Twenty-Five Lectures on Modern Balkan History. Postlogue: The Greek public debt crisis, Grexit, and the Balkan limits of “Europe”

Twenty-Five Lectures on Modern Balkan History

Twenty-FIve Lectures on Modern Balkan History (The Balkans in the Age of Nationalism). List of lectures. – Humanities Commons (

Postlogue: The Greek public debt crisis, Grexit, and the Balkan limits of “Europe”


This text [Lecture 26, so to speak] is not only a comment on the events of 2015, but also an addition to twenty-five lectures on Balkan history that were written in the mid-1990s, during the civil wars in Yugoslavia that followed the 1989 collapse of communism in Russia and the East European socialist countries. The Greek financial crisis of 2015 presents an opportunity to update this overview of Balkan history and to bring the narrative into the 21st century. Issues in Greece in 2015 reflect a key theme in modern Balkan history: the challenge of efforts at integration into “Europe.” [This text has not been updated to reflect changes in the EU or other organizations, since written in 2015.]

On June 30, 2015, Greece failed to make a scheduled payment to the International Monetary Fund (IMF) and went “into arrears” on repayment of international loans. In a technical sense, only a lending agency can declare a “sovereign default” (bankruptcy) by the borrowing state. However, for all practical purposes this missed payment signalled state bankrupcy, and marked a new level of distress in the story of Greek public debt and problems of repayment linked to the world bank crisis of 2008-2009.

The Syriza Party government in Athens soon called for a national referendum on July 5, 2015: an up-or-down vote on the current terms offered by Greece’s creditors. Banks and the stock exchange closed, and citizens were limited to 60 Euros per day in cash at ATMs. The Greek regime criticized austerity-driven programs that were impoverishing Greek citizens. European lenders and leaders criticized Greece’s failure to make financial reforms and meet its obligations.

Looming in the background was the chance of “Grexit” – that is, the end of the Euro as Greece’s currency. The Citigroup analysts Willem H. Buiter and Ebrahim Rahbari coined the term “Grexit” in 2012 to indicate the most extreme outcome of the Greek fiscal crisis: the risk that the Greek state would run out of Euros, issue IOUs and then a new currency to make its local payments (such as a revival of the drachma), abandon the Euro, stop participating in the Eurozone, and suffer a break in ties to the European Union.

It is far too early to write a history of the Greek debt crisis, of course:  the confidential deliberations of the participants are not available for study, events are still unfolding, and we can only speculate about the long-term results. However, a commentary based on Balkan history offers awareness of:

  • Past episodes and precedents of public debt crises in the region; and
  • Context for the troubled relationship between Greece and the larger institutions of 21st century Europe.

These lectures began (in Lecture 2) with some thoughts about the status of southeastern Europe in and relative to “Europe” and about the definition of European-ness, through the lens of Balkan history. In 2015, it is possible to review a list of specific pan-European institutions – such as the European Union – as a checklist to evaluate the degree of integration of the southeastern European states into the new vision of “Europe.”

Of course, much else happened in each of the Balkan states between 1995 and 2015. New post-socialist economic developments and representative governments have improved quality of life, despite lingering challenges of underdevelopment, human rights shortfalls, and corruption. Kosovo split off from the Serbian remnant of Yugoslavia in 1999: NATO adopted a much more aggressive stance toward Serbia in Kosovo than in Bosnia, rapidly enforcing a separation. The international refugee wave is a recent emergency. However, issues of European integration have been the most unified and consistent theme shared across countries in the region. The crisis of Greek state finance brings some of those issues into focus. The crisis helps us answer this question: how extensive and durable is the integration of southeastern European and Balkan states into Europe as a whole?

Problems and cycles of public debt

State bankruptcy, or “sovereign default,” is the condition in which a government fails to make scheduled payments on its financial obligations, and particularly on repayments to foreign lenders. Such episodes are infrequent, but not unprecedented, in the Balkans and worldwide. Defaults are expensive in terms of political capital, international reputation, domestic turmoil, and higher future borrowing costs, and governments seek to avoid them. Unusual conditions that boost state expenses and/or reduce state revenues are typical trigger events for defaults: wars and revolts, global depressions, and changes in regime. We can see these triggers in a list of major defaults in southeastern Europe:

  • Albania defaulted in 1990 after the end of communist rule.
  • Bulgaria defaulted in 1932 during the Great Depression, and in 1990 after the end of communist rule.
  • Croatia defaulted in 1993, after the end of communist rule and during the Yugoslav civil wars.
  • Hungary defaulted in 1932 during the Great Depression, and in 1941 during World War II.
  • Romania defaulted in 1933 during the Great Depression.
  • Yugoslavia defaulted in 1983 during the world recession of the early 1980s (noted in the United States as the savings and loan crisis).

The Ottoman Empire went through a significant default in 1881, with ongoing impacts on state finance and the influence of the Great Powers on Turkish affairs. Prior to 2015, Greece defaulted five times. Details on historic defaults in these two countries are offered below, because issues of international vs local control of the state through its economy were factors, just as they are in 2015.

These state bankruptcies share recurring elements, and follow a cycle:

  • Loan-seeking: A Balkan state seeks to spend more money than it can raise using local resources such as taxes or sale of assets. In many cases the money is intended for the military or for prestige projects, rather than economic investment likely to yield higher revenue.  In later iterations of the cycle, much borrowed money may be used simply to pay the interest due on earlier loans.
  • Loan-making: Western Europe lenders, often with encouragement from their governments, offer loans. Particularly in the 19th century, lack of economic knowledge and unrealistic imperialist ideas meant that investments could be poorly planned, and unable to turn a profit.
  • Crisis: An economic downturn, a war, or a change in regime increases state costs (such as military expenses) or cuts revenues (such as taxes on exports or crops) or both. Whether or not loans have been invested wisely, repayment costs exceed what the state can pay.
  • Default: Unable to make loan payments on time, the Balkan government misses payments and defaults.
  • Response: On behalf of their citizens and banks as lenders, Western European governments exert pressure on the Balkan regime. Pressure ranges from urgent negotiation to diplomatic talks to “gunboat diplomacy” in which ports are occupied by foreign armed forces, to seize money from customs receipts and humiliate the bankrupt state.
  • Resolution: Western European lenders and governments strike a deal with the Balkan state to restructure loans and payments. In some cases, lenders accept a “haircut” of reduced payments; in many cases payments are extended over additional years; in a few cases the Western states impose formal intervention in the financial and tax operations of the Balkan state, through the establishment of new agencies under their control. This was the case with Ottoman Turkish debts after 1881 and Greek debts after 1897, as noted in more detail below.
  • Renewed loan-seeking and loan-making: Despite past problems, profit-seeking investors once again loan money to the Balkan government, either for new expenses or to cover the costs of pre-existing loans, restarting the cycle.

Historical bankruptcy in the Ottoman Empire

This crisis-driven cycle can be seen in the experience of the Ottoman Empire. The first foreign loans to the Ottoman government took place in 1854, securing money to pay for the Crimean War of 1853-1856. Prior to that time, local bankers in Constantinople had supplied emergency war loans, but the required amounts became too large.  The initial loan was for 3 million British pounds sterling, and others followed. The money was not spent to improve the economy and yield higher revenue. In addition to modernizing the army and navy, substantial funds were spent unwisely on new palaces, jewels for the imperial treasure room, and unproductive court officials. By 1860, the debt was doubling every six years. By 1875, half of the tax and customs revenue available to the Ottoman state was needed simply to pay 12 million pounds per year of interest due on 200 million British pounds owed to foreign lenders.

In 1874-1875 another economic crisis ensued, after a poor harvest and a world depression cut revenue. Resulting rural unrest also led to security costs. In 1875, the Ottoman government defaulted: half of the payment due in October was deferred into the next year, and those payments were again postponed over and over. Hot on the heels of this first economic crisis came a second: the Ottomans suffered a military defeat in the Russo-Turkish War of 1876-1877.

Negotiation with creditors and their governments – the majority were British and French – led to revised terms of repayment. In 1881 the sultan established the Ottoman Public Debt Administration (the OPDA, Düyun-u Umumiye-i Osmaniye Varidat-ı Muhassasa İdaresi in Turkish, L’Administration de la Dette Publique Ottomane in French, and thus referred to as the Dette) through the Decree of Muharram. Turkey’s European creditors became bond holders, and payment on the bonds was guaranteed by prior claim to income from six specific taxes that were assigned to the OPDA: revenues from the stamp tax, spirits tax, fishing tax and silk tax, and from the state monopolies on salt and tobacco. The Dette was governed by a Council that represented British, Dutch, French, German, Italian, Austro-Hungarian and internal Ottoman bondholders: French and British delegates presided in alternating terms.

All parties benefitted in the short run: bond holders were reassured about repayment, the Turkish state secured further access to financing, and the Great Powers avoided an international crisis that would have ensued if the Ottoman Empire collapsed. The OPDA also assisted European companies hoping to do business in the Ottoman Empire. In all its functions, the OPDA came to have thousands of employees.

In practice, the OPDA also was an instrument and arena for the imperialist competition among the Great Powers in the Near East. The French government, for example, could and did impose certain political requirements before allowing Turkish issues to be listed on the Paris stock exchange. In his study of the OPDA, Donald Blaisdell quotes a French figure as follows: “a financial protectorate has superseded the religious protectorate which has so long guaranteed French influence in the Orient” and “a political protectorate succeeds the economic protectorate…” (pp. 214 and 215). Germany also freely mixed economic and political initiatives, such as lending to promote the Baghdad Railway plan. In 1907, the Great Powers jointly extended the role of the OPDA to administer a special surtax on customs duties that paid for the internationally-mandated domestic reform programs in Macedonia.

While the OPDA-based settlement allowed Turkish international borrowing to continue, difficulties were always just one crisis away. Many later loans only supplied funds to pay off earlier loans. During World War I all payments were suspended, and after the war, the new Republic of Turkey (comprising only a portion of the larger Ottoman Empire) faced continuing claims from creditors. (The Balkan successor states, while acquiring substantial former Ottoman territory, accepted no responsibility for any part of the Ottoman debt.) In 1925, Turkey agreed to pay a reduced share of the existing Ottoman debt; that amount was further reduced in 1933, when the Great Depression made repayment even more difficult. The final payment on Ottoman debts took place in 1954, a full century after international borrowing began.

Historical bankruptcy in Greece

Greece also has experienced repeated cycles of lending, crisis, default, and renegotiation.

The fledgling Greek state incurred debt obligations even before gaining its independence. The Greeks sought international financial support for the revolt and war against Turkey that began in 1821. Two British loans of 1824 and 1825 covered some costs of the fighting. The war itself devastated much of the countryside, and ruined the sea trade which had been the main source of national wealth. By 1827, the Greek government already was unable to pay as promised and declared itself bankrupt.

A second bankruptcy took place in 1843 during the reign of King Otto, the German prince selected by the Great Powers as ruler of the new kingdom. He initially was supported by new loans, but the money was used to pay for earlier debts, the military, and the bureaucracy. Without productive investment in economic growth, state revenue was not able to meet repayment obligations.

A third state bankruptcy took place in 1860. British and French armed forces already had occupied the port of Piraeus from 1854-1857 during and after the Crimean War, to prevent Greek support of Russia (as a fellow Orthodox country) against Turkey and its Anglo-French allies. The post-default settlement of 1860 provided a fresh start, with some customs receipts pledged as security for loans, as well as the revenue from state monopolies on the sale of cigarette paper, matches, and petroleum. Once again, debt service and military spending ate up the money. Serious investment to improve agriculture and industry was ignored. Greece had an unfavorable balance of trade year after year, driven in part of Western European protectionist policies that hurt Greek opportunities to export agricultural products.

The fourth state bankruptcy followed in 1897. By the 1890s, a third of the state’s tax revenue was needed to service interest payments for these loans. In 1893, the Greek government stated that it could no longer pay as required. Acrimonious negotiations with creditors then were overtaken by another crisis: Greece foolishly went to war with Turkey in 1897, and was soundly defeated.  The peace terms imposed a financial reparations penalty on Greece, further damaging state finances. To secure peace and the necessary funds to pay the penalty, Greece had to accept terms by which part of the state finances came under international control, through the Société de régie des revenus affectés au service de la Dette publique hellénique. Officers of the Commission of Control of the Société functioned as international diplomatic figures in executing their tasks.  However, the settlement restored Greek access to the capital markets, providing money for debt service and the cost of the Balkan Wars of 1912-1913.

We can see some of the same factors in play in both the 1897 and the 2015 negotiations between Greece and its creditors. Statements on both sides often departed from economic calculations, into political pressure, grandstanding, and even ethnic stereotyping. For example, the BBC reported in early 2015 that the “German tabloid Bild recently launched a campaign against an agreement, printing the banner headline ‘NEIN!’ across an entire inside page … ‘No more billions for greedy Greeks,’ it demanded.” Greeks also have been attacked as “lazy” despite working more hours per week than the EU average. In return, Greeks have invoked the Nazi German occupation of their country during World War II. Austerity measures are debated as moral problems, as well as economic problems.

The following quotations are of interest on several levels. Writing in 1944 about the Greek foreign debt negotiations of 1897, John Levandis describes a climate that is hauntingly familiar today. At work, he writes, was a delicate “… reconciliation between a sensitive people and an unyielding set of bondholders … The German delegation, now that the vanquished defaulter had been rendered powerless, was displaying an air of dictatorial arrogance. … The European representatives … were in reality bent upon safeguarding their own interests first. The welfare of those who were destined to bear the burden was of secondary importance …” (p. 103). In the resulting imposed settlement that placed future Greek budgets under partial supervision of the Société de régie, “… All outlays were confined to urgent and indispensable administrative purposes. No appropriation whatever was made for the rehabilitation of a … disorganized economy” (p. 105).

Levandis is writing during World War II about 1897 … or is he writing about World War II, drawing on the events of 1897? His words and tone remind us that the Balkan past often is not far away, and that political, nationalist, emotional, and rhetorical elements can combine in volatile ways. Negotiation about money often is about more than figures on paper.

In both the Ottoman crisis of 1881, and the Greek crisis of 1897-1898, the price of European financial relief and continued international funding was some loss of local financial control. Loss of local financial control of course sits at the center of the 2015 crisis, as well, due to the use of the Euro as currency in Greece.

A fifth Greek bankruptcy took place in 1932, when the Great Depression brought world trade to a standstill, with particularly bad results for agricultural economies like Greece. After default, it took eight years to reach a new agreement in 1940, and that settlement became moot almost immediately in 1941 when Germany invaded and occupied Greece during World War II.

Greece in 2015

The historical record shows that loan defaults by Balkan states are nothing new. What is new is the integration of the Greek economy with the wider European community through the shared Euro currency. This situation exposes both sides to added risks.

This summary timeline cites highlights of the 21st century crisis:

  • 2002: Greece enters the Eurozone, replacing the drachma with the Euro. Greece thus loses the independent capacity to issue its own currency to cover domestic expenses in an emergency (an option open to most countries, even though this tactic can trigger inflation).
  • 2004: Athens hosts the summer Olympic Games, after substantial borrowing to prepare the site. While Olympic costs amount to only €7 billion out of a total state debt of €168 billion in 2004, these expenditures are symbolic of investment that fails to yield enduring economic growth.
  • 2004 December: the European Commission finds that Greece had underreported its annual budget deficit when joining the Eurozone. In response, there are halting government actions to reform labor laws, pension payments and public employment. Another source of fiscal weakness is ineffective collection of taxes. The important tourism industry also experienced competition from emerging destinations such as Croatia.
  • Fall 2008: the world-wide financial crisis and recession begins, reducing access to loans and weakening economic activity (and thus reducing tax receipts).
  • Fall 2009: Greece’s credit rating is downgraded, increasing borrowing costs.
  • 2010: to forestall a default, the Eurozone nations approve a €110 billion bailout package for Greece, in return for strict austerity measures that worsen unemployment and cut state benefits. Loans are administered by the so-called Troika: the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission (EC). Private creditors are forced to accept a “haircut” to give up about half the amounts owed, and the Troika takes the lead in unified further negotiations.
  • 2011: Greece’s credit rating is further reduced.
  • 2012 February: Greece accepts additional austerity in return for a second major bailout, at €130 billion.
  • 2015 January: in a rebuke to both of Greece’s traditional political parties, the Syriza Party under Alexis Tsipras wins the Greek parliamentary election, offering a program to roll back austerity measures and seek a new loan settlement. German leaders take the lead in insisting on harsh austerity measures as part of any further bailout: Germany leads among European countries in exposure to a possible Greek default.
  • 2015 June: Greece postpones scheduled payments on existing loans, and Prime Minister Tsipras calls for a national referendum that amounts to a vote to reject the Troika’s harsh terms, risk default, and perhaps leave the Eurozone (“Grexit”).  Pending that vote, Greek banks closed.

In June 2015, the Greek state needed Euros for two kinds of payments. One was for domestic obligations: stipends to retirees, support for public institutions, and salaries of civil servants, the police, and the military. The second was for external obligations: especially scheduled repayments tied to the bailout packages (although in the long run, other external purchases such as petroleum imports come into play). So long as Greece remained committed to the Euro, foreign institutions controlled how much money was available in the country. A Greek state outside the Eurozone could revert to the drachma, issue a new locally-controlled currency, and make domestic payments … at the risk of inflation, and hardships in making external payments or securing further loans. Predictions about the results of “Grexit” varied: a cheapened drachma currency might boost exports, but the purchasing power of Greeks would be damaged, especially for all imported goods. Inflation and worsened unemployment were predicted.

The referendum of July 5, 2015, asked Greeks:

  • To say ‘no’ to terms offered by the Troika, force further negotiation, and potentially to leave the Eurozone, reintroduce the drachma, and follow an economic future less tied to the European community; or
  • To say ‘yes’ to terms offered by the Troika, and potentially to have Alexis Tsipras and the Syriza Party give up leadership of the government, and follow an economic future combining austerity with another round of negotiated loans from European sources.

Greece and the limits of Europe

Grexit risks weakening Greek ties to a wider Europe. Can we assess the extent to which Greece (and other Balkan countries) are integrated into today’s unified Europe?

The answer to such a question is no longer only rhetorical: one can list European organizations in which Balkan states do and do not participate. Several organizations are useful markers of integration: NATO, the EU, the Schengen Area, and the Euro currency zone.

  • The North Atlantic Treaty Organization (NATO) military alliance was founded in 1949 by the United States and its allies as part of Cold War resistance to the Soviet Union. Since the collapse of communism, NATO has pursued other roles, including intervention in the civil wars in Yugoslavia, and has expanded into countries that were formerly in the opposing Warsaw Pact or even republics within the Soviet Union. NATO includes several Balkan states.
  • The European Union (EU) is the capstone government organization of European unity. The EU succeeded a variety of earlier organizations, including the European Community. The EU Parliament provides a legislative body, and held its first elections in 1979. Most but not all EU states share the Euro as their currency. The EU also manages the so-called Schengen Area for open borders. The EU currently includes 28 European countries, including several in southeastern Europe.
  • The Schengen Area is a region of open borders: passport and border control for travel have been eliminated. It covers 22 of the 28 EU states, and four other non-EU states. Several EU states not yet participating are committed in principle to join at a future date. Several Balkan states are included, and others intend to join.  Citizens of several other Balkan states can enter the Schengen Area without a visa.
  • The Eurozone states share a common currency, the Euro, launched in 1999. Not all EU states take part in the Eurozone. There are 19 Eurozone countries, including several in the Balkans.

Closer examination of the membership in these groups sheds some light on the geographic limits of “Europe” as a 21st century integrated society and economy, and the extent of European ties in the Balkans.

The table below tracks membership in these four organizations, by entry year, for a wide range of Eastern European states and not just those in the Balkans. During the Cold War, the distinction between Western and Eastern European states chiefly revolved around the stand-off with the Soviet Union: the contrast between Balkan and non-Balkan states was not as important. However, since 1989, there has been a noticeable difference between membership patterns of Balkan and non-Balkan states in the arena of European integration.

Reflecting those patterns of membership, the table groups Eastern European states into four sets: the three Baltic states that were formerly part of the Soviet Union; longtime members of the Soviet-led Warsaw Pact alliance; socialist states that were less closely aligned with the Soviet Union (with separate entries for the constituent units within Yugoslavia); and the two Balkan states that were never under communist rule. In the case of Czechoslovakia and Yugoslavia, the current successor states are listed individually.

Table: Affiliations of Eastern European states with agencies of European integration, by entry year:

Dates of membership
Formerly in the USSR In NATO In the EU In the Schengen Area In the Eurozone for currency
Estonia            2004     2004             2007             2011
Latvia            2004     2004             2007                2014
Lithuania            2004     2004             2007                     2015
Warsaw Pact NATO EU Schengen Euro currency
Poland     1999     2004             2007
Czech Republic     1999     2004             2007
Slovakia            2004     2004             2007         2009
Hungary     1999     2004             2007
Romania            2004            2007 candidate member
Bulgaria            2004            2007 candidate member
Socialist, non-aligned NATO EU Schengen Euro currency
Slovenia            2004     2004             2007    2007
Croatia                   2009                   2013 will join in future
Bosnia no visa required
Serbia no visa required
Montenegro * no visa required
Macedonia no visa required
Albania                   2009 no visa required
Non-socialist NATO EU Schengen Euro currency
Greece 1952 1981 2000 2001
Turkey 1952 visa required for entry

The first major “Western” organizations joined by Balkan states after World War II were the United Nations (UN) and NATO. Membership in the UN has been so widespread that it fails to shed much light on the integration of any one country or region with the European community at large.


Past and present membership in NATO, on the other hand, reflects the separation and unification of Europe during and after the Cold War. The Balkan region of course was divided by the Cold War Iron Curtain. Greece and Turkey entered NATO in 1952, as front-line states facing the Soviet Bloc. While socialist, Yugoslavia and Albania were not military allies of the Soviet Union (more precisely, Albania was a Warsaw Pact signatory, but on poor terms with Moscow after 1960, leaving the Pact in 1968). Hungary, Romania and Bulgaria were long-time members of the Soviet-led Warsaw Pact. Several Central European ex-Warsaw Pact states joined NATO in 1999, including Hungary. Another expansion followed in 2004, adding the now-independent Baltic states, Slovakia in Central Europe, and Romania, Bulgaria and Slovenia among Balkan states. Croatia and Albania joined in 2009. Only Bosnia, Montenegro, Macedonia and Serbia remain outside NATO today: Serbia was in fact the subject of NATO air attacks during the 1990s. The exclusion of these countries principally reflects the economic and political aftermath of the the collapse of Yugoslavia.

[*In December 2015, Montenegro was invited to join NATO.]

The conditions for joining NATO are not couched specifically in terms of the identity of “Europe.” Consideration may be granted to “any European country in a position to … contribute to security in the Euro-Atlantic area…” and able “to meet certain political, economic and military goals…” The fact that NATO’s largest participating state — the U.S.A. — is not a European country, complicates using NATO membership as a measure of European integration.

The European Union (EU)

The pattern for EU membership in the EU is similar to the pattern for NATO membership, but with some eye-opening variations. Greece was an early member, since 1951. Turkey, on the other hand, despite being a member of NATO, has never succeeded in joining the EU: tensions about Islam and refugees make entry seem unlikely today. The Baltic states and the former Warsaw Pact states (as well as Slovenia, with its central European connections), all joined the EU between 2004 and 2007. Croatia followed in 2013. Again, states not included in the EU are those most impacted by the Yugoslav civil wars, plus Albania. EU membership requires stable democratic and legal institutions, and a suitably strong economy.

Conditions for membership in the EU were established in 1993 as the ‘Copenhagen criteria’:

“Countries wishing to join need to have:

  • stable institutions guaranteeing democracy, the rule of law, human rights and respect for and protection of minorities;
  • a functioning market economy and the capacity to cope with competition and market forces in the EU;
  • the ability to take on and implement effectively the obligations of membership, including adherence to the aims of political, economic and monetary union.”

These concepts are analyzed on the basis of 35 specific functional areas such as energy and transport. In the case of Greece, it has been the aspects of “monetary union” that have been dysfunctional: problems relating to the Euro.

The Schengen Area

The EU administers the Schengen Area open travel zone, and so it is not surprising that we see a very similar geographic pattern. Greece is in, but Turkey is not. The Baltic states and the Central European ex-Warsaw Pact states (and Slovenia) entered in 2007, with two Balkan states (Romania and Bulgaria) as formal candidates for eventual participation. Except for Slovenia, the former Yugoslav republics are not members, nor is Albania, but they do enjoy certain visa-related privileges. Turkey once again stands out, not enjoying those visa rights.

Obligations and conditions within the Schengen Area highlight control of external borders (including airports), visa regulation, cooperation with law enforcement agencies in other states, and protection of personal data (because personal data is the key to accuracy in passports and visas). Obviously, the international refugee and migration crisis is central to 21st century issues of border control. Because of its location, Greece has been a major destination for refugees.

The Eurozone for shared currency

Membership in the EU-sponsored Eurozone currency union is more exclusive than membership in the Schengen Area. The Schengen system supports cross-border travel: the Eurozone has the larger purpose of forming a “single market for goods, services, capital and labour.”

Greece was the earliest Eastern European or Balkan state to join, in 2001. Five other Central European and Baltic states have since adopted the shared Euro currency: Slovenia in 2007, Slovakia in 2009, and the three Baltic states between 2011 and 2015. With the exception of Greece and Slovenia, then, none of the states of southeastern Europe or the Balkans participate in use of the Euro.

Adoption of the Euro is meant to be limited to countries that can meet certain economic targets:

  • “Price stability, to show inflation is controlled;
  • Soundness and sustainability of public finances, through limits on government borrowing and national debt to avoid excessive deficit;
  • Exchange-rate stability, through participation in the Exchange Rate Mechanism (ERM II) for at least two years without strong deviations from the ERM II central rate;
  • Long-term interest rates, to assess the durability of the convergence achieved by fulfilling the other criteria.”

Among these “convergence criteria,” Greece has gotten into trouble in two areas. First, as eventually admitted, the deficit in the Greek government budget was understated when Greece applied to enter the Eurozone. Second, because government accounts continued to run in the red, and then were further damaged by the 2008-2009 recession, Greek government debt as a percentage of GDP came to far exceed the guidelines. The target value is public debt that is “not more than 60%” of GDP: in 2015, the figure from Greece stood at 177%. Because control of monetary decisions in the Eurozone shifts from individual countries “to the hands of the European Central Bank,” Greece thereby lost the option of currency devaluation to address its budget needs, after the move from the drachma to the Euro.


Based on these checklists, where does the “Europe” of bureaucratic integration end? Turkey is clearly not part of this “Europe” and in 2015 deals with a very different set of priorities, revolving around issues of authoritarianism, Islamic religious expression, and unrest in neighboring Iraq and Syria. Albania is not yet sufficiently developed to take a full part in “Europe.” The successor states of the former Yugoslavia also are not very “European” by this measure, with the exception of Slovenia and to a smaller extent Croatia. Romania and Bulgaria line up with Croatia in terms of limited participation. Hungary, on the other hand, lines up strongly with other Central European states: while arguably tied to southeastern Europe by history, Hungary is rarely regarded as a Balkan state by geography.

Greece clearly conforms to these models of “Europe” in terms of representative government and the rule of law, and in terms of offering a market economy rather than a command economy (the hallmark of the Communist states). Monetary problems have been the source of the long-running crisis that came to a head in 2015.

Greece has occupied an exceptional position among the Balkan states. It has been a chronological leader in joining European bodies. Among the Balkan countries to the south and east of Slovenia, Greece alone has participated in all four of these military, political and economic institutions of integration. The events of the last ten years suggest that doing so has been a challenge, especially in economic terms, and the costs for Greece since 2008-2009 have been high. Have the costs been so high, as to disrupt the integration of Greece into the “Europe” of the EU?

The July 5, 2015, referendum asked Greek voters for a “yes” or “no” decision about the terms of the Troika offer of June 25, which in fact had by then expired. The Syriza government represented a “no” vote as one against further austerity, in hopes of strengthening its hand in negotiations to remain in the Eurozone with reduced debt. The Troika and many European leaders represented a “no” vote as one against responsible participation in European financial affairs, and warned that failed negotiation would lead to Grexit. The 61% to 39% vote against the offer (a strong “no” vote) marked Greek willingness to risk the unknown results of a possible Grexit, rather than accept continued austerity programs that seemed hopeless to many.

After a week of intense negotiation, the agreement of July 13, 2015, reaffirmed aspirations toward European integration on both sides, despite the tone of distrust and disappointment. Pending final approval, Greece received a third bailout of some €80 billion. Greece’s creditors received some assurance of repayment, through promised sales of state assets (privatisation of enterprises).

To guarantee such payments, the Troika called for a managing “fund” entity, located in Greece but supervised by today’s equivalent of the European Great Powers: not so different perhaps from the OPDA and the Société de régie. Under the terms of the Euro Summit Statement “valuable Greek assets will be transferred to an independent fund that will monetize the assets through privatisations and other means” and “this fund would be established in Greece and be managed by the Greek authorities under the supervision of the relevant European Institutions.”

Greece often has balanced between Balkan regional geographic, cultural and historical connections on one side, and competing pan-European connections through alliances, economics and ideologies on the other. Modern Balkan history writ large, including the history of Greece, has been a process of escape from control by outside powers, and the establishment of local national control. At the same time, the Balkan nations consistently have worked to emulate and adopt “European” political and economic models. In the 21st century, those models are about integration, setting up a contradiction. The events of July 5-13, 2015, suggest that the latter tendency — integration — remains dominant.

[Additional note: as further evidence of the preference for integration, Alexis Tsipras and the Syriza party retained the mandate to govern in the election of September 20, 2015, securing more than 35% of the vote in a multi-party field. A breakaway faction of Syriza, campaigning as the Popular Unity party and advocating leaving the Euro Zone, failed to reach the 3% threshold required to secure a seat in parliament. As of 2018, Greece remains in the EU and Syriza remains the largest party in Greece’s government … while instead it is Great Britain that is on the “Brexit” path to leave the EU.]

References [some of these URLs may no longer be valid]:

This lecture is a portion of a larger set of texts, Twenty-Five Lectures on Modern Balkan History (The Balkans in the Age of Nationalism).

This page created on 29 June 2015; last modified 17 January 2023.



Copyright 2015 by Steven W. Sowards

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