Part II

Greece’s Fault-lines and the Political Economy of Debt

3

The Vassal and the Lords

What are the key features of the Greek social formation from the foundation of the Greek state in 1830 to the late 1930s and how are those features related to debt? Answering this question requires a periodization of the Greek social formation as it came to be inserted in the uneven cycles of production and reproduction of the imperial chain, structurally marked by the hegemony of the core over the periphery. The context in which we place our periodization corresponds roughly to the upswings and downturns of European and global capitalism, which should be seen in tandem with a major global hegemonic transition, namely, from Britain’s predominance in the Eastern Mediterranean and world affairs to the USA’s supremacy after World War II. Britain’s slow imperial decline, which began as early as 1890s, finds clear expression in the following historical facts:

i) inability to guide, both politically and militarily, its imperial alliance against Germany during World War I in such important theatres as Western Europe and the Near/Middle East; World War I turns Britain and France into debtor powers, their public finances now being dependent on the new creditor power, the USA;

ii) inability to streamline financial and geo-political developments, at least in coordination with other European powers during the inter-war period marked by the severe financial crisis of 1929–33 and the rise of fascism and Nazism.

The thesis that cuts across our historical/empirical analysis here is that Greece occupies a dependent/subaltern position in the international social/technical division of labour. As such, it is subject to power arrangements and decisions that are taken by power centres and bodies which are external to Greece enjoying no democratic legitimacy whatsoever. This happens even when these arrangements and decisions concern Greek society, economy and politics par excellence. We argue – and it will become clearer in the chapters that follow this one – that this feature has not changed to the present day. This is directly related to what we call here the ‘birthmarks’ of the Greek state as a territorial/geo-political unit and social/class relation dominated by international and national capitalism.

The first ‘birthmark’ is the perceived geo-political value of the country relative to its political economy and assets, which includes its state capacity to direct growth projects. The second is the qualitative developmental gap between Greece’s social economy and that of the advanced core/metropolises, a hiatus that reproduces itself in capitalist modernity. These two strictly inter-linked ‘birthmarks’ constitute the historic and structural fault-lines of the country determining the freedom of action available to state elites and other social and political agencies. They are the DNA of Greek capitalism – and, indeed, of many other capitalisms in the periphery.

We begin by outlining the origins of the Greek social formation, the way in which it came into being and the forces that determined its first appearance on the map. We then move on to review the first developmental phase of Greek capitalism, which roughly corresponds to Europe’s industrial boom during the second half of the 19th century and the consolidation of an unstable nation-state system (Italy’s unification occurs in 1861 and Germany’s in 1871). Both sections make clear the way in which Greece’s fault-lines straddle its political economy generating a permanent debt problem. They also demonstrate that the sources of Greek debt are both internal and external. Finally, we look into the Venizelist period of Greek history, which marked the first four decades of the 20th century essentially completing Greece’s expansionist phase – lasting almost 100 years – and bourgeois breakthrough. Throughout the period in question (1820s–30s), Greece’s problem persists: unable to catch up with the rest of the capitalist core, the country is peculiarly sensitive to crises emanating from the core forcing it to default on its debt obligations at least four times since the 1820s.

3.1 The beginnings and the ‘birthmarks’

The foundation of the Greek state in 1830 was primarily a geo-political act engineered by England and France in order to check, deter and even block Russia’s positions and expansion in the Eastern Mediterranean, and Egypt’s penetration of the Ottoman Empire through Crete and the Peloponese.¹ In this respect, the foundation of modern Greece – a limited social formation encompassing the Peloponnese, Southern Rumeli, Eboea and the complex of Cyclades islands – did not reflect an endogenous ‘bourgeois breakthrough’ – the ‘capitalism of relative surplus-value’ – drawn from the structural need of national-economic forces to expand outwards – e.g., the imperial dynamism of Piedmont in Italy or that of Prussia in Germany, or the movement of ‘enclosures’ in England. Rather, it was based on an unstable equilibrium of international compromises reflecting the weakness of the Ottomans and the expansionist competing drives of France, England and Russia in mastering the contracting Ottoman geographies. Greece was born as a weak peripheral formation out of an independent, continental-imperial formation with its geo-political value, as defined by Western imperial interests, at par or even outstripping the potential of its political economy. This is Greece’s most important fault-line and structural constraint, which was to be carried through to the present day, forming an essential part of its identity.

Although Greek nationalism was the most advanced in the Balkans and the Levant/Near East, the ‘revolution’ of 1821 was not a Greek Risorgimento. The political parties dominating Greek politics after 1830 were literally called the English, French and Russian parties taking direct orders from their foreign diplomatic representatives. Local landowning elites blocked capitalist modernization and reforms. The imperial control of Britain, France and Russia over Greece became formal in 1832 with a ‘Protection Guarantee’ that essentially ended in 1923. The country’s security and geo-politics was entirely regulated and controlled by exogenous powers. The country lacked raw materials and its economy was dependent upon imports, especially in technology and know-how. The capitalism of relative surplus value arrived in the 20th century, yet without ever being able to catch up with the advanced core or even to dominate the country’s social formation. This has had a number of consequences of which two are important from the perspective of the origins of the debt. First, given the scarcity of real value available for redistribution, Greek state elites tended to finance the country’s meagre welfare services and administrative needs via (external and domestic) borrowing rather than taxation. Second, and because of the imbalance and unevenness between real value creation at home and real value creation at the core, a permanent balance of payments deficit became a constant feature in the current account of the country as it came to be registered in the act of international commodity exchange. Thus one conclusion seems inescapable: Greece, throughout its modern history, always lagged behind the capitalist metropolises without ever ‘catching-up’. This is Greece’s second fault-line and structural constraint that has been a hallmark of the country’s identity throughout its modern history.

Both fault-lines, whose articulation is determined by social/political struggle taking place at both national and international levels, found expression in the state’s finances administered by subaltern and dependent elites. The new state needed to finance its public sector and this, given the low tax collection rate, added onto its total debt. Britain and France, from the very beginning, managed to co-opt and envelop the new Greek state elites into a permanent condition of financial and political subordination/dependency via the debt mechanism. The main financial lever those two powers enjoyed at the time was their lending capacity. Even before it achieved its truncated independence, Greek elites began mortgaging the future assets of the country to their foreign lenders. Greece received two loans during the war of independence, whose nominal value was £800,000 and £2,000,000 respectively (Table 3.1). A primitive Greek state apparatus experienced its first bankruptcy in 1824–25, i.e., during the war of ‘independence’, as the loans offered by France and England to fund the war against the Ottomans could not be serviced.² In 1832–33 another loan of 60,000,000 (in gold francs) was contracted. It was entirely consumed for the expenses of the regency and the maintenance of the army, a fact which led to the bankruptcy of 1843 and a subsequent coup forcing the King to concede a Constitution (3 September 1843).

Table 3.1 Foreign loans and bankruptcies of the modern Greek state (1824–32)

Source: Our compilation of data from a number of sources, such as the work of George Dertilis (1980, 1984, 1988), and from Tassos Eliadakis, ‘The Greek public debt since 1824’, Patris, 3 November 2009. We have estimated ourselves the sum-total of foreign loans before each of the four bankruptcies.

From 1827 until 1877–78 Greece was excluded from Western financial markets because it was unable to pay its debts. During these five decades, governments resorted, rather unsuccessfully, to internal borrowing while encouraging investment projects by wealthy diaspora Greeks, whose comprador capital, together with Jewish and Armenian merchant classes, was very prominent in the economy of the Ottoman Empire.³ But the capital of diaspora Greeks was consumed in speculative, brokering and other non-productive capitalist economic activities.⁴ It was only from the 1860s onwards that Greece began spinning in the periphery of European industrialism, inserting itself into the Western-led cycles of capitalist accumulation, yet without relinquishing any of its key features: it remained geo-strategically subordinated to exogenous – especially West European – agencies and structures, economically underdeveloped relative to the European core, yet with an important geo-political standing. The Greek orbit, due to its position in the Aegean and Ionian Seas, was the key to the Black Sea and the Adriatic because of its proximity to their mouths. Moreover, a large number of Greeks could be found in all Ottoman areas, including Cyprus and Crete (the Suez Canal was built in 1869). Arguably, then, the sources of the country’s debt lie in its historical and systemic fault-lines conditioned by its weak political economy relative to its geo-political significance. The Greek bi-polar political matrix that emerged at the time, a political phenomenology of opposing political forces and coalitions, became an organic part of this structural force whose freedom of action was severely constrained by it. At this point we need to advance an additional explanation.

Imperial agencies cannot achieve their geo-political and class aims if a range of elites located within the institutional framework of subaltern/peripheral states are not willing to serve those imperial interests. In fact, one of the reasons why those states are subaltern is precisely because of the role their elites are willing to play in the service of imperial geo-political undertakings. We shall become aware that in Greece, as elsewhere, the formalistic terrain of division and conflictual tension between socio-political actors has at least since the 1860s been split between two ‘opposing’ camps: the liberal/modernizing faction, on the one hand, and the conservative/populist on the other. By kampfplatz we refer here to the bi-polar political matrix of Greece’s formal political game which cuts across the functional reproduction of capital-labour relations across time and space in the context of the country’s subordinate/dependent position in the imperial chain. Despite the insertion of socialist/communist discourses in the Greek kampfplatz, especially after the Russian revolution of 1917, the aforementioned phenomenology kept recurring in the form of the same dominant bi-polar matrix. Thus, the various crises occurring in the core find their way to the periphery upsetting and even disintegrating not just the structural parameters of accumulation of the peripheral states but also, due to their weak institutions, the very bi-polar matrix of the kampfplatz. What follows is an attempt at a periodization of the Greek social formation taking into account the above discussion.

3.2 Exit the 19th century/kampfplatz-1 and default

The first cycle/period corresponds to developments reflecting the bi-polarism between Charilaos Trikoupis (modernizer) and Theodoros Diligiannis (conservative/populist) during the second half of the 19th century. In many respects, their antagonism draws from the way in which the Megali Idea (‘Great Idea’) could be accomplished. This was a nationalist notion first promulgated in the Greek parliament in 1843 by pro-French Vlach politician, Ioannis Kolettis, aspiring at uniting all Greeks within an expanded Greek state made up of all the ‘unredeemed territories’, which encompassed, by and large, most Byzantine lands.⁵ Megali Idea became the nation’s strategic culture shared by all Greek elites until, effectively, the collapse of the Greek front in Asia Minor in August 1922. The populists favoured an immediate advance of the Greek irredentist cause, whereas the modernizers saw the capitalist modernization of the country as a conditio sine qua non for its subsequent expansion.

Trikoupis’ political bloc improved communications throughout the country on the basis of closer collaboration with banking and industrial capital. A courageous construction of railways took place between 1880 and 1909 and the Corinth canal was built (1893).⁶ French companies, apart from investing in railways, also invested in mining and gas production. Trikoupis modernized the military. Between 1879 and 1882, he introduced national conscription and the strength of the standing army increased to 30,000.⁷ Prominent reforms occurred in the judiciary, public administration and the parliament. A stock market was created in 1876 and the country was admitted in Europe’s financial markets two years later. From 1879 to 1893 (the year in which Greece declared its third bankruptcy), the governments of Trikoupis and Diliyiannis made seven borrowing arrangements with Britain and France. The total nominal value of loans was some 630,000 golden francs (Table 3.1), although real money receipts did not exceed 400,000.⁸ From 1875 to 1880 onwards rich diaspora Greeks, acting under the competitive pressure of European monopoly capital in the Eastern Mediterranean basin, transferred significant financial amounts to the country. Some participation of banking capital in works in infrastructure began.⁹ Banking capital was 33.5 million drachmas in 1884, soaring to 125 million in 1910. At the turn of the century, the investment in the building sector reached 143,000 million drachmas. The development of finance, taxation and the penetration of the money economy in the countryside led to the commercialization of the primary sector. After 1861, the production of cereals and grapes increased. Olive-tree cultivation rose from 62,500 acres in 1835 to 457,250 acres in 1881 and in 1900 reached 650,000 acres.¹⁰ Tobacco crops also began to expand after 1870, with Germany starting to import significant volumes of Greek tobacco. With the production of currants, the volume of exports increased substantially between 1857 and 1887, but did not reverse the negative trend of the balance of payments. The agrarian reform of Alexander Koumoundouros in 1871, although partial, granted property rights to some 50,000 poor peasant families.¹¹ Albanian, Bulgarian and Montenegrin workers were seasonally and cheaply employed by small and big landowners, especially after the annexation of Thessaly (1881). Greek shipping should also be mentioned because it was the only internationally competitive and constantly dynamic sector throughout the 19th century and beyond.¹² It was favoured by Otto’s policy¹³ and shipbuilding constituted one of the most vibrant economic activities in Syros and Piraeus. More specifically, some 5600 ships had been constructed in the shipyards of Syros between 1834 and 1880 and in 1857 the island saw the foundation of the first shipping company in Greece.¹⁴ The Greek merchant fleet increased from 8 steamships in 1875 to 114 in 1900. Britain and Greece dominated sea trade in the South-Eastern Mediterranean and the Black Sea. By 1920, the size of the Greek fleet was the ninth largest in the world, an extraordinary position given the small size of the country and its population.¹⁵

But these improvements counted if compared to the previous phase of inertia in Greece’s political economy. If compared to Western Europe, then Trikoupis was as unsuccessful in advancing the capitalism of relative surplus-value as Theodore Diliyiannis – his chief populist opponent – was in building an alliance between the ‘tzakia’ establishment and the poor, or expanding Greece territorially (Diliyiannis’ irredentism suffered a serious setback when a 30-day war with a German-trained Turkish army resulted in a humiliating Greek defeat). Trikoupis’ public work programme laid the basis for the country’s modernization in the 20th century, but without immediate positive results, nor could Greece catch up with the core.¹⁶ Industrialization was very weak and the plight of public finance reached extraordinary proportions because his governments were dependent on foreign borrowing and old unpaid debts. In 1875, Greece had only some 95 small factories and 7000 industrial workers. The balance of payments problem persisted. Budget deficits, because of high defence spending and low tax collection, were financed by external loans, whereas the continuous deficit in the trade balance required more and more inflows of foreign capital. By 1893, Angelos Aggelopoulos argued, ‘some 30 per cent of all public expenditure in Greece was directed towards servicing the internal and external debt’.¹⁷ Thus, the total Greek debt had both internal and external sources. Being under pressure, Trikoupis increased indirect taxation and, together, popular discontent (Trikoupis imposed high levies especially on tobacco, spirits and kerosene). Finally, as it was impossible to balance state revenue and expenditure meeting pending external and domestic financial obligations, Trikoupis, amid the dramatic decline in the price of currants, which was Greece’s main export item, was forced to publicly declare Greece’s default on external loans in 1893 saying, famously, ‘distichos eptocheusamen’ (‘unfortunately, gentlemen, we went bankrupt’).

This Greek default is interesting for a couple of reasons. First, it comes in the wake of the first crisis of over-accumulation in the advanced industrial world (Western Europe and the USA) and the tariff wars found the Greek state in a completely vulnerable economic position pushing its dependent accumulation regime completely off balance. It is, therefore, interesting to see that the imperial cycle of upswing and downturn impacts on the vassal (Greece) in a ‘trickle-down’ manner: if the core is doing well, the vassal is also in a position to reproduce the fault-lines that sustain it; but if the core collapses, then the peripheral vassal gets severely damaged, with its fault-lines in a complete disarray.

Second, unlike the two previous defaults, Greece’s creditors refused to negotiate debt payment conditions, insisting instead that a special commission be formed to oversee the country’s finances – which was eventually set up in 1897 as International Commission of Economic Control (ICEC). The Commission was set up in the wake of Greece’s defeat in the Turkish-Greek war of 1897 and made sure that Greece’s lenders and bondholders were paid, while ensuring that war reparations due to Turkey were also paid. This humiliating imposition surrendered Greece completely to its imperial lenders and raised further obstacles to the country’s goal of catching-up with the core.

3.3 Enter the 20th century/kampfplatz-2 and default

The second developmental phase corresponds to the era of the liberal statesman, Eleftherios Venizelos, when the bourgeois breakthrough and agrarian reform were accomplished. Skilfully representing the interests of (declining) European imperialism while employing the nationalist discourse of Megali Idea in the region, Venizelos expressed at the same time the interests of the Greek comprador and banking capital – a class extended across the arc Near East-Constantinople-Smyrna-Macedonia. He modernized the country, mobilized wide popular strata in politics, carefully leading the battle against the King and the old political class of tzakia. However, the ‘Great Idea’ was neither an ‘offensive grand strategy of power maximization’ conditioned by systemic imperatives, nor an independent imperial claim emanating from within Greece, that is to say, having endogenous bourgeois, industrial power-bases and support. Rather, it was a vicarious project sustained by the geo-strategic (and reluctant) needs of Western European imperialisms in their terminal phase of decline, especially of Britain, which saw Venizelos’ Greece as being the best guarantor of its Near and Middle Eastern approaches to India. None of the country’s systemic fault-lines of the 19th century had been overcome; they had just been upgraded, refined and immersed into a new set of contradictions and social/political struggle. Moreover, a new systemic fault-line was inserted in the geo-political and geo-economic plates of the globe, which became inculcated, in one way or another, into the domestic environments of every single state in the world. We refer to the global waves caused by the Bolshevik revolution, the cutting-off of a large part of the globe from the imperial chain of accumulation and the subsequent formation of political agencies and forces across the world inspired by the achievement of the Bolsheviks. In the context of Greek politics, this evolution undermined the hegemony of political bi-polarism – Venizelos versus the King – and what we call here kampfplatz-2 includes also those agencies that questioned the insertion of Greece into the imperial chain putting forward projects and struggles aspiring at going beyond the horizon of the capitalist relations of production.

During the Venizelist phase, three significant developments are worth recording. The first concerns the way in which Venizelos comes to represent both Greek comprador interests and European monopoly capital in the Eastern Mediterranean. The second regards the erroneous geo-strategy within which these capitalist interests were enveloped, the result being the defeat of the Megali Idea, a development that failed to arrest the decline of European empires, i.e., primarily, of Britain and France. The third development concerns the circumstances surrounding the country’s fourth default on its debt obligations. We deal with these themes in turn.

3.3.1 The subsumption of comprador to monopoly capital

Greek comprador communities outside the Greek Kingdom had been thriving, especially after 1880. Turkish and Egyptian merchants had been overwhelmed by Jewish, Greek and Armenian trade interests. Greek shipping activities in the South-Eastern Mediterranean were also thriving. The five largest Greek cities were Athens, Constantinople, Smyrna, Alexandria and Salonica, of which only Athens was located in Greece.¹⁸ However, the advent of imperialism (i.e., finance capitalism and massive export of capital from metropolises to the periphery in order to stave off crises of over-accumulation at home) brought about significant changes in the Eastern Mediterranean and the Balkans. Whereas during the 19th century, the interests of European capitalism had been identified with those of new merchant and comprador classes in the South-east Mediterranean, which were ‘almost exclusively composed of members of various ethnic communities’,¹⁹ imperialism began aggressively penetrating the Ottoman zones creating lines of investment and aggrandizement linking up the Balkans and the Near/Middle East with Britain’s Indian possessions. The Suez Canal (opened in 1869) and the Turkish Straits were two choke-points of immense geo-strategic significance, especially if seen in the context of new discoveries of oil in Mosul and Britain’s navigation interests (in the early 1900s the Royal Navy began switching from coal to oil, a development that was completed in 1918). In order, therefore, to further their imperial geo-political interests in and around the contracting Ottoman space, Britain and France did not only antagonize the Ottomans but also the very comprador and merchant activities taking place within the socioeconomic zone of the empire. The formation of monopoly capital and its export propensity and aggressive attitude spearheaded by Britain and France put high competitive pressures on the comprador elites of ethnic communities. This challenged and finally displaced the dominance of their retailing and merchant activities in the Eastern Mediterranean and all those engaged in them were now forced to look for state protection. This is the historical analytical framework in which the Near Eastern Greek merchant/comprador classes began to transfer the basis of their economic activities to Greece and sponsored Venizelos’ irredentism providing Britain with a dynamic, yet clearly subordinate, ally in the Balkans and the Near East during World War I. With the Ottoman Empire collapsing, it was thought that expanding Greece would be the best guarantor of Britain’s interests connecting sea passages as important as Suez and the Dardanelles with land routes such as Palestine and Mesopotamia – although Lloyd George, an ardent supporter not just of Greeks but also of the Zionist cause, wanted to see a Jewish state in Palestine, not least because he wanted, alongside Greece, a second Christian-Zionist state to support Britain’s imperial position in Western Asia. Lloyd George illustrates Britain’s rationale with the typical language of the time. He said in 1919:

The Greeks are the people of the future in the South-Eastern Mediterranean. They are very active and economically prosperous. They represent Christian civilization against Turkish barbarism. For the time being, they are some 5 to 6 million. If they expand – as we British think – they will sum up some 20 million within fifty years. The Greeks are perfect navigators and will become a great maritime power. They thus will be able to guarantee our Commonwealth interests across the region.²⁰

Venizelos’ reasoning was proceeding apace. For him and his liberal ruling faction, Greece was not a poor country but a country whose wealth was unexploited. ‘Greece’, the Cretan politician claimed in 1920, ‘can feed 17 million people’.²¹ The liberal-nationalist Greek state under Venizelos, therefore, had very powerful incentives to jump on the French-British bandwagon, especially because Bulgaria and Turkey sided with Germany during the crucial juncture of 1914–17. Having the support of the Greek comprador classes and British imperialism, and after the successful territorial gains that Greece achieved under his Premiership during the Balkan wars (1912–13), Venizelos did not hesitate to proceed with a major break with King Constantine I and conservative forces.²² It was a rupture that ultimately split the country into two – the notorious ‘National Schism’ of 1916 with the Venizelos government settled in Salonica and the King’s own in Athens. Whereas Venizelos stood firmly in favour of the country’s participation in the war on the side of Britain and France (the ‘Entente Powers’), King Constantine and staff officer, Ioannis Metaxas, saw Germany and Austria-Hungary as the most respectable military powers likely to win the war but advocated neutrality. Importantly, Metaxas disagreed with Venizelos on the feasibility and realism of Greece’s campaign in Asia Minor. Metaxas exposed Venizelos’ flawed geo-strategic rationale to invade Asia Minor in its entirety.

3.3.2 Geo-strategies of defeat

Before the outbreak of the war, following secret discussions between Lloyd George, Winston Churchill and Venizelos, Britain promised Cyprus to Greece on the proviso that she would be allowed to have a naval base in the Ionian port of Argostoli, Cephalonia, in order to check Italian and Austrian fleets in the Adriatic. But when the war broke out, Britain annexed the island and modified its position. Wanting now to secure Bulgaria’s participation on the side of the Entente or its ‘favourable neutrality’, Britain tempted Venizelos to offer the Thracian port of Kavalla, as well as the town of Drama to Bulgaria. In return, Greece would be given Cyprus and the Smyrna region if it would aid Serbia entering the war on the side of Entente powers. Venizelos was keen to accept the offer, but both the King and Metaxas were categorically against any concession of Greek territory, opting instead for Greece’s neutrality.²³ In 1914–15, Venizelos gave a tough diplomatic battle to secure Greece’s participation in the Gallipoli campaign, and thus to establish the country’s presence in the Straits, but he was opposed by both Russia and France, as well as at home by Royalist forces. Metaxas himself had presented the most comprehensive rationale regarding the Gallipoli campaign. He insisted that the Straits could be captured only by a surprise attack, an advantage that the allies had lost from the outset: by declaring war against the Empire, the Turkish Staff began fortifying the Straits, a fact that was making the defence of the Dardanelles impenetrable.²⁴ In the meantime, and amid the war, Britain, France and Russia agreed to the incorporation of Constantinople and the Straits into the Russian Empire. Russia, in addition, would obtain the region of Erzurum, Van, Trabzon, Bitlis and territory in southern Kurdistan. As an incentive to enter the war, Italy was promised recognition of her interests in the Adriatic and Africa, permanent and complete sovereignty over the Dodecanese while, with the Treaty of Saint-Jean de Maurienne (26 September 1917), it was promised some 70,000 square miles in Anatolia, including Adalya and Smyrna. France would ensure its interests in the Levant by obtaining Syria, Lebanon and the province of Adana in Cilicia. Mesopotamia would belong to Britain and Palestine would be internationally administered. That is how the Balkans and the Near/Middle East were to be chopped off in secret by Europe’s declining imperialisms at the time. But there is more to the affair than meets the eye.

In January 1915, when Greece was disputing its entry to the war, and upon Venizelos’ request, Metaxas drafted two memoranda advising Venizelos that the dispatch of a Greek army to northern Serbia to repel the attack of Germany and Austria and a Greek expansion into Anatolia could not be sustained militarily and politically. In the first case, Metaxas argued, the joint Greek-Serbian forces might be assailed on the flank and rear by the joint Bulgarian and Turkish armies. In the second case, any campaign in Anatolia was bound to encounter a hostile population, as the Muslims outnumbered the Greeks even in the vilayet of Smyrna, whereas the rugged nature of the country would make it impossible to station any invading army within militarily defensible frontiers. Thus, the Greek army would find it imperative to pursue the enemy in the vast interior in order to achieve a conclusive victory. This would over-stretch the overall front and communication lines, enabling the enemy to harass the Greek line while concentrating forces in the interior and getting prepared for a concerted attack. An Asia Minor campaign might be possible, Metaxas’ argument went, only if two fundamental preconditions applied: first, the allies would have to bind themselves in practice ‘to participate in the campaign with forces sufficient to enable the operation to be brought to a successful conclusion’; second, the whole of Anatolia ‘should be partitioned among the Allied Powers or, failing this, the portion left under Turkish sovereignty be reduced to such small proportions as no longer to constitute a serious menace to the Greek possessions around Smyrna’.²⁵ It is also noteworthy that, contrary to Venizelos, Metaxas saw Anatolia as a single and indivisible geo-economic and geo-political unit that could not function with a sovereignty other than Turkish. He in fact saw that the most realistic geo-strategic option for Greece was to claim Eastern Thrace.²⁶

The overall subordinate and dependent position of Greece in the alliance system to which it adhered to in the entire period before and during the Greek-Turkish war (1916–22/3) is beyond question. This becomes clearer especially towards the end, when three weeks before the collapse of the Asia Minor front, on 1 August 1922, the Greek army of Eastern Thrace made a desperate move and requested to occupy Constantinople in order to create a fait accompli. However, it was told by Britain that any advance into the international zone of the Straits would be repelled by force. Understandably enough, the Greek government saw this as completely unfair, because Greece, the sole belligerent ally of the world war, was prevented from an act of war that could possibly bring the war itself to a successful conclusion. As Michael L. Smith noted, ‘the allies had adopted the entirely illogical position of declaring themselves neutral in a war in which they did not recognize belligerent rights to the belligerents’. And as ‘the basis of Greek policy was cooperation with Britain [ ... ], it was the British coolness therefore which exposed the desperate situation of the Greeks’.²⁷ Winston Churchill had his own way of making this point, when he remarked that England wanted somehow to fight the war against Turkey ‘by proxy’; and ‘wars when fought thus by great nations are often very dangerous for the proxy’, in that case Greece.²⁸ With European imperialisms in decline, and given the damage to the imperial chain itself caused by the Russian revolution, monopoly capital expansion in the Eastern Mediterranean, at the time, generated geo-strategies and comprador proxies of defeat. Throughout the Asia Minor campaign (1919–22), the Greek state, whether under Venizelist or Royal forces – Venizelos lost the election of 1920 to Royalist forces losing even his parliamentary seat – demonstrated no ability to act independently of its masters. We can now move on to look at the historical circumstances that led to the Greek default of 1932.

3.3.3 Greece in a European chain of debt and the power-shift to the USA

Venizelos and Venizelist factions had effectively dominated the country’s politics from the collapse of the front in Asia Minor to 1936, when Metaxas imposed a Nazi-style dictatorship. Their campaign to attract investors – both foreign and Greek – in industry, shipping and finance met with some success. The cycle of growth corresponding to Venizelos’ era witnessed significant participation of foreign companies in Greece’s economy, especially in infrastructure and communications. A German company extended the country’s telephone network and Ulen Co., an American company, undertook to build a dam to solve Athens’ water supply problem.²⁹ A British company (Power & Traction) assumed the monopoly in the generation and distribution of electricity in Athens and Piraeus. The nominal capital of industrial firms rose from 8 million drachmas in 1904 to 60 million drachmas in 1917. During the same period, mining and various public firms had also increased their nominal capital from 56.5 million drachmas to 109.2 million drachmas. The urban population increased sharply and by 1917 the number of Greek industrial workers in establishments with over 25 workers rose to over 42,000.³⁰ In 1936 Greece presented a total of 4415 factories with some 233,000 workers employed in small- and medium-size manufacturing activity.³¹ By 1939 the share of the secondary sector in the overall structure of the national income was 18 per cent. Economic activity in textiles, tobacco, chemicals and foodstuff was very high even by European standards. Inasmuch as these economic sectors were mostly integrated with the European and global capitalist order, it is no accident that they suffered most from the Great Depression, when the country’s balance of payments worsened sharply and agricultural prices fell to an unprecedented level.

Venizelos completed the agrarian reform. He passed a number of laws favouring land distribution to peasants – a reform, however, that was accomplished between 1917 and 1938. Between 1922 and 1938 more than 400,000 acres had been distributed, which was nearly 39 per cent of the overall arable land. The establishment of the Agricultural Bank in 1929 facilitated credit to peasants. This resulted in the marginalization of strong peasant movements, which had dominated other Balkan (e.g., Bulgaria) and Latin American countries.³² At the same time, it prevented an alliance between peasants and industrial workers, depriving socialist and communist forces in Greece from acquiring a mass constituency. In the long run, however, this proved to be catastrophic. By distributing small plots of land to peasants, Venizelos and, essentially, the rest of the Greek ruling classes, made agriculture internationally uncompetitive inasmuch as large landowning/feudal types of estates could not evolve into large-scale, modern capitalist farming.³³ Eventually, Venizelos’ reforms benefitted the refugees who introduced, especially in Greek Macedonia, the cultivation of crops such as tobacco and cotton, thus moving agriculture away from the cultivation of currants, which monopolized the export trade of the country for several decades. Germany began replacing Britain as Greece’s main export outlet and imports from the USA dominated the country’s trade.³⁴ However, Britain enjoyed two key leverages over Greece. The first concerned Britain’s grip on Greek security due to its naval supremacy in the Eastern Mediterranean – a fact which led Venizelos to turn a blind eye to the Cypriot revolt of 1931, arguing publicly that the Cyprus issue is an internal affair of the British Empire; the second reflects monetary arrangements. Two aspects are important here.

First, some estimates ‘of the total official external debt of Greece in 1932 put it at 2.3 billion gold francs of issued debt at nominal prices’. Britain was the main creditor with 28.5 per cent of the total, followed by France (22 per cent), the USA (11 per cent), Germany (4.5 per cent) and Belgium (3.5 per cent).³⁵ Other estimates, such as those put forth by Mark Mazower, bring the number of British subjects holding Greek debt up to 50 per cent.³⁶ Second, the monetary system became streamlined with the foundation of a central bank. The Bank of Greece, in 1927, displaced the monopolistic position of the National Bank of Greece and facilitated acquisition of much-needed credit by the state to finance its increasing borrowing requirements after having lost the war to Turkey (among others, the National Bank had note issuing rights and had strengthened its position over the decades). The foundation of the Bank of Greece brought immediately Greece’s monetary system under the hegemony of Britain via the linkage of the drachma with gold and the British pound (the exchange rate of the drachma against the British pound was determined at 1 sterling = 375 drachmas).³⁷

However, neither the rate of return from foreign investments nor the anchoring of the drachma to gold and the British pound brought about lasting stability.³⁸ They made little difference in the overall structure of debt and its reproduction, because the balance of payments constraint, the borrowing requirements of the country in the wake of the refugee influx (Greece received more than 1,300,000 refugees from Asia Minor), as well as the inability of the governments to raise revenues via taxation, persisted. Moreover, the Bank of Greece was founded on a pile of liabilities and debt obligations, as a result of wartime loans guaranteed to Greece by Britain, France and the USA. In addition, the Bank of Greece ‘had very restricted control over foreign exchange movements’, becoming thus unable to attract ‘much of the exchange earned through either exports or invisibles’, such as sailors’ and emigrants’ remittances.³⁹ Time and again, this shows the deep monetary and political dependence of the Greek state upon foreign interests and agencies.⁴⁰ In a way, however, the Greek ruling classes were ‘unlucky’. Their fate was hanging on the finest of threads, for, the centre of global accumulation, wealth and power had for some time been moving from Western Europe to North America. The powers to which Greece was indebted, Britain and France, were themselves operating under the debt fetter: they both owed large sums of money to the USA.

During the war, the dollar became a world currency, equal in strength to the British pound. The US Federal Reserve was established in 1913 and by then the USA had already achieved naval parity with the Royal Navy in the Atlantic. European merchandise exports to Latin America and elsewhere were severely curtailed by the war, with the USA occupying an even more prominent global economic and political position. During and after the war US international policy continued putting pressure on European imperial powers on the basis of its Open Door policy, especially as the Europeans were secretly dividing up the Middle Eastern oil market, drawing up the petro-borders of the Ottoman empire. Europe was short of capital. Capital scarcity in Europe meant high rates of return for the USA, which strengthened the dollar forcing Britain and France to peg their currencies against the dollar at depreciating rates, especially during the war. Britain and France became over-indebted to the USA during the war and both powers hoped to recover their debts by forcing Germany to pay them heavy war reparations. In fact, the USA entered the war in 1917 not least because staying out of it would have meant ‘an interim economic collapse as American bankers and exporters found themselves stuck with uncollectible loans to Britain and its allies’.⁴¹

But after the end of the war, a vicious circle of debt payments became evident: Britain and France could not pay back their war debts to the USA, partly because Germany did not abide by what it signed up to in Versailles, and partly because of the USA’s policy of raising tariff barriers from as early as 1921, which did not allow European states to pay off their war debts by exporting more goods to the USA. The US drive to break up the system of Britain’s and Europe’s formal empires began in embryonic form. ‘But’, Michael Hudson notes, ‘so reluctant was Europe to recognize this ultimate policy intent – still only in its germinal stage – that the only response was an angry Editorial in The Times of London announcing the suggestion that Britain ship its National Gallery and the British Museum to New York in partial satisfaction of its debts’.⁴² The system of formal European imperialisms could no longer support, both politically and financially, the capitalist regime of accumulation in Europe and the globe. Power had shifted to the new creditor power, the USA. In this context, it is obvious that the situation for Greece was not ideal.

Greek industry was internationally uncompetitive and mostly inward looking, virtually unable to generate economies of scale providing state budgets with the funds required to finance expenditure (public works, resettlement of refugees, debt payment, defence needs, etc.). For example, as we can see from Table 3.2, the total inflow of loans is so large that it was impossible to be counter-balanced by foreign capital inflows and investment in manufacturing. Table 4.1 (in Chapter 4), in addition, shows the magnitude of trade deficit, which is the clearest evidence proving that Greece, despite its progress in manufacturing between the wars, remained, by and large, a comprador economy, that is an economy dominated by import consortia, merchant activities and small-scale agricultural production. Thus, the Greek state, and given its low rate of tax collection, presented a transmogrified picture with its parlous state of public finances unable to balance out the country’s new monetary base with the foundation of a central bank requiring – at least in theory – monetary stability. But the international factor was as important: when the Great Depression began – between 1929 and 1933 – real output in the USA declined by nearly 30 per cent and the unemployment rate reached 25 per cent, whereas the banking system of the country shrank by half (some 2500 banks closed down) – and Britain was forced to abandon the gold standard in 1931. Greece, despite Venizelos’ procrastinations, also went off gold. In April 1932, Greece abandoned gold convertibility and the drachma went on a free fall against all major currencies, thus increasing dramatically the cost of servicing its debt. The following month, the country was forced to default for the fourth time in its modern history. The reality was inexorable: in 1929 France blocked the Greek wine trade and, between 1929 and 1931, falling export prices pushed the real debt service burden up by 45 per cent.⁴³ The total external debt of Greece in 1932 stood at 514 million dollars.⁴⁴ As with the previous defaults, the country’s debt crisis had both external and domestic sources. The trigger, obviously, came from outside but this generated a sea of events inside the Greek polity, setting off balance the entire dependent architecture of capital accumulation and derailing the dominant matrix of kampfplatz, the phenomenology of the political game. This happened because the country’s internal financial flows did not correspond to its monetary base. This fault-line between national/international has characterized all of Greece’s modern debt crises and is a direct expression of its dependent/subaltern position in the imperial chain.

Table 3.2 Balance of trade, 1920–30 (million drachmas, 1985 prices)

Source: Our compilation of data from Freris (1986) pp. 67–8.

None of the above developments of the Venizelist cycle left social forces untouched, especially the most politically advanced sections, such as communist and socialist organizations. In 1918, the Greek Federation of Labour (GSSE) was founded.⁴⁵ A socialist federation under Jewish-Greek leadership began in Salonica and trade unions were established in Athens and Piraeus. With the law 281 (1910), which prohibited the participation of employers in workers’ unions, Venizelos laid the bases of Greek trade-unionism, although later, giving in to pressures by his interior Minister, Constantine Zavitsianos, he passed Law 4229 (25 July 1929), the famous idionymo (‘idionym’), according to which communist politics and ideas were considered a crime. Both the rate of industrialization and the proletarianization of the refugee population in Greek society were forced to operate under the pincer of the debt burden, which created an explosive radical mix. All the developments we described above had been straddled with specific state bi-partisan austerity policies aiming at an increase in the rate of exploitation, which was designated as an increase in relative surplus-value without any increase in real wages. To give only one example, between 1928 and 1938 labour productivity increased by 43 per cent and wages only by 24 per cent; consumer prices between 1922 and 1935 rose by 207 per cent whereas wages by only 83 per cent.⁴⁶ This brought social struggle and left-wing politics to the forefront of the decaying Greek political system, whose main cleavage remained the same: Venizelists versus pro-Crown populist factions (led by Panaghis Tsaldaris). In fact, when Metaxas proclaimed a dictatorship on 6 August 1936, most leaders of the two main political parties, liberals and populists, remained either silent or joined the dictator. Only communist and socialist forces attempted to put up some serious resistance against the Metaxas dictatorship and the Crown.

Last but not least, neither the Greek kampfplatz of the Venizelist phase nor the actual economic complexities before and after the 1929 credit crunch present any substantial difference with other political systems and divisions whether in the capitalist core or in the periphery – (e.g., the Balkans, Central Europe or Latin America). Severe economic disruptions fed social upheavals and unstable cabinets everywhere, leading to default, policies of autarky and import-substitution industrialization and, in most instances, eventually, to authoritarian, fascist, populist and Nazi cabinets. For instance, in Greece, between 1924 and 1928 there had taken place 3 general elections, 11 military coups and 10 premierships but, similarly, the so-called ‘radical phase of France’s Third Republic (1871–40) saw ‘ten different cabinet configurations between the beginning of 1924 and the end of 1926 alone’.⁴⁷ Germany’s Weimar Republic (1918–33) is another example. Having established itself after suppressing the movement initiated by the sailors’ mutiny of October 1918, and carried on by the Communist uprising of the Spartacus league (January 1919), Weimar produced 15 governments between 1919 and 1928 of which the longest lasted for 18 months only.

3.4 A tentative conclusion

Some very important and strictly inter-related comments stem from our analysis so far. We must also stress that, although not inconclusive, these comments are not written in stone. They should be read as suggestive and tentative remarks for improvement and possible rectification, inasmuch as the quantitative data available throughout the period in question are either non-existent or scarce, a fact that led us to rely extensively on secondary sources that themselves recognize this constraint. Here is our suggestive research agenda for further discussion.

First, the Greek war of ‘independence’ against the Ottoman Turks was not a Greek Risorgimento, with an industrial Piedmont from the North advancing its imperial power southwards. In addition, the disparate armed groups of the various Greek chieftains during the uprising (1821–28) had no resemblance to Bismarck’s army. The foundation of the Greek state in 1830 was an act of geo-politics engineered by exogenous imperial agencies in order to redress the balance of power in the Eastern Mediterranean at the expense of a crumbling Ottoman Empire. In the main, Britain and France wanted to check Russian and Egyptian advances in the region, a policy that found expression in the creation of a small Greek Kingdom in 1830, wholly subordinated, primarily but not exclusively, to Britain and France. Thus, from the very beginning, a truncated Greek social formation with a pre-modern economic structure offers itself to its new lords as a vassal, but a vassal with a disproportionate geo-political clout as it was perceived by Britain and France. This regional fault-line was to become the birthmark of Greece’s political economy and geography: it will never disappear.

Second, Greek capitalism had predominately been comprador and agricultural in character and this persisted throughout the period 1830–40. As a consequence, Greece’s qualitative gap with the industrial core reproduced itself across time and space, without being diminished and despite the country’s numerous territorial expansions. Greece’s capitalist economic progress counts only if compared to the country’s own previous phase of development, not to the capitalist core. The increase in the rate of exploitation and the passage to the capitalism of the relative surplus-value between the wars did not dominate Greece’s social economy. Had it done so, the country would have been in a position to balance out its borrowing requirements and attain a more independent presence in European politics especially when facing default in the wake of the 1929 Great Depression. Moreover, none of the political parties dominating the country’s political system had a mass base resembling Western European politics. This does not mean that Greece was ‘under-developed’, whether politically or economically. It means that the degree of capitalist modernity was qualitatively different, a fact that, of course had quantitative consequences (persistent trade deficits and borrowing requirements accompanied by four defaults). The issue of the dependent/subordinate position of the country in the imperial chain, therefore, remained unresolved, with Greece’s need to resort to external and internal borrowing becoming all-pervasive. Greece’s second birth-mark that will never disappear lies indeed in the qualitative gap between the social economies of the core and its own social economy. The result is a chronic deficit in its current account.

Third, because during the inter-war period the drachma had become linked to the gold and the imperial currency of the time, the British pound, Greece became more integrated into the international monetary order determined by the fluctuations of the pound and the political and economic might of the British state. However, when the financial and credit crisis of 1929 showed that the British state was a lame duck, the imbalance between the country’s monetary base and its financial transactions/flows became increasingly pronounced – a fact which is reinforced by our theoretical discussion in Part I – and, eventually, implosive, forcing the country to impose a moratorium on interest and capital payments (default). This was also due to persistent budget deficits, which leads us to conclude that the sources of the Greek debt are both external and internal. True, the debt crises were triggered from outside but they had always found expression within the state proper triggering budgetary crises and affecting the revenue/expenditure structure. The drachma, once it went off its gold parity, fell from 305 pounds (March 1932) to 552 on 31 May of the same year. Shortage of foreign exchange in the Bank of Greece meant that Greece could not keep up with its monthly debt repayment. The response of the Greek elites was a type of import-substitution industrialization that, for all intents and purposes – see Chapter 4 – benefitted the country. The road to authoritarianism, as elsewhere in Europe, the Balkans and Latina America, was laid.

Fourth, from the 1860s onwards, the Greek political system presented itself as a bi-polar kampfplatz only to be marginally challenged by the entry of communist and socialist matrixes after the Bolshevik revolution. This ideal-typical configuration represents not only an amalgamation of the organic contradictions of the prevailing regime of capital accumulation in Greece; more importantly, it reflects the way in which Greek politics is integrated in the Western division of capital and labour, and the qualitative degree of divergence and convergence between the core and periphery. The form of mass politics Greece experienced in the 20th century, especially after World War II, is qualitatively different from the type of mass politics that took place in the core. For example, Greece did not experience the type of mass political parties, such as the German SPD or the Italian Communist Party, that marked the politics of Germany and Italy respectively in the 20th century. The hegemonic crisis in the core which became crystallized in the Great Depression shook the politics of the core, upset the kampfplatz across all political societies partaking in the international system and led to autarky, self-sufficiency and closed political economies. Fascism, Antonio Gramsci argued in his Prison Notebooks, is a ‘passive revolution’ because it develops the social productive forces of Italy but under authoritarian, regressive political forms of governance. Such was indeed the case across most of Europe and Latin America before the outbreak of World War II, and such was to be the case in Greece from the early 1930s to mid-1970s. This is the period to which we should now turn.