Greece: Where Default is, err, the Default State

One might think a line like about Greek finances was printed just this week

What followed could only be described as a comic progression of populist pandering [and] the spread to the national economy of a series of parasitic labor unions and cabals

But in fact it is describing Greek conditions circa 1944.

A while back I observed that the difference between Greek and US finances is that the US needs to return to a spending level circa 2007, while Greece has no similar default state of relative fiscal sanity it can return to.  This article in Finem Respice reinforces this premise by discussing the absolute insanity of Greek fiscal management before and after and even during WWII, which was characterized by all the exact same problems that have driven the current crisis.  Good background reading.

Greece, then as now, was dominated by an expensive public sector funded insufficiently by a tax system that did not work.  As may happen soon, Greece was not able to borrow, so all they could do was print money and inflation soared.  Only one man was able to stop the inflation, and I won't spoil the ending by the humorous way he did so.


  1. Sam L.:

    Whoever wrote that had himself a great time doing so. One wonders if he was drinking wine by the bottle or bourbon by the half pint to get his brain ticking over like a Bugatti engine and cranking out one of the funniest historical disquisitions I have ever read (thru para 10, when I just had to write this comment, due in part to the reference to the JPF and PFJ).

  2. Emil:

    the article is full of ... whatever

    for example: "Liberation governments, fearing popular backlash were terrified of taxing the Greeks. Instead they continued to look for sources of wealth to redistribute, and were happy to resort to even the most gamey monetary policies to buy time."

    The Germans looted everything that they could pry with a crowbar, including stuff that was nailed to the floor: in 1944 they left with all the food they could find, any industrial equipment that could be unbolted and moved, almost all the railway rolling stock ... It was after 4 years of war in the region. Greece was starving, had no markets to sell to and nothing left to sell if they could find buyers. If that does not seem credible, check out Red Cross reports published about what they found in Serbia and Southern Rumania during WWI, they are already in public domain and libraries began scanning them: exactly the same situation: deindustrialization, inflation, no real currency, starvation ...

    They were looking for anything that might be sold to make some money to get them to the next crop, not for "wealth to redistribute".

  3. ep:

    Alas, Emil, the facts beg to differ with you. I suggest reading Palairet, Michael R., "The Four Ends of the Greek Hyperinflation of 1941-1946", Museum Tusculanum (April 2000), which I cite liberally throughout the article. Your argument seems premised on the idea that Serbia and Southern Rumania [sic] were starving in World War One, and so Greece must have been after World War Two. (Though perhaps your WWI reference was a typoed WWII?) Consider for example:

    "As the liberation governments preferred not to tax if they could avoid it, the months that followed the stabilisation of November 1944 witnessed a replay of Neubacher's November 1942 stabilisation. By April 1945, the accumulation of transactions balances could no longer absorb new emissions. This led to the Varvaressos' reform in June. Its principal feature was a punitive raid on business, to force the release of inventories (the lynchpin of the earlier Neubacher reform) while buying popular support with cheap food and wage increases. The consequent boost to real incomes was so great as to destabilise the package. Varvaressos tried to contain the dis-equilibrium with administrative controls, but his civil servants proved incapable of implementing them. On the collapse of his reform, his successors reverted to the Neubacher technique of 1944- seigniorage maximisation wit hthe assistance of gold sales. The illusion of distress created by renewed inflation secured Greece new finance from Britain and the USA. Rather than re-balance spending with revenue, the Greeks dug deep into their gold and hard currency reserves both to procure a further rich harvest of seigniorage, and to secure popular well-being through the growth of imports." (Palairet at 97, emphasis mine).

    Palairet is worth a read, and the dozens of charts and tables in the book are well worth a peek too. An excellent piece of scholarship, particularly when held up against the "evidence" of anecdote.

    It doesn't really bother me that you would dispute the basic thrust of pervasive, ongoing, irredeemable Greek incompetence in all realms of finance because much of this post-war subject matter is obscure. It is concerning that you seem so compelled to place your argument on such a lofty pillar when that pillar is, in fact, composed primarily of air.

    Also, Sam L: I'm a "herself." :)

  4. ep:

    Now that I read it again this...

    "The illusion of distress created by renewed inflation secured Greece new finance from Britain and the USA. Rather than re-balance spending with revenue, the Greeks dug deep into their gold and hard currency reserves both to procure a further rich harvest of seigniorage, and to secure popular well-being through the growth of imports."

    ...sounds awfully familiar.

  5. Matt:

    It's a bit disingenuous to point to 2007 as a position of sanity. Yes, the specific amounts spent in 2007 would balance our budget today, but the _fiscal policies_ in place in 2007 (or any other year in my lifetime or yours) were not, on the whole, significantly better than those in place right now, and our current mess proceeds not so much from the bad policies of the four years since 2007, but from the bad policies of most of the 20th century.

    Sure, we've wasted a couple of trillion dollars on bogus "stimulus" bills. But that's a drop in the bucket, in the grand scheme of things. And ObamaReidPelosiCare, which isn't a drop in the bucket, isn't actually costing the federal government any significant amount of money yet.

    Social Security went cashflow-negative a couple of years earlier than originally estimated, because of the recession cutting into the workforce, and it's played havoc with the budget. But recession or no recession, regardless of which party controlled the White House or either or both houses of Congress when it did, it was going to provoke a crisis like this.

    The United States hasn't had a sound fiscal policy in over 100 years, and we've been building _specifically_ towards the present collapse since the Roosevelt administration.

  6. Don:

    Hmmmm... Anychance we could parachute some commandos in around the Fed Banks? That might help our situation a bit ;^).

  7. Sam L.:

    Sorry, ep, that I was unable to recognize or interpret your gender from your initials (if they are initials). I was just so taken with the humor with which you wrote, and the Monty Python reference!

  8. ep:


    It's not exactly fair of me to be huffy. In print I'm pretty oblique about my gender. Hence the smiley face. As for Life of Brian, I couldn't help it. The Greek resistance was full of similarly acronym-laden groups, all fighting with each other. Python might as well have modeled that scene "splitters!" on the Greeks.