Looking over the precipice of national default and an untimely exit from the international monetary system, the Greek leader issued a somber warning to Europe’s economic leaders: “Bear in mind that if you leave the small states without assistance, a black future awaits Europe.”
Delivered by Prime Minister Eleftherios Venizelos on April 15, 1932, less than two weeks before his nation would suspend loan repayments and exit the gold standard, the prescient remark and the trials that followed offer urgent lessons for the current Greek crisis.
Before the euro bound the continent’s disparate economies into one monetary system, European governments relied on the gold standard to direct international monetary flows. This promised stability, but also required the vigorous coordination of each country’s central-bank policy. The turmoil of World War I disrupted the international order, pushing Greece and the rest of Europe off the standard, a blow from which the monetary system would never fully recover.
Nevertheless, in the absence of alternatives, gold remained the standard for much of the rest of the developed world, and Greece made the drachma convertible to gold in 1928 under the leadership of Venizelos’s Liberal Party. A centerpiece of the government’s reform agenda, the return to gold, combined with vigorous economic development and large-scale public works, promised to turn Greece into a “synchronon kratos,” or modern state. Further, re-gilding the drachma offered pride to a Greek nation that had recently suffered prolonged inflation and political turmoil.
This triumphant return was not only desired from within Greece, but imposed from without. Venizelos’s project was largely dependent on foreign financing, both in the form of government loans and direct foreign investment. The drachma’s convertibility was thus also meant to appease investors. So too was the regime’s simultaneous creation of the Bank of Greece, the country’s first true central bank, which replaced the privately owned National Bank of Greece as the issuer of the drachma.
The Great Depression, though, came at an inopportune time for the fledgling Greek financial system. When the world economy began to decline in 1929, Greek exports dwindled, creating an acute imbalance — more foreign currency left Greece through the purchase of imports than came in through the sale of exports, draining the currency reserves of the Bank of Greece. This situation was exacerbated by the country’s foreign debts, which also had to be repaid in foreign currencies, such as the U.K. pound and the French franc. As effectively gold equivalents, these monies undergirded the drachma; as they left Greece, each successive loan payment made defending the currency more difficult.
To make matters worse, the country’s commercial banks began speculating against the drachma. Led by the recently displaced National Bank of Greece, these institutions purchased Greek national bonds, securities denominated in pounds and francs, on foreign exchanges — securities that would be worth more if the drachma was devalued…
Το bloomberg φιλοξενεί ένα πολύ ενδιαφέρον άρθρο του Sean Vanatta με τίτλο History Offers an Ugly Precedent for a Greek Euro Exit για τα γεγονότα που οδήγησαν στην χρεοκοπία του ’32. Η ενδιαφέρουσα συνέχεια του κειμένου εδώ. Βρίσκετε ομοιότητες; Εγώ πολλές…
Για τραγούδι σήμερα έχω το νέο διαμάντι της indie σκηνής: Lower Dens – Brains.