Why Greece Voted 'No'

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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.
By Thomas Cooley
On Sunday, Greek citizens were given a Hobson's Choice — vote "no" on a set of complex proposals and give a pat on the back to a government that has caused a further contraction in their economy with posturing and ineptitude or vote "yes" and back the European allies and the International Monetary Fund, who failed to provide the right kind of help when the crisis emerged five years ago. It's tough living in the cradle of democracy! But Greece has a long history of ignoring Polonius's advice and it is worth understanding the two centuries of history that has inured them to their fate.

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.

Read full article as published by CNBC

Thomas Cooley is the Paganelli-Bull Professor of Business and International Trade.