12/17/2023 0 Comments Sovereign debt defaultsThis committee monitored the country's economic policy as well as the tax collection and management systems of Greece. In 1898, foreign pressure led Greece to accept the creation of the International Committee for Greek Debt Management. During this interregnum, the government became dependent on the National Bank of Greece for borrowing. The government's needs were modest at first but soon escalated and the National Bank of Greece provided funds at interest rates that were twice the international lending rate. (For related reading, see Get To Know The Major Central Banks.)Īfter the Greek government settled outstanding defaults in 1878, the global capital markets opened once again to Greece and, as you might expect, lenders were only too eager to provide funds. This borrowing increased to unsustainable levels and the government suspended payments on external debt in 1893. The funds were mostly squandered on the maintenance of a military and the upkeep of Otto, a Bavarian prince that was made King of Greece by the English. Greece managed to stay current on this loan until 1843, at which time the government stopped payments.Īfter this default, Greece was shut out of international capital markets for decades. In 1832, another loan totaling 60 million drachmas was given to Greece, which was officially an independent sovereign nation. The loan was arranged by the French, Russian and British governments, and was ostensibly given to help Greece build its economy and manage the initial stages of governance. No interest payments were ever made to the bondholders on these two loans, and the value of the paper eventually plummeted to a fraction of the par value. It wasn't until 1878 that the Greek government settled on the loans, which by then with accrued interest had increased to over 10 million pounds. Another issue was that the Greek War of Independence soon descended into civil war between rival factions, making it difficult to even figure out who should receive these funds. The unfortunate fact about these two loans was that speculators and middlemen in London skimmed off much of the proceeds before Greece received any funds. An additional loan of 1.1 million pounds was floated in 1825. In 1824, a loan of 472,000 pounds was secured on the London Stock Exchange to continue this fight. This offering was oversubscribed and buyers were required to put down only 10% of the purchase price with a promise to pay the balance over time. The Greek War of Independence began in 1821 and targeted the end of Ottoman authority, which had ruled most of that region for centuries. Venezuela and Ecuador, with 10 defaults each, share the (dis)honor of being the greatest serial defaulters of the modern era. (For related reading, see Recession and Depression: They Aren't So Bad.)Īlthough many might consider this level of default to be excessive, Greece is nowhere even close to the top of the list. The combined length of period under which Greece was in default during the modern era totaled 90 years, or approximately 50% of the total period that the country has been independent. The first episode occurred in the early days of that country's war of independence, and the last default was during the Great Depression in the early 1930s. Greece has defaulted on its external sovereign debt obligations at least five previous times in the modern era (1826, 1843, 1860, 18). Most of the borrowers never made good on the loans and the temple took an 80% loss on its principal. The first recorded default in Greek history occurred in the fourth century B.C., when 13 Greek city states borrowed funds from the Temple of Delos.
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