The following is a brief (distorted) summary of Greece’s previous defaults
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. Most of the borrowers never made good on the loans and the temple took an 80% loss on its principal. An inauspicious start!!!
In 1826 Greece raised 472,000 GBP on the London Stock Exchange to fight for independence from the Ottomans. An additional loan of 1.1 million pounds was floated in 1825. Trouble was that speculators and middlemen in London skimmed off much of the proceeds before Greece received any funds. Greece subsequently fell into a civil war making it hard to determine who should actually get the money. The value of this paper fell to a fraction of its face value and wasn’t repaid until 1878. That’s a delay of fifty long non interest paying years. Time to learn about the Greek commitment to debt!!
In 1832, another loan totalling 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. 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. Comparatively speaking, not a bad effort!!
After this default, Greece was shut out of international capital markets for decades. IMHO, a good place for them to be, as at least there its harder steal bulk from others!! During this period called the 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. If you can’t steal from others then why not from yourself!!
After the Greek government settled outstanding defaults in 1878, the global capital markets opened once again to Greece and, as one might expect, lenders were only too eager to provide funds. Who were these mugs!! This borrowing increased to unsustainable levels and the government suspended payments on external debt in 1893. Now that was a surprise wasn't it!!
In 1898, foreign pressure led Greece to accept the creation of the International Committee for Greek Debt Management. This committee monitored the country's economic policy as well as the tax collection and management systems of Greece. At least some light on the situation, an international committee to the rescue. Bring it on Brussels, let's have another committee. In residence if you don't mind!!
In the early 1930s, Greece imposed a moratorium on paying on its outstanding foreign debt in 1932. This default lasted until 1964, the longest of any of the country's five defaults. Still at it!!
The history of the Greek repayment of debts is clearly crap and not encouraging for today's investors who are now about to loose hundreds of billions of Euros. Should the financial world have expected this? When will the default occur and how long (this time) will it be before the collective of civilised nations allows the barbarian Greeks back in?
Another tit bit from history - The Latin Monetary Union (as precursor to the Euro) In 1865 the Latin Monetary Union was established. This union was originally set up to ease trade between states. Under the original agreement the gold and silver coins of France, Belgium, Italy and Belgium were of equal value. The ratio between gold and silver was set at 15.5:1. In 1868 Spain and Greece joined the union. Other nations joined in later years. The union began to unravel when the Papal Treasury produced coins without the prescribed amount of metal and the costs of producing silver decreased. In 1878 the printing of silver coinage was suspended and the Union was on a de facto gold standard. Notably Greece was ejected from the union in 1908, for decreasing the amount of gold in their coins. If you can’t trust the Greeks to deal fairly, who can you trust?
