Modern Greece emerged out of poverty status in the 1960s. That it is faced with the challenge of a declining wealth status within a short period is no small feat. In the latest (2017) IMF review of the Greek economy, it is shown that while the depth of the decline in output is only matched by the USA during the 1929 crisis, Greece has remained at the bottom of the barrel for eight years, compared to four for the USA.1
Yet, Greece’s current economic crisis that started in 2009 is misleading in one respect: it hides the unprecedented success story, that of Greece’s post-war economic miracle. From 1953 to 1977 the Greek economy grew at an annual growth rate of 6%, exceeded only by Japan among OECD members. Greek per capita income grew to fivefold its pre-1953 (or sixfold its pre-1938 level) in real terms, while domestic price stability set another OECD record, and the balance of payments remained in control. Greece’s position within the international economy changed: whereas in 1938, 80% of Greek exports were made up of farm products, by 1975 over 50% could be classified as industrial products, and employment in manufacturing grew from 18% to 29% of total. As a result, in the late 1970s, Greece was considered as one of the most dynamic New Industrialized Countries (NICs).2
In order to get better integrated with Western Europe, Greece became in 1961 the first country ever to be associated with the newly formed Common Market of Six original members, with the ultimate goal of achieving full membership. Between 1961 and 1977 per capital income increased from one-third of the EC average to two-third. The progress made was acknowledged in the successful conclusion of the negotiations for accession to the European Community (EC) in 1978 and officially membership the EC as of 1981, ahead of the two Iberian candidates.3
These major advances, however, were questioned by many Greeks. What many commentators, and a large segment of the Greek public, resented was an economic development that was seen as having too many political, social, and economic drawbacks. Perceived political drawbacks primarily related to foreign intervention in Greece’s domestic affairs. Greece’s relationship with the USA, starting in 1947 at the height of the Greek Civil War and the time of the Truman Doctrine, was perceived as a status of dependence. Within this perspective, large concessions to foreign investors were seen not as the price to pay for attracting foreign capital to a poor and underdeveloped economy, but rather as the outward economic manifestation of political dependence.
The social and economic criticism was based on two grounds: firstly, that large-scale emigration had been encouraged as part of the process of economic development and that this was an unacceptably high price to have been paid for industrialization; secondly, that the distribution of wealth produced had been unequal. These criticisms were fueled by the limits of the political reconciliation in the post–Civil War era and ultimately the seven-year repression of individual liberties in Greece from 1967 to 1974. While prominent economists have disputed that the 1967–1974 economic policy is a continuity of pre-junta policy, the military rule has been commonly interpreted as the culmination of earlier social and political conditions, not least of the very model of economic development. Even the proper economic achievements in terms of economic growth were, as is usual in such a political context, much disputed and their relevance for the country’s future contested.
While much of the criticism of the political regime and in particular the limitations of democracy in the post–Civil War environment were well founded, one should, however, make a distinction with the conclusions that were drawn and their implications. Annual growth rates and economic development after the seven-year military rule were only acceptable if they were to follow a pattern of increased income redistribution. Gradually, dividing the pie became a concern before growing it. As a result, the pattern of development itself became a matter of political controversy, and Greece’s present condition should not fail to be seen in this light.
There is no doubt that Greece’s post-war development pattern was a particular case, compared to the post-war Western European model. The differences existed not only in the devastating Axis Occupation and the destructive Civil war, but arose mainly from the pre-war economic development. The Western European post-war pattern has been one of increasing wealth of national economies proud of their independence,4 under full employment, development of the welfare state, and increased sharing of wealth through progressive taxation—the model A. Shonfield exalted in his Modern Capitalism.5 Had Greece followed a development along similar lines, the above-mentioned criticism might have been unfounded. However, Greece’s path was different from Western Europe’s. This particular path of development created within Greek society vulnerabilities of its own and provided the grounds for criticism of economic development. How did all this start?
In order to understand the origins of post-1953 development, we have to be in a position to understand how and to what extent Greece’s starting point differed from the rest of Europe. It would be wise to see how it came about that the Marshall Plan, the common departure point of the Greek post-war economy together with that of other Western European participants, ultimately led Greece to a different path of economic development from the rest of Western Europe that participated in the Marshall Plan. The year 1953 has been widely accepted as the starting point for the post-war economic development of Greece, after the sharp and successful devaluation in April of that year put an end to the earlier post-war period of price instability and currency inconvertibility. If so, where can one find the origin of these Greek particularities? Should one cite the very low departure level, as demonstrated by Greek per capita income of $150 per annum? Had it to do with the Greek Civil war, and if so in what way? Hadn’t Greece after all been a member of the European Recovery Program (ERP), the Marshall Plan, and, if so, why after a grant of US$2 billion, did the Government in 1953 opt to offer exceptionally advantageous terms in order to attract foreign investors, which put it on a par with underdeveloped countries that did not benefit from such largesse? This is the subject of this book.
In order to provide a satisfactory answer to these important questions, we should survey the state of the pre-war Greek economy, considering in particular the level of economic development, external economic relations, the balance of payments, foreign trade, and the role of debt. We look into this in Chap. 2, in connection with the course of pre-war economic policy, paying attention in particular to some new thinking that started to emerge in the inter-war period after 1922 and the experience from the autarkic policies of the 1930s.
Chapter 3 opens with a discussion on the effects of war and Occupation upon the Greek economy, both real and monetary. The priorities and planning for the aftermath of Liberation are presented. It is followed by the attempts of the National Unity Government to arrest hyper-inflation and to create the monetary and material conditions for domestic recovery at the time of Liberation. X. Zolotas, who directed this effort as co-governor of the Bank of Greece, tried to do away with as much state regulation and controls as was feasible at the time, by insisting mainly on creating the right psychology in the markets. These efforts were severely disrupted by the Civil War of December 1944.
Chapter 4 deals with the gradual deterioration of the economic outlook in Greece in the early months of 1945, at a time when, thanks to the implementation of relief programs, underlying material conditions were gradually improving. We consider why, while proposals for adjusting economic policy were submitted by the governor of the Central Bank K. Varvaressos early in February 1945, action was postponed by reluctant politicians until June, and then suddenly introduced after British pressure. While his stabilization had the opposite philosophy of Zolotas’, his efforts failed three months later for similar reasons: political developments, domestic opposition to his plans, and the absence of firm political backing obliged him to resign.
Chapter 5 presents how the evolution of Greece’s economic situation was perceived in the West, and how this influenced Greece’s perception by the United Nations Relief and Rehabilitation Administration (UNRRA), the UK, and UNRRA’s major backer, the USA.
Chapter 6 describes the course of the economy between Varvaressos’ departure in September 1945 and the end of 1946. Attention is paid to the course of economic policy after the third post-war stabilization of January 1946 and in particular how after the elections of March 1946 Greece’s reserves were depleted following an untimely liberalization of the trade policy, without matching foreign exchange earnings or credits. Finally, we show how the very institutions that were supposed to supervise Greece’s monetary policy failed to react on time.
A review of Kyriakos Varvaressos’ private papers shows that the Americans were being advised by the former governor of the Central Bank himself and that the latter exerted strong influence on the Undersecretary of State Dean Acheson and the State Department and weighted heavily on the unusually strict terms included in the policy of assistance to Greece.
Chapter 7 deals with this new context of the expanding Civil Conflict and the announcement of the Truman Doctrine. The bilateral agreement of June 1947 has been seen as the basis of US interference in Greek affairs. Here, these heavy terms are analyzed in the light of the record of Greek post-war economic policy as perceived by the US administration looking through Varvaressos’ eyes. Then the initial difficulties and Greek Government’s opposition the Americans faced in 1947 when they first tried to dictate Greek economic policy are discussed.
Chapter 8 introduces the key issues of Greek reconstruction policy, in connection with the launch of the ERP in 1948. It shows how Greek-enlightened proposals to use this opportunity to Greece’s best benefit, especially to bring about a change in the structure of the economy. That these proposals attracted the attention and got the support of key US policymakers, only to be defeated by strong and well-connected domestic interests. Here, thanks to the archives of the Greek Highest Reconstruction Council we can establish that, contrary to what has been often proclaimed in the past, it was opposition from powerful interest groups within Greece that wrecked those ambitious plans, rather than the security threat of the Civil War or American opposition to Greece’s economic development. And how in turn the Americans, who exercised enormous influence in Greek affairs under the bilateral agreements of 1947, failed in this key test.
Chapter 9 surveys the poor record of the realization of the Marshall Plan in Greece during the Civil War, carried over in the first post–Civil War year. It discusses various attempts, under American pressure, to return the Greek economy to a peacetime operation and parallel efforts to normalize political conditions. It is followed by a discussion of the impact of the Korean conflict on the future of Greek reconstruction. It is demonstrated that the removal of the unconditional US backing for the moderate Plastiras Government set loose those Greek elements who were opposed to the normalization of the political situation through a gradual re-integration of their (defeated) opponents in the political system and paid lip service to the success of the ERP. In tandem, we consider how the Americans were successful through successive aid reductions to get through most of the reforms they had tried unsuccessfully to introduce in the past—even though the offer of large-scale aid had by then disappeared and the future of the Greek economy remained in suspense.
Dealing with the roots of Greek post-war development, one always has to keep in mind the explosive Greek political situation throughout the 1940s, when Greece after Liberation became entangled in civil strife. To search for the roots of the post-war economic development of Greece in a period of civil conflict was and still remains a huge challenge. Because of the intensity of political strife, one might be tempted to abandon the analysis of the economic policy during this period, for well-understood reasons. First of all there is the mere gravity of domestic political developments around the Greek Civil War. An intense political situation is less than a solid ground for economic history. The history of this period is still a politically and emotionally charged issue in Greece, and this has clouded the judgment of economic historians of the period.
Secondly, the task of ec...