By Jason Krupp*
Philosopher George Santayana’s quote about those who ignore history are doomed to repeat it is somewhat of cliché, but only because it is damned applicable. But if there is one situation where it seems to be most apt it is with Greece and its debt crisis.
You see, this is not Greece’s first messy default, or the second, or the third, or … actually it might be useful to start at the beginning for the sake of brevity.
As noted by Joshua Brown of thereformedbroker.com, the Greeks may have invented finance but they are spectacularly bad at managing their own financial affairs.
In 6 BC, for example, many Greek farmers were forced into slavery after defaulting on their debts, having used their personal freedom as collateral. The problem got so severe that the poet Solon was called in to fix the mess, which he did by devaluing the currency, forgiving debts, and buying citizens out of slavery.
Over 200 years later the Shrine at Delphi and its Temple of Delos had to take an 80% writedown on a loan to 13 city states after many of them failed to repay their debts. Indeed, the reputation of the Greek city states was so bad they refused to lend to each other, choosing instead to lend to wealthy citizens from the respective states, who were more reliable debtors.
Unfortunately this poor track record does not end in antiquity.
Since 1830 the country has defaulted on its debts five times. Indeed, the only two countries that have defaulted more often are Ecuador and Honduras. To quote Brown: “To a person with any historical awareness, being told that Greece is on the verge of a default is like hearing Dean Martin is on the verge of a martini”.
More recent Greek history is littered with financial irregularities and fudges, which allowed them entry into the Eurozone but set in motion the crisis that we see today. These include rampant tax evasion, currency manipulation, and misrepresentations of the true debt position in order to pay for the nation’s spendthrift ways.
A Greek default is inevitable and no bailout can prevent that. But so too is the next one after that, and the next one, and so on if history is anything to go by.
But is it really anything to be that alarmed about? After all, it appears the Greeks are really good at it.
*Jason Krupp is a research fellow at the New Zealand Initiative.