Welcome to year five (or year 2600, depending on your chosen starting point) of the Greek financial crisis.
Some things worth keeping in mind:
1. Greece invented finance. It was the starting point of currency and “movable” wealth. It was the birthplace of banking, personal loans, securitized lending, real estate loans, credit-based trade, endowment investing, capital levies, interest rate laws, foreign exchange, annuities and many other related innovations that helped to give birth to the modern world.
2. If Ancient Greece invented finance, it also was the inventor of the financial crisis. The first one in recorded history, during the 6th century BC, was so bad that they actually resorted to bringing in an academic – a poet, no less – to clean it up. It seems that the Greeks had engaged in a practice, en masse, in which they pledged themselves as slaves against the debts they were racking up in support of their farms. it had gotten to the point that a huge chunk of the population ended up enslaved, either in-country or shipped off abroad. The wiseman Solon was brought in to power in Attica and he began canceling debts, freeing his fellow citizens from slavery and even redeeming some slaves who had been sold abroad. He did this by devaluing the drachma by one-quarter – something his counterparts in modern Greece are currently unable to do.
(the first ATM)
3. Greece has never been a good credit risk. With the exception of the Athenian city-state, whose owl coins backed by the local silver mine maintained their integrity for 600 years, virtually all other Greek governments were seen as constant default risks. Greek states never lent money directly to each other. The banks of the day, which were the temples, knew better than to lend to Greek states directly as well. Instead, loans were made to wealthy individuals and private citizens of means on behalf of their cities. The Ancient Greeks understood that personal accountability would be a better guarantor that debts would be paid as opposed to, say, civic pride.
4. Demosthenes, in the 4th century BC, said “Of all kinds of capital, the most productive in business is confidence and if you do not know that you do not know anything.” No one had confidence that Greek governments would make good on their loans, which is why productive capital demanded personal responsibility for loans or even the pledging of bizarre forms of collateral. There was that time when the city of Cyme pledged its public colonnades – when Cyme defaulted, its citizens were forbidden to stand under them to get out of the sun or the rain. There was one notable time that the temples made an exception. The Shrine at Delphi and its Temple of Delos was the JP Morgan of the ancient Greek world. In the 4th century BC it made a loan to 13 Greek city-states and ended up taking an 80% haircut when the majority of them never paid back the funds.
5. Bringing things up to the modern era, we look at the period from Greece’s independence in the 1830’s to today. In this roughly 200-year period, Greece has been in default to its creditors during roughly 90 of these years, or half the time. To a person with any historical awareness, being told that Greece is on the verge of a default is like hearing Dean Martin is on the verge of a martini. The government of modern Greece has defaulted five times in 1826, 1843, 1860, 1894 and 1932. It defaulted on the original loan arranged by creditors on the London Stock Exchange to win its independence on the battlefield in 1825. So many middle men skimmed so much money, and there were so many internecine squabbles among the Greek revolutionaries, that no one even knew where the money went or who was responsible for it. It wasn’t until 1878 that Greece made good – half a century later – and by then the approximately 1.7 million pound loan, with accrued interest, had ballooned to 10 million pounds!
6. There was another loan made in 1832 by the French, British and Russians. This was defaulted on 11 years later, effectively freezing Greece out of the international credit markets for decades. In the late 1800’s, all was forgiven again and the loans from foreigners once again came pouring in, in search of a high rate of interest. Once again, the Greeks ended up under an unsustainable debt burden and the government suspended all payments on external debt in 1893. Hilariously, they created the “International Committee for Greek Debt Management” to appease their foreign creditors, which was meant to monitor the economy and tax collection. If that doesn’t sound familiar, raise your hand and I’ll come whack you over the head with a croquet mallet.
7. Greece defaulted again in 1932 (who could blame them, given the world economy) and remained in default for thirty years until the mid-1960’s.
8. The truth is, Greece never belonged in the European’s single-currency experiment to begin with but they were too small and inconsequential to say no to. The statistics they submitted were largely fudged and Northern Europe willfully overlooked the country’s well-known culture of black market economics and rampant tax evasion. It was the late 1990’s – optimism was the pervasive sentiment around the globe, ushered in by the hedonist-in-chief in the White House. The Euro Zone even looked the other way when Goldman Sachs enabled the interest-rate swaps and so forth that cooked Greece’s books to the point where they were qualified for inclusion. “F*** it, let ’em in,” said a cigarette-smoking Parisian bureaucrat sometime between his first and second lunch break that day.
9. There are no countries in the modern world that have defaulted on their loans more often than Greece, save for Honduras and Ecuador. Look it up. The fact that history is repeating for the umpteenth time should not cause you to lose your s***. Not that this is going to be a good thing. It’s going to hurt some people. But probably not hurt the world. Greece’s creditors played for time since the latest crisis began five years ago and used that time to minimize the impact of what they all probably expected from day one. When Mario Draghi gave his famous “whatever it takes” speech, he meant whatever it takes to protect the European Union – not whatever it takes to keep Greece in it. Mark Dow makes this case – that a Grexit will be the best thing for both Greece and for the EU in his new post, Greece: It’s Time and It’s Going to Be Okay. Maybe he’s right. Read it and cool off.
Bottom line – Greece has given the world many beautiful and important things and its cultural heritage is among high points in the history of humanity. But finance just isn’t its strong suit. Fortunately for the world, we’ve had time to prepare and the Greek economy is about the size of the economy of Atlanta, Georgia. Contagion is a real risk, but probably not the risk it was when this all began. More to the point, contagion is always a risk, not just when the newspapers begin talking about it.
And besides, it’s not like nobody saw this coming, given the history.