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6th Seminar: Olga Christodoulaki, "Public debt restructuring in Greece in 1898: Lessons for today"

Christodoulaki Olga (Visiting Fellow, Economic History Department, London School of Economics)
Socrates Petmezas (University of Crete)


During the recent economic crisis in Greece, sovereign debt has been restructured substantially on two occasions. The first was in March 2012 when private investors in Greek public debt experienced a reduction in the face value of their bond holdings by more than fifty per cent – a reduction which stands as the world’s biggest debt readjustment deal. Then in June 2018, sovereign debt relief was granted by its Eurozone counterparts.  
This is not the first episode of Greek public debt restructuring. In 1898, five years after a Greek government default, a debt compromise was achieved providing for the restructuring of both internal and external sovereign debt. The most innovative provision of this debt readjustment plan was that interest rate payments to bondholders of Greek external loans issued before the 1893 default were linked to specific public revenue streams earmarked exclusively for the service of these loans. 
This research aims to shed light on why the 1898 debt restructuring episode is thought to have been successful whilst by contrast, the debate on the burden and sustainability of the current Greek public debt continued even after the most recent sovereign debt relief granted by its Eurozone  partners. In addition, it asks questions about the effects that debt readjustment had on sovereign risk and on the banking sector in the late nineteenth century as opposed to the recent economic crisis.
High frequency time series of market yields of the loans floated on the international markets before the 1893 default are constructed taking, however, into account for the first time ever, the stipulations enacted by the 1898 sovereign debt agreement. It is argued that the provisions of the debt readjustment of 1898 – which it should be stressed have been completely ignored by research until now – should be taken into account in order to comprehend fully the improvement in the creditworthiness of the Greek government and consequently the terms of borrowing before the outbreak of the First World War. It is also shown that special attention was paid during the preparation of this debt readjustment plan to protect and indeed strengthen the National Bank, the central bank at the time. Domestic public debt denominated both in gold and drachmae and mainly held by the National Bank, was restructured so as to strengthen its financial position.

Date and Time: Monday 9 March 2020, 17.00-19.00

Venue: National Hellenic Research Foundation (48, Vas. Konstantinou av., Athens, groundfloor, Seminars' room, metro "Evangelismos" or bus station "NHRF"). 



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