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Jim Grant: The Greek Monetary Back-Story
Submitted by Jim Grant via LinkedIn,
Raging against its German creditors, the new Greek government is demanding reparations for Nazi-era depredations. Herewith—from the Grant’s archives—some timely context both for the Greek negotiating position and the underlying monetary issues.
(Grant's, February 24, 2012) “Statements and assurances from Greece are no longer taken at face value,” a German economics professor, Wolfram Schrettl, has remarked. “Who will ensure afterward that Greece continues to stand by what Greece is agreeing to now?” the German finance minister, Wolfgang Schäuble, has demanded.
Such expressions of German disdain ignite a special kind of fury in Greece. While 21st-century Greek fiscal and financial management may leave a little something to be desired, the record of German monetary stewardship in the Hellenic Republic is supremely worse. During Nazi occupation in World War II, Greece suffered famine, pestilence, wholesale killings and hyperinflation. The last-named plague is the topic at hand.
Let bygones be bygones, they say, and well they might say it in Europe, the land of ancient enmities. However, there can be no understanding the present-day Greek sensitivity to its high and mighty creditors without a rudimentary knowledge of the German-inflicted catastrophes of 1941-44. Nor can there be a full and proper appreciation of the risks inherent in paper money without a basic grounding in such abominations as the occupation-era Greek drachma or, for that matter, the post-occupation drachma—for the liberated Greek central bank took up where the German-corrupted central bank left off. Fiat currency can’t seem to help itself. The insubstantial monetary material sooner or later goes up in smoke, no matter whose hand cranks the presses. These days, of course, the cranking hand is a technocratic one. “Quantitative easing” is the anodyne phrase. Yet in peace as in war, gold is the preferred refuge from state-imposed paper currency.
According to Mark Mazower’s scholarly history, “Inside Hitler’s Greece: The Experience of Occupation, 1941-44,” between 250,000 and 300,000 Greeks died from famine at the hands of the German overlords. “In reality,” Mazower writes, “there was no deliberate German plan of extermination.” The extermination that did occur was rather the result of the calculated destruction of the Greek economy and the stripping of the Greek larder for the Axis armies, the German one in particular. “Who is Mr. Schäuble to revile Greece?” the 82-year-old president of Greece, Karolos Papoulias, demanded last week in response to the German finance minister’s slighting comments about the country for which a teenaged Papoulias fought in World War II.
Famine was a certain, if not deliberately sought, consequence of German occupation policy, but there was nothing accidental about the destruction of the drachma. The German-controlled Bank of Greece printed up the national currency as the need arose. In the opening months of 1941, before the Germans (and the Italians and Bulgarians) came to stay, a British sovereign was worth 1,200 drachmas. As the Germans cleared out, in November 1944, blowing up railroad tunnels, rolling stock, harbors and such as they left, a sovereign commanded 71 trillion drachmas.
A sovereign is a gold coin weighing not quite one-quarter ounce—to be exact, 0.23542 troy ounce. When Britain was on the gold standard, a sovereign was worth one pound sterling, and it circulated as the people’s money. It was a popular coin in Greece, too, as Britain and Greece had joined monetary forces in 1928. Three years later, Britain went off the gold standard, and in 1932, Greece and Britain ended their so-called stabilization relationship. Cut loose from gold, the paper pound began its long descent in purchasing power measured in gold. However, from the Greek vantage point, paper sterling was a better anchor for the drachma than no anchor at all, and in 1936 the Greeks re-lashed their currency to Britain’s, at the rate of 548 drachmas to the pound.
Fast-forward now to the outbreak of war in Europe in 1939. As the pound came under new inflationary pressure, so did the drachma. In Athens, the cost of living was accelerating well before Hitler mounted his attack on Greece in April 1941. In 14 months of neutrality, prices in the Greek capital had jumped by 15%.
Nowadays, Germany is the national face of monetary and fiscal rectitude. It wore a different face in wartime Greece, though the German army of occupation did observe some of the basic commercial forms. “Rather than requisition all required goods and facilities,” write Dimitrios Delivanis and William C. Cleveland in their “Greek Monetary Developments, 1939-1948,” “the occupation armies usually preferred to pay with newly created currency.”
The German visitation lasted for 3-1/2 years, but the real monetary damage was done in the first 18 months. In April 1941, an index of the cost of living in Athens registered 116. In October 1942, the same index stood at 15,192, a gain—if that’s the word—of almost 13,000%, or an average monthly rate of rise of 722%, according to Delivanis and Cleveland. It didn’t help the price picture that the Greek economy was crippled or that the Germans were making off with whatever wasn’t nailed down to aid the Axis war effort. What, especially, didn’t help the price picture was the breakneck growth in the local money supply, up roughly 10-fold between May 31, 1941, and Oct. 31, 1942, or the fact that, in 1942-43, newly printed drachmas financed 81% of public expenditures.
During this first act in the play of the death of the drachma, the currency’s domestic purchasing power fell by 99.34%, its external purchasing power—expressed in terms of the gold sovereign—by 99.73%. These facts we commend to the 21st-century gold bulls on those discouraging days when the eternal monetary metal seems to trade as a proxy for the euro. It isn’t the euro, after all, but almost the opposite. It is money, the genuine article.
“It must be concluded,” write Delivanis and Cleveland, “that the almost complete collapse of the value of the drachma, both internally and externally, was largely the result of enemy exploitation. The enemy occupation authority seized all stocks of commodities that were discovered, exploited for its own benefit the productive facilities and capital equipment of the country, confiscated and exported as much as possible of the current production, and extorted, as occupation costs, payments equivalent to 7,674 million prewar drachmas between May 1, 1941, and March 31, 1942, 2,287 million prewar drachmas between April 1, 1942, and Oct. 31, 1942.”
No bear market is complete without a trick rally, an Act II, and the terminal decline in the Greek currency was no exception. News of the Allied victory at El-Alamein in October-November 1942 caused a rush out of gold into scrip. A sovereign had fetched 37,144 drachmas before the battle that Churchill famously characterized as not the end of the war, nor even the beginning of the end of the war, but, “perhaps, the end of the beginning.” By February 1943, it took just 14,180 drachmas to buy a sovereign—as it turned out, not a bad entry point for the final move up to an average of 71 trillion.
Act III of the eradication of the drachma resembled Act I but with the addition of many more commas and zeros to all the significant currency and inflation data. Hopes of early deliverance from the Nazi occupation dashed, Greeks resigned themselves to the likelihood of a replay of the Weimar inflation of 1922-23, an earlier episode of German-directed monetary chaos. As noted, the Athens cost-of-living index stood at 116 on the eve of the German occupation. It registered 76,171 in November 1943 and 18,850,000,000,000 in the first 10 days of November 1944.
“During the final period of the enemy occupation of Greece,” the Delivanis and Cleveland account continues, “the index of note issue by the Bank of Greece rose to fantastic heights. During the period of 18 months and 10 days [i.e., May 1943 til Nov. 10, 1944], the index increased in magnitude 11,214,823 times, i.e., from 7,368 to the value of 82,630,830,289. The total increase in the period was 1,121,482,300%, representing an average monthly increase of more than 62 million percent as compared with the average monthly increase of 60% during the first period of enemy occupation from May 1941 to October 1942, and the average monthly increase of only 22.5% during the succeeding period from November 1942 to April 1943. The tremendous expansion of the note issue was caused by the growth of public expenditures, principally on account of the enemy occupation and by the cumulative, self-reinforcing effects of monetary inflation.” Toward the end of the German stewardship, the Bank of Greece printed 99% of the receipts of the Greek treasury.
Gold and foreign bank notes were the de facto coin of the realm. The British Middle Eastern forces funneled an estimated 700,000 sovereigns to Greek guerillas. And the Germans, in a vain attempt to tamp down the raging inflation rate, sold gold in exchange for drachmas—as many as 1,300,000 sovereigns in 1943 and 1944. It was the bright idea of the head of the German economic mission to Greece, Hermann Neubacher, to drop sovereigns on the Greek market to try to buck up the drachma. “Astonished Greek businessmen started to question, should we be buying gold, or selling it ourselves?” relates Michael Palairet in his history, “The Four Ends of the Greek Hyperinflation, 1941-1946.” “Buying gold” turned out to be the correct answer.
At a glance, the Greek hyperinflation would seem a pale copy of the Weimar episode. The size of the drachma money supply as the Germans scuttled home in 1944 was a mere 826,308,303-fold greater than the size of the money stock in the year before the outbreak of war in 1939. As for Weimar, marks in circulation in 1923 were 3,250,000,000-fold greater than the German money stock in the 12 months preceding the outbreak of war in 1914. However, note Delivanis and Cleveland, the Greek catastrophe was six years in the making as against nine for the German one. Besides, they say, as the curtain fell on the Greek tragedy, only one-third of Greeks were still transacting in the worthless national scrip, whereas, up to the bitter end, nine-tenths of the German population continued to use marks.
It can’t be said that Greek monetary management represented much of an improvement over the German kind. Having seen off the enemy, the Greek authorities proceeded to print money—new drachmas—with the note issue climbing to 25,762 million from 126 million. The gold bull market and the cost of living in Athens both resumed their upward course. As for the Greek treasury, now crippled by a ferocious civil war, it liberally availed itself of the fruits of the central bank’s printing press. (“Early during the occupation,” Palairet writes, “the German authorities tried to get the Greek government to reform its system of tax collection, but wrote off the effort, such as it was, as unavailing.”)
Sixty-odd years later, the monetary scenery is transformed. A peaceful Europe is united, more or less, under a single currency. A single central bank aims for a rate of inflation in the neighborhood of 2%—no scientific notation required to calculate the rate of currency debasement these days.
However, in the all-important realm of monetary ideas, not so much has changed. Today, as in the war, government-controlled central banks print up the money with which to finance, directly or indirectly, burgeoning fiscal deficits. Today, as in the war, governments have recourse to “financial repression,” e.g., zero-percent funding costs and QE. And today, as in the war, investors with eyes to see are busily exchanging fiat currencies for tangible stores of value. Plus ça change, as they say in Athens.
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Greece is immaterial.
Greeks are pathetic asking today's German for WWII reparation. Much like North Korea blaming Japan for her pathetic state today.
It's almost like this whole idea of the Euro was flawed from the start or something.
Greece was a lady of easy virtue, waiting on the docks for the fleet to come in and the EU was the fleet that arrived. The EU has ignored their own monetary laws that they bragged about since day one and Greece was looking for an easy payday. Both sides screwed up by the numbers and no matter what, the EU is doomed but Greece is going to bleed.
Given that EU arranged via Goldman to temporarily swap away the Greek debt in order to fudge their debt/gdp calc and get them in, a better analogy might be that Greece was standing on the corner and the EU sent a limo, brought Greece back to the hotel, where Greece proceeded to give the EU clap and shit the bed...
Turkey never paid for blowing up the Parthenon ?
All the Greeks are saying: play the hand YOU dealt. MIestones
Reminds me... the Greeks are so proud of their Macedonian "but actually Greek" Alexander the Great. Last I read up my history, that guy went on a rampage through the Middle-East all the way to India. It's about high time the whole area files a class-action lawsuit against Greece. But they better hurry up while Greece is still in the Euro and the rest of the Eurozone can pay on their behalf.
"Greece is immaterial."
In a way, Yes: Greeks are the WRONG RELIGION to matter in the big scheme of things or to have any real leverage.
The ONLY leverage they have is that of Blackmail: "Give us what we want, or we change the Geopolitical balance by swinging East."
I wish it were not so, but I'm certain it is. Until Greece "pulls an Iceland" and pulls out of overpriced NATO, my hypothesis stands. Facts are facts, Jack.
Has Jim Grant ever been right about anything?
He has a lot of books...
Jim is a national treasure. Straightest talker with regard to arcane financial minutiae I've ever read. Have you read any of his books? They are exceptionally well written and scholarly without a hint of pedantry. Jim writes finance like CS Lewis wrote religion, easy to read and understand. As far as being right about anything, I don't think he's ever been wrong. :)
That's all well and good, but I have been listening to him for 7 years, and he hasn't been right once.
i hate fucking bow ties, but like what he has to say.
stockman and grant top my list...
good little history lesson.
Agree .... a bow tie only hides one button ? WTF
Neither has the Fed.... but you will learn that lesson in spades just a little later.
Fear mongers have been selling that story since the 1940s/Brenton Woods.
I think your energy dome is too tight.
If you'll be patient he'll be correct...and when he is he'll be correct to the extreme.
maybe you should change the way you listen. lol
Settle down moronathon. If you had taken jim grants advice back in November on the Swiss franc you would have made good money. There's one call that came true . Jim Grant is a heavy duty dude bitchez!
Greece has the population of basically Ohio if memory serves correct. Regime change and burning hearts comes to mind in a Bear market. The article was well recieved and may the warm winds of change further press sanity to enter into Men.
“Hope has two beautiful daughters. Their names are Anger and Courage; anger at the way things are, and courage to see that they do not remain the way they are.”
St. Augustine of Hippo
i'm bipolar and have dated both of these beauties!
Most guys have dated Miss Michigan.
1 Drachma = 1 Euro
nope I am changing the peg/exchange rate at midnight. here is the new rate:
1 Drachma = 1.55 Euros
Would you like a Drachma loan? We are doing QE btw way... 100 Trillion Drachmas over 24 hours
so i will be able to pay off my mortgage with 4 ounces in 5 years?
thats the plan. an ounce will get you a senator.
blow jobs for a year for a 1/4 oz.
and so on.
so a lb of gold and i will be king!
i'm interested, ha...
non s/
greece has no ability to pay for their twin deficits much less old debt.
I mused last night that they should ask Hollande to front them some operating cash. Little did I know France is beggaring Germany too...lol.
Clearly they need another loan.
Even the hardest of the hard core know that.
Also if memory serves me right in World War I Greece thought a lot differently about things....hence perhaps why the French, British and Russians aren't rushing in to fill the breach.
Lotta sharks in that Ocean...to the PM's credit he's making the rounds.
Clearly he and Italy aren't starting off on a high note.
My mother used to tell me that in the period of hyperinflation in Greece, her salary was paid in the current drachma price of X number of cans of olive oil (as the prices changed daily). The family had to take literally wheelbarrows of paper currency to buy food with.
Dad left in 1948 to Boston (MIT) and then Montreal (McGill) and brought Mum over and never looked back.
But he is Greek, and spends 3 months every year finding ways to pay the least income tax possible (you can take the Greek out of Greece....)
Still - it is a crime that having been shat on from various and sundry over the years, the Germans seem to be doing it yet again...
Do you think even the concept of a Euro would have gotten off the ground without Germany's full support?
Germany never stopped trying to take over Europe. They're just using alternate means.
Shat on me once - shame on you
Shat on me twice - shame on me
Shit, shat...shitten?
Reminds me of the song we sing to our cat:
"It's Zincy, it's Zincy,
The world's most amazing cat!
It's Zincy, it's Zincy,
You never know where he shat..."
I shat the sheriff . . . if i am guilty i won't pay.
"“Who will ensure afterward that Greece continues to stand by what Greece is agreeing to now?” the German finance minister, Wolfgang Schäuble, has demanded."
No one asshole. It isn't anybody else's fucking JOB to do that. It's up to the LENDER to make fucking well SURE those debtors have the ability to pay, not ME, the taxpayer...Fuck you.
You have a point.
But the Germans might argue that the relationship they envisioned with Greece transcended mere borrower/lender dynamics. They are explicitly arguing that there was more to it: a deep political commitment, the EU Treaty, trust etc.
Perhaps they were naive, perhaps both parties fooled themselves about the nature or level of the implied commitment. But in any case, it now looks a whole lot different from where they started. Or maybe it was always about looting (Greece) and exploitation (Germany)?
So is it fair to ask what kind of relationship they now want? If it's just borrower/lender dynamics, where is the room for compromise or even a remotely happy ending? Taking the political dimension out of the equaiton actually gives less room for resolution.
This is all part of the original plan. Everyone (most of the players) knew that the union would not work until lots more than financial integration was accomplished. This is just a way to force it to occur.
"Or maybe it was always about looting (Greece) and exploitation (Germany)? "
i think you're closing in on it.
fuck u malaka ...
Financial "Crisis" in Greece
https://www.youtube.com/watch?v=Zvl9N9GdraQ
.
genous ,,,,
waiting a long time .....
bring back the Drac
Jim Cramer is advertising here - LOL. Idiotic marketing. Like focusing on selling alcohol to Mormons . . .
The fact that Jim Cramer is mentioned on the same site / article as Jim Grant signifies t e that the Stalingrad and Poorsky Index has peaked. get to cash, pms, some miners.
i see no poison dwarf, but i do got loveculture, allstate and sprint!
wait, who has been using my laptop!!! goddamit!
I get ads for Russian and Asian mail order women. The same three women are still looking for Prince Charming to take them away.
Eating grape leaves .... was a positive benefit .... to Greek cuisine .... that came out of the Nazi occupation !
try it this way
http://1historyofgreekfood.wordpress.com/2008/07/14/basil-dolmades-?????...
I love a house of mirrors. No matter where you look you never see the actual object.... only reflections to trick the mind. Smoke and mirrors, distractions... just before the real 'magic' happens.
Greeks have always been quite good in faking numbers in their interest.
Jim Grant = High brow ! Jim Cramer = Low brow !
Jim Grant = High forehead. Jim Cramer = No forehead.
Three fingers or less of forehead .... is considered no forehead !
Used to be considered a nickle bag.
Another brilliantly written piece by Grant - an acute reminder to the Germans - caveat emptor - and perhaps a realization that they too might be better off outside of the sheer lunacy of such a powerless contractual (if you can even call it that) arrangement. Its such a great illustration of how fucked up the Euro agreement really is. Its like me lending money to somebody but having a third party manage and construct the rules around repayment from that somebody - constituting a process where I actually don't even have a say. Its almost like a receivership or bankruptcy arrangement BEFORE the default actually occurs! For this reason, and this reason alone, for me, I would never actually own the Euro because by design - its destined to fail - miserably. Good for Greece to GTFO, in my opinion.
Malaka
https://www.youtube.com/watch?v=EyWU-0ppug0
Dont know about Germany but so far, it's the Greeks' antics going back to 2008 that has caused me the most losses...is Greece going to reparate me?
The problem with this analysis is that it very cynically starts from a false premise. If Greece wants to sue someone for all the damage done to the country as a result of being dragged into WWII, it should sue the country that invaded it in the first place-- Italy.
Germany had no interest in Greece until:
1) Italy's offensive into Salonika bogged down and was even thrown back by the Greeks.
2) Yugoslavia overthrew its government after they signed on as members of the Axis, instituted an Allied-friendly successor government that repudiated the signature of the previous regime, and appealed to Britain for help if needed.
3) Britain began moving assets away from the Desert War in North Africa and towards an expeditionary force to aid the Greeks and Yugoslavians.
So Greece should also sue the Yugoslavian successor states since they were the immediate cause of German moves into the Balkans.
And Britain for making it clear that they were going to use Greece as a European bridgehead aimed at the rear of the upcoming German invasion of Russia.
But the only ones who have any money are the Germans, so the Deep Pockets Rule rolls on.
War is hell, to quote General Sherman, and it was most hellish on the Germans themselves. There is no comparison between the damage done to Greece in the war and the damage done to Germany. But Germany cleaned up its room and got a job.
It's like a black student .... using the slavery defense .... to not pay off his student loan !
Oh, you mean Al Sharpton reparations .....
in your opinion:
how do you handle who occupied GR?
how do you handle who walked away with the assets?
Debtors always blame lenders.
Hey asshole, you are the one who borrowed the money and promised to pay it back.
I never loan money: 1) Without sufficient collataeral .... so that the debtor seeks me out to repay ! 2) So the debtor can indulge in things I deny myself !
do more reseach before you post nonsense here-asshole
Walk away now or wish you had later...Either way, misery in your future.
I'm hoping you bite the bullet and leave...That'll show the CRIMINALS! easy for me to say with no dog in the fight
The rapidly escalating inflation in Germany’s domestic price
level after 1918, and especially from 1922 right up to the monetary reform of 1923, had, however, very unpleasant economic consequences As mentioned earlier, the paper mark totally collapsed in value against foreign currencies and gold, which encouraged wild speculation on the foreign exchange and stock markets, during which smart operators and large industrial groups accumulated large fortunes at the expense of small savers and the working class.
… on November 29th, 1921, the dollar was quoted at 276 marks [the mark had already lost 90% of its value since 1918 — ed. note]; On November 1st, 1922, it was quoted at 4,465 marks; on November 7th, 8,068; … Towards the middle of August 1923 the dollar rose giddily to 1, 2, 3, and 5 million marks; later falling suddenly to 3 million. In the meantime, an index of German share prices (1913 = 100) rose from 126 in January 1918 to 531,300,000 in September 1923, and to 23,680,000 million in November 1923 amidst extremely high volatility. (In dollar terms, because of the currency depreciation, the same index (1913 = 100) fell from 101.55 in January 1918 to 2.72 in October 1922, before recovering to 39.36 in November 1923.) The extremely high volatility of the stock market is a typical feature of hyperinflating economies.
From ‘Reflation’ Marc Faber, quoting Professor Bresciani-Turroni in The Economics of Inflation
you can't eat money and it is the wrong kind of liquidity when there is no-one to pay to bring you food or water and you can't grow or kill something to eat or drink.
reality bites, money has no relevance on a battlefield, where a bullet is heard after you have already been hit.
How prudent is Deutsche Bank SUCKERS???????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????????
GET FUCKING BACK TO ME WHEN GERMANY HAS IT'S OWN HOUSE IN ORDER.
When the German's KICK OUT GOLDMAN and THE FED then. . . . .
Pick on some CUNT your OWN SIZE an' a'that.
So basically, Germany can never repay what it did in the war.
But short of exterminating the Germans after the end of the war as a solution, it was concluded that what's done is done and concede that at least the Germans suffered even more at the conclusion of the war.
Somehow I just still utterly detest the Greek's govt character for wagging their finger when their country itself is utterly corrupt, when they explicitly threaten to destroy the union, when they don't even get red in the face when it was their deficit spending that caused this mess all along. They may not have realized it back then but certainly know it now.