On 10 December 1893, Greek Prime Minister Trikoupis stood before parliament to utter one of the most memorable phrases of his political career: “Regretfully we are bankrupt”.
Causes of the Greek Bankruptcy of 1893
- Loans – Excessive Borrowing
To finance his ambitious modernization programme Prime Minister Trikoupis raised a total of 6 loans of a staggering (for the time) nominal amount of 630 million francs. However, infrastructure building did not revive or restructure the Greek economy. Loans and revenues from indirect taxes, custom duties and state monopolies were mostly used for administrative and military expenses.
Trikoupis gambled on achieving economic development by means of attracting foreign investors and of infrastructure building. Low European interest rates, an off-shoot of the Long Depression, made investors eager to lend to the Greek state. By 1893, over half of the Greek budget was used toward loan repayments. The Greek economy was thus trapped in a vicious circle of excessive borrowing to service existing loans.
- The Long Depression
The economic downturn that affected Western Europe and North America during 1873-1896 caused the European economies to contract. Wholesale prices for imported goods such as textiles, wheat and currants collapsed. States resorted to interventionism and protectionism enacting tariffs to protect their faltering industries.
Greek exports were adversely affected by the Long Depression reducing the state revenues from custom duties which represented 45 per cent of the state budget. Reserved assets were exhausted and Greece’s currency, the drachma, was depreciated.
- Collapse of the Greek Currant Export Trade
The Greek economy which was heavily dependent on exports was directly affected by the fall of external demand for its main export product: currants. Corinthian currants, Greece’s main cash-crop cultivation and export product, constituted 50-75% of the total value of the country’s exports. Whole populations in the south of Greece were dependent on currant export trade which in turn constituted the backbone of the Greek economy.
Currant prices which had started falling already in the 1870s dropped in 1890s by 70%. The collapse of the currant export trade had severe social and economic consequences and contributed to the bankruptcy of Greece. In addition, the value of exports decreased dramatically compared to the value of imports.
Bankruptcy of 1893
Prime Minister Trikoupis declared the country bankrupt causing an outrage among Greece’s foreign lenders in London, Paris and Berlin. Trikoupis reduced interest rates of external loans by 70% and tried to reach a compromise between the Greek state and the capital owners. He did not succeed. The bankruptcy and resulting economic crisis combined with political instability and social unrest. Trikoupis lost the election of 1895 and died a year later in Paris.
Sources
Konstantinos Vergopoulos, “The last administration of Trikoupis and the bankruptcy”, History of the Greek Nation [Istoria tou Ellenikou Ethnous], vol. 14, Athens 1977, pp. 35-37. [in Greek]
Christiana Agriantoni, The beginnings of industrialization in 19th Century Greece, Athens 1986. [in Greek]
L. S. Stavrianos, The Balkans since 1453, C. Hurst & Co: London 2000, pp. 471-3.
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