. To insure regular servicing, the proceeds of the assigned revenues were to be turned over into a Special Caisse to consist of representatives of the principal banking establishments of the state. 77 His resignation from office, however, brought the loan negotiations to an abrupt close. The effect of the resignation of the only Greek political leader in whom the foreign money markets had any confidence was immediately reflected in the heavy decline of the price of Greek securities 78 and the rise in the value of the gold drachma from 1.43 to 1.63. The difficulties of the aggravated situation were inherited by the Sotiropoulos Ministry. Deaf to suggestions of repudiation, the successor of Tricoupis assumed his new duties with a determination to devise means whereby Greece should continue to pay the service of her foreign indebtedness. The result of his endeavors culminated in the conclusion on May 30, 1893, of a contract with the Hambro banking interests of London, for floating a 100,000,000 franc 5 percent fund71

Ibid., p. 297. Morison and Hutchinson, Sir Edward Fitz-Gerald Law, p. 138. Great Britain: F.O., Diplomatic and Consular Reports on Trade and Finance, Annual Series, 1893, No. 1169. (Roux's report was never published.) 77 Andreades, Mathemata, Part A, p. 172. 78 Investors' Monthly Manual, Jan. 31, 1894, p. 7. 75 76

78

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1879-1890

79

ing loan. The agreement provided for a funding operation. The interest on all the gold loans of the state, with the exception of the Monopoly Loan of 1887 was, for two years and a half, to be paid in bonds of the Funding Loan. A part of the proceeds was also to be employed in redeeming the floating debt and in retiring the forced currency at the rate of 10,000,000 drachmai per month. 80 The government hoped thus to tide over immediate difficulties and to arrive at some solution of the currency problem before the expiration of the two years and a half. During that period the funding operation would have stopped the drain on gold. This transient palliative did not inspire the market with confidence. In the Chamber, the opposition (headed by Tricoupis) attacked it as extravagant and unprofitable. Although immediately operative, the agreement required the eventual sanction of the Chamber where the opposition commanded a respectable majority. The Sotiropoulos administration, conscious of its weakness and hoping that public opinion would be convinced of the expediency of the funding device, neither convoked the Chamber nor appealed to the country. The administration in power gained nothing by the delay. On the contrary, toward the end of August, 1893, the difficulty of finding gold for the payment of the currant tax was such that the government felt constrained, in direct breach of the loan convention, to permit the collection of the tax in paper currency at the rate of one drachma and sixty-five lepta per franc. As time went on, it became apparent that the funding arrangement would serve only as a temporary relief and that the finances of Greece could not regain their normal equilibrium without further external assistance. Accordingly, a month later the Greek Government entered into negotiations for a new loan with a financial group represented by Ornstein, a former official of the Egyptian debt service.81 These negotiations were still in progress when the Chamber, meeting in ordinary course, forced the resignation of the Sotiropoulos ministry. Tricoupis once more returned to power. The new administration's first act was to suspend the collection in gold of all taxes pledged to the service of the funding loan. It rapidly passed through the Chamber two bills, one repealing the law under which the taxes were levied in gold, and the other annulling 79 Law authorizing loan and terms of loan-contract, in Dyovouniotes, op. cit., pp. 11-24. 80 81 Georgiades, La Grece economique, p. 75. Andreades, op. cit., p. 174.

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79

the funding convention 82 but providing for the redemption of the bonds already issued by virtue of it. The action of Tricoupis in suspending the collection of taxes in gold produced a bad impression abroad. Foreign financial circles saw in it an indication of the truth confessed by Tricoupis, "that unfortunately Greece was in a state of bankruptcy." The little kingdom that had weathered so many financial storms unscathed had finally succumbed. Once more it joined the ranks of sovereign defaulters. Compelled by force majeure and alleging inability to meet in full the service of the debt because of the adverse rate of exchange, Tricoupis passed through the Chamber the financial measures of December 9 and 10, 1893, which contemplated a 70 percent reduction on the interest of all gold loans, suspension of sinking funds, and the turning over to the public treasury of all proceeds of the hypothecated revenues, including those under the jurisdiction of the Societe de Regie. 83 The suspension of the debt service was regarded by the indignant bondholders as a flagrant violation of faith; the French and German governments instructed their diplomatic representatives at Athens to remonstrate officially with the Greek Government. 84 Not to be outdone by his colleagues, the British Minister also made verbal representations. The foreign press teemed with denunciations and openly advocated the adoption of coercive measures. The London Times characterized the action of Tricoupis as "a perilous innovation" meriting the appellation of "an autocratic ukase." 85 The Frankfurter Zeitung 86 recommended the exclusion of Greek securities from all German exchanges and urged the adoption of a similar policy by France and England. At meetings held simultaneously in London, Paris, and Berlin, special committees of bondholders were appointed to draft and forward strong protests against the highhanded action of the Greek Government. 87 The British holders of Greek bonds under 82

Law of Dec. 10, 1897, in Dyovouniotes, op. cit., p. 24. Ibid., pp. 24-26, Law of Dec. 11, 1893. 81 The diplomatic files of the Greek Ministry of Foreign Affairs to which the writer had access were not indexed. In citing them, reference will be made to the number usually inscribed on them, the date and the place of origin. (These diplomatic documents hereafter will be cited Y.E.) Y.E. German Protest No. 443 of Dec. 1/16, 1893, handed to the Greek Minister in Berlin by Wesdehlen. French Protest No. 73 of Dec. 1/16, 1893, delivered to Tricoupis by French Minister Montholon. Telegraphic protests were also addressed by the National Bank für Deutschland, S. Bleichröder and Erlanger and Sohne. Y.E. Dec. 16, 1893; and T. Chauvin, President du Comite Fran?ais des Porteurs de Fonds Helleniques, Y.E. Dec. 23, 1893. 85 80 The Times, Dec. 23, 1893, also Dec. 18, 19, 1893. Dec. 18, 1893. 87 Georgiades, La Grece et ses creanciers, p. 11. 83

80

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1879-1890

the chairmanship of Sir John Lubbock, addressed on December 21, 1893, a telegraphic protest to the Greek Government, giving notice that the confiscatory action of Greece compelled them "to place themselves in communication with H.B.M. Foreign Office and to request that the British Minister at Athens may use his influence for the protection of the interests of British holders of Greek stocks." 88 Tricoupis instructed the Greek Charge d'Affaires in London to assure the Committee of Bondholders "that while the government thoroughly recognized the obligations undertaken by Greece, they have acted under imperious and immediate necessity . . . that whatever may be the provisional measures imposed by the government, . . . no obligation or guarantees can undergo any modification of a permanent character except by agreement with the bondholders." 89 This admission of the Greek Government that no modification would be effected without the concurrence of the bondholders prompted the London Committee to press upon the Berlin and Paris groups the urgency of a joint conference to consider a temporary modification of the interest to be paid by Greece. On February 3, 1894, a plenary conference of delegates met in Paris to determine a common course of action and to take such resolutions as the circumstances called for. The conference addressed a joint letter to Tricoupis requesting him to specify in what manner the Greek Government intended to recognize its obligations and what steps it would take to guarantee the result. The assembled committees reasserted that any reduction which the bondholders might have to recognize should possess a temporary character only "and should be lessened pari passu with any amelioration of the financial situation." 90 Tricoupis in a letter (Athens, February 12, 1894) reassured the foreign bondholders that the tenor of the Law of December 10, 1893, and the declaration made in the Chamber on December 11, 1893, contemplated a provisional suspension of the integral service of the debt as well as of the guarantees assigned to that service.91 He contended that the guarantees were suspended by force majeure and that they 88 Corporation of Foreign Bondholders, Twenty-first Annual Report of the Council, 1893, p. 85. Also British Government protest communicated to Romanos Greek Minister to London, Y.E. Dec. 16, 1893. 80 Economist, March 10, 1894, p. 299. 80 Corporation of Foreign Bondholders, op. cit., p. 88. 91 Diapragmateuseis peri Symvivasmou, pp. 7 ff.

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81

would be resumed on the advent of economic normalcy. The Greek premier was disposed to consider the proposal of the committees dealing with the assignment of new guarantees, if such guarantees "did not imply a control of the administration of the country, the management of the finances, or interference in any other manner with its sovereignty or independence." 92 Replying to Tricoupis (April 12, 1894) the three Committees pointed out that if they admitted the plea of force majeure there would be no security for bondholders in the future. They suggested that the Greek Government should be divested (dessaisi) of the revenues assigned to the service of the debt and that the supervision and administration of these pledged revenues, the centralization of the proceeds and disbursing of funds should be entrusted to a company subject to the laws of the state but independent of the action of the government. These proposals envisaged the reorganization of the Societe de Regie with such ample powers as to render impossible any further interruption of the operation of guarantees under contract. 9 3 CREDITOR-DEBTOR

NEGOTIATIONS,

1894-1896

The Greek Government acceded to the suggestion of the associated committees and invited them to send delegates to Athens and, in common with the government, attempt to find a basis for an arrangement. Accordingly, M. Staevie, Sir Μ. E. Grant Duff, and M. G. Ornstein, representing the German, English, and French committees respectively, proceeded to Athens where they met Tricoupis on June 6, 1894. From that date to July 28, they were actively engaged in negotiations that proved abortive. 94 The chief points of difference between the associated delegations and the Greek Government centered about the nature of guarantees which the latter was disposed to assign and its right to participate in the "plus-values" or surplus of the assigned revenues over the necessary sum required for a minimum rate of interest. 95 As neither side was disposed to give ground, the negotiations came to an impasse. The 82

Corporation of Foreign Bondholders, op. cit., p. 90. Tsouderos, Le Relevement iconomique de la Grece, p. 8. 94 Diapragmateuseis, op. cit., pp. 8 ff. 95 For proposals and counterproposals submitted see Corporation of Foreign Bondholders, Twenty-second Annual Report, 1894, pp. 153 ff. 93

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European committees recalled their delegates and proposed a convocation of a joint meeting of all the creditors of Greece to discuss the adoption of a common policy of action. Immediately after the interruption of negotiations, Tricoupis attempted to come to a separate understanding with the English bondholders.90 The German Government, which by now had openly espoused the interests of its nationals, took this move of the Greek premier as an attempt to create friction among the European creditors. To forestall a possible defection, Germany suggested to England and France that they should collectively proceed to bring Greece to submission.97 The French Government did not share this opinion. It counseled moderation and hinted that the dispute was not of governmental concern.98 The British Foreign Office also advised moderation, fearing that drastic measures would drive Greece toward Russia and France. 99 Germany stood adamant in its demands. 100 The other powers, fearing that the imperial government would proceed to enforce its claim alone, consented to present identical notes of protest to Athens. 101 The continued insubordination of Greece and her reluctance to accede to the demands of her creditors created a bad impression 96 Y.E. Dossier of Aug., 1894. It contains a "Convention pour l'arrangement de la dette Hellenique entre le gouvernement Hellenique et les representants des porteurs Anglais." 97 Y.E. In a telegraphic communication (July 26, 1894), Romanos, Greek Minister to London, informed the Greek Foreign Office that the German Government made a demarche to the French Government in favor of Franco-German action. Also No. 981 of July 28, 1894. 98 Georgiades, La Grece et ses crianciers, p. 6. The unwillingness of France to cooperate with Germany may be attributed to the fact that the amount of Greek bonds held by French subjects was insignificant; they were largely held by Greeks residing in France. Ibid., p. 12. 99 Y.E. No. 276. Greek Charge d'Affaires in Berlin to Greek Ministry of Foreign Affairs, July 27, 1894. The Vossische Zeilung, July 27, 1894, in caustic language upbraided the defection of the English Committee and "did not attach any great diplomatic weight to English representations." It did, however, "depend upon the Imperial Government to deal single-handed with Greece." 100 Y.E. No. 988, telegraphic communication of Greek Charge d'Affaires dated July 25, 1894, informed the Greek Foreign Office that Germany was contemplating a naval demonstration. See also No. 981 of July 28, 1894, and dispatch No. 276 dated Berlin, July 27, 1894. 101 Y.E. Note presented by British Minister· Egerton, Dec. 24, 1894. The insistence upon drastic measures on the part of the German Government was due to the fact that Greek bonds held in Germany were chiefly in the hands of middle-class investors, who by their number formed an influential segment of public opinion, which the imperial government was unable and unwilling to ignore. The amount of foreign capital invested in Greek securities was estimated as follows: French, 90,000,000 frs.; English, 130,000,000 frs.; and German 210,000,000 frs. The Times, Aug. 16, 1894.

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abroad, particularly in Germany, "a country accustomed to play the role of the master." The imperial government considered the Greek default as a national question; it went so far as to threaten the abrogation of the commercial treaty with Greece and even the recall of its diplomatic representative, Baron von Plessen. 102 While all these negotiations were in progress, the press of England, France, and Germany vied in the use of invectives against Greece. With the exception of the London Times and the Politische Corresponded, they openly advocated the resort to coercive measures. Le Temps warned Greece "that she must not count, because of an accidental divergence of views between the foreign committees, on playing one of them against another." It reminded her "that France recently had brought Portugal to a proper sense of financial obligations" and it admonished her "that she was not strong enough to indulge in bankruptcy." 103 The Economist characterized the action of Greece as the "acme of impudent dishonesty" calculated "to mulct the bondholders." It invoked the aid of the governments concerned to bring pressure and dispense with protests couched in "mealymouthed fashion." 104 The Börsen Courier in a bellicose tone declared "that the Greek government must understand that as far as Germany is concerned, the creditors of Greece will not be handed over to its tender mercies but they can rely upon sufficient support at home to arouse the sluggishness of the Hellenic conscience." 105 La Liberte was also confident that "failing to get redress by direct negotiations, the deliberately despoiled creditors can count on their country's diplomacy." 106 Thus there was a popular call for governmental intervention, but there were no suggestions as to what form it should take. After the departure of the delegates, Tricoupis, in answer to representations from the foreign governments, 107 expressed his readiness to abide by the terms which he had offered at the close of the negotiations. These terms comprised an initial payment of 32 percent of the original interest, rising gradually to payment in full after 68 years. He steadfastly refused to adopt the principle of allotting to the bondholders any proportion whatsoever of prospective increases in state revenues. 102 Y.E. Dispatch of Greek Charge d'Affaires at Berlin to Greek Ministry of Finance, No. 262 dated Berlin, July 31, 1894. 103 104 Le Temps, July 3, 1894. The Economist, July 28, 1894. 105 106 Börsen Courier, July 25, 1894. La Liberte, Aug. 2, 1894. 107 Y.E. Representations of German Minister Baron von Plessen, July 16, 1894.

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The successor of Tricoupis, Delyannis, in presenting the budget on June 14,1895, severely criticized his predecessor's financial policy, particularly for the enactment of the Law of December 10, 1893. To placate the bondholders he proposed the creation of an independent Public Debt Commission vested with the right to administer and supervise the collection of certain ceded revenues exclusively for the service of the debt. The contemplated Public Debt Commission or Board was to consist of the Minister of Finance, the Chief Justice of the Aeropagus, the Chairman of the Audit Board, and the directors of the National, Ionian, and Epiro-Thessalian banks. The creation of such an institution, it was believed, would constitute a national control of greater efficacy than the foreign control proposed by the bondholders. While this measure was hotly debated, the Greek Government heeding the suggestions of the French Foreign Office took the initiative,108 and notified the foreign committees of its readiness to resume financial negotiations. With this object in view, it had instructed its diplomatic representatives in London, Paris, and Berlin to confer with the bondholders' committees in those capitals. To avoid a duplication of effort, which would have resulted from carrying on three separate negotiations simultaneously, the bondholders suggested that the government should nominate one of its diplomatic representatives as the sole empowered authority to negotiate with the delegates of the associated committees. This was agreed upon and the pourparlers commenced on December 27,1895. Paris being centrally located, was chosen as the place of meeting. 109 The negotiations were resumed in an atmosphere of mutual distrust. They dragged on tediously for six months, during which all kinds of proposals and counterproposals were submitted in an attempt to arrive at some amicable and satisfactory agreement. The bondholders had worked out a set of terms known as the Paris proposals. These proposals are of importance for the reason that a year and a half later they constituted the basis upon which the International Financial Commission of Control relied in evolving a satisfac108 Y E Confidential dispatch of N. Delyannis, Greek Minister to Paris, to the Greek Foreign Office, No. 171 dated Paris, Jan. 15/27, 1895. Also No. 58 dated Feb. 20/March 1, 1895. 109 Corporation of Foreign Bondholders, General Report, 1895, p. 142; Europien, 1896, p. 810.

L'&conomiste

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85

tory debt arrangement. In the main, they envisaged the setting aside by the Greek treasury of a fixed sum of 9,000,000 gold frs. (equivalent at the then prevalent rate of exchange to 15,750,000 dr.) for an initial servicing of the foreign debt. All external loans were to receive 32 percent on the original interest. The Monopoly Loan, as a privileged obligation, was to be remunerated at the rate of 43 percent. To forestall a repetition of default a request was made for specific assignment of revenue. 130 All surpluses over the amount indispensable for servicing the loans were to be appropriated as follows: forty percent to the Greek treasury and the balance to the improvement of the interest rate of the debt. The administration and collection of the pledged sources of revenue were to be entrusted to a reorganized Regie, half of its members to consist of representatives of the old Monopoly Society and the rest of appointees designated by the principal banking establishments that had previously acted as agents in servicing the debt. These were the National Bank of Greece, the Hambro Bank of London, the Comptoir National d'Escompte of Paris and the Bleichröder Bank of Berlin. 111 The Greek Government considered the terms exacting and an infringement upon the sovereignty of the state. It countered with proposals of its own, stressing the priority of the administrative services over the claims of the creditors, and allotting 60 percent of the surplus revenues to the Greek exchequer and the balance to the creditors. The treasury's share, Delyannis promised, would be devoted to the improvement of the country's economic position—an improvement by which the creditors would greatly benefit. As a condition to final settlement, the Greek Government demanded that the creditors, in view of the country's obvious financial disabilities, should help in procuring a new loan in the European money markets. The proceeds were to be used to redeem internal short-term obligations and to withdraw the forced currency from circulation. These steps were indispensable 110 The sources of revenues requested for assignment were the taxes on salt, petroleum, matches, and playing cards. In addition, they asked the ceding of the high-yielding stamp duties. The proceeds from this last source were calculated at 28 million dr. annually, a sum in itself more than sufficient to cover the original request of 9,000,000 frs. Additional or supplementary sources of revenue were asked in order to increase the surpluses and provide a larger share in the eventual distribution. 111 Corporation of Foreign Bondholders. Twenty-fourth Annual General Report, 1896, App.; see also "La Faillite de la Grece," Le Pour et le Contre (Journal financier) Feb. 28, 1897.

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to restoring monetary stabilization, which, in turn would aid immensely in the transfer of funds regularly needed for servicing the foreign debt. 112 To the bondholders, tying a settlement to the grant of further credits to a bankrupt state seemed preposterous and illogical. They viewed it as a measure of coercion cleverly manipulated so as to exact a high price for consent. But the most insurmountable obstacle to agreement was the xenophobia of the debtors. To this "most sensitive people" 1 1 3 the imposition xenikou elenhou (foreign control) on its finances savored of economic subservience.114 Even the mild and camouflaged superintendence in the form of an indirect Regie administration was interpreted as an encroachment on sovereignty, an affront "to national dignity," and a display of lack of confidence in "the capacity of the state to administer its own resources." 1 1 5 The bondholders interpreted all this as a concealment of the real motives: Greece, the creditors alleged, was stalling in order to tire them and force them to accept whatever was offered. The Greek Government branded these insinuations as defamatory. However, cognizant of the disastrous effect that a state of prolonged default would have on the economic life of the country, it was anxious to reach an agreement, but not on terms that it could not fulfill. It held the view that a debt settlement should take into consideration the interests of the debtors as well as the creditors. But the creditors were chiefly concerned with the safeguarding of their own rights. In due time, this narrow view earned for them the appellation of "money grabbers." 1 1 6 The truth of the matter was that during all these long and tedious negotiations, no study of the foreign debt in all its ramifications was ever made. Though it was recognized that the existing state of Greek revenues did not warrant an assumption of heavy debt burdens, no reduction of the original indebtedness or of the usurious interest rates under which the different external loans were contracted was ever contemplated. Other states in similar financial straits were better treated. Turkey, under the Decree of Mouharrem had benefited by a consideration of the entire financial situation. Her outstanding for1 1 2 In exchange value, one fr. was equal to 1.23 dr. in 1890, 1.29 in 1891, 1.43 in 1892, 1.60 in 1893, 1.74 in 1894, and 1.80 in 1895. 1 1 3 Morison, Th., op. cit., p. 21S. 1 1 4 Syngros, Apomnemoneumata, III, 193. 1 1 5 Corporation of Foreign Bondholders: Twenty-fourth Annual General Report, 1896, App., p. 152. See also Speech of Prime Minister Delyannis in Submitting to the Chamber the Budget of 1897. Ephemeris ton Syzeteseon tes Votiles, Session of Nov. 11, 1896. 1 1 6 Andreades, op. cit., Part B, pp. 289-298.

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87

eign indebtedness was reduced practically to half and the interest and sinking fund charges were calculated to conform to the paying capacity of the country. 117 Because of the marked divergence of views the negotiations of 1896, like all the others that preceded them, came to an inglorious end. Their future resumption hinged on a reorientation of views and on the appearance on the scene of persons who could inspire mutual confidence. Fortunately the election of E. Streit to the chairmanship of the National Bank of Greece in October, 1896, afforded such an occasion. The new chairman of the most powerful financial institution of Greece realized that a prolonged disagreement with European financial circles was not in accord with the best interests of the country. 118 Upon his accession to office he took the initiative and suggested a reopening of negotiations. This offer was welcomed by the anxious bondholders. In the meetings that followed, both sides, tired of entertaining petty animosities and narrow views, were ready to make concessions.119 By the end of February, 1897 a tentative agreement had been reached, and the vexing question that had caused so much bitter feeling seemed on the way to a real and final solution. The two main difficulties—that is, the division of surpluses and the question of foreign participation in the administration of the Regie—which had been the stumbling block all along, were finally settled. The revenue surpluses were to be divided equally and the administration and supervision of the ceded sources of revenue were to be entrusted to the old Monopoly Society, thereafter directly responsible to the creditors for the collection and transfer of proceeds. This tentative agreement undoubtedly would have received the approval and ratification of the foreign creditors had it not been for the anomalous situation created by the Cretan question. Because of the imminence of hostilities with Turkey, the dispatching of the terms abroad for confirmation was put off for a more opportune moment. 120 The opportune moment never came. The Cretan question involved Greece in a disastrous war, the settlement of which afforded an opportunity to the governments of the foreign creditors to intervene. The debt arrangement sponsored by them was harsh and unjust compared with the one the creditors had been ready to accept. 117 Blaisdell, European Financial Control in the Ottoman Empire, p. 90. u s Valaorites, Istoria tes Ethnikes Trapezes tes Ellados, p. 159. 119 120 A sty, Nov. 8, 1896. Valaorites, op. cit., p. 1S4.

CHAPTER

IV

DIPLOMATIC INTERVENTION A N D I M P O S I T I O N OF FINANCIAL CONTROL INVOLVEMENT

I N A "USELESS

WAR"

T

HE prolonged and fruitless negotiations between the bondholders and the Greek Government came to an abrupt end with the outbreak of hostilities between Turkey and Greece over the Cretan question. European diplomacy, which for three and a half years remained in the background, was now afforded an opportunity to assume a leading role. It is not necessary to discuss here the extent, cause, and necessity of that conflict.1 History has singled it out as a "useless war." What is, however, of significance, is the repercussion it had on the postwar fabric of a defeated Greece, economically impotent and diplomatically isolated. The war brought about the occupation of the rich province of Thessaly by the Turks, who threatened to re-annex it if the war-indemnity charges were not met. Indirectly, the conflict caused a dislocation in the weak structure of Greek economy, which was called upon to assume a tribute burden of extraordinary proportions. All normal financial calculations had been upset. Mobilization expenditures and extraordinary outlays for the conduct of a military campaign had mounted to new heights. The problem of taking care of the destitute population which had abandoned the invaded territories and sought refuge in Greece, became very taxing. Trade was stagnant. All signs pointed to an inevitable internal collapse, if not to a revolution.2 1

An account of the conflict and the forces that precipitated it, is given in Langer,

The Diplomacy of Imperialism, Vol. I, Chap. XI. See also G. Streit, "La Question cretoise au point de vue international," Revue de Droit International Public, IV (1897), 61-104, 446-483; N. Henry, "The Wreck of Greece," Scribners Magazine, Oct., 1897, pp. 399-426. 2 G. Philaretos, "La Localization de la lutte greco-turque aidee par le roi des Hellenes," Questions Diplomatiques et Coloniales, III (1898), 345.

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89

The predicament in which Greece found herself was mainly due to bad calculation. The leaders who guided the nation's destinies in that period were committed to the belief that the solution of the perennial Cretan question could be achieved by constant agitation and boastful threats against the peace of Europe. A "guerre en paix" instead of a policy of prudence shaped the Greek foreign policy. The prime minister, Deliyannis, and the militant National Society believed that Greece could by an unheralded coup occupy Crete and present the European Concert with a fait accompli, as the Bulgars had done at Philippopolis in their attempt to create a Greater Bulgaria. They were confident that the Powers would countenance their action. Despite their bellicose pronouncements, those at the helm did not believe in war; they were driven into it by a tidal wave of public sentiment which viewed war as "one of those inscrutable calamities imposed by destiny." 3 Aware of the seriousness of the situation and of the odds against them, they hoped till the last moment for some form of intervention that would save them. 4 Greek statesmanship lacked courage to tell the nation pointedly that "it was wholly unprepared for war" and was courting inevitable disaster. 5 The attempt was ill timed and the attitude of the Concert of Europe was misjudged. It was abundantly evident by this time that any territorial readjustment must have the sanction of the Concert. But, while acknowledging the justice of the Greek claims, Europe feared that union of Crete with Greece would upset the status quo of the Balkans and would give rise to demands on the part of other claimants to a share of the Sick Man's possessions. 6 The Concert was unanimously opposed to any disturbance of the peace of the Continent. The Cretan problem had become by the end of the nineteenth century a phase of the Near Eastern question, with the solution of which all Powers were vitally concerned. In addition to the manifest opposition of Europe, Greek irredentism had to confront the impressive advent of the Drang nach Osten, a policy then passing from the vision3

Messager d'Athenes, April 2, 1897. Declarations of Delyannis before the Greek Chamber, Ephemeris ton Syzeteseon tes Voules, Session of Sept. 18, 1897. 5 Grogan, Life of J. D. Bourchier, pp. 64-66. Corbett, Reminiscences, pp. 238-2SS. 6 T. Woolsey, "The Powers and the Greco-Turkish Conflict," Forum, July, 1897; F. Bouillon, "Les fitats balkaniques et la crise greco-turque," Figaro, July 27, 1897. 4

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CONTROL

7

ary phase into the area of practical politics. In attempting therefore to solve such a problem of European concern by resort to arms, Greece was courting inevitable defeat and its train of serious difficulties. INTERVENTION

OF T H E

EUROPEAN

CONCERT

As the Turkish armies overran Thessaly and advanced unchecked toward the Greek capital, Greece followed the advice of Onou, Russian minister to Athens, and appealed to the Great Powers to intervene and bring about an armistice without delay.8 The Powers seized the awaited opportunity. Before responding to the appeal, however, they insisted that Greece should abide by any decisions which the mediating Powers might arrive at with the victors. On the 11th of May, 1897, Foreign Minister Skouloudes formally adhered to this demand by "placing with confidence in the hands of the six Great Powers the safeguard of Greek interests." 8 In consenting, Greece never imagined that the Powers in whose care she was entrusting the defense of her interests and fortunes would inject into the negotiations questions irrelevant to the problem of reestablishing peace. However, in consenting to the exaction of a war indemnity by the victors, the Powers were forced to consider the capacity of Greece to pay. As the new obligation was destined to exert a great strain on the Greek finances, they tied the question of indemnity to that of the pending settlement of the foreign debt, in an effort to protect the foreign bondholders from possible loss. In linking these obligations the Powers were aided considerably by the unyielding attitude of the victors. The Turks demanded as a condition of granting an armistice that Greece should accept without reservation these terms: 1) the retrocession of Thessaly; 2) the abrogation of capitulations applicable to Greek subjects; 3) the conclusion of a treaty of extradition; and 4) the payment of 10,000,000 Turkish pounds as war indemnity. 10 These terms were to constitute the basis of the eventual peace settlement. Greece found them in7

Hammann, Deutsche Weltpotitik, 1890-1912, p. 56. Grece: Ministere des Affaires Ütrangeres, Documents Diplomaliques, Conflit grico-turque, avril-septembre 1897, Athenes, 1897, No. 18. This is a French edition of the Greek diplomatic documents which at that time were published as a Livre Blanc. Hereafter they will be cited as Livre Blanc. 9 10 Ibid., Nos. 17, 18, 33. Ibid., No. 90, Annex C. 8

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admissible. In view of her economic and financial inability, the war indemnity was considered crushing. This, however, did not disturb the European diplomats, accustomed by now to oriental exaggeration. Turkey, as Lavisse remarked, "faisait de la politique de bazar": 11 for bargaining purposes she demanded a high stake, knowing that the inevitable reductions would still leave a sizable sum. Thoroughly alarmed, the Greek Government reminded the Powers "that while the tendency of the day to exact money payments to meet the expenses of war between nations is becoming more general, it must not be forgotten that this tendency was founded . . . on the principle of compensation for the destruction of private property." If "the principle of indemnity for reparation was accepted as a guide," Skouloudes argued, "then the victors could not demand reparations on the ground that they were the invaders and masters of Thessaly" —a large section of which they had reduced to shambles. He viewed the indemnity demand as a punitive measure—a camouflaged exaction of tribute imposed by the strong on the weak. Appraising its financial repercussion on the economy of the country, he warned that the assumption of such an extraordinary burden would serve neither the interests of Greece nor those of her creditors. 12 The most that Greece could provide under the circumstances was the sum of 1,500,000 dr. 13 —a reserve fund that had been set aside for the satisfaction of the bondholders' claims. The Conference of Ambassadors that convened at Top Hane (June 3, 1897) to discuss the Preliminaries of Peace found the question of indemnity bristling with difficulties. Was Turkey to be permitted to exact a heavy indemnity tribute or was the amount to be fixed in accordance with Greece's capacity to pay? 14 Was Turkey to be allowed to occupy Thessaly as a pledge for the payment of the war indemnity or was she to evacuate it upon the signing of the preliminaries, and let her claims rest on a treaty agreement? The Austro-German group clamored for an indemnity of £.Γ.8,000,000, so as to enable Turkey, then in financial straits, to make payments to German armament firms for war materiel provided on credit. For support of his claims, the Sultan appealed to the Kaiser, who advised him not to be "un11

"La Paix d'Orient," Revue de Paris, I, 868. Great Britain, F.O., Turkey, No. 2, 1898. Correspondence Respecting tions for the Conclusion of Peace between Greece and Turkey, No. 65. 14 « Livre Blanc, No. SS. Ibid., No. 95. 12

the

Negotia-

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CONTROL

15

reasonable." The Germans, though anxious to assist their Turkish protege, urged moderation; they had to safeguard the interests of their own nationals who held Greek bonds. Financial circles, in particular, dreaded the economic effects of heavy additional burdens on Greece. A strained Greek financial structure offered but little promise for the satisfaction of German debt claims in an eventual settlement. The German Foreign Office was at all times ready to protect these interests. They were represented by a small but clamorous and influential group of middle-class investors unaccustomed to losses.16 Because of their number, voices had been raised in the Reichstag for their protection. 17 Their bondholders' committees by parading their grievances in their own publications and in the public press, kept public opinion in a state of constant ferment, which the imperial government could not help but heed. The difficult problem of fixing the indemnity figure was referred to a committee of financial experts, under the chairmanship of Major E. Law, a person familiar with the structure and capacity of Greek finances.18 Law was from the very outset in sympathy with Greece's misfortune and tried to reduce the war tribute. In his report he recommended an indemnity payment of 4,000,000 Turkish pounds— a sum closely conforming to Greece's capacity to pay, and approximately equal to the expenses incurred by Turkey in the conduct of war. This was considered a fair estimate and eventually was approved by the other Powers. DIPLOMACY

RIVETS T H E

SHACKLES

Upon fixing the indemnity, the Powers asked Greece how she proposed to effect payment. It was known in advance that the Greek treasury was not in a position to make such a heavy transfer of funds unaided. The foreign money markets, because of Greece's default and her continued wrangling with her creditors, were unwilling to extend new credits.19 They had come to a tentative agreement to withhold all assistance until she acquiesced in the adoption of some 15

Die Grosse Politik, Vol. XII, Nos. 3238 and 3244. See Discussion in the Greek Chamber of Deputies, Session of Sept. 18, 1897. " Reichstag: Stenographische Berichte, Bd. II, 51 Sitzung am 16 Feb. 1894, S. 1279 B; S. 1282 D. Bd. III, 72 Sitzung am IS Marz 1894, S. 1865 A. 18 N. Polites, "Grece et Turquie," Revue Giner ale de Droit International Public, V (1898), 168. 19 Meyendorff, Correspondence diplomatique de M. de Staal, II, 351. 16

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20

plan to satisfy the long overdue claims of the old creditors. They held the view that these claims had a priority on Greek revenues, and that any scheme to be worked out for raising the indemnity charge should be carried out without prejudice to the bondholders' interests. They hinted that they were ready to come to the rescue of their old customer if she would consent to an imposition of financial control. Their attitude was: Consent and we shall assist you. These views were also espoused by the French and German governments, which had openly talked of the desirability of imposing financial control even before the outbreak of hostilities. This became very evident at the first sessions of the conference of ambassadors, which convened at Constantinople to discuss the preliminaries of peace. When the first draft of the indemnity clause was under consideration, the German ambassador, Baron Saurma, complying with instructions from his government, suggested the insertion into that clause of a stipulation to protect the rights of the old creditors of Greece,21 by the establishment in Athens of "a veritable European Control." 22 Confronted with this peremptory demand the other ambassadors, except the Austrian, argued that the initiation of such a measure could not be considered in a conference expressedly charged to negotiate and bring about the reestablishment of peace.23 Their contention was that the dispute between Greece and her creditors should be adjusted by private negotiation. In spite of this official recognition of the private nature of the dispute, the conference was prevailed upon to formulate measures in the interests of the bondholders. The French ambassador, Cambon, suggested as a measure of compromise that the recommendations of Baron Saurma should be embodied in a separate "Protocole Annexe" to be signed by Greece and the Powers and appended to the Preliminaries of Peace. This plan 20

Livre Blanc, No. 26. The draft which included Saurma's recommendations read as follows: A war indemnity of l.T. 4,000,000 will be paid by Greece to Turkey. Indemnities of every kind claimed on account of losses arising out of the war are to be included in this sum. The good offices of the powers will be exerted with a view to bringing about an arrangement calculated to facilitate the rapid payment of the indemnity, while taking into account the rights of the prior creditors of Greece. Great Britain: F.O., Turkey No. 2, 1898, No. 166. 22 France: Ministere des Affaires fitrangeres, Affaires d'Orient, Nigociations pour la paix; Traiti greco-turque, mars-dec. 1897, No. 49, hereafter will be cited as Livre Jaune. 23 Great Britain: F.O., Turkey, No. 2, 1898, No. 166. 21

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was discussed by Hanotaux and Goluchowski (who was at that time visiting Paris). The Austro-Hungarian foreign minister undertook to recommend it to the German Government, while Hanotaux was to urge its adoption on Russia, in order to overcome the objections of the Russian ambassador, Nelidov. This intercession, however, failed to shake Germany from her course. Baron Saurma strenuously opposed the suggestion of a separate protocol, and threatened to withdraw if his recommendations for incorporating the financial clauses in the treaty were not heeded. In a subsequent meeting he reaffirmed his original attitude and submitted a more explicit draft, which stated that all indemnity payments must be made with the consent of the Powers and in "such a way as not to be prejudicial to the acquired rights of the bondholders." 24 The French, who up to this time had seemed to be playing the role of conciliators, began to incline toward the German suggestion. The French prime minister Hanotaux, professing disinterestedness, told the Greek Government that an immediate resumption of pourparlers for reaching a satisfactory debt agreement would have a favorable reaction in the peace negotiations.25 He intimated that, as a gesture of good faith toward her creditors, Greece should submit without delay to the Powers: 1) an exact estimate of her resources; 2) an accurate account of her administrative expenses; 3) a project by which she intended to satisfy overdue claims; and 4) a statement indicating the specific pledges to be assigned for the services of the loan to be contracted for the discharge of the Turkish indemnity. Replying to this request, the Greek Government maintained that the time was not opportune for the resumption of negotiations. It gave its assurance, however, that upon the reestablishment of peace, it would take the initiative for a renewal of pourparlers. To forestall a possible imposition of European control it submitted a project for reorganizing the Monopoly Society to give the creditors a preponderant voice and influence in the Society's administration. 26 This offer did not satisfy the creditors. Confident of the support of their governments, they demanded the assignment of specific revenues and the installation of a foreign control to supervise their administration and collection. It had become evident that with the exception of Great Britain, all 24

Livre Jaime, No. 52.

25

Livre Blanc, No. 113.

26

Livre Jaune, No. 63.

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the Powers were in favor of incorporating the German proposal into the preliminaries. Russia was following the advice of France, and Austria was executing the orders of Germany. Italy, having no interests involved and desiring to appear important in an international conference, accorded with the opinion of the fnajority. Only Lord Salisbury raised objections. He was aware, however, "that Greek credit in Europe was so bad and the capital markets so unwilling to extend new credits," that even if Greece "did surrender an adequate revenue to an international control she could not raise the necessary funds." As an alternative, he recommended the flotation of an international loan under the joint guarantee of the three protecting Powers, England, France, and Russia. 27 Upon submitting this plan he invited Greece to state what revenues she was prepared to hypothecate for the service of the proposed European Loan and to what extent she was willing to acquiesce to a foreign control.28 Hanotaux, then in Petrograd, discussed the Salisbury proposals with Count Mouraviev. Both refused to make any commitments before the Greek reply was received. Moreover, they interpreted the English suggestions as a move to alleviate the financial distress of Greece, only, with no concern for the vital interests of the foreign creditors. The German Government, without mincing words, declared that since the necessity for instituting some financial supervision was admitted by almost all, it was not necessary to elicit the consent of Greece, or ask her opinion "as to the manner in which she was prepared to organize the international control." It was no longer "a question of entering into a discussion with Greece as to her acceptance or not of the control, but only to arrange . . . the form in which it should be carried out (en regier les modalites)." 29 Von Bülow compared all inquiries addressed to Greece as "un coup d'epee dans l'eau" destined, if persisted in, to aggravate the situation and bring about a rift in the ranks of the Concert. 30 This view of the German Government was communicated to Count Hatzfeld, German Ambassador to London, with instructions to bring it to the attention of the Foreign Office. In the interview that followed, Lord Salisbury tried to avoid all discussion about the matter 27 Great Britain: F.O., Turkey, No. 2, 1898, Nos. 225 and 271. See also Livre Jaune, Nos. 78 and 80. 28 Great Britain: F.O., Turkey, No. 2, No. 246. Also Livre Jaune, No. 76. 29 3a Great Britain: F.O., Turkey, No. 2, No. 280. Ibid., No. 27S.

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of protecting the foreign creditors by a treaty agreement. He was willing to recognize their claims "so far as they were justified by the circumstances of the time" but he did not admit "that the duty of seeing them righted partook in any degree of an international control." Salisbury further argued that the provisions of Article I I of the preliminaries of peace, which made the evacuation of Thessaly conditional on Greece's performance of that which she could not perform was "a retrocession in disguise." 31 Such an agreement England would never sanction. Public opinion in England, he informed Hatzfeld, would not approve the imposition of severe measures, neither would it condone the resort to coercion in order to wring consent from a helpless victim. This firm and uncompromising stand of Great Britain did not cause any deviation in the course of German policy. Count Hatzfeld, cognizant of the concurrence of the other Powers with the German views notified Lord Salisbury that the insistence of Great Britain on such a line of action would not deter the other members of the Concert from enforcing their views.32 They were even ready to go so far as to sign the preliminaries without British participation. This bombastic threat, however, did not accomplish its purpose. Salisbury retorted by giving notice that the preliminaries so signed would be considered as not binding and the coercive provisions would be interpreted as contrary to the stipulations of the Treaty of 1832, to which England had affixed her signature as protector of a free and independent state. The British Foreign Secretary was aware, however, that the rejection of the German proposal would perpetuate a situation detrimental to the interest of Greece. He knew that the protege of Germany, Turkey, was holding the trump card, which was Thessaly. Only a prompt payment of the indemnity could bring about an immediate evacuation and the elimination of the proposed economic clauses from the treaty. Since Greece could not provide the necessary funds, Britain began to yield and reluctantly to admit the necessity for control. To a large extent, the opposition of the British Government was maintained and paraded in order to appease British public opinion— openly pro-Greek and decidedly anti-German. Sir Frank Lascelles, British ambassador to Berlin, had told Von Bülow confidentially that Britain would consent to a control as soon as the wave of pro-Greek 31

Thessaly was ceded to Greece in 1881.

32

Die Grosse Politik, Vol. XII, No. 3249.

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sentiment subsided. The Kaiser, who had taken an active part in these diplomatic skirmishes, considered the British pretext a very poor excuse. "Always the same old story," he commented. "We also have our public opinion and that of our creditors, to whom we are responsible." 33 As Germany persisted and Britain wavered, Greece began to show signs of retreat. From the financial mission sent abroad to find indemnity funds, she learned that European financial circles were closely collaborating with their respective foreign offices.34 Not "one sou" could be raised in any continental money market without their consent. Only an unconditional conformity with the creditors' wishes and a willingness to submit to a financial surveillance could rescue Greece from her predicament. In such an impasse, the Greek Government notified the British Foreign Office that it would agree to the establishment of international financial control, and would assign to it sufficient revenue for the satisfaction of the claims of the old and prospective creditors. Salisbury, now that the initiative came from Greece, had no cause to dissent. To expedite settlement, he instructed Sir Phillip Currie, British representative at the Conference, to suggest the adoption of recommendations to establish at Athens an International Financial Commission of Control consisting of six foreign diplomatic delegates representing respectively the six mediating powers.35 To validate such an arrangement the Greek Government was bound to obtain the passage through the Chamber of a law recognizing the establishment of an international financial commission and assigning to it adequate sources of revenue for the service of the Indemnity Loan to be negotiated, and of the other external debts the settlement of which was pending. When Greece had complied with all the legal arrangements, the Turkish forces would evacuate the province of Thessaly within a month. These proposals constituted the basis upon which the Conference proceeded to draft the financial clauses that were to be incorporated into the Preliminaries of Peace. Their final wording, as it appeared in Article I I of that act, read as follows: Greece shall p a y T u r k e y a war indemnity of £.T. 4,000,000.

The necessary arrangement for facilitating the speedy payment of the indemnity shall be made with the assent of the Powers in such a manner as 33 34

Die Grosse Politik, Vol. XII, No. 3250, Kaiser's marginal comments. 85 Livre Blanc, No. 187. Great Britain: F.O., Turkey, No. 2, No. 289.

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not to injure the rights acquired by the creditors, who hold bonds of the public debt of Greece. For this purpose an International Financial Commission shall be instituted in Athens composed of the representatives of the mediating powers, one member being appointed by each Power. The Hellenic Government shall pass a law, which shall previously be accepted by the Powers regulating the working of the Commission, and according to which the collection and employment of revenues sufficient for the service of the war indemnity loan and the other national debts shall be placed under the absolute control of the Commission.36

The signing of the Preliminaries of Peace on September 8, 1897, settled a vexing debt problem that private negotiations and foreign office interpositions had failed to solve. An unexpected event—war— had afforded the opportunity to force a financial arrangement the provisions of which surpassed the expectations even of those vitally concerned. A new principle was introduced into international practice in the settlement of foreign debts. The customary channels of private negotiation had been found inadequate. The new doctrine of redress by concerted diplomatic intervention gave to students of international law an occasion to discuss the nature of its legality and the wisdom of its application in future settlements of foreign debts in default. As yet it has not received a fitting appellation, as had the Calvo and Drago doctrines; it would be indeed appropriate to append to it the name of its sponsor, Baron Saurma, or better yet, to call it the Doctrine of Concerted Compulsion. The impending imposition of control caused consternation among the Greek people. The Greek press was full of bitter denunciations and caustic criticism and branded the new arrangement as a "great deception." The normal and habitual thunderings of the political leaders went on uninterruptedly, and the more thunderingly because the prospects were so baffling and the exaction so crushing. In a debate in the Greek Chamber, G. Philaretos declared that "the imposition of that disgraceful measure automatically suspended the independence of Greece, to the preservation of which the Powers had subscribed." He called on history to pass judgment on the merits of that "monstrous device" and on the motives of its framers, confident that its final verdict would stigmatize it "as an act of grave injustice." 37 Even more bitter and acrimonious were the remarks of the 36 37

Great Britain: F.O., Turkey, No. 2, Nos. 297 and 345. Ephemeris ton Syzeteseon tes Voules, Sessions of Nov. 8 and Dec. 8, 1897.

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finance minister, E. Streit. On introducing the Preliminaries of Peace and the Law of Control for confirmation to the Chamber, he flayed the Concert for disregarding the welfare of weak nations. He asked the silent representatives to approve the insertion into the minutes of the debates of the Chamber the declaration that "the Greek Chamber of Deputies casts its vote without freely expressing its views, and that it submits to the confirmation of measures under duress and coercion . . . The vote that the Chamber casts," he said "is a vote of pure formality, since no discussion can alter the validity of treaty agreements which had already received the approval and sanction of the Concert of Europe." In concluding, he appealed to the Greek people to shoulder their burdens and make the necessary sacrifices in order that they might soon dispense with the beneficent services of alien overseers.38 The war and its aftermath was one of the most tragic experiences that ever befell a small nation. The European hectoring was bitterly resented and the institution of the Control was viewed as an unwarranted imposition sponsored by a foreign financial coterie which placed the defense and protection of its interests above the interests and welfare of a people who could not, because of circumstance, live up to their promise. This disappointment tended to stimulate a stoic courage, a determination to see and take things as they really were. It taught the Greek people, once again, to place little trust in the promises and sincerity of their great protectors, and to rely more on their own efforts. In seeking to readjust themselves to the new conditions they fell back upon the resolve to make the best of a bad deal which a combination of foreign interests and foreign diplomacy had forced upon them. INDEMNITY

LOAN

OF

1898

After the peace preliminaries had been signed and the Law of Control had passed through the Greek Chamber, the Powers focused their attention on the problem of raising a foreign loan. In view of the fact that Greek public credit was not in high esteem abroad, a European collective guarantee seemed the only incentive strong enough to prompt the capital markets to advance new funds. Germany and her satellite Austria were reluctant to lend their aid. They 38

Ibid., Sessions of Feb. 19, 20, 23, 1898.

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knew that England, anxious to speed up the evacuation of Thessaly, would undertake the conduct of negotiations and devising of methods. The idea of a European guarantee had been broached during the peace negotiations by Lord Salisbury, but was strenuously opposed by the other members of the Concert. With the establishment of the Control, however, the idea was revived, but simply as a formality. The real guarantee was to be found in the substantial assignment of revenues for loan servicing and in the safeguards provided by the Control. The initiative for furnishing a European guarantee came from Russia. On January 22, 1898, the Russian Ambassador to Paris, Baron Mohrenheim, complying with instructions from his government, suggested a plan for a tripartite joint guarantee to the other two protectors of Greece—England and France. 39 The other Powers were also asked to participate, but they were not anxious to assume financial responsibilities. The interest of Germany and Austria, in particular, centered principally in the thorough establishment and functioning of the Control and in the assignment of definite revenue pledges.40 All other matters were of no concern to them. The Russian proposal was accepted in principle by France and England, subject to discussion and approval by their respective legislative bodies.41 In the French Chamber it was accepted without much debate. 42 No disposition to hurry the measure through was shown in the House of Commons. During the discussion, the past conduct of foreign policy of the government was attacked on the grounds that it was antagonistic to Turkey and contrary to British vital interests. The opinion of those opposing the extension of guarantee was that the funds thus furnished by a pledge of the British exchequer would be diverted toward the satisfaction of German claims and the wiping out of the accumulated deficits of a bankrupt state. 43 Lord Curzon and Sir Charles Dilke combatted these allegations and forced the adoption of the measure which received royal assent on April 1, 1898.44 39 France: Ministere des Affaires fitrangeres, Documents Diplomatiques, Emprunt de l'indemnite hellenique, Paris, 1898, Nos. 4, 5, 6. 40 41 Ibid., Nos. 45 and 49. Ibid., No. 34. 42 Dibats Parlementaires, 1898, Session of March 31, pp. 1490 ff. Promulgation of decree in Journal Officiel of June 12, 1898. 43 Hansard, 2d Series, Vol. 55. Sessions of March 28, 29, 31, 1898. 44 Ibid., Vol. 55, p. 1617.

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The official consent to a guarantee by the three Powers met with the desired response from the European financial circles, who were now eager to accommodate their bankrupt customer. Accordingly, the three sponsors authorized their representatives to the Commission of Control to undertake, in collaboration with their respective foreign offices, the conduct of the negotiations. Early in 1898, Law, Dubois de l'Estang, and Rafialovich met in Paris and approached the banking institutions which were to participate in the underwriting of the loan. After long deliberations,45 it was agreed that the new loan should amount to £6,800,000 or 170,000,000 frs.; the interest rate, because of the given joint European guarantee and the assignment of specific pledges, was not to exceed 2.75 percent. In a convention signed by the three guaranteeing Powers and Greece in Paris on March 29, 1898 4C (ratified in Paris on May 18, 1898), it was agreed that only 152,000,000 frs. were to be made available immediately to the borrower, and the balance was to be advanced according to the needs of the state, subject to the approval of the Commission of Control. From the available sum, 93,936,420 frs. was to be paid to Turkey for the agreed indemnity, and the balance was to be used exclusively for the liquidation of current state obligations and the conversion of the floating debt. 47 Interest and amortization services were secured by a fixed annuity at 3.60 percent on the nominal capital. These service charges were payable in gold from revenues ceded to the Commission of Control for that purpose. Both principal and interest "were to be exempt from all imposts, dues or charges to the profit of the Hellenic Government." 48 The loan was simultaneously floated in the principal European financial centers on the 10th of May, 18 9 8.49 The participating banks were about thirty in number. They pounced upon it with great avid45 France: Ministere des Affaires fitrangeres, Documents Diplomatiques, Emprunt de l'indemnite hellenique, Nos. 19 and 24. 46 Great Britain: Treaty Series, No. 9, 1898, Convention between the United Kingdom, France, Greece and Russia to facilitate the conclusion of a loan by the Greek Government. 47 Valaorites, op. cit., p. 190. 48 Article X I I of the Convention and X V of the Loan Contract. 49 The loan contract embodying in the main the stipulations of the Convention of March 29, 1898, was signed in London on May 4, 1898. The Greek Government was represented by its Charge d'Affaires in London, Metaxas, and the banking interests by Baron Alphonse Rothschild, Eugene Gruin, president of the Banque de Paris et des Pays-Bas, Hugh Smith, of the Bank of England, and A. Rafialovich, representative of the Russian banking group.

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ity, eager to obtain a large share. Because of the anticipated response, the rate of interest was lowered from 2.75 percent to 2.50 percent. The Bank of France allocated its share among twenty banking institutions, the biggest participants among which were the Rothschild Bank, La Banque de Paris et des Pays-Bas, Le Comptoir National d'Escompte, La Banque Internationale de Paris, and the Credit Lyonnais. Russia's allotment was distributed among the Russian State Bank, the Russo-Chinese Bank, the International Bank of Commerce, the Discount Bank and the Bank of Commerce of VolgaKama. 50 The English share was held principally by the Bank of England. The afforded safeguards, the tax exemption, the payment of interest and amortization charges in gold made this foreign obligation "a privileged investment." 51 It was issued above par (100.50) and at a low rate of interest (2.50 percent)—indicating the confidence placed by foreign banking circles on the new financial arrangement. The low yield with which foreign capital was now satisfied also revealed that the money markets were again becoming glutted with surplus capital. ELABORATION OF A PLAN OF CONTROL

On October 27, 1897, that is, six weeks after the signing of the Greco-Turkish Preliminaries of Peace, representatives of the Great Powers were sent to Athens to draft a system of financial control, in accordance with the provisions of Article II of that international act. In the group of the assembled delegates were some prominent figures, known for their versatility in dealing with all the intricate phases of international high finance. England was represented by Major Edward Law, commercial and financial secretary of the British legation at Athens, who was very familiar with Greek finances; France by E. Dubois de l'Estang, chief inspector in the French ministry of finance; Germany by Charles Testa, chief of the German embassy at Constantinople, and by Professor W. Kaufmann, an authority on financial controls and an expert on Egyptian finance; Italy by Luigi Bodio, director general of the statistical service; Russia by 50 France: Ministere des Affaires fitrangeres, Documents Diplomatiques, Emprunt de l'indemnite hellenique, No. 93, Annexe 1. 51 Commenting on the privileged position of the Greek loan made possible through the guarantee arrangement, a member of the English Parliament speaking before the House wished that similar terms could be offered to borrowers within the Empire. (Session of March 28, 1898.)

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A. Smirnow, first secretary of the Russian legation at Athens; and Austria-Hungary by A. Suzzara, aulic counsellor at the imperial ministry of foreign affairs. The task of the assembled delegates was both delicate and difficult. Delicate, for it required a great amount of tact and skill to bring about a reconciliation between a sensitive people and an unyielding set of bondholders, and difficult because it demanded adroit maneuvering to persuade the hesitant money circles of the Continent to lend. All were in perfect accord on the urgency of imposing the control but differed on the nature of its extent and structure. The German delegation, now that the vanquished defaulter had been rendered powerless, was displaying an air of dictatorial arrogance.52 They had worked out in advance a plan for a tight and thorough control. The English, approaching the whole matter in an attitude of compromise, argued that "no good could result" from the adoption of a policy of hectoring. Their position was that the contemplated institution of control should "reconcile the interests of the creditors with those of Greece," and avoid harsh measures that would engender bitterness.63 A similarly moderate and conciliatory course was recommended by the Greek minister of finance, E. Streit. Aware of Greek aversion to foreign interference in domestic affairs, he warned the conferees that stringent measures would ultimately prove detrimental to the interests" they aimed to protect. His warning went unheeded. The European representatives who drafted the plan of the control, although effusive in their professions of good intent, were in reality bent upon safeguarding their own interests first. The welfare of those who were destined to bear the burden was of secondary importance. In this they were in perfect accord with their respective governments, which, half a year before, had taken similar measures in behalf of Greece. During all the long preliminary discussions, the economic and financial rehabilitation of the country were only incidentally considered, and this in a manner to make the creditors' position unassailable. 54 Instead of considering the debt problem in its broad aspects and of adopting measures to eradicate the endemic disease with which Greek finances were perennially afflicted, they introduced half meas52 The sessions which lasted for nearly three months were, as Law records, "very stormy." Morison and Hutchinson, Sir Edward Fitz-Gerald Law, p. 20S. «Ibid., p. 208. «Andreades, op. cit., p. 182.

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ures of expediency, inadequate to remedy a really difficult and disturbing fiscal situation. The principal problems with which they seemed to be vitally concerned were first the ascertainment and accurate appraisal of the yield of the sources of revenue available to meet the claims of the new and old creditors, and secondly the organization of a system of control that would secure the uninterrupted and punctual discharge of these foreign debt obligations. Before launching any demands for assignment of sources of revenue, the Commission made an approximate evaluation of the actual and potential income and outgo of the Greek state. In their appraisal of revenues they based their calculations on the returns of the Greek official accounts for the years 1892-1896. The total state revenue for that five-year period was evaluated at 458,225,671 dr., or an annual average of 91,651,134 dr. This annual yield, the commission advised, could be substantially increased by proper collection of the taxes and elimination of evasions. Additional revenue could also be obtained by a slight increase of the tax on articles of primary need, without appreciably diminishing the volume of consumption. By adopting these measures, the annual treasury receipts could approach the 94 milliondrachmai mark. 55 More difficult was the task of the Commission in making forecasts on revenue yields for the postwar period. The destruction of the rich province of Thessaly by war and military occupation rendered appraisal of future receipts really difficult. The immediate loss of annual revenue was estimated at approximately 8,400,000 dr. It was thought that a five-year period would be necessary to restore normal economic equilibrium. In trying to determine future state outlays the commission took as a basis for evaluation the average administrative expenditures of the financial period 1892-1896. This annual average was approximately 62,000,000 dr. Taking that as an index, the following rigid schedules of administrative expenditures were drafted for the first six years of the postwar period: 65,501,326 dr. for 1898; 64,051,326 dr. for 1899; 63,851,326 dr. for 1900; 64,151,326 dr. for 1901; 64,451,326 dr. for 1902; 64,751,326 dr. for 1903.50 According to this schedule, state ex55 Great Britain: F.O., Greece, No. 3, 1898. Correspondence Relating to the Finances of Greece; Report of the Financial Commission, Inc. 3 in No. 3, Part I. 58 Ibid., Schedules I to I X , pp. 45-48.

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105

penditures were for the six-year postwar period definitely pegged at an almost fixed sum. All outlays were confined to urgent and indispensable administrative purposes. No appropriation whatsoever was made for the rehabilitation of a war-battered and disorganized economy. In the opinion of the Commission, the extension of any public functions, and the allocation of public funds for public improvements likely to increase budgetary expenses appreciably, were to be postponed until the finances of the country had attained a state of equilibrium. 57 Greek administration, it was pointed out, suffered not so much from inadequate appropriations as from an improper allocation of funds among the different services. This glaring disproportion became evident when comparison was made between military and other ordinary and normal expenditures. In this respect Greece was following the example set by her great European preceptors. At about 1875 the total army and navy expenditures averaged about 9,000,000 dr. annually. At that time the appropriations were divided in approximately fair proportions among the different administrative branches. Toward the close of the century, however, ordinary war expenditures, rose very rapidly. The total expended for these services, exclusive of pension charges, averaged about 22,000,000 dr. a year, that is, the war ministries consumed practically one fourth of the entire budgetary revenue.58 To lighten the strain, recommendations were made for reductions in military outlays, "to a strictly indispensable minimum." The new postwar regime, as advocated by the commission, was to be one of retrenchment and strict economy. The state was to spend carefully, forgo all improvements and dispense with all grandiose schemes of national aggrandizement through force, in order to discharge with unfailing regularity the burden of the high contractual obligations it had assumed.59 FINAL

DEBT

SETTLEMENT

Article I I of the Preliminaries of Peace makes no distinction among the different titles of the public debt. It simply states that the contemplated control should have at its disposal ample revenue to suffice for the service of the war-indemnity loan and for the other national 57

Ibid., Part II, p. 57. Raffalovich, Le Marchi financier en 1897-1898; statistics on p. 614. 59 Great Britain: F.O., Greece, No. 3, 1898. Further Correspondence Respecting the Finances of Greece. Schedules I—III, p. S. 68

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CONTROL

debts. From what actually occurred later, it is clear that the signatories in inserting this clause had especially in view the service of the external debt only. The specific debts with which they were primarily concerned were: the Guaranteed Loan of 1832, the foreign gold debt contracted abroad during the years 1880-1893 and the proposed indemnity and economic loan of 1898 that was to be sponsored under the collective guarantee of the Powers. 60 The servicing of the Guaranteed Loan of 1832 did not present any difficulties for arrangements had been previously made. 6 1 Not so easy, however, was the task of evolving a servicing arrangement for the external debt contracted during the decade of 1880-1893. While charged by the mediating Powers to negotiate with the Greek Government on a general arrangement, the delegates had received no authority from the creditors, either to formulate demands or to make sacrifices in their name. Under these circumstances, they decided to take as a working basis for an eventual arrangement the bondholders' Paris proposals of 1896. Before making any apportionment of revenues for the satisfaction of the creditors' claims, the commission made an accurate calculation of the outstanding external debt. The capital sum of unpaid obligations contracted abroad amounted then to 551,716,500 frs.®2 For purposes of servicing, it was divided into three categories. The first comprised the Monopoly Loan of 1887 and the Funding Loan of 1883. These were given preferred consideration, because of the special pledges assigned to their service at the time they were contracted. In the second category were the loans of 1881, 1884 and 1890, all 5 percents, and in the third, the 4 percent (Rentes) of 1889. T h e initial minimum rates allotted to these three different groups were as follows: Group I, 43 percent of the original interest or 1.72 percent; Group I I , 32 percent or 1.60 percent; Group I I I , 32 percent or 1.28 percent. T h e sum assigned annually to the sinking fund was equal to 2 percent of the original interest on the bonds actually in circulation, and was distributed between the different groups in the same proportion as the interest rates. 6 3 All service charges were remittable in gold. T h e Law of December 10, 1893, which had reduced interest rates on the debt and provisionally modified the gold60 62 e3

81 Tsouderos, op. cit., pp. 16-19. Article VI of the Treaty of March 17, 1864. Great Britain: F.O., Greece, No. 1, 1898. Greek Law of Control, p. 21. Ibid., Arts. 10 and 11. Also in Dyovouniotes, op. cit., p. 13.

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clause payment was invalidated and resumption of gold payments was to commence on April 1, 1898. To protect all foreign bondholders against any reduction of the rate of interest through taxation, it was specifically stated in the Law of Control that "the Hellenic government may not impose any general or special tax on the bonds, interest or repayment of debts . . . nor on the sums obtained from the revenues assigned to the service of the debt." (Law of Control, Art. 27.) The debt arrangement as it was finally worked out did not entail any reduction in the rates of interest or the scaling down of outstanding principal. After fixing an initial minimum rate, the commission evolved a scheme for eventually compensating the creditors in full. This was to be achieved gradually through the increased yield of assigned revenues, through the improvement of the exchange value of the drachma and through the availability of larger liberated revenues made possible by the constant retirement of the debt. The revenues selected by the commission for assignment were those that manifested consistently increasing yields and were readily collectible. These were the monopolies, the tobacco dues, and the stamp taxes, with a gross annual yield, respectively, of 12,300,000 dr., 6,600,000 dr., and 10,000,000 dr., and a total yield of 28,900,000 dr. To these were added the custom duties of the port of Piraeus, estimated then at 10,700,000 dr. annually. 64 Whenever the gross proceeds from the first three sources of revenue exceeded the estimated total of 28,900,000 drs., the resulting surplus after a deduction of 18 percent for administrative expenses, was to be divided as follows: 40 percent reverted to the Greek treasury and the remaining 60 percent was devoted to the improvement of the interest and sinking fund service of the external debt. Actually, the commission tended to underestimate the yield of the assigned revenues. They did so with the obvious purpose of increasing the margin of surpluses for distribution. The truth of this assertion is evidenced by the consistent return of huge surpluses in the first few years of the life of the Control. The annual accounts of the commission during the first decade of the Control attest that the distributed surpluses which reached the pockets of the creditors amounted to approximately 28,000,000 drs. This is a sizable sum, particularly if allowance is made for the consistent improvement in 84

Article 11 of the Law of Control.

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CONTROL

the exchange value of the drachma. This improvement is evidenced by comparing the minimum service requirements in drachmai in the years 1898 and 1910. In 1898 nine million francs equaled approximately fifteen million drachmai; eleven years later that wide gap was completely eliminated. Another improvement in the Greek financial situation that tended to increase the bulk of surpluses was the regular retirement of the debt. As the debt decreased, the share of outstanding obligations in the surpluses increased proportionately. In addition to this sum, the Commission held funds made available by the amortization of bonds to gradually increase interest payments on those obligations which remained in circulation. Debt reduction did not imply a corresponding release of the assigned proceeds of revenues. Whatever sources of revenue were pledged, irrespective of yield, remained under the jurisdiction of the commission. The commission's intent was to allow the creditors a greater share of the increased yields of assigned revenues. It set up at the same time a minimum requirement which under all circumstances the debtor had to meet. To forestall a possible decrease of returns below the required minimum through a change in tax rates of the assigned revenues, a clause was inserted in Article 38 of the Law of Control stipulating that such tax rates "could not be modified without the assent of the Commission." This restriction was not applicable to custom duties. To prevent, however, a possible reduction of revenue through tariff revision, the commission laid down that whenever the assigned tariff proceeds were below the estimated valuation, as a result of such a modification, the government was bound to cede sufficient supplementary revenues to make up for the loss. Accordingly, the proceeds from the Customs of Volo, Patras, Laurium and Corfu estimated at 7,200,000 dr. annually were earmarked against such'an eventuality. THE MECHANISM OF THE CONTROL

The most difficult problem facing the assembled delegates was that of determining the nature and limits of the control. What kind of organization or what type of financial surveillance was to be instituted and with what authority was it to be vested to fulfill its mission effectively? Was it to be an independent and autonomous body im-

IMPOSITION OF FINANCIAL CONTROL

109

ported from abroad, or an improvised adaptation of a native financial institution responsible to the commission? The European delegates, cognizant of Greek aversion to foreign intervention in its financial affairs, leaned to the idea of exercising effective supervision through an intermediary home organization directly responsible to the commission. The adoption of a system of this type would naturally obviate an expensive autonomous organization, functioning by the side of the administrative system of a sovereign state. It was feared, and justly so, that establishing an autonomous organization in proximity to a cumbersome and unfriendly bureaucracy would inevitably lead to serious misunderstandings. Such a domestic institution, familiar with administrative matters of a financial nature, had existed in Greece since 1887. This was the old Monopoly Society, whose services were suspended upon the default of 1893. Henceforth, it was to be reorganized and employed as an agent of the commission, under the new name of Societe de Regie des Revenus Affectes su Service de la Dette Hellenique. The Society was incorporated as a joint stock company with an initial capital of 4,000,000 frs. invested in Greek securities payable in gold. One half of this capital was pledged as a guarantee to the Commission of Control, and the other half constituted a similar pledge to the government. Under the new charter and revised statutes the Society was vested with wide powers of an administrative and supervisory character. 63 Administration was entrusted to a council of seven members elected in a general meeting of the shareholders. Their appointment as principal administrators was subject to the approval of the Commission of Control, as the latter body reserved to itself the right of appointment and dismissal of all personnel. The Commission arrogated to itself the right to be present at all meetings of the Council of Administration of the Society and could veto any measure deemed prejudicial to the interests it was entrusted to protect. It could at any time requisition all correspondence and accounts. In matters of supervision over assigned revenues, the members of the Commission or their appointed agents were given the right to visit the different establishments, depots and business offices of the Society and could request, whenever the occasion warranted, the 05

Fai. Diatagma, April 28, 1898, in Dyobouniotes, op. cit., p. S3.

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adoption of measures that would bring about a more effective control of operations. Equally specific were the provisions dealing with the collection and transfer of funds to the financial establishments charged with servicing the debt. All matters connected with remittances abroad were under the particular care of the Commission. To achieve exclusive jurisdiction over the collected proceeds from revenues, it was stipulated that the Society should hand over to the Commission, at least once a week, its entire receipts. The Commission could retain these funds in its own hands or could deposit them, subject to immediate withdrawal, with the National Bank of Greece. All transfers of funds or purchases of drafts were to be made under the direction of the Commission. These transfer operations involved considerable expense and banking routine; the Commission therefore requested the National Bank to handle them, on condition that the fees for so doing should be charged directly to the state and not to be deducted from the proceeds of the assigned revenues. Upon the insistence of the Greek Government, the transfer fees were assumed in part by the beneficiaries. The Commission consented to compensate the bank for its services, by allocating a part of the extra funds that had been saved from the accrued interest on moneys awaiting transfer. This new arrangement, with its many restrictions on the functions and authority on the Society, made the Commission the veritable organ of foreign control. Though its powers over administrative and supervisory matters were exercised indirectly through an appointed agent, its authority over the conduct of affairs by such an agent was absolute and indisputable. In all vital matters, particularly in the appointment of personnel, the supervision of assigned revenues and the transfer of funds, its jurisdiction was complete and free from state interference. The validity and jurisdiction of such authority was buttressed by legislative enactments approved by the Greek Chamber. 66 These legislative measures did not necessarily render the Commission immune from interference by the state, because at any time they could be suspended or annuled. However, any such attempt at interference or restraint would have amounted to a disregard of treaty obligations, and any such infraction of the collective will of Europe 66 Nomos, "Peri Diethnous Elenhou," Feb. 26, 1898. Vas. Diatagma, "Peri Engriseos tou Tropopoiethentos Katastatikou," April 28, 1898; Vas. Diatagma, "Peri Sematon kai Eidon Monopolion," June 29, 1898.

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would have evoked sharp rebuke and the possible imposition of severe sanctions. Greece was dealing no longer with a discordant group of private creditors, but with a coterie of astute diplomatic representatives eager to defend the interests of their nationals. The framers of the Law of Control, fearing that the Commission in the process of exercising its authority might come into conflict with overzealous governmental agencies, provided for the adjudication of any disputes that might arise. In cases of disagreement over the interpretation or execution of the Law of Control and the supplementary royal decrees issued in conformity with its provisions, the litigants were bound to resort to arbitration. In case a dispute arose over the choice of the third arbitrator, the final selection was left to the absolute discretion of the president of the Swiss Confederation. Arbitral awards in all cases were to be irrevocable and final. The Commission could, in cases other than those mentioned above, be a party to suits before the ordinary Greek courts, both as plaintiff and as defendant, without furnishing bond. Legal seizure or any attachment of funds and securities placed under the Commission's jurisdiction was strictly prohibited. This inviolability of assets was stipulated in order to free them from all legal encumberments, which might jeopardize the regular servising of the debt. The rights and immunities of the delegates to the Commission were similar to those enjoyed by the accredited diplomatic representatives of foreign Powers in Greece. Each Power was represented by one diplomatic delegate. Advance notice of his appointment was to be sent to the Greek Government in accordance with diplomatic usage. It was proposed that direct contact between governmental authorities and the Commission should be maintained through a Royal Commissioner, whose duty was to transmit to the proper state functionaries· "information, proposals, wishes and demands" formulated by the Commission 67 and the replies thereto. Originally, the appointment of such an official—vested with no authority—was to cushion the shock and the severity of control, and to give the impression that the state was participating in the deliberations of the Control. The Royal Commissioner was to be the "official Mercury," but his services were dispensed with as unnecessary. Immediate and direct contact with the 67 Tai. Diatagma, "Peri Kathekonton tou para te Diethne Oikonomike Epitropi Vasilikou Epitropou tes Kyvemeseos." June 29, 1898.

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proper governmental agencies was considered the more effective practice. CONCLUSION

The financial control established in Greece is thorough and allembracing. With the possible exception of the Egyptian Caisse de la Dette it is the only institution of its kind that is supervised and managed by foreign diplomatic representatives. 68 Unlike other controls it possesses an international character and complexion, for it came into existence through the provision of Article II of the Greco-Turkish Preliminaries of Peace, the stipulations of which were declared executory by the final article of that Act. The Greek Law of Control of February 26, 1898, sanctioned the future conditions of the debt service and recognized the official and diplomatic character of the International Financial Commission. This official sanction endowed the Control with vast and comprehensive powers, which could not be abrogated without its own consent. Viewed from an economic standpoint, the arrangements were harsh, one-sided, and exacting. This becomes evident when a comparison is made of the Greek debt settlement with similar arrangements reached by other nations in identical circumstances. In the case of Turkey, for example, the original indebtedness was appreciably reduced and the maximum rate of interest pegged at 4 percent. At the end of the nineteenth century, Turkey actually and potentially was a decidedly wealthier country. With untouched natural resources and a vast domain extending from the shores of the Adriatic to the fringes of the Persian Gulf, Turkey could not be compared with a vanquished Greece, small in territory and destitute of resources. If ever any country, by all the canons of justice, merited a scaling down of debt burdens, Greece was one. The provisions of the Law of Control relative to servicing and retirement of the debt required Greece to pay through the constantly increasing yield of surpluses—a rate of interest that was, with the progress of time, approaching the original contract rate. "We alone in the world," remarked an eminent Greek authority on Greek finance, 68 In Egypt the designation of foreign representative was, theoretically at least, approved by the Khedive.

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"are bound to pay some day the original nominal interest and repurchase the bonds at par." 69 This actually happened in 1919 in spite of the financial dislocation caused by the war, and of the inordinate obligations assumed for the success of a common cause. Service payments would have continued to be made in full had it not been for the economic disruption brought about by the Asia Minor debacle. But even during those hectic days, the interest rates were only one fifth of one percent below the level of the original contract rate. 70 By well-informed authorities it was affirmed that "holders of Greek bonds fared better than most purchasers of European government bonds." 71 The greatest injustice, however, that was committed against a powerless people was the insistence of the Control on payments in gold. It should be recalled that all Greek loans contracted abroad during the decade of 1880-1890 were payable in gold francs and sterling. Such payments were made throughout the duration of the First World War and the postwar period, at a time when the value of both the franc and the pound had considerably depreciated because of the abandonment of the gold standard. Greece derived no benefit from the fall of foreign exchanges for she had to remit in gold or its equivalent. The foreign capital markets and their official agency in Athens refused Greece the privilege of making payments in monetary units which they, as debtors, were accepting as standard in discharging obligations toward their nationals and other sovereign creditors. What was owed to them had to be paid in gold, what they owed could be paid in any depreciated currency. Their particular governments could indulge without scruples in such financial malpractice and even resort to repudiation of foreign debts and claims. This was a privilege reserved only for the mighty. Their Greek debtors were advised to display in their financial dealings the appropriate financial rectitude and abide by the stipulations of obligations entered into twenty years before. They were even held accountable for any infractions until the spring of 1941, when an impoverished and fighting Greece was combating the onrush of a brutal common enemy. Along with the re69

Andreades, Mathemata, Part B, p. 343. Andreades, "Les Contröles financiers internationaux," Acadimie national, Recueil des Courses, V (1924), 67. 71 Feis, op. cit., p. 289. 70

de Droit

Inter-

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verberations of exploding cannon shells there echoed the crystalline tinkling of the yellow coins carefully counted and meticulously arrayed in portable steel cases for shipment abroad.72 The assertion is often made that Greek finances benefited by foreign control. The upholders of the doctrine of intervention, in particular, claimed that through it a spendthrift government was brought to a sense of responsibility and was forced to recognize the folly of overreaching available strength and means. They assert that the Control instilled into the body politic a sense of realism, which in due time, matured into political wisdom and financial prudence. Though there is some truth in that contention, it is equally true that foreign intervention bound the burden tightly upon Greece. Its primary mission was to protect entrenched economic interests and only incidentally to inculcate a sense of financial rectitude. The records show that the tuition charges were exceedingly -heavy compared with the services rendered. For thirty consecutive years bonds that were purchased at 40 percent discount were, with unfailing regularity, retired at par and redeemed in gold. Such expensive fiscal enlightenment while guaranteed to impart wisdom and prudence, can hardly be called desirable. The failure of modern Greece to discharge her obligations was not entirely her own fault. All her early defaults arose from still earlier fetters. Even her independence was nominal. Politically Greece was independent, but territorially she was restricted, and economically she was endowed with the requisites for only a checkered career. Under the auspices of her Great Protectors she joined the ranks of sovereign nations in a state of camouflaged bankruptcy. In appraising, therefore, her record as a sovereign borrower certain questions may be fairly asked: Has Greece made the most of her opportunities so as to merit the trust of her protectors and creditors? Were her failures or limited successes conditioned by circumstances independent of her own endeavor? Could Greece have done more for herself and for Europe if she had not been fettered by obligations inordinately disproportionate to her capacity to discharge them? The verdict of history is that Greece in all her international financial dealings was an honest borrower, endeavoring at all times to live 72 The last payment on the debt was made one month before her conquest. This information was given to the writer by the last Greek minister of finance.

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up to her promises. Her periodic defaults were the result of inherent financial impotence rather than acts of dishonesty. The only accusation that may be leveled at her is the failure to gauge accurately her economic capacity in relation to her obligations. But, in assuming financial obligations and in evaluating ability to discharge them, nations do not rationalize like individuals. Under the impact of unforeseen events and urgent public needs, the canons of orthodox finance are readily discarded and a new set of fiscal techniques adopted; the huge burdens so imposed are bequeathed without thought to unborn generations. Today, "incorrigible and spendthrift" but gallant Greece lies prostrate. Like locusts her new masters have devoured the modest material possessions of her frugal people and are subjecting them to death by starvation. But her oppressors can neither break her spirit nor shake her faith. With steadfast confidence in the justice of the cause for which they fight and die, the people of Greece look to their comrades in arms to restore to them their liberty and assist them in mending anew their broken lives. Liberated, they will claim the right to be treated not as pawns to be exploited by scheming protectors, but as a nation which has paid with prolonged agony the price expected of those who prefer to live in a world of decency and honor.

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INDEX Aberdeen, Earl of, views on interference, 26,46; considers Greece pro-Russian, 31; for limited loans to Greece, 35; warns Greece for failing to fulfill obligations, 47 About, E. F. V., opinion on Guaranteed Loan, 41 Agriculture, causes and effects of backwardness, 61-63; peasant indebtedness, 61; main exports, 73 Albert, Prince Consort, opinion about Colettis, 48 Alexander I, attitude toward insurgent Greece, 4 f. Allemand, General L', 23 Ambassadors, Conference of, see Great Powers Andreades, A. M., interpretation of Article X I I (treaty of 1832), 37; estimates of military expenditures, 66; opinion on debt arrangement, 113 Angelopoulos, Α., estimates on disposition of imported capital, 72n Arbitration provisions, 111 Austria, attitude of, on question of indemnity, 91; on imposing financial control, 93, 95; on guaranteeing a loan, 99 Balance of trade, 73-75 Bank of Commerce of Volga-Kama, 102 Bank of Constantinople, participation in underwriting Greek loans, 67, 68, 69, 70 Bank of Egypt, its share of the loan of 1884, 68 Bank of England, its share of the 1898 loan, 101η, 102 Bank of France, its role in allocating the 1898 loan, 102 Banks and bankers, English, 14, 18, 26, 58, 69, 70, 76, 77, 85, 101», 102; French, 7, 17, 40, 58, 67, 68, 69, 70, 85, 101n, 102; German, 70, 85; Greek, 67, 68, 69, 70, 85, 87; Russian, 101», 102; Swiss, 17 Banque de Paris et des Pays-Bas, 68, 101», 102 Banque Internationale de Paris, La, 102 Bavaria, Greek crown offered to Prince of:

Convention between Great Powers and, 35 ff.; misapplied efforts of bureaucracy, 44 Bayard, Leroy, and Co., 23 Benton, Thomas, 24n Berlin, Congress of, Greek demands unsatisfied, 65 Blaquiere, E., mission to Greece, 12; report on Greece, 13 Bleichröder Bank of Berlin, participation in the loan of 1889, 70; designated as member of contemplated Regie, 85 Bodio, Luigi, 102 Borgo, Pozzo di; refuses to sanction advances to Greece, 43 Börsen Courier, 83 Broglie, Duke de, for guaranteeing Loan of 1832, 39 Brunnow, Baron, 45 Budgetary deficits, 72 (tab.); reduction impossible under prevailing conditions, 75 Biilow, Prince von, for imposition of control, 95; instructions to Hatzfeld, 96 Burdett, F., 19 Caisse de la Dette, Egyptian, 112 Cambon, Ambassador, suggests "protocole annexe" in treaty, 93 Canning, George, presence of, at welcome of Greek envoys, 14 Canning, Sir Stratford, on material condition of liberated Greece, 29; imparts information to Leopold, 35 Capital, causes and effects of accumulation, 55 ff.; relative position of Western Powers, 58 ff. Capital markets, new technique in financial direction and strategy, 57; influence and role of British and French compared, 58 Capodistrias, J . Α., attempt to settle debt of Revolution, 25; search for loan in London and Paris, 31; subsidies received from Powers, 32; devotion to interests of Greece, 32; untrue allegation against, 34

132

INDEX

Cetto, Baron de, opinion on financial agreements, 35; request for joint guarantee, 37 Charles X, of France, grant of subsidy to Greece, 32 Colettis, Greek prime minister, French support of, 35; criticized by Palmerston, 46; warning addressed by Aberdeen to, 47; accused by Prince Albert, 48; his passing hailed by the British, 49 Charlotte, Princess, 35 Chauncey, Walcott, supervises construction of ships, 23 Christides, finance minister, attempt at debt settlement, 27 Clarence, Duke of, 35 Clarendon, Lord, instructions to Sir Thomas Wyse, 50 Classes, economic differences, 64 Cochrane, Lord, hired to command Greek navy, 22 Comptoir National d'Escompte, participation in underwriting Greek loans, 67, 68, 69, 85, 102 Concert of Europe, see Great Powers Conference of London, see London Contostavlos, Α., arrives in America to settle naval construction dispute, 24 Control over finances, see entries under Great Powers; International . . . ; Sociiti de Rigie . , . Control, Law of: attacked in Greek Chamber, 99; provisions exempting taxation of foreign securities, 107; provision on question of modifying tax rates, 108; settlement of disputes, 111; date of enactment, 112 Coriallenio, S., loan proposal of, 6 Credit Lyonnais, role in financing foreign borrowers, 58; share in loan of 1898,102 Cretan question, Greco-Turkish war over, 87 ff. Crimean War, Greece favoring Russia, 49; occupation of Piraeus, 50 Currants, import ban by France, 75; price fall of, 76 Currency, resort to forced paper, 27; debts of Great Powers paid in depreciated, 113 Currie, Sir Phillip, submits recommendation for establishment of control, 97 Curzon, Lord, forces passage of bill guaranteeing loan of 1898, 100

settlement of first two loans: her reappearance as a borrower, 55; total obligations contracted during twelve-year period: table showing disposition and application, 71; amounts paid for service of debt, 72, 76; comparative growth of debt and tax burdens, 1869-93, 73 (.tab.); influence of trade balance in evaluating capacity to carry debt, 73-75; suspension of the debt service, 75-81; creditordebtor negotiations, 1894-96, 81-87; terms proposed, 85; no complete study of debt made by creditors, 86; harsh and unfair treatment by Powers, 67, 86, 103, 112; effects of Greco-Turkish war, 87 ff.; Turkish war indemnity tied to settlement of foreign debt, 90, 93; new principle introduced into international practice in settlement of debts, 98; final debt settlement, 105-8, 112 f.; financial privileges and malpractices of the mighty, 113; payments in gold, 113, 114; when last payment made, 114n; see also Loans Delyannis Theodoros, proposal of, for establishing a Public Debt Commission, 84; offer of terms for settlement, 85; part played in Greco-Turkish war, 89 Dilke, Sir Charles, 100 Diplomatic intervention, concerted: new doctrine of redress adopted, 98; see also Great Powers Discount Bank, 102 Drossinos, Chroni, 6 Durham, Lord, influence of, on Leopold, 35 Economist, The, 83 Egypt, supported by France, 8, 17; son of Galloway in service of, 21; Caisse de la Dette, 112 Ellice, Edward, connection of, with flotation and handling of Independence Loans, 19, 21 Emigration, effects, 62 Epiro-Thessalian Bank, 68 Erskine, Lord, influence of, in launching first Greek loan, 14 Estang, E. Dubois de 1', 101, 102 European Concert, see Great Powers Everett, Edward, 24» Exports, 73; and imports, table, 74 Eynard, John, support of Greek cause, 17

Debts, foreign: amount of combined annual foreign-debt service of Greece after

Finance, era of speculation and revolutionary finance, 8-12; bond syndicates,

INDEX 10; causes and effects of capital accumulation, SS ff.; techniques in financial direction and strategy: the investment trust, 57; relative positions of Western Powers as capital market, 58 ff.; supervisory rights given underwriting syndicates, 69 France, banks a n d bankers, 7, 17, 40, 58, 67, 68, 69, 70, 85, 101», 102; reluctance to back insurgent Greece, 7, 8, 17; supp o r t of E g y p t , 8, 17; condition of capital market, 17; attitude t o w a r d independent Greece, 31; advances made by, during Revolution, 32; Leopold's unsuccessful mission to, 34; Convention between Bavaria and the Powers: p a r t in G u a r a n teed L o a n of 1833, 35 ff.; position as banker a n d capital market, 58; evaluation of investments abroad, 59; p r o m o tion a n d underwriting of loans of 1879— 90, 67; currant imports f r o m Greece, 75; effects of cutting off currant imports, 75; see also Great P o w e r s Francis, J o h n , quoted, 9 Frankfurter Zeitung, 79 Frederick William IV of Prussia, King, 48 F u n d i n g L o a n of 1883, 106 Galloway, Alexander, a n d Son, 21 General Credit B a n k of Greece, 70 Gennadios, J o h n , role in settling early debts, 27 Gentz, Friedrich von, opinion on insurgent Greece, 4 George IV of England, 14», 35 George I, of Greece, 53 Germanos, Archbishop, 1 Germany, position of as a money market, 59; n a t u r e of investments, 60; banks a n d bankers, 70, 85; a d a m a n t position d u r ing creditor-debtor negotiations, 82, 91, 93, 95 ff., peace negotiations, 100, 103 Gibbs, Anthony, a n d Sons, 70 Gold, provisions of paying in, 57, 113,114; suspension of currant tax collection in, 78 Goluchowski, A u s t r o - H u n g a r i a n foreign minister, 94 Gordon a n d Brent shipyards, 21 Gottier, A n d r i , 17 Granville, Earl of, instructed to ask France to grant advances to Greece, 43 Great Britain, attitude t o w a r d insurgent Greece, 4, 5 ; era of speculation a n d revolutionary finance, 8 - 1 2 ; causes and

133

effects of boom, 10; negotiations launching Greek loan, 12 ff.; L o a n s of I n d e pendence, 14 ff.; banks a n d bankers, 14, 18, 26, 58, 69, 70, 76, 77, 85, 101η, 102; attitude t o w a r d enforcing debt settlement, 26; considers Greece p r o - R u s s i a n : opposition to new loan, 3 1 ; money a d vanced by, 32; negotiations leading to, a n d p a r t in, Guaranteed Loan, 33 ff.; support of Prince Leopold's candidature, 33; of Otho's, 35; Convention between Bavaria and the Powers, 35 ff.; preeminence as banker a n d capital market, 58; see also Great P o w e r s Great Powers, a t t i t u d e of reactionary E u r o p e toward insurgent Greece, 4 f . ; t o w a r d independent Greece, 31; G u a r anteed L o a n a n d T r e a t y of 1832, 35 ff.; discord over f u r t h e r advances, 41-44; concerted d e m a n d s for settlement, 444 9 ; coercive measures, 49-51; financial inquiry: settlement, 51-54; failure t o u p hold territorial claims of Greece, 6 5 ; action a f t e r suspension of debt service: committees formed, 79 ff.; creditordebtor negotiations, 1894-96, 81-87; harsh and unfair t r e a t m e n t of Greece, 86, 87, 112; attitude t o w a r d Cretan question, 89; intervention, G r e c o - T u r k ish war, 90; handling of armistice conditions a n d w a r indemnity b y C o n ference of Ambassadors, 91-99; international financial control by, 97, 98 f., 102 ff., 108-12; raising of I n d e m n i t y L o a n of 1898, 99-102, 106; conclusions re their control, 112-15; financial privileges a n d malpractices, 113; see also France; Germany; Great Britain; Russia Greece, Revolution of 1821, 1; financial a n d economic difficulties, 1-3, 2 9 f f . ; a t t i t u d e of reactionary E u r o p e t o w a r d , 4 f.; early loan negotiations, continental, 5 - 8 ; English, 8-19; Loans of I n d e p e n d ence ( q . v . ) , 1 4 , 1 8 ; failure to understand meaning of loans, 15; mismanagement in expenditure of proceeds, 16, 19-25; military expenditures, 20, 21 f., 23, 41, 64, 66, 68, 72», 105; deferment a n d settlement of Independence loans, 2528; accepted proposals, 27; Guaranteed L o a n , 26 f. ( q . v . ) , 33-54; GrecoT u r k i s h w a r a n d Cretan question, 87 ff.; reconstruction needs, 3 0 ; efforts t o reestablish credit abroad, 31 ff.; Leopold's

134

INDEX

Greece, Revolution of 1821 (Continued) candidature for crown, 32, 33-35; candidacy of Otho, 35 ff.; Treaty of H a y 7, 1832: its financial provisions, 35-40; defaults the result of inherent financial impotence, 44, 115; Revolution of 1843 against the monarchy, 46; fired by the "Great Idea," 49; policy of national expansion, 49, 60 f., 65, 89; participation in Crimean War, 49, 60; undeclared war against Turkey, 49; forced neutrality, 50; expansion of foreign debt, 55 ff.; reasons for, and results of, negligible material advance, 60-65; reorientation of national policy, 66 f.; foreign loans of 1879-90, 66-87, 106; banks and bankers, 67, 68, 69, 70, 85, 87; balance of trade, with table, 73-75; effects of recurring economic crises, 75; creditor-debtor negotiations, 81-87; intervention of Great Powers in Greco-Turkish conflict: armistice conditions, war indemnity, resulting financial difficulties, 90 ff. (see also Great Powers); international financial control, 97, 98 f., 102 ff., 108-12 ; financial clauses in Preliminaries of Peace, text, 97; Indemnity Loan of 1898, 97, 99 ff., 106; income and outgo evaluated, means for increasing them, administrative expenditures, 104; final debt settlement, 105-8, 112 f.; conclusions, re harsh and exacting treatment of, 112-15 (also 86, 87); payments in gold, 113; an honest borrower, 114; see also Loans, Greek "Greek Bubble, The," excerpt, 25 Gregory, Captain, 24 Gruin, Eugene, 101« Guaranteed Loan, see Loans, Greek Guizot, F. P. G., 30, 45 Haldimand, A. F., 18« Hambro Banking House, 69, 70, 76, 77, 85 Hanotaux, Gabriel, role during peace negotiations, 94, 95 Hastings, Habney, 21 Hatzfeld, Count, interview with Lord Salisbury, 95, 96 Hobhouse, J., 19 Howe, Samuel, quoted, 29 Howland, Gardner G. and Samuel S., 23 Hummelauer, Ambassador, 44 Huskisson, opinion on Greece, 31

Imports and exports, 74 (tab.) Indemnity Loan, 1898, 97, 99-102, 106 Independence Loans of, see Loans, Greek Industry, backwardness, 63 Interest, rates of Greek bonds, 56; payable in gold, 57, 113, 114; temporary reduction of, 79 International Bank of Commerce, 102 International Financial Commission of Control, 84, 97, 109, 110 f. International Financial Commission of Inquiry, investigation and settlement of Guaranteed Loan, 51-54 International law, doctrine of concerted diplomatic intervention, 98 Investment trust, development of, 57 Ionian Islands, annexation of, 53 Italy, desirous of being important, 95; representation in Commission of Control, 102 Jenks, L. H., quoted, 11, 12 Jourdain, J. P. P., role in negotiations with Knights of Malta, 7 ff. Kalergis, Greek minister, 50 Kanakaris, Α., opposition to policy of borrowing under heavy terms, 7 Kaufmann, W., 102 Kehaya, finance minister, attempts debt settlement, 27 Kent, Duchess of, 35 Knights of Malta, loan proposal by, 7 ff. Labor supply, 64 Laffitte, J., banker, 7 Lascelles, Sir Frank, 96 Lavisse, E., 91 Law, E. F. G., Major, 76, 92, 101, 102; quoted, 77 Law, John, 10 Law of Control, provisions of, 99, 107, 108, 111, 112 Lehfeldt, R. Α., evaluation of investment yields, 56 Leopold of Coburg, Prince, offered crown of Greece, 32, 33; conditions of acceptance, 33 f.; reasons for refusal, 34 f. Leroy-Beaulieu, on French investments, 59 Liberals, sympathy with revolutionary cause, 4 Liberte, La, opinion on default, 83 Loans, foreign: during British era of speculation, 10 ff.; more remunerative than domestic bonds: yields, 56; payment-in-

INDEX gold provisions: new types of financial organization, 57; amount of French investments abroad, 59; Greek: Loans of Independence, 1824, 1825; 14, 18, 31, 38, 53, 54, 69; expenditure of proceeds: committee of management, 19-25; Guaranteed Loan, 1833, 26 f., 33 ff., 106; provisions of Treaty of 1832, 35-40; flotation and expenditure of loan, 40 f.; discord of Powers over advances, 41-44; concerted demands for settlement, 4449; coercive measures, 49-51; financial inquiry: settlement, 51-54; expansion of debt from 1879 to 1890, 66-75; Loan of 1879, 67; of 1881, 67, 69, 106; of 1884, 68, 69, 106; Monopoly Loan of 1887, 68 f., 85,106; supervisory rights of underwriting syndicate, 69; Loan of 1889, 69, 106; Railway Loan of 189091, 70, 106; Indemnity Loan, 1898, 97, 99-102, 106 London, Conference of: support of Prince Leopold's candidature, 33, 34; part in Guaranteed Loan negotiations, 34, 35, 39, 45 London capital market, see Great Britain London Engine Manufactory, 21 London Philhellenic Committee, its establishment and membership, 12 Loughman, O'Brien, Ellice and Company, bankers, 14, 26 Louis XVIII, attitude toward Greek Revolution, 8 Louis Phillippe, sanctions grant of Guaranteed Loan, 40 Louriotes, Andrew, 12, 13 Lubbock, Sir John, 80 Lyons, Lord, quoted, 42 Malta, Knights of, loan negotiations with Greeks, 7 f. Mansolas, survey of Greek industry, 63 Mavrocordatos, Alexander, instructions to . mission going to England, 5; confers with Blaquiere, 12; leader of proEnglish faction, 42; heads Greek cabinet, 50 Metaxas, Α., Count, mission to Congress of Verona, 7; authorization given to Jourdain to negotiate with Knights of Malta, 7 ff. Metaxas, Charge d'Affaires in London, 101»

Metternich, Prince, appraisal of Greek revolt, 4, 6; quoted, 44

135

Military expenditures, 20, 41, 64, 66, 72», 105; naval craft, 21 f., 23, 68 Mohamet Ali of Egypt, supported and given supplies by the French, 8, 17 Mohrenheim, Baron, suggestion for a joint loan guarantee, 100 Monopoly Loan, see Loans, Greek Monopoly Society, see Sociiti de Rigie ... Montherot, C. de, 51 Muraviev, Count, 95 Naples, Kingdom of: loan, 18n National Bank für Deutschland, 70 National Bank of Greece, 68, 69, 85, 87, 110 National Society, role in Greco-Turkish war, 89 Navy, vessels for, 21 f., 23, 68 Nelidov, Ambassador, attitude at preliminaries of peace, 94 Nicholas, Czar, 49» Odier, Gabriel, et Cie, 17 Ogeroff, Α., 51 Olympios, Kephala, 6 Onou, Russian minister, suggests that Greece request intervention of Powers, 90 Orlandos, John, sent to London to negotiate loan, 13; recommends sending of Greek products to England, 16 Ornstein, M. G., 78, 81 Otho of Bavaria, Prince, 32, 48, 50; offered crown of Greece: conditions, 35 ff. Palmerston, Lord, quoted, 26; recommends bill to guarantee Greek loan, 38; assures Armansperg of British support, 42; appeal to Powers to issue third instalment, 43; for coercive measures against Greece, 47 ff.; resort to naval demonstration ordered, 49; insistence on financial survey, 51 Panhellenion, recognizes sanctity of obligations, 31 Paper currency, resort to, 27, 78 Paris capital market, see France Paris Proposals of 1896, bondholders', 106 Peacock, Robert, loan proposal, 6 Peasants, their economic condition, 61, 64 Peel, Sir Robert, against interference in affairs of Greece, 47

136

INDEX

Philaretos, G., quoted, opinion on the imposition of control, 98 Philhellenic Committee, of London, 12; of Paris, 17 Piraeus, military occupation of, SO Piraeus-Larissa Railway, loan, 70, 106 Piscatory, French minister, 46 Playdell-Bouverie, 27 Plessen, Baron von, Germany considers his recall, 83 Politische Correspondent, 83 Population density, 30, 62, 63 Poverty of workers, 61, 64 Preliminaries of Peace, Greco-Turkish, 91, 97, 98, 99, 102, 10S, 112 Press, European: denunciation of Greece, 79, 83; see also names of papers, e.g., Economist, The Privileged Epiro-Thessalian Bank, 69 Prokesch, von Osten, 42 Raffalovich, Α., 101 Railway Loan of 1890-91, 70, 106 Rangaves, Greek minister, appeal to Powers, SOS. Rigie, the, see Sociiti de Rigie . . . Revenues assigned for loans, IS, 18, 45, S3, 67 ff. passim, 8S, 107, 108 Revolution, of 1821 against Turkey, 1; of 1843 against the monarchy, 46 Rhalles, Greek minister, signs Financial Convention of 1843, 46 Ricardo, Jacob and Samson, underwrite Second Independence Loan, 18; member of Board of Control, 19ff.; Protest to Foreign Office, 26 Rizos, Greek minister, 45, 46 Rothschild, Alphonse, 101» Rothschild, N. R., 11, 18» Rothschild, house of, 40, 102 Rouen, French minister, submits note of protest, SO Roupenthal, loan proposal, 7 Roux, survey of Greek finances, 76 Royal Commissioner, 111 Russia, influence feared by France and England, 5, 31, 33, 39; advances made by, 32; Convention between Bavaria and the Powers: part in Guaranteed Loan of 1833, 35 ff.; indemnity from Turkey, 39; Greek sympathies during Crimean War, 49, 50; banks and bankers, 101M, 102; see also Great Powers Russian State Bank, 102 Russo-Chinese Bank, 102

Saint-Aulaire, Count of, addresses note to Greece demanding servicing of Guaranteed Loan, 45 Salisbury, Lord, for raising loan under joint guarantee, 95; against incorporation in treaty of control clauses, 96; consent to control, 97 Saurma, Baron, suggestion by, for protection of bondholders, 93; threat to withdraw from conference, 94; author of the doctrine of concerted compulsion, 96 Sebastiani, Count, 43 Sive, Colonel (Soliman Pasha), in the service of Ali, 17 Ships, construction of, 21 f., 23, 68 Sideres, A. E., quoted, 62 Skouloudes, E., Greek foreign minister, places protection of Greek interests in hands of Powers, 90; attitude on war indemnity, 91 Smirnow, Α., 103 Smith, Hugh, 101« Sociiti de Rigie de Monopoles de Grice, La, 79, 81, 85, 87, 94; date of founding, 69; functions and purpose, 69; reorganization, 109 Sociiti de Rigie des Revenus Affect is au Service de la Dette HelUnique, 109 Sociiti G^nirale, 58, 68 Sotiropoulos, ministry of, 77, 78 South America, British relations, 10 Southard, S. L., consents to purchase of Greek vessel, 24 Soutzos, Greek minister, 40, 49 Sovereignty, encroachment on, 86; see also Great Powers Speculation, era of, 8-12 Staevie, M., 81 Stanhope, Leicester, 13, 20« Sterling, interest payment in, 11, 57, 113, 114 Stockmar, Charles, 35 Streit, Ε., assumption of chairmanship of National Bank of Greece, 87; denounces action of Powers, 99; views on mechanism of control, 103 Suzzara, Α., 103 Syndicates, bond flotation plan, 10; supervisory rights given to, 69 Syngros, Greek financier, 67 Tax system, inequitable, 2, 64; recommendations for revamping, 52, 104; comparative growth of debt and tax burdens, 1869-93, table, 73; taxation on

INDEX interest of foreign securities prohibited, 107, 108 Temps, Le, 83 Testa, Charles, 102 Theochary, Baron, 6 Thessaly, reluctance of Turkey to cede it, 65; invasion of and occupation by Turkey, 88; demand for retrocession of, 90; refusal of Turkey to evacuate it, 96; final settlement, 97 Thouvenel, quoted, 48 Times, The, quoted, 24, 79, 83 Trade, unfavorable balance, 73-75 Treaty of May 7, 1832, its financial provisions, 35-40 Tricoupis, Charilaos, diverts funds of R.R. loan, 70; passes law suspending debt service, 77 Turkey, revolution of 1821 against, 1; British attitude toward, 9, 13; French, 17; attitude toward Greeks in disper-

137

sion, 30; indemnity for northern frontier, 39«, 40; Greek undeclared war against, 49f.; question of Thessaly, 88 S.; fair consideration of her external indebtedness, 86, 112; armistice conditions, war indemnity, 90 ff.; amount paid to, 101 Vamvas, articles by, 49 Verona, Congress of, 7 Victoria, Princess, 35 Waithman, Lord Mayor, 14 War materials, see Military expenditures Webster, Daniel, 24« Wellington, Duke of, considers Greece proRussian, 31; for candidacy of Leopold, 33 Wuitz, Baron de, 6 Wyse, Sir Thomas L., quoted, 50, 51 Zaimes, John, 13