Editorial: Iconic Photos has been first and foremost a history blog and here it looks back at millennia of messy defaults.
History of sovereign defaults tends to begin with Dionysius, the ruler of Syracuse in Greece during the fourth century B.C., who had an entertaining habit of stamping two-drachma mark on one-drachma coins to pay of his debts. Around the same time, thirteen Greek city states defaulted on their loans from the Temple of Delos — the first recorded default in history. In the modern era too, Greece never enjoyed sound finances; it defaulted at least five times (1826, 1843, 1860, 1894 and 1932), and the messiest default in 1826 shut it out of international capital markets for 53 years.
However, it’s a more recent nightmare that haunts the Greek psyche today — that of German domination. The country which suffered mightily under the Nazi rule seems to be invoking those painful memories this November as northern european countries demand austerity measures from their floundering government. A giant swastika looms over the Acropolis on the cover of fittingly-named Crash magazine. Horst Reichenbech, the German head of the European Task Force on Greece, has been portrayed as a Wehrmacht officer on the cover of another, and called a gauleiter, a Nazi term for a regional governor. On my last visit to Athens, a favored phrase there seems to be “The Germans are coming” a title of an influential post-war Greek film, where a former partisan often wakes up from his nightmares uttering just that.
Despite deep positive relations over the last five decades — which included the German government shielding political dissidents from the Greek junta — the Second World War casts a long and grim shadow over the Greek psyche. The German tabloid Bild’s pointed suggestion that the Greeks sell the islands and the Acropolis did not help assuage the rumors that German banks are waiting to liquidate the Greek state’s assets.
Their fears may be irrational, but are not without precedents. Newfoundland lost nothing less than its sovereignty in 1936 when it messily defaulted after falling fish prices. The oldest parliament in the British Empire after Westminster was quietly abolished and a trusteeship was imposed on 280,000 people who had known 78 years of direct democracy. A la Occupy Wall Street, the islanders stormed their defunct parliament and tried to lynch their prime minister, who only narrowly escaped this fate by running down an alleyway ignominiously.
Although not quite to the same extreme as Newfoundland, Egypt, Greece, and Turkey sacrificed partial sovereignty as regards government finance to England following their nineteenth century defaults. The United States established a fiscal protectorate in the dominican republic in 1907 in order to control the customs house, before occupying the entire country in 1917. The US also intervened in Haiti and Nicaragua to control the customs houses and obtain revenue for debt servicing. Such were the halcyon days of gunboat diplomacy.
This blog believes that Germany and her investors has profited deeply from the euro at the expense of their Mediterranean neighbors. Without the euro, Italy and Greece could have indulged their workers with higher and higher bonuses while sporadically devaluing their currencies and making their countries more competitive. The euro prevented that. The only benefits from the euro went to Germany, where a low performing periphery weakened the currency, which made German exports extremely attractive abroad. Like China, Germany’s competitive edge had currency manipulation at its heart. Therefore, it is both hypocritical and pusillanimous for the Bundesbank and the German Chancellery to shriek their responsibilities now. After all, they partially concocted this ungodly brew and time has come for Berlin to taste its own medicine.