Why Greece Voted 'No'
By Thomas Cooley
Greeks have been ill served by their European allies, the IMF, and their government. By failing to acknowledge the inevitable in 2010 and assuming that Greece could reform itself and begin growing again and service its existing debt, the European allies and the government simply extended the pain and increased the damage to the Greek economy.
During the Greek War of Independence in the early 19th Century, the provisional government negotiated loans of more than 800,000 pounds from Britain, eventually receiving less than half that after speculators and middlemen skimmed off their take. By 1827, it was already in trouble and sought new loans from its European allies to cover the payments on the previous loans. The allies refused and Greece declared bankruptcy.
In 1832, the Great Powers — Britain, France and Russia — declared Greece a monarchy and installed a Bavarian prince, Otto, as king. Otto sought new loans of 60 million French francs. The first two installments were paid out and used to settle previous debts to the British as well as to make payments to Bavaria to support the Bavarian army. The third tranche never came through because the economy was so poor and Otto was forced to declare bankruptcy.
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Thomas Cooley is the Paganelli-Bull Professor of Business and International Trade.