A Comparison of Solutions to Greek Sovereign Debt Crises – 1898 and 2010-2018

A COMPARISON OF SOLUTIONS TO GREEK SOVEREIGN DEBT CRISES – 1898 AND 2010-2018

Pieterjan Schepens

Supervisor: Prof. Dr. Dirk Heirbaut Commissioner: Prof. Dr. Rik Opsommer

A dissertation submitted to Ghent University in partial fulfilment of the requirements for the degree of Master of Laws in Law

Academic year: 2018 - 2019

Inhoud Note on transliteration and terminology ...... 3 Introduction ...... 4 Methodology ...... 7 A short historical overview ...... 9 19th century ...... 11 21st century ...... 16 Comparison ...... 18 IFC in the nineteenth century ...... 19 The 1920s ...... 20 Andreades ...... 20 Strupp ...... 24 The 1950s ...... 30 Borchard ...... 31 Wells ...... 36 Modern approaches ...... 40 Policy conditionality ...... 41 Receivership ...... 44 Supersanctions ...... 46 Core-periphery ...... 48 Legal avoidance ...... 51 Conclusion on characteristics ...... 54 IFC in Greece ...... 57 Legal basis ...... 58 Concrete provisions ...... 62 The International Commission...... 64 The Société de Régie ...... 67 Overall relationship between IFC and Greek state ...... 68 The twenty-first century: policy conditionality ...... 69 General considerations ...... 70 The IMF ...... 72 Other forms of policy conditionality ...... 74 Essential characteristics of policy conditionality ...... 76

The policy conditionality regime in Greece ...... 78 Systematic comparison between IFC and the policy conditionality regime ...... 83 Modus operandi ...... 83 Aim of the international surveillance ...... 86 Bondholder participation ...... 88 Public sector involvement ...... 89 Involvement of the Greek Government ...... 90 Internal cohesion of the international surveillance ...... 90 Country-centred versus institution-centred ...... 91 Use of legal instruments ...... 92 Situation within the international context ...... 93 Duration ...... 93 Conclusion ...... 94 Suggestions for further research ...... 98 Bibliography ...... 99 Summary ...... 105 Samenvatting in het Nederlands ...... 106

Note on transliteration and terminology

There does not exist a uniformly accepted standard of transliteration for Greek words into English. I have opted for a transliteration that holds the middle between contemporary pronunciation and spelling, without sacrificing ease of pronunciation in English. When Greeks used a certain transliteration for their names themselves, I have followed their choice. All translations are my own.

Whenever capitalized or abbreviated, I use International Financial Control and IFC to refer to a specific historic, legal institution, the characteristics of which I will describe starting on page 19. Historically, several terms were used to describe the phenomenon. In order to avoid confusion, I stick to IFC even when another term was historically used more often. When referring to ‘foreign direct intervention in financial matters taking place in a regular manner’ in general – something, in other words, that covers both IFC and a policy conditionality regime –, I use the word ‘surveillance’. The choice is far from perfect, but no better alternative seems to exist.

I often refer to Greece’s nineteenth-century crisis as 1893-1898 and to its twenty-first century one as 2010-2018. The dates are based on Greece’s exit and re-entry from and to private financial markets and thus mark the period in which Greece could not finance itself the way other states did. Public finance-related troubles obviously started before these dates and lasted beyond them, but in the absence of a commonly accepted name for the respective crises (‘Greek debt crisis’ would of course apply to both) I have opted to use these dates as a shorthand to refer to the period of financial instability that took place in Greece in the nineteenth and early twentieth century on the one hand and in the twenty- first century on the other. Note that these dates do not refer to the period of international surveillance: International Financial Control was officially in place between 1898 and 1978 (although de facto only until the late 1930s), and in the twenty-first century it lasted from 2010 until 2018 (although some form of surveillance lasted even after that).

Introduction

If the gods had decided to set up a display case for government debt crises in the past two centuries, Greece might well be it. Depending on one’s definition of default1, the country defaulted at least four times2 since the Greek Revolution of 1821. Interspersed one finds episodes of foreign occupation to exact repayment, foreign control of revenues to guarantee repayment, decades-long exclusions from financial markets, a loan by the League of Nations, creative accounting in order to enter the Eurozone, and finally the extended tragedy that made Greece the most prominent victim of the eurozone crisis. As alluring as it may be to explain Greece’s current woes away as Greece being Greece – once a bad debtor, always a bad debtor – , this list does not have any causative value in itself. Greece was not static between 1821 and 2010, and we should see the events of the 1830s, or of the 1890s and the 1930s, as the product of their own circumstances. Indeed, the fact that the biggest crises took place in the 1890s, 1930s and 2010s, should point out that Greece’s repayment difficulties were not solely the result of indigenous conditions, but were linked to global economic downturns as well as domestic causes. I do not, therefore, propose that the crisis of 1893-1898 is of interest to our understanding of the crisis of 2010-2018 because it somehow prefigured the twenty-first century or because it tells us something essential about Greece. What is interesting, however, is that the reaction to crisis of 1893 by the international financial system was fairly different to that of 2010, even while demonstrating some superficial similarities. In both cases, a European country, fairly peripheral to the global economy, was unable to pay back its debts, and as a result, was placed under a form of surveillance by creditor countries. In 2010-2018, this took the form of a nearly continuous series of negotiations punctuated by four memoranda of understanding, which enshrined the reforms Greece would have to carry out in other in order to access the next slice of bailout money. In 1898, it constituted the implementation of an institution known as International Financial Control (which, for the sake of brevity, I will henceforth abbreviate as IFC), which placed the administration of key Greek revenues under the (indirect) control of a commission composed of representatives of creditor countries. How these two instances of intervention by creditor countries in the affairs of a debtor country compare to each other, and how they came about, is the object of this thesis. -----

1 What exactly constitutes default is usually defined in the contract between lender and debtor, but even at this legal level there is no uniformly accepted standard. Other parties, such as ratings agencies or academics, use different definitions as well. For an overview, see for instance Peter, M. Estimating Default Probabilities of Emerging Market Sovereigns. 2 This lower limit consists of the defaults of 1827, 1843, 1893, and 1932. Note that Greece’s non-repayment of the IMF in 2015 is not included for instance, since it was not treated as a default by the IMF and ratings agencies. A less strict definition of the term might of course easily lead to the inclusion of 2015 in Greece’s list of defaults.

Much has been written about what happened in Greece in the last decade, and there are no signs of abating interest. The sheer volume of publications precludes an exhaustive treatment of the last crisis, and the lack of temporary distance means that we are unable to adequately judge many of its consequences anyway. At the same time, no broad synthesis of the period has been written. The researcher is therefore forced to deal with a fairly disparate array of literature in order to gain an understanding of what happened and of the issues at stake. Far less has been written on the historical dimension of the Greek debt crisis. At the risk of undue generalization, authors tend to only really begin their narrative in the early 2000s. This makes (some) sense if we look at the Greek crisis from the perspective of the international financial system or of the Eurozone, but it obscures the internal developments that led to the Greek government debt crisis. Pre-contemporary Greece, when discussed, all too often becomes an unchanging, debt-ridden society, or at least the only possible outcome of past conditions. Again, this does not mean that the crisis of 1893-1898 in itself necessarily teaches us something about Greece. More than a century elapsed before 2010. Some causes of the last crisis stretch back to the Ottoman period, and others only to the metapolitefsi of the 1970s3, if not even later. Nonetheless, incorporating an in-depth look at an earlier version of the modern Greek state allows us to see modern Greece as a dynamic society and avoid a teleological perspective on Greece’s present condition. This is one aspect, I believe, where my thesis is fairly innovative – at least in the English-speaking world4 – , albeit incompletely so, since I of course do not provide a continuous description of events between 1898 and 2010. Moreover, I am constrained by the available literature, which is not very extensive even in Greek.

Much less has been written about IFC as well. Recent years have seen a few important studies, mostly from the perspective of economics or political science. The legal point of view has been largely ignored. This means that a lot remained to do: rather than foraging through a vast literature as I needed to do for the 21st century, I had to closely analyse the writings of the relatively small number of authors on IFC. This has paradoxically resulted in a thesis that is somewhat lopsided to IFC rather than modern conditionality, but it is in this field that the most extensive discoveries were to be made, and were material for the most interesting comparisons with the present could be found.

3 The Greek word metapolitefsi more or less means ‘regime change’ and is used in particular to describe the period of democratization following the fall of the military junta in 1974. 4 To the extent of my knowledge, no analysis of the modern crisis drawing extensively on Greece’s long-term past has been written. Nonetheless, one may look for glimmerings of such a history elsewhere. In Greek, for instance, Kostas Kostis published an account of Greek state formation in 2013, which became some sort of bestseller in Greece and has been essential to me for understanding the historical evolution of the Greek state. (An abridged version entitled History’s Spoiled Children was published in English in 2018.).

I will not treat the general law on state insolvency. While undoubtedly intimately related to the subject matter, it is also a vast field. In the 19th century, one has to search in volumes that say fairly little about the subject directly, but touch upon it; in the late 20th and 21st century, a vast literature appears on subjects that ultimately say fairly little about the mechanism behind the policy conditionality regime, but a lot about things like bondholder litigation. The reader will therefore find no consideration of IFC or policy conditionality’s place in the general field of international law. The purpose of my thesis remains a comparison of two solutions to debt crises, not a dissertation on theory for the sake of theory.

Methodology

The object of this thesis is to analyse how Greece exited a debt crisis at two moments in its history. Two approaches can be used to deal with this problematic. The first is a chronological analysis, in which I try to understand why evolutions took place as they did, and use information on similarities and divergences to reach a comparison. I have opted against this method. I did not have access to enough literature on late-19th century Greece, and at any rate much remains to be written about the period. For the 21st century, a significant amount of primary sources is simply not yet available. The available source material in both cases would not allow for the level of detail necessary to understand why certain options were chosen, and why others were not. A history of both periods can be – and has been – written, one that looks primarily at legal choices nonetheless exceeded what I could achieve in this thesis. A synchronous comparison presented a more fruitful and promising terrain. Our understanding of the legal aspects of IFC is still very limited, but enough material was available to allow for a critical understanding of the phenomenon. Building a model of historical IFC is relatively straightforward. Its foundation rests on one treaty and one law, namely the Peace Preliminaries to the Treaty of Constantinople of 1897 and the law voted by the Greek parliament in February 1898. I will not consider how these legal documents were implemented in practice: that would require extensive consultation of primary sources in at least Great Britain, France and Greece. Moreover, it would involve a period far too long to be practical for this thesis: although IFC was increasingly irrelevant by the 1930s, its final abolition took place only in 1978. Building a model of the form of surveillance implemented in Greece between 2010 and 2018 is far more complicated. It rested on a series of negotiations and memoranda, which involved the details of reforms far more than the general structure of the surveillance. Abstraction will therefore be more necessary, and the omission of the historical context is fairly artificial. Nonetheless, and attempt must be made if we are to compare it with the situation in the nineteenth century. I will approach both periods by searching for what I call the ‘essential characteristics’ of IFC and policy conditionality. By these I denote the elements that are essential to the existence of both phenomena – both legal and not legal. This approach carries with it the advantage that both systems are conceptually separated from similar systems, which in the past have all too often been lumped together. I may risk exaggerating the differences, but as the emphasis until now has largely been on the similarities rather than the differences, I believe this risk was warranted. Once I have established these essential characteristics in theory, I will look at their practice in Greece. Once we have thus developed an understanding of both the theoretical

7 and practical side of both IFC and policy conditionality, I will make a point-by-point comparison of both systems.

A short historical overview

At the conceptual level, the immediate cause of the Greek debt crisis in the 19th and the 21st century is the same: an overall contraction of the world economy made Greece’s debt unsustainable. Before 1893 and 2008, lending by private creditors from core countries had been generous. There was a general flow of capital from the core to the world’s periphery. Once this flow came to halt, several countries in both periods found themselves unable to refinance on private markets, and public debt crises followed. The timing of these crises can therefore be explained by pointing to international developments. The crisis of the last decade started in the United States, where a combination of financial derivatives, securitization and a rapid rise of subprime lending in the housing market led to a bubble that started bursting in 2006.5 Several European banks had bought these financial products, and soon found themselves in trouble. As capital markets dried up, the position of these banks became increasingly perilous. European governments stepped in, and a private debt crisis morphed into a public one. This conversion happened in two ways. Some countries, such as Spain, used the creditworthiness of the government to access funds that their private debtors were cut off from. Other countries, such as Greece, were not even able to this: here, core European economies stepped into to provide bailout funds to Greece, which the government then used to pay back its own creditors. Some European states thus found themselves imperilled because they assumed the debts of their private sector; others, most prominently Greece, were already weak even without assuming additional debt.6 The causes of the crisis of the 1890s were more diffuse. An Argentinian debt crisis brought Barings Bank, one of London’s most prominent financial institutions, nearly to bankruptcy; it was saved only by the guarantee other banks extended to it. This weakening of the London financial market led to a meltdown in half of South America. It returned to Europe when Portugal defaulted in 1891, and by 1893 the United States were affected as well.7 In addition to all of this, Greece’s economy had suffered a serious hit when France, followed by Germany and Russia, had imposed a tariff on currants, which at that time were Greece’s main export product – up to two thirds of the country’s entire export trade.8 The combination of an imploding international capital market and of a worsening balance of trade proved fatal, and Greece suspended payment to its creditors in 1893.

5 McLean, B. & Nocera, J. All the Devils Are Here, passim. 6 Sandbu, M. Europe’s Orphan, passim. 7 Lazaretou, S. Greek Monetary Economics in Retrospect: The Adventures of the Drachma, p. 15; Lazaretou, S. The Drachma, Foreign Creditors and the International Monetary System, p. 14. 8 Wynne, W. H. State Insolvency and Foreign Bondholders: Selected Case Histories of Governmental Foreign Bond Defaults and Debt Readjustments (Volume II). p. 307

While the timing of the crisis may be attributed almost only to international developments, it is equally clear from the short overview above that Greece’s economy in both cases showed weaknesses that made it vulnerable to such contractions in international capital markets. It is to this internal history that we turn now. It would be impossible to provide here a detailed analysis of Greek history as it led to two debt crises. Greece has not been a popular subject in international academia. A thorough English-language history of modern Greece seemingly does not exist, and only a handful of English-language historians (or in French or German for that matter) has written on Greece on the basis of original research.9 In Greece itself, the quality of the output varies strongly, with most innovative work apparently being concentrated in articles and monographies lagging behind. At any rate, my personal access to Greek works has been limited. What I describe in the following pages should thus be seen as a guideline to understanding what I will describe in the rest of my thesis; it does not purport to provide a summary of the latest critical historical research on Greek history.

9 The most prominent might be Mark Mazower. George Dertilis has also written a number a works in French, and Kostas Kostis has published a translation of his “Τα κακουμαθουμένα παιδιά της ιστορίας” in English, which is nevertheless abridged from the original

19th century

The first loans to Greece were contracted not by the Greek state itself, but by one of the polities pretending – and fighting – to be legitimate representative of that state, the independence of which had been proclaimed at the beginning of the revolt against the Ottoman Empire in 1821. The loans were negotiated in 1824 and 1825, and were secured by all the revenues and national property of Greece.10 That investors enthusiastically subscribed to these two loans11, demonstrates that they had little understanding of the actual conditions of the state or the government to which they were entrusting their funds.12 Although part of the funds failed to reach Greece through loss and mismanagement13, those that did ensured the victory of the faction most in favour of a strong central government during the civil war then ravaging Greece.14 In this, they cannot be said to have been wholly misspent, although were not of course used for their intended purpose of helping Greece fight the Ottoman Empire. At any rate, the funds would have been useless against the Egyptian army, which, trained by Europeans and vastly superior to the Greek and Ottoman forces, invaded the Peloponnese in 1825 at the Ottoman Sultan’s request. Greek independence was thus obtained only by the intervention of the Great Powers – that is, the United Kingdom, France and Russia – from 1827 onwards. The Powers then took upon themselves to establish the contours of the new Greek state – its borders, its mode of government, and the choice of its king (the second son of the king of Bavaria). To safeguard this arrangement, they granted a loan to the new Kingdom of Greece which they jointly guaranteed. The Kingdom thus started its career doubly in debt: morally, as the revolt would have been crushed without the Great Powers’ interventions; financially, as the devastated country had three loans to pay back. This history, taking place more than sixty years before 1893, would have been irrelevant for our purposes were it not for the fact that Greece quite understandably defaulted on its debt in 1843, shutting it out of financial markets for the next three decades. During this period, a first attempt at imposition of foreign control was made. The Greece that came into being in 1832 reigned over only a small part of the Greek world: the Peloponnese, the southern part of the mainland, and a few of the Aegean islands. The majority of the Greek world remained outside of the Kingdom, as did its richest parts:

10 Wynne, W. H. State Insolvency and Foreign Bondholders: Selected Case Histories of Governmental Foreign Bond Defaults and Debt Readjustments (Volume II). p. 283 11 As Levandis (The Greek Foreign Debt and the Great Powers, p.18) put it: ‘Insurgent Greece, with nothing to offer except a vague promise to pay, could borrow on the same if not more favourable terms than the independent Kingdom of Spain.’ 12 At least they were not lending to an entirely imaginary country, as befell the victims of Gregor MacGregor’s Poyais scheme in the same period. 13 Levandis, J. A. The Greek Foreign Debt and the Great Powers, pp. 19-21 14 Kostis, K. “Ta kakomathiména paidiá tis Istorías”, p. 162

Thessaly, Crete, the Ottoman Empire’s greatest trade centre Smyrna, and Constantinople itself.15 The Kingdom desperately needed expansion, both for reasons of economic viability and, more prominently, to make true its promise of liberation for all Greek peoples. Within the framework of the Concert of Europe, this was impossible, and so during the Crimean War Greece tried to side with Russia to attack the Ottoman Empire in the rear. Occupation of the Piraeus by and Anglo-French expeditionary force followed. As a condition for their departure, the British and French required Greece to allow a three-member economic commission to study the situation of the Greek economy. As the commission concluded its work after two years, Greece accepted its plan for the repayment of the loans. This plan was to be guaranteed by foreign control over Greek customs. This was accepted by Greece as well. Two months before the control was to go into effect, however, a revolution forced King Otto of Greece to abdicate; he was replaced with a Danish prince. No further attempt to carry out the plan was made. According to Kostis, the primary purpose of the control had been political all along: in yet another attempt to break free from the Anglo-French grasp, Greece in the early 1860s had sought a rapprochement with Serbia and newly united Italy. The replacement of the monarch with a candidate intimately linked to Great Britain took away the need to constrain Greece.16 I have unfortunately found no more information on this first attempt at foreign control, so only tentative conclusions can be made. We can, however, safely assume that its primary purpose was indeed political. It was not the first attempt by Great Britain and France to translate the debt owed to them into political leverage, and neither was it the last.17 Greece thus still found itself excluded from financial markets, and would remain so until 1878. A first attempt at financial normalization was nevertheless made in the 1867, as Greece joined the Latin Monetary Union (LUM). The LUM essentially consisted of the adoption of the gold-to-silver ratio of the bimetallic French Franc, namely 1 to 15,5. Some other limitations were imposed on the participating countries, but overall the system was very loose and allowed member states considerable freedom: the printing of paper money was not regulated, for instance. Control mechanisms were nearly non-existent, and debasement of currency was practiced by several member states. Nevertheless, the LUM was a rich country’s club: the original members in 1865 were France, Belgium, Switzerland and Italy. Greece’s joining of the Union two years later provided the country with a framework in which to issue a modern currency of its own – all the more important since before that date, the drachma had been not much more than a nominal currency, with day- to-day transactions being conducted in foreign coin.18

15 The Ionian Islands were an independent state (the ‘United States of the Ionian Islands’) under British protectorate. They joined Greece in 1864, as a gift from the United Kingdom upon the accession of the new Greek king George I. 16 Kostis, K. “Ta kakomathiména paidiá tis Istorías”, pp. 268-269. In the same year, 1863, the prince of Wales married George’s sister Alexandra. 17 Kostis, K. “Ta kakomathiména paidiá tis Istorías”, p. 265 18 Lazaretou, S. Greek Monetary Economics in Retrospect: The Adventures of the Drachma, pp. 10-12; Kostis, K. “Ta kakomathiména paidiá tis Istorías”, pp. 253-254

Greece’s joining of the LUM had little practical effect, however. Unable to finance itself on international financial markets, the Greek government resorted to printing money in order to finance its habitual mobilization against the Ottoman Empire. The drachma thus moved into a prolonged period of non-convertibility. Meanwhile, the LUM gradually lost its relevance as the international monetary standard moved away from bimetallism in favour of the gold standard.19 The period of inconvertibility should not be judged too negatively: the expansion of the money supply proved beneficial for Greece’s economic growth.20 In 1878, Greece finally reached an agreement with its creditors, who by then had not been paid for thirty-five years. The reason for Greece’s sudden willingness to restart payment was the creation of an autonomous Bulgaria in 1878.21 This upset the entire balance of power in Balkans and threw Greece’s vision of the future in doubt. Before 1878, Greece had believed that it only had to wait for the inevitable collapse of the Ottoman Empire, when it would step into the Empire’s shoe as the hegemon of its Orthodox populations. The creation of Bulgaria compromised this comfortable vision: the newcomer was strong and in an excellent position to move into Macedonia22 – Slavophone to a large extent – and even to threaten Constantinople itself. Bulgaria’ strength contrasted sharply with the lacklustre performance of the Greek army. That the Congress of Berlin awarded Thessaly and part of Epirus to Greece in 1881 in no way compensated for the emergence of Bulgaria.23 A headlong modernization to allow Greece to survive and prosper in this competitive new environment thus imposed itself on the country.24 The main proponent of this modernization was Charilaos Trikoupis. He was the dominant figure in Greek politics from the mid-1870s to mid-1890s, to such an extent that his main opponent Diliyannis declared that he was ‘against anything Trikoupis was for.’ The Trikoupian programme laid a strong focus on military development, with two main pillars: the introduction of generalized conscription (quite ineffective due to a lack of funds) and large-scale infrastructure projects in the form of railroads and ports, which were indispensable for bringing armies to the front. Both of these contributed to the Greek state’s capacity building, and allowed the central government to penetrate much more effectively than before in the provinces.25 These projects were financed by loans, both internal and external. After reaching an agreement with its creditors in 1878 and until its bankruptcy in 1893, the Greek government

19 Lazaretou, S. Greek Monetary Economics in Retrospect: The Adventures of the Drachma, p. 12. 20 Kostis, K. “Ta kakomathiména paidiá tis Istorías”, pp. 400-401. 21 The Principality of Bulgaria remained under nominal Ottoman suzerainty. In addition to the Principality, an autonomous ‘Eastern Rumelia’ was created as well, which corresponded more or less to today’s southern Bulgaria. In 1885, the Principality annexed Eastern Rumelia, doubling its territory. 22 19th-century Macedonia consisted of the present Republic of North Macedonia, the Greek region of Macedonia, and parts of what are now border regions of Bulgaria, Serbia, Kosovo and Albania. 23 The strength of the Bulgarian state was confirmed by the Serbian-Bulgarian war of 1885. Serbia, like Greece, had concluded that autonomous Bulgaria constituted a major threat and tried to prevent its annexation of Eastern Rumelia by declaring war. The Serbians were soundly defeated. As Serbia was Greece’s likely ally in the scramble for control of the Balkans, this boded ill for Greece. 24 Kostis, K. “Ta kakomathiména paidiá tis Istorías”, pp. 436-451, 443-476. 25 Kostis, K. “Ta kakomathiména paidiá tis Istorías”, pp. 451-461.

13 contracted loans in 1879, 1881, 1884, 1887, twice in 1889, twice in 1890, and then finally in 1893 itself. These loans were officially issued for various purposes, such as the construction of specific railway lines, but most of the money was actually spent on repaying previous loans.26 Of particular note is the loan of 1887, named the ‘Monopoly Loan’ since it was accompanied by the creation of a company under Greek law, the Société de Régie des Monopoles de Grèce, which was to administer certain revenue posts earmarked specifically for repaying the creditors. We will amply revisit this company later on. Another (hoped for) source of funds was the promotion of economic growth through reform of the taxation system, by raising taxes on consumption and lowering those on production. The stimulus to the economy was not as expected, and the shift resulted in a permanent increase of the tax burden. Its internal allocation within Greece did change, however. Before the reforms, the agrarian sector had borne the brunt of taxation, with a tenth of production to be paid in tax – a leftover from the Ottoman period.27 Trikoupis replaced this system with a tax on pack animals, which did spare the poorest inhabitants of rural provinces but put additional pressure on the small and middle peasant class, while drawing almost no revenue from larger estates. As the tax burden in the rural provinces fell, that in the cities rose, with the increased taxes on consumption obviously hitting the poorer part of the population hardest. In addition to this overall shift, Trikoupis also raised tariffs in a protectionist bid. Revenues fell, however, and the reform quickly had to be amended.28 In 1893, as noted, the government was forced to declare bankruptcy due to a mix of internal and external factors.29 In the following five years, the government tried to negotiate with its creditors. The creditors developed concrete proposals for the institution of an IFC, but the government refused to acquiesce to their demands and the negotiations entered into an impasse. In 1897, the Cretans rose in one of their periodical revolts against the Ottoman Empire. Greece, as usual, felt obliged to extend support. Full-scale war broke out between the two states, and the Ottoman Empire moved into Thessaly and completely defeated the Greek forces. Greece, fearing an attack of Athens itself, finally accepted the Great Powers’ offer of mediation. After negotiations in Constantinople, the Powers and the Ottoman Empire agreed that Greece should pay a war indemnity to the Porte and that Ottoman forces would occupy Thessaly until the indemnity had been paid. In the same Peace Preliminaries, the Great Powers imposed an IFC on Greece.30 Greece accepted, and an international

26 Tunçer, A. C. Sovereign Debt and International Financial Control, p. 105. 27 The newly independent Greek state had initially replaced the tax. The capacities of the young Kingdom did not allow for a more refined form of taxation, however, and the Bavarian regime immediately brought the tax back. 28 Kostis, K. “Ta kakomathiména paidiá tis Istorías”, pp. 481-486. Note that this paragraph only concerned central taxes. Local taxes were levied as well. 29 Trikoupis famously announced the bankruptcy in the Greek Parliament with the laconic phrasing ‘Δυστυχώς επτωχεύσαμεν’ – ‘Regretfully we are bankrupt.’ 30 The German Government had since a few years taken up the cause of its creditors and pushed the other Powers to insert a clause on IFC into the treaty (see Wynne, W. H. State Insolvency and Foreign Bondholders: Selected Case Histories of Governmental Foreign Bond Defaults and Debt Readjustments (Volume II). pp. 313-316).

14 commission was sent to Athens to evaluate the state of Greek finances. By early 1898, the IFC had been set up into the Greek legal order. The IFC allowed Greece to immediately return to private financing at favourable interest rates. By the early 20th century the economy had recovered. In 1902, Greece contracted a loan to build the railroad between Piraeus and the Macedonian frontier, allowing from the switch dispatch of soldiers from all over Greece to the front. Modernization of the army itself was hampered somewhat by its presence, but this was compensated by the fact that the crushing defeat of 1897 had made now made modernization commonly accepted.31 Taxation levels continually rose in order to finance the rising military expenses which the International Commission supervising the IFC would not allow to be covered through loans. Taxation remained on the consumption side, leaving the richer classes under- and the lower ones overtaxed. By 1912, the Greek state was able to sustain months of continuous fighting during the Balkan Wars in an orderly manner. It financed itself through the issue of paper money, which it then managed to liquidate in the year after the war through an international loan.32 The Balkan Wars were a resounding success for Greece, leading to the annexation of the larger part of Macedonia, including its capital Thessaloniki. Crete had been officially annexed a few years before. These wars were not simply a matter of national glory: as noted before, the original Greek state occupied the poorest part of the Greek world. Expansion was deemed necessary both to legitimate its existence and for reasons of economic viability. The modernization process begun around 1880 thus proved successful, fifteen year after the establishment of IFC.

31 Kostis, K. “Ta kakomathiména paidiá tis Istorías”, p. 448. 32 Kostis, K. “Ta kakomathiména paidiá tis Istorías”, pp. 547-550.

21st century

Even as the Greek state in 1913 finally fulfilled its 19th-century promise, it stood at the eve of a period of civil turmoil which would last until the 1970s. Across that sixty-year period, Venizelist Liberals, Republicans, Royalists, Fascists, Communists, and right-wing extremists would prove unable to settle their differences except by force. Few years passed without the use of violence.33 This situation of upheaval finally ended in 1974, as the military junta that had assumed power in 1967 fell and was replaced with a democratic regime. The prime instrument of this pacification process – called metapolitefsi (‘regime change’) in Greek – was foreign debt. A direct line runs from this intraparty consensus to the crisis of the 21st century, but it should nonetheless be remembered that metapolitefsi has constituted the most successful solution to the problem of Greek political violence until now. With the exception of actions by some fringe groups after 2010, violence has never again been a part of Greek political life. Various causes have been attributed to the Greek state’s inability to move away from its debt-centred model, in spite of the double-digit fiscal deficits, double-digit inflation rates, large current-account imbalances, and low growth rates that marked Greece in the 1980s and 90s.34 Mentioned among others, and not exhaustively, are the Greek state’s high defence spending35, a tax structure that targets the weakest and allows more knowledgeable citizens to escape from its clutches36, a clientelist attitude towards the civil service37, and of course the weakness of the Greek state in general. Whatever the causes, Greece from metapolitefsi onward has been marked by debt financing, and we may certainly include the need for pacification into the list of causes. The other important development in the last decades is Greece’s entry into the European Community in 1981, as a means of locking in the gains from metapolitefsi. In 2001, a year later than the other EU member states, it also entered the eurozone. The result was that

33 This was not new in itself. Greeks had turned to fighting each other within a few years after the proclamation of independence, and in the vacuum of authority left after the abdication of King Otto in 1862-1863 political violence had broken out once more. During the 19th century, however, the monarchy had managed to keep the lid closed on this simmering conflicts. This old safety valve began falling away as the royal family started intervening in an increasingly partisan way in the late 19th century. By the 1910s, the existence of the institution of the monarchy itself was called into question – something that had never happened in the 19th century. (See Kostis, K. “Ta kakomathiména paidiá tis Istorías”, p. 196 on the situation in the 19th century.) 34 Dellas, H. & Tavlas, G. S. “The Gold Standard, the Euro, and the Origins of the Greek Sovereign Debt Crisis.”, pp. 491-492. 35 Dertilis, G. B. “Dette publique et dépenses militaires : la grèce et la question d’Orient.”, passim. The Greek army actually functions as a social safety valve. Most of its spending is on personnel rather than materiel. Greece was thus one of the only NATO countries that spent more than 2% of its GDP on defence, although the Greek army was far battle-ready. 36 Dertilis, G. B. I istoría den epanalamvánetai kai den didáskei: oikonomikés kríseis kai krátos stin Elláda.; Airapetian, S. “Managing Sovereign Debt”, pp. 409-411. 37 Airapetian, S. “Managing Sovereign Debt”, p. 408-409.

Greece’s interest rates came down sharply, extending a new lifeline to Greece’s debt-fuelled economic and political system. The country achieved the second-highest growth rates in the eurozone.38 After the American financial crisis arrived in Europe, the Greek state in 2009 was forced to announce that its budget deficit was far higher than expected. Greek creditworthiness thereupon started its descent, until the country applied for an international bailout in April 2010. In return, Greece was expected to carry out a set of reforms. This marked the start of the policy conditionality regime that would mark Greece until 2018 and which I will describe in more detail later on. In august 2018, Greece finally exited the bailout regime, and returned to financing on private markets in 2019. Apart from a brief period in 2014, it had not been able to finance itself this way for eight years.

38 Dellas, H. & Tavlas, G. S. “The Gold Standard, the Euro, and the Origins of the Greek Sovereign Debt Crisis.”, pp. 491-492.

Comparison

The basic legal contours of nineteenth-century IFC were established by 1898; the form of international surveillance Greece underwent recently was a continuous development between 2010 and 2018. This is in itself points to many of the differences we will discover, yet it also poses a methodological problem. I describe the entire period of international surveillance in the twenty-first century, but I do not cover even the first year of its existence in the nineteenth. Does this discrepancy not invalidate the comparison? I believe not, for the following reasons: -the end date is based upon Greece’s return to financing itself on private financial markets. The object of my thesis is solutions to government debt crises, not international surveillance as such. -I do not describe how international surveillance translated itself into realities on the ground – e.g. did the Greek government really carry out this or that measure? – , as this would be unfeasible. In the twenty-first century this translation happens to coincide with the duration of international surveillance; in the nineteenth it does not. At any rate, whether IFC was effectively applied on the ground does not seem to have bothered private creditors when they resumed lending in 1898. The law in the books therefore suffices. The above notwithstanding, there is one discrepancy we cannot dismiss: we can judge the result of IFC one, ten, and a hundred years after its establishment; this we cannot do for the twenty-first. The disparity will not keep me from pointing to the effects of IFC in the long term, but when I claim that IFC in no way precluded Greece’s modernization project as judged by its ability to successfully sustain the Balkan Wars, we should of course remember that we do not know what state Greece will be in 2032.

Bearing the above in mind, I will now describe both forms of international surveillance. I start out each time with an introduction to the mechanism in general, in which I will seek to establish the essential characteristics that allow us to understand their functioning. After that, I examine how these essential characteristics manifested themselves in Greece. I start out with nineteenth-century IFC, as its contours are more clearly delineated and its abstraction from historical events is less artificial than is the case in the twenty-first century. As we establish what IFC looked like in the nineteenth century, we can use that knowledge to bring clarity to international surveillance in the twenty-first.

IFC in the nineteenth century

International Financial Control was a phenomenon that materialized in various countries. An unrefined39 form of it appeared in Tunisia in 1869, and even before that, in the early 1860s, the Great Powers had discussed implementing it in Greece.40 The first country that experienced the characteristic form that later IFCs would take, was Egypt in 1879, followed by the Ottoman Empire a year later, and Serbia in 1895. After Greece in 1898, Bulgaria and Morocco would follow by the early twentieth century. In the same period, across the Atlantic, a form of IFC dominated by the United States appeared in the Dominican Republic, Haiti, Honduras, and Nicaragua. A final incarnation, at least according to some authors, took place after the First World War, as the League of Nations adopted some sort of IFC as a guarantee for its loans.41 Likewise, the Dawes Plan for Germany in 1924, exhibited, amongst others, some characteristics of IFC. Before we can consider IFC as it appeared in Greece, we should try to establish what all these instances of international control had in common, or in other words, determine what constituted the essential characteristics of IFC as a legal phenomenon. This is no straightforward task. In both contemporary and modern literature, there is no consensus as to what exactly is necessary to qualify a form of international surveillance as IFC, and, by consequence, which cases were an example of IFC and which were not. Two authors stand out: Andreas Andreades, a Greek jurist and political scientist, and Karl Strupp, a Jewish- German jurist. In 1924 and 1925 respectively, both taught a course at the Hague Academy of International Law, which presented a systematized view of IFCs that was heretofore rather lacking. Doctrinal texts did exist before this, but they were more concerned with practical matters and do not provide the broader perspective that is needed to ultimately make a comparison with the 2010-2018 period possible. Andreades and Strupp should therefore be considered first in our search for the essential characteristics of IFC. Afterwards, I will consider elements provided by later authors.

39 Unrefined, since the commission exercising the control consisted of a representative of the French government, two Tunisians, and representatives of foreign bondholders (including two Frenchmen, and Italians and Britons as well). This composition was purely the result of political expedience. Later IFCs are more elegant from the legal point of view. Andreades, A. “Les contrôles financiers internationaux.”, pp. 13-19. 40 Kostis, K. “Ta kakomathiména paidiá tis Istorías”, p. 269. 41 Although not all authors, as we shall see, accept the League of Nations type as IFC.

The 1920s

Andreades

The defining elements in Andreades’s approach is that he refused to develop categories into which to put each country’s IFC. Indeed, he considered such an endeavour to be unscientific:

Si nous exceptons les contrôles américains qui forment un groupe à part, sur sept contrôles africains et européens, il n’en est pas deux coulés dans le même moule, d’où l’impossibilité de les ramener aux mêmes types sans déformer les faits et sans faire des assimilations arbitraires, les deux choses les plus anti-scientifiques qui soient.42

[If we leave aside the American controls that form a group apart, out of seven African and European controls, there are not even two that were made in the same mould. It is therefore impossible to reduce them to the same types without deforming the facts and resorting to arbitrary assimilations, the two most anti-scientific things that exist.]

Andreades was equally weary of defining IFC:

Il serait imprudent de commencer par une définition : on peut dire du contrôle financier international ce qu’on a dit du protectorat : « il y a des protectorats, il n’y a pas un protectorat. » La variété des contrôles financiers internationaux fait que toute définition sera forcément erronée ou incomplète.43

[It would be imprudent to start with a definition: one can say about International Financial Control what has been said about the protectorate: ‘there are protectorates, there is not one protectorate.’ The variety of International Financial Controls ensures that every definition will necessarily by false or incomplete.]

Recognizing the need for a working definition nevertheless, he finds one with the Austrian jurist Karl Lippert, who in his Das Internationale Finanzrecht of 1912 described IFC as44:

42 Andreades, A. “Les contrôles financiers internationaux.”, p.12. 43 Andreades, A. “Les contrôles financiers internationaux.”, p. 5. 44 As I could not access a copy of Lippert’s original book, I provide the definition as Andreades cited it, in French. Incidentally, Andreades dismisses the rest of Lippert’s book as ‘cet ouvrage donne sur notre sujet beaucoup moins de renseignements que son titre et son étendue ne semblaient promettre’.

Le contrôle exercé par un groupe de puissances dans le but de protéger les intérêts de leurs nationaux, particuliers ou banques, en leur qualité de créanciers de l’État contrôlé et tendant à prévenir des actes de mauvaise administration financière qui leur porteraient préjudice.45

[The control exercised by a group of Powers with the goal of protecting the interests of their nationals, individuals or banks, in their quality of creditors of the controlled state, and aiming to prevent instances46 of bad financial administration that would bring them harm.]

Again according to Andreades, the following elements are important in this definition – and he adds a few for good measure:

1. The control is exercised by the Great Powers, either through their official representatives or through representatives of the creditors who are their nationals. 2. The control has a permanent character, and should thus be seen in opposition to interventions seeking the payment of a specific debt. 3. The control is exercised in the name of individuals who are creditors to the debtor state. ‘The debts from state to state’, Andreades adds, contrary to Lippert, ‘should be put in a separate category’.

If this addition is indeed to be considered a determining element in the qualification of a form of international surveillance as IFC, this would immediately rule out any argument that contemporary Greece was under a form of IFC between 2010 and 2018, since post- 2010 the vast majority of Greece’s debt was owed directly to states and the IMF. A closer look at Andreades’s argumentation is therefore warranted. He explains his position as such:

Les dettes d’État à État doivent être rangées dans une catégorie à part. Ceci pour des raisons aussi bien théoriques que pratiques. En théorie parce que, comme le remarque Sir John Fischer Williams, elles constituent un engagement rentrant incontestablement dans la sphère du droit international public et que le droit d’intervention, contesté par tant d’écrivains en cas de dettes envers des particuliers, est ici incontestable. En pratique parce que : a) dans le premier cas, l’État créancier consultera exclusivement ses propres intérêts pour savoir s’il devra intervenir ou non, alors que dans le second, il devra tenir compte des intérêts des ses ressortissants et peut-être de la pression qu’ils exerceraient sur lui ; b) dans la résolution de la Conférence de la Haye et la convention du 18 octobre 1907, il est exclusivement question de dettes privées ; le préambule est formel à ce sujet. Un des États signataires aurait le droit, par conséquent, de recourir à la force armée pour le recouvrement d’une dette due à lui-même, sans être dans l’obligation d’avoir préalablement recours à l’arbitrage.

45 Andreades, A. “Les contrôles financiers internationaux.”, p. 5. 46 I avoid the translation of ‘acte’ as English ‘act’, since the latter word carries with it the connotation of a legal statute. IFC was not limited to the prevention of bad legislation, and in some cases, such as Greece, it could only do suggestions in the field of legislation while having far more extensive powers in other domains.

[The debts from state to state should be put in a separate category. This is for reasons both theoretical and practical. In theory, because, as Sir John Fischer Williams remarks, they constitute a commitment that indisputably falls under public international law and because the right to intervention, contested by so many authors in the case of debts towards private persons, is here without contestation. In practice because a) in the first case, the creditor state will look exclusively to its own interests to know whether it should intervene or not, whilst in the second, it will have to take into account the interests of its nationals and perhaps the pressure they will exert on it; b) in the resolution of Conference of The Hague and the Convention of 18 October 1907, only private debts are mentioned; the preamble is adamant in this regard. A signatory state has the right, by consequence, to use armed force to recover a debt due to itself, with no obligation to resort to arbitration previously.]

I should repeat here that Andreades’s work was written in 1924, and The Hague Convention obviously postdates the installation of IFC in Greece. Recourse to armed force to exact payment on behalf of private creditors was undoubtedly state practice at the end of the nineteenth century, even as some jurists might contest its legal basis. For different reasons, the argument is without relevance for the twenty-first century as well: the logic of the United Nations Charter simply forbids the use of armed force to ensure repayment of debts, private or public. This leaves us with two arguments that preclude any qualification of the 2010-2018 period as IFC: the notion that state-to-state debts are a matter of public international law, and the notion that states would only look to their own interests when the debt is owed to themselves. The second argument is a matter of opinion. With the risk of undue generalization, the realist school of international political science will agree with Andreades; the idealist school will not. But even if we ignore the idealist side, I believe the argument does not stand up to closer scrutiny. States in the nineteenth century (or in the twentieth for that matter) were never obliged to intervene in favour of their nationals. In other words, a state decided whether to intervene or not based on what it judged to be its best interests. There was therefore no practical difference between state-to-state and citizen-to-state debts. As for the first argument – that state-to-state debts are a matter of public international law – it is highly questionable that other instances of IFC would not fall under public international law. This is indeed the criticism Strupp would convincingly level against Andreades the follow year.47 Some instances of IFC – namely the private ones (a categorization which I will discuss when I deal with Strupp in the next part – very probably did not fall under public international law; other certainly did. Greece’s IFC, as a matter of

47 Strupp, K. “L’intervention en matière financière.”, p. 11. Although generally appreciative of Andreades’s work, he dismisses Andreades’s public law argument in a footnote: ‘Les arguments qu’il met en avant ne m’ont pas convaincu. Au contraire, on parvient à un résultat tout à fait opposé si l’on part du fait que nous avons à nous occuper du droit des gens.’ In other, Andreades started from the premise that IFC’s, by definition, could only be exercised for the benefit of private individuals and were therefore not a matter of public law; if on the other hand, one looked at the issue from the perspective of public international law, one noticed that IFCs cut right across the divide of public and private law. I will take up the issue again when dealing with Strupp in the next part.

22 fact, was mandated by an international treaty between states; the law implementing it refer to representatives of other states. Andreades’s argument therefore seems moot. Before turning to Strupp definitively, what elements does Andreades contribute in the meantime, albeit somewhat unwillingly, to our search for the essential characteristics of IFC? 1. The IFC should be exercised by a group of Great Powers. Here Andreades contradicts himself: while admitting that they are a ‘groupe à part’ he never casts doubts on the validity of classifying American IFCs as IFCs, even though these were exercised solely by the United States. One Great Power therefore suffices, although it may be argued that this constituted an exception that was valid only in America. 2. The IFC is exercised either by official representatives of the Great Powers or through representatives of the creditors who are their nationals. 3. The goal of IFC is to protect the interests of foreign nationals who are creditors to the debtor states, and the IFC is exercised in their name.48 4. The means to protect creditors’ interests is ‘preventing instances of bad financial administration that would harm the creditors’. 5. IFC has a permanent character, in contrast to arrangements to recover a specific loan.

48 This is arguably the most important distinguishing element in Andreades’s view, leading to the exclusion of state-to- state loans and of League of Nations surveillance (which I will discuss in more detail in the following chapter). In a sense, it relegates IFC to the past, since it is an inferior form to that of the League of Nations.

Strupp

Strupp wrote about IFC in the context of a course he gave on foreign intervention in financial matters.49 To him, IFC constitutes a lawful interference in the affairs of another state in a context where intervention in the affairs of another state is prohibited. He defined intervention as follows:

L’intervention est le fait extrajuridique par lequel un ou plusieurs Etats, sans pouvoir se baser sur un titre juridique émanant soit du droit international coutumier, soit d’un traité spécial bilatéral ou plurilatéral et liant les parties en cause, s’ingère dans les affaires intérieures ou extérieures d’un autre Etat, ou de plusieurs autres, pour exiger l’exécution ou la non-exécution de telle ou telle chose.50

[Intervention is the extralegal fact by which one or multiple states, without possessing a judicial title emanating either from customary international law or from a special bilateral or plurilateral treaty that binds the parties concerned, interferes in the internal or external affairs of another state, or of multiple others, in order to demand the execution or the non-execution of this or that matter.]

IFC, then constitutes lawful interference because it is the result either of an international treaty or, and this is where Strupp makes an important innovation on the doctrinal level51, of a contract between a state and its creditors. This insight allows him to lay the foundation of a classification of IFCs that among his successors52 led to a division into three main categories of IFC, namely public, private, and mixed controls. For this more elegant categorization we must nonetheless wait for Edwin Borchard in the 1950s, as Strupp’s own classification was more extensive:

1. ‘International controls properly speaking’: here the control is exercised by an entity of public international law. Or, in the words of Strupp, they are the controls which are ‘exercised either by a truly international institution, or by representatives of multiple states, or by those of a single state, or – very recently – by representatives of the League of Nations.’ The last descriptions are clear enough, but the first merits some explanation. By ‘truly international institution’, Strupp refers to a situation like that

49 Strupp also wrote Intervention in Finanzvragen, Leipzig, 1928, which I have unfortunately not been able to access. 50 Strupp, K. “L’intervention en matière financière.”, p. 8 51 Strupp himself remarks that is strange that authors who have dealt with IFC have ‘méconnu ce fait juridiquement si important’. The only exception is Andreades, but ‘sa systématique diffère de la nôtre’. After all, Andreades excluded public international law-governed surveillances from the label of IFC, while Strupp’s very point of departure is public international law. See Strupp, K. “L’intervention en matière financière.”, p. 11, footnote 1. 52 Primarily Borchard and Megliani.

of Egypt’s Control Commission, which had autonomous powers, independent of the British, French, and Egyptian State. It therefore arguably became an international entity of sorts.53 In Greece, on the contrary, the members of the Commission were the legal organs of their sending states.54 This category furthermore falls apart in two subcategories: one of which groups ‘those [controls] where, following an ordinary international treaty, a surveillance has been installed on this or that branch of the financial administration of the state’, and the other which contains the ‘international aid’ provided by the League of Nations.55 It is remarkable that Strupp defines this group as international controls properly speaking, since his reasons for doing so is that they are governed by public international law – exactly the opposite of Andreades.56 On the other hand, one should not read too much in ‘properly speaking’, since the Control of the Ottoman Empire for instance does not fall under this category, yet no author ever doubted the existence of an IFC in the Ottoman case. Apart from Greece and Egypt, Strupp also includes the Reparations Commission of the 1919 Paris Treaties in this category, as well as Tunisia. Tunisia was a special case: the members of its Commission consisted of a representative of the French government, and representatives of French, British and Tunisian bondholders. It is therefore the only example of what Strupp’s successors would call the ‘mixed’ category of IFCs. 2. The control exercised by representatives of the creditors – that is, private persons. Whereas the IFCs sensu stricto of the first category come about as a result of an international treaty, those in this second category are established by an internal act of the debtor state itself. They do not therefore fall under the scope of public international law, and Strupp only treats them in his course ‘pour être complets et à cause d’une connexité matérielle assez étroite’ [‘in order to be complete and because of a rather narrow material connectivity’].57 To Strupp, in other words, the qualification as IFC is a matter of fact and not of law.58 Examples of the second category are Morocco (although this one later evolved into a control of the first category), the Ottoman Empire, Serbia, and Bulgaria. It is therefore far from unimportant, and it would be wrong to describe it as ‘exceptional’ and the first category as ‘normal’, as some authors have done.59 3. American-style controls: these differ from other financial controls in that the control is exercised by only one Power, namely the United States. Nonetheless, it existed for

53 See Strupp, K. “L’intervention en matière financière.”, p. 15. 54 Strupp, K. “L’intervention en matière financière.”, p. 17. 55 Which I will discuss presently. 56 Strupp notes as much. See note 47. 57 Strupp, K. “L’intervention en matière financière.”, p. 11. 58 I will return to the question of whether we can consider IFC as a legal institution 59 Such as Birdal, M. The Political Economy of Ottoman Public Debt, p. 103 and Blaisdell, D. C. European Financial Control in The Ottoman Empire, p. 7, both writing about the Ottoman Empire.

the benefit of all creditors, including Europeans. It is essentially an extension of the Monroe Doctrine, seeking to preclude interference by non-American states.60 4. Controls instituted in the context of the Dawes Plan: this is ‘a new type, the most interesting perhaps’. It consist of a number of controls on Germany’s National Bank, railroads, and certain of its items of revenue. The Dawes Report itself avoids the label of ‘control’, but to Strupp there is no doubt that it is one, since the German government did not have the right to lower tariffs without the consent of the representatives of the creditors. It nonetheless differs from the previous types in three in the following ways: a) It is exercised for the benefit of both the creditors and the debtor, namely Germany. b) The creditors are not private individuals or banks, but the governments themselves. Their sole title to these sums lies in a peace treaty.61 Nonetheless, the ‘joint trusteeship’ between the creditor-states as the Dawes Plan itself calls it, is exercised for the benefit of the private creditors as well that will lend money to Germany in order to pay back the creditor-states. c) The Dawes Plan explicitly mentions that Germany retains its full economic and fiscal sovereignty, ‘restrained only by the surveillance established by this report’. The previous IFCs did not mention sovereignty at all.62 5. League of Nations controls: these are essentially a form of ‘international aid’, as Andreades called it. The control is exercised solely in the interest of the debtor state, and it is established only at the request of the debtor state. It was used by Austria and Hungary to stabilize the country in the turmoil of the early 1920s. Later on, it was used by Greece and Bulgaria to obtain a loan to resettle refugees.63 I point out that although Strupp had announced that he considered League of Nations controls to be a subcategory of the first category, he now lists them as a fifth category. I do not know why this is, but suffice it to say that considered League of Nations practice to be undoubtedly an example of IFC.64

The categorization above arguably complicates matters even more than Andreades’s non- categorization did. Strupp’s resolute extension of IFC beyond the First World War stretches the list of essential characteristics we arrived at under the influence of Andreades. We might

60 Strupp, K. “L’intervention en matière financière.”, p. 28. 61 Note that this is a difference to the situation in 2010-2018: EU governments became creditors to the Greek State after furnishing Greece with loans to pay back a large part of its private creditors. Materially, the sums owed are therefore not just the result of an international treaty. 62 At the risk of becoming overly political, it might be called ironic that it was Germany that received such an explicit confirmation of its sovereignty, while Greece in 2010-2018 did not. 63 Although outside of the scope of my thesis, it is fascinating to consider that IFC has been used to deal with the two major problems of Europe of the last decade: government debt and migration. Note, of course, that Greece’s refugees in the 1920s were ethnic Greeks, although instances of racist resentment by old Greek nationalist against the ‘Asiatic’ arrivals from Asia Minor are attested. See Kostis, K. “Ta kakomathiména paidiá tis Istorías”, pp. 580-582. 64 Andreades disagreed: to him, the protection of foreign creditors was such an essential element of IFC that its disappearance meant that a mechanism could no longer be called IFC.

26 indeed risk overextension of the concept of IFC if we follow Strupp, but we should take into account that it was nevertheless possible for him to include modalities as disparate as those he provides. Some underlying mechanism is at work, and if we discern it, we can arrive at a simpler list of characteristics, and maybe even an all-encompassing definition.

How, then, can we integrate Strupp’s insights into the list of essential characteristics were derived from Andreades? 1. The control must be exercised by a Great Power. Strupp does not touch upon this, but his extension of ‘IFC’ to surveillance exercised by the League of Nations does not alter its essence. What is needed, is an entity that plays a stabilizing role in the international system. Before the First World War, the Great Powers exercised this role; after it, the task fell, in theory at least, to the League of Nations. Actual financial prowess of the entity is only required in so far as it allows the entity to exercise its international role: Italy was included in Greece’s IFC, for instance, even though it wasn’t a model of financial rectitude itself. I will return to the implications of this when discussing more recent contributions to our understanding of IFC. 2. The IFC is exercised either by official representatives of the Great Powers or through representatives of the creditors who are their nationals. In a side remark, Strupp clarifies this point:

Il ne s’agit pas de contrôle financier lorsqu’un État fait, par des procédés plus ou moins compliqués, payer des sommes dues à des États étrangers par l’intermédiaire de quelque banque nationale, chez laquelle il a institué un compte spécial en faveur de ses créanciers ; et cela, même au cas où il a donné en gage certains revenues, par exemple les revenus de ses douanes, même s’il entretient des conseillers étrangers dans son ministère des Finances, comme cela a été le cas en Perse peu avant la guerre mondiale, même s’il nomme des magistrats de nationalité étrangère, comme nous le voyons encore en Chine.65

[It is not financial control when a state, by more or less complicated procedures, orders some national bank, where it has opened a special account in favour of its creditors, to pay sums owed to foreign states; and that is the case even when it has pledged certain revenues, for instance those of its customs, even when it keeps foreign advisers in it Ministry of Finance, as has been the case in Persia a little before the World War, even when it appoints magistrates with a foreign nationality, as we still see in China.]

The mere presence of foreigners is therefore not enough for a qualification as IFC: the foreigners should be representatives of a foreign state or of foreign bondholders. I will equally return to the implications of this when discussing more recent contributions to our understanding of IFC.

65 Strupp, K. “L’intervention en matière financière.”, p. 11. Andreades included China among his list of IFC’s, although he said little about it.

3. According to Andreades, the goal of IFC is to protect the interests of foreign nationals who are creditors to the debtor states, and the IFC is exercised in their name. Strupp nullifies this requirement: in the case of League of Nations IFCs, the goal is the protection of the interests of the debtor state itself. Note of course that Strupp extended the qualification as IFC to state-to-state loans. Note as well that for the Greek IFC that is the subject of this thesis, Andreades’s definition does apply – but it does not for League of Nations IFC Greece experienced in the 1920s. 4. The means to protect creditors’ interests is ‘preventing instances of bad financial administration that would harm the creditors’. The references to the creditors should of course be deleted. ‘Preventing instances of bad financial administration’ thus becomes the goal of IFC, regardless of the ulterior motive of this prevention – whether to protect creditors or the debtor. 5. IFC has a permanent character, in contrast to arrangements to recover a specific loan. This requirement is to be nuanced: Greece’s League of Nations IFC, for instance, existed solely for the loan Greece took out in order to resettle refugees. This does not deny the fact however that even the League of Nations IFC had powers that extended beyond the strict implementation of refugee resettlement, and that there was some conflicted between the old and new IFC. Even later IFCs therefore maintained a permanent character, in the sense that the IFC was there to stay for some time.

To this, Strupp adds one characteristic of his own:

6. The qualification as IFC is a matter of fact and not of law. There does not exist a legal mechanism that all IFCs share: indeed, some are the result of a purely internal decision (the Ottoman Empire, for instance) and others are the result of an international treaty. Nonetheless, Strupp notes:

[…] la principale caractéristique des véritables contrôles66, nous croyons l’avoir démontré, est justement ce fait que, abstraction faite de la manière dont ils ont été établis, ils sont toujours, lors de leur fonctionnement, inattaquables au point de vue juridique.67

[the principal characteristic of the ture controls – we believe we have demonstrated it – is exactly the fact that, abstraction made of the manner in which they have been established, during their operation they are unassailable from the legal point of view.]

The manière dont ils ont été établis refers to the fact that controls were often the result of an illegal intervention (in Strupp’s terminology – see the definition above) that was

66 Strupp refers to the controls proprement dits – that is, the controls that are exercised by an entity of public law. The argument equally applies to ‘private’ controls nevertheless. 67 Strupp, K. “L’intervention en matière financière.”, p. 41.

regularized later on (this was the case in Egypt, for instance).68 We might doubt whether the consent given under such duress will be considered valid by all authors, but this matter need not concern us here.69 More important to note now is that, regardless of preceding violence, the means – the toolkit – by which IFC is established is purely legal. It does not rest on ongoing political negotiations, let alone on permanent physical violence.

As we conclude our overview of the two most earliest systematizing authors on IFC, I thus come to a tentative definition: IFC is a form of intervention in financial matters whereby representatives of at least one entity that plays a stabilizing role in the international system, or, when this entity is a state, representatives of the bondholders that have its nationality, occupy a position within a debtor state that allows them to prevent instances of bad financial administration in an organized manner and drawing on legal instruments.

68 See Strupp, K. “L’intervention en matière financière.”, p. 40-41. 69 I will return to the matter when discussing Borchard’s views.

The 1950s

Leaving the 1920s behind us, we make a fairly great leap in time and immediately pass on to the 1950s. A few works were written in the intervening period, but I have not been able to access a copy of them.70 Their perspective would have been interesting, as this period was not particularly kind to the phenomenon of IFC. Greece’s IFC became increasingly irrelevant as the country was forced to suspend repayment in 1931, in the wake of the Great Depression.71 In the Americas, the Roosevelt administration strove for a reversal of the USA’s interventionist – and, frankly, imperialist – approach towards its southern neighbours. The Ottoman IFCs had already been reduced to an empty shell with the establishment of the Turkish republic, and in Egypt, the system according special status to foreigners of which IFC formed a part, was starting to unravel. This is not to say that IFCs were fully gone. Moreover, phenomena such as the Marshall Plan drew on some of its mechanisms. I will not treat the Marshall Plan just as I did not treat the Dawes Plan in detail, but the fact that at least some authors writing in this period considered the Marshall Plan as manifestation of a Control system, means that until the 1950s, if not IFC itself, at least a direct cousin of it was thriving. Nonetheless, we should take into account, when reading these authors, that the distance with 1898 is growing, and that the oldest IFCs, including Greece’s, were no longer practically operational.

70 Among others: Brodbeck, Internationale Finanzkontrollen und ihre politischen Grenzen, 1935; N. Kaasik, Le Contrôle en droit international, Paris, 1933. I have no idea about the actual contents of these books. They were used by Borchard in his chapter on IFC. 71 Officially, of course, IFC carried on until the 1970s, when France agreed to its removal. The United Kingdom had done so a few years earlier. That the official abolition took so long is of course an indication that by then, its practical relevant was minimal.

Borchard

Edwin Borchard’s State Insolvency and Foreign Bondholders, published in 1951 (the year of the author’s death) along with a companion piece containing case studies72, is arguably the broadest overview of IFC ever published. This is both due to the author’s drawing on all known IFCs73 and due to the fact that later books on actual state insolvency law had no more need for a chapter on IFC, as the phenomenon was quickly relegated to history. Interestingly, Borchard is an American author, whereas seemingly all of his predecessors were Europeans: the economic balance of power had definitively shifted across the Atlantic. Borchard makes no attempt at a definition of IFC. He considers them a means of protecting bondholders’ rights, and more specifically one that entails a loss of sovereignty on the part of the debtor state. Indeed, he writes:

Occasionally, following the grave default of an economically weak country, a type of foreign financial control has been imposed which has encroached materially upon the political independence of the debtor.74

Unlike Strupp in his The Hague lecture75, Borchard admits that imposition of IFC without the consent of the debtor state is possible under certain circumstances. To Strupp, consent – in the form of a treaty or an internal arrangement – was always necessary, even when obtained post factum, and for this reason, the reader will recall, ‘during their operation they are unassailable from the legal point of view’. To Borchard, however,

[i]n the absence of contractual agreements with the debtor government, financial control may legally be imposed on an unwilling debtor only for just cause. Neither the imminence of default nor actual default of itself entitles foreign states to impose financial control on the debtor. Such action is warranted only when foreign creditors are illegally treated, especially if they are discriminated against in favor of national creditors or if certain categories of creditors are preferred to others, or when special funds assigned as security to the payment of certain debts are diverted or suppressed – in short, when bad faith may be considered the moving cause of nonpayment.76

72 Written by William H. Wynne. 73 Save for the Dawes Plan and the Marshall Plan, as these were special cases and were of course of little relevance to the bondholders mentioned in the book’s title. 74 Borchard, E. State Insolvency and Foreign Bondholders: General Principles (Volume I), p. 277. 75 I must note that, in a footnote, Borchard mentions that Strupp, in Intervention in Finanzvragen, also admitted that intervention based on the ‘general principles of international delinquencies’ was possible. See note 49. 76 Borchard, E. State Insolvency and Foreign Bondholders: General Principles (Volume I), pp. 277-278.

Does it follow that control, when imposed illegally, cannot be called IFC since IFC is ipso facto legal, or is the legality irrelevant, since the criteria to define an instance of foreign control as IFC are only material? Borchard provides no answer. The question is, to the extent of my knowledge, theoretical in any case: I cannot think of an IFC that was not at least regularized post factum. I will return to this question when discussing more recent contributions to our understanding of IFC. Borchard developed the three-pronged interpretation of Strupp’s original classification that I mentioned before. Controls can be divided in a private, a mixed, and a public type.77 Private controls had the following instruments at their disposal: ‘approval of administrative acts’ – the Bulgarian government in 1902 undertook, for instance, not to modify certain laws without the consent of its bondholders – , ‘inspection of books’, ‘participation in financial agencies’, and ‘direct collection of service monies’. These instruments could be combined, and were not exclusive to the private controls. While admitting, with Andreades, that there exists no uniform type of IFC, Borchard nonetheless states that a subcategorization of the public type is possible ‘if the historical evolution of this institution and the geographical distribution of its major instances are considered.’ These subcategories are: the European type – where the control was exercised by multiple states, to avoid preponderant influence by one state in the context of the rivalry between the Great Powers at the end of the nineteenth century – , the American type – where the control is solely exercised by the United States as an extension of the Monroe Doctrine – , and the League of Nations type, where the control was exercised not by states but by a supranational entity. Borchard provides a fairly detailed overview of the variations known within each type – too detailed to discuss here. I will limit my description to the European type, which is of course the only relevant one for Greece at the end of the nineteenth century: 1. Purpose. Borchard’s description, although not surprising in its content, deserves to be quoted in full:

European financial control was initiated by concerted action of the principal European powers since the countries where the foreign intervention occurred, like Egypt and Greece, had long been the object of political rivalries among those powers. The primary purpose, therefore, of placing the financial administration of such a country under competent foreign supervision was the maintenance of the political status quo by collective action which would prevent the country from falling prey to one single foreign power and would preserve it as a political entity through the stabilization of its finances and the adoption of sound budgetary methods. This objective of pure power politics, together with the desire on the part of the intervening states to secure regular returns on the investments of their nationals, marks European financial control as an instrument primarily designed to safeguard the interests of the intervening states and their subjects;

77 The terminology is nonetheless Megliani’s, as Borchard himself uses ‘bondholders’ control’, ‘control by private and public agencies (mixed type of control), and ‘ international government control’.

benefits accruing to the debtor were a welcome, but by no means essential by-product of its operation.78

For a good understanding of this fragment, I should repeat that this concerns only those IFCs where the control is exercised by states, as opposed to private bondholders. Since the states with privates controls – the Ottoman Empire and Serbia – were just as much the object of geopolitical rivalry, the question is to know whether private control was considered sufficient by the Great Powers in order to maintain ‘the political status quo’, or whether, on the contrary, it is just a coincidence that they did not move to establish public control over these states as well. Put slightly differently, was the primary objective of the Great Powers the stability of the debtor state, or expanding their own influence? Along with Borchard, I believe that the first option is to be preferred: otherwise, it can hardly be explained why Austria- Hungary, Italy, and Russia were included in Greece’s IFC – countries with hardly any bondholders, and, in the case of Russia, a longstanding rival to the United Kingdom and France79 for influence in Greece whose influence might have been diminished through an British-French-German IFC. What mattered, therefore, was the stability of the international system. I will return to this matter later on. 2. Reasons. No single defining element is to be discerned here. In Tunisia and Eygpt, IFC was the consequence of ‘defaults arising out of gross mismanagement and financial extravagance on the part of the native rulers’; in Morocco and Serbia, it was an attempt to avoid bankruptcy – a somewhat poorer analysis of Borchard’s, since Serbia had already gone bankrupt before the imposition of IFC, and Morocco and Serbia were private, not public, controls (Borchard’s mislabelling somewhat demonstrates the artificiality of the public-private division) – ; and in Greece, it was the consequence of war.80 3. Legal bases. In the case of Greece and Egypt, the legal basis was an international agreement that was then converted into Greek and Egyptian domestic law. ‘In other instances of financial control of the European type’, Borchard notes, ‘the international legal foundation was less clear or was altogether lacking. The reason for the absence of specific international agreements among the creditor states prior to the establishment of the control was usually a desire on the part of the powers to spare the susceptibilities of the debtor nation involved.’81 It would seem to me that Borchard is forgetting Strupp’s original insight here: some IFCs had no international legal foundation because they were agreements between the debtor state and its creditors, and were implemented through a

78 Borchard, E. State Insolvency and Foreign Bondholders: General Principles (Volume I), p. 287. 79 France and Russia were formally allied by 1898, but the United Kingdom and Russia were still in the ‘Great Game’ over influence in Asia. Greece was essential to the United Kingdom in this respect, as its falling in Russian hands would give Russia an outlet to the Mediterranean and thus to the Suez Canal. 80 Borchard, E. State Insolvency and Foreign Bondholders: General Principles (Volume I), p. 288. 81 Borchard, E. State Insolvency and Foreign Bondholders: General Principles (Volume I), p. 288-291.

municipal law – ergo, private. Instead, Borchard somewhat clumsily attempts to fit Serbia’s case into the international mould, by noting that the IFC’s creation ‘was notified to the powers whose nationals were holders of the Serbian bonds, and the powers took official note of the fact. In addition, the Serbian Government informed the French Government that it considered the conversion law of 1895, in which the rights of the bondholders had been defined, as fully binding as any contract of international public or private law.’82 This does not provide an international legal basis, even a ‘less clear’ one, to Serbia’s IFC: the IFC only had state-to-state repercussions in the sense that a violation would amount to a violation of the rights of foreign bondholders, which would provide foreign states with a cause for intervention. Serbia’s notice to the states or to France specifically is of no relevance: states had this right to intervene– or could, at least, find lawyers who would tell them they had this right83 – for every bondholder with their nationality whose rights were being violated, regardless of the existence of an IFC.84 4. Organs. The organs exercised the control were all different; no uniform type existed. Nonetheless, Borchard notes, they were al ‘international commissions representing the controlling powers and charged with the administration of the finances of the debtor’.85 This is only partially true: at the risk of repeating myself, Serbia’s IFC did not contain representatives of the controlling powers but only of the bondholders; not all IFCs went so far as entrusting financial administration to the creditors (although the most important ones did); and in no case did an IFC go so far as entrusting administration of all finances to the controlling instance. 5. Borchards concludes:

International government control of the European type has on the whole been succesful in that it has benefited debtor and creditors alike. Judged by their practical results, no definite conclusion can be reached as to whether control through an independent commission, endowed with an international legal personality of its own, as in the case of Egypt86, is to be preferred to the Greek type where the control organ was the direct representative of the intervening powers. While the latter method guaranteed the prompt and efficient execution of the wishes of the controlling states and, therefore, seemed to be preferable from the bondholders’ point of view, the purpose of financial control, to secure both the debtor’s and the creditors’ interests, appeared to be more

82 Borchard, E. State Insolvency and Foreign Bondholders: General Principles (Volume I), p. 288-291. 83 Whether a state had the right to intervene in favour of bondholders that were its nationals was disputed by some authors, but with few practical consequences. 84 Borchard got the notification to France from Andreades, who however writes: ‘Une declaration ultérieure a été adressée par le gouvernement serbe au gouvernement français pour confirmer que la loi du 8-20 juillet 1895, qui a créé les droits des porteurs, était et demeurerait intangible au même titre que tout acte ou contrat de droit international public ou privé.’ (Andreades, A. “Les contrôles financiers internationaux.”, p. 74, italics are my own.) Although I have not consulted the original declaration, Andreades’s description confirms my evaluation of the legal issues at hand: Serbia’s notification was simply declaratory, not constitutive of a new right. 85 Borchard, E. State Insolvency and Foreign Bondholders: General Principles (Volume I), p.291. 86 Strupp made this claim, see page 25.

appropriately served by an organ independent of both interested parties. In view of the political nature of the institution, the particular circumstances of each case rather than theoretical preferences ultimately determine the choice of the more appropriate method.87

Borchard’s most striking claim is that of success insofar as IFC has ‘benefited debtor and creditors alike’, even though, a few pages before, he had noted that the benefits accruing to the debtor were just a by-product. Both Strupp and Andreades would have agreed on the latter, but not on the former claim of ultimate success – indeed, to Strupp and Andreades, the post WWI controls were vastly superior to the egoism of the earlier IFCs in this regard. Also to be noted is that Borchard’s opposition between a supposedly inferior direct control by the Great Powers (as in Greece) and a supposedly superior legally independent commission (as in Egypt), while theoretically appealing, does not correspond to reality. Egypt, contrary to Greece, did not immediately upon the installation of IFC experience a sharp decline in bond spreads. It did dip under Greece’s spreads later on – but by then Egypt was under a British protectorate.88 This is of course not solely due to the difference in IFC regime between the two countries, but one can hardly say that Egypt’s experience with IFC as a debtor was better than Greece’s, certainly if we take into account that the former ended up semi- colonized and the latter did not.

As said, Borchard provides us with broadest overview of IFCs ever written, fitted into an elegant typology. Nonetheless, both his overview and his typology contain several inaccuracies. Likewise, Borchard made no important doctrinal innovations on what was written a quarter century before his time, and neither does he try to explore what elements IFC might share with phenomena such as the Dawes Plan or the Marshall Plan. Our understanding of IFC’s essential characteristics, while finetuned, is not enlarged.

87 Borchard, E. State Insolvency and Foreign Bondholders: General Principles (Volume I), p. 293. 88 Tunçer, A. C. Sovereign Debt and International Financial Control, p.142.

Wells

While not an important author89 and by no means a contributor to legal doctrine of any influence, E. J. M. Wells did develop an interesting approach to where IFC should legally be situated and to its historical development in an article he published in 1955. I therefore believe that a discussion of his article is warranted and illuminating. Wells’ article discussed the concept of guarantees in international economic law. He discerns four main types of guarantees, which I will discuss only in the light of their relation to IFC: 1. Guarantees given by third powers. This was standard practice in the nineteenth century: instead of lending directly to a country, a financially strong state guaranteed the payment of the bond to private creditors in case the debtor state would was unable or unwilling ot pay. It easily survived into later periods. Greece contracted several such guaranteed loans, including the loan accompanying the establishment of IFC in 1898. 2. Collateral securities. The debtor states pledges a part of its own assets. Although surviving into the twentieth century, collateral securities were standard practice in the nineteenth century as well. The collateral pledged in Greece’s pre-1893 loans formed the basis of the revenue items on which IFC would draw. 3. Occupation of territory. A state temporarily occupies a part of the debtor’s territory as a means of ensuring fulfilment of certain obligations on the part of the debtor state. According to Wells, ‘[p]acific occupation of territory is provided for in treaties. Outside treaty law, it would nearly always amount to illegal intervention.’ In this manner, Thessaly remained occupied by Ottoman forces in 1898 until Greece would fulfil its reparations to the Ottoman Empire. 4. Control agencies. Wells describes their ‘legal substance’ as follows:

The legal substance of any control agency, as described in this article, is the voluntary submission of the obligated party to foreign supervision of certain of its economic engagements. The object to which the supervision is directed is the safeguarding of the execution of the obligation contained in each particular convention. The legal basis of any control agency is to be found in treaties, either bilateral or multilateral. Each particular convention determines the extent of the agency’s power of control and the corresponding duties of the obligated party.90

89 Frankly, the only article written by him that I have found is the one I will be discussing. I have no further information on his career or background. 90 Wells, E.J.M. “Guarantees in International Economic Law.”, pp. 441-442.

To what extent can this description of the legal substance of ‘control agencies’ be adopted as a definition of the legal substance of IFC? Wells adds an overview of the historical evolution of his ‘control agencies’:

Control agencies have in the twentieth century not only been used in international financial agreements, but also in other economic conventions, such as international commodity agreements91 and the European Recovery Programme [i.e. the Marshall Plan]. Furthermore their initial character has evolved. They are frequently used now as a sole and independent means of guarantee. In the State practice of the last fifty years there have been many different types of control agencies and their functions have ranged from the simple inspection of books to the complete administration of State monopolies, and the power to exclude certain members from the particular treaty which the control agencies secured.92

Wells pushes the historical boundaries of his ‘control agencies’ across the Second World War. Are they still IFCs, or already a descendant, the characteristics of which have fundamentally changed? Wells does not discuss the issue, but his list of ‘most interesting examples of control agencies in modern State practice’ contains the following: the American-style controls; the Reparation Commission instituted through the Versailles Treaty; the League of Nations-style controls; the International Bank for Reconstruction and Development (part of the World Bank system; the International Wheat Council; and the Marshall Plan. Apparently he did not find any difference between these instances to be so fundamental that they could not be named in the same breath. This is clarified in another historical overview:

There are, as discussed above, control organs of many different types, but there is a tendency to give preference to agencies with an international institutional character, which have an objective approach to the interests of both parties and through which a source of discrimination is avoided. The attributions of these agencies have become more and more important. Some of them e.g., were endowed with a complex and comprehensive system of supervisory, administrative and executive functions. This trend has provoked a shift of emphasis in the legal character and significance of the control organs. Used primarily as instruments to enforce other devices of guarantee, they have, without losing their functional value as instruments [my own italics], evolved into and independent means of guarantee which, in many cases, is used as the sole device for securing execution of the agreement. The shift of emphasis, in modern state practice, is

91 An example is the International Wheat Council (today the International Grains Council), which within its task as guaranteed purchaser and vendor of wheat exercised a form of control (see Wells, E.J.M. “Guarantees in International Economic Law.”, p. 441). 92 Wells, E.J.M. “Guarantees in International Economic Law.”, p. 439. The International Wheat Council was authorized to deprive countries that had breached the agreement of their voting rights, and even to expel them from the agreement (see Wells, E.J.M. “Guarantees in International Economic Law.”, p. 441).

from the traditional type of guarantee to the use of control agencies endowed with an international institutional character.93

Neither the legal substance nor the function of all these instances of control has therefore altered, says Wells. I agree. There are, of course, differences at the practical level, but legally speaking, I believe we would do well to adopt Wells’s definition even for purely nineteenth-century IFCs. Of course, I exclude the last two sentences of Wells’s definition of the ‘legal substance’ of IFC. As repeatedly stated before, ‘private’ IFCs could equally rest on internal arrangement. Although there is tendency in legal literature to separate them on a theoretical level, I do not believe this separation to be warranted on a practical level. Neither is it very illuminating. Moreover, I must make explicit the requirement of there being a separate body exercising since the control, since, unlike the control agencies that Wells seeks to define, such a requirement is not implied by the name ‘International Financial Control’, which I use. I therefore come to the following definition:

The legal substance of IFC is the voluntary submission of the obligated party to foreign supervision, exercised through a body separate from the supervising state or organisation, of certain of its economic engagements. The object to which the supervision is directed is the safeguarding of the execution of the obligation contained in each particular legal arrangement.

This definition can be dissected into the following constituent parts: 1. There is an obligation between a debtor and a creditor; 2. The execution of the obligation is safeguarded through foreign supervision of certain of the debtor’s economic functions; 3. There is a legal arrangement, to be found in either a treaty or a municipal law. 4. The foreign supervision is exercised through an institution that is somewhat separate from the supervising state or organization.

A side note: of course, as repeatedly discussed before, not all IFCs were installed through mere ‘voluntary submission’, but as equally noted before, these violent interventions were always regularized later on. An IFC that did not obtain the debtor state’s consent at some point in the process of setting it up simply did not exist. Contrary to Borchard94, Wells did not believe that the legal basis for IFC – or for any of the guarantees mentioned above – could ever be found in international customary law: a treaty was always required. In this I believe he is essentially correct, especially for practical reasons: IFC necessitated a degree of cooperation on the part

93 Wells, E.J.M. “Guarantees in International Economic Law.”, p. 443 94 And maybe Strupp in his Intervention in Finanzfragen (see note 49).

of the debtor state. This cooperation could only be regulated through the detailed provisions of a treaty, whereas international customary law would be too vague to be suitable to the goals of IFC. This is not to say, of course, that international customary law never played a role: as noted before, it could give a right to intervention, but not to IFC. It follows, in relation to a question I raised when discussing Borchard, that IFCs are indeed ipso facto legal – or maybe more accurately, legalized – and that a legal arrangement to set it up is a constitutive element of IFC.95 A non-legal ‘IFC’ would be nothing more than violent intervention. 96

95 As was Strupp’s position. 96 It can, of course, be argued that ‘forced’ consent makes an IFC illegal despite the appearance of legality. This is merely a theoretical argument. I do not know of any instances where an IFC was truly – and not just rhetorically, which did happen of course – challenged on this basis. Even Borchard, who writes that the municipal Greek law implementing IFC was ‘a sovereign act of Greece in appearance only’ (Borchard, E. State Insolvency and Foreign Bondholders: General Principles (Volume I), p. 289) does not try to argue that the Greek IFC was therefore illegal.

Modern approaches

The post-war period witnessed a reduction of sovereign debt crises. As the phenomenon returned by the end of the 1970s and certainly from the 1980s onwards, international responses to it became increasingly shaped by IMF-centred policy conditionality. This represents an altogether different approach to the Control system of the previous period. Authors writing in this period therefore treat IFC solely as a historical phenomenon. Moreover, the expansion of academia led to a diversification of authors writing on IFC, leading to a variety of different perspectives. It is therefore no longer of interest to treat authors separately – although some of them do offer rather unique and original approaches. Instead, I shall structure my overview according to certain important types of appraisal of IFC.

Policy conditionality

‘Conditionality’ is a term the meaning of which ranges from the platitudinous to the highly specific. Broadly interpreted, it simply means that something is asked in exchange for a loan: collateral, or a pledge not to take on additional debts, and even simply the rent one adds to the repayment of a loan. In this way, conditionality is a feature of almost all loans public and private. In the context of state debt, however, it has acquired a more specific meaning in recent decades, being used as a shorthand for ‘policy conditionality’. Policy conditionality is the defining characteristic of modern solutions to debt crises, and I will discuss it more deeply when dealing with the general framework surrounding the 2010-2018 period. Its modern salience has, however, led authors on IFC to try and apply the term to the past, in a search for the roots of present practice. At the risk of intruding somewhat on later chapters, I must therefore deal with policy conditionality here as well, to see whether this approach leads to a better understanding of IFC’s essential characteristics. Maybe the most prominent example of this tendency might be Ali Coşkun Tunçer, who has written some of the most important contemporary studies of IFC:

The final mechanism to create incentives for the debtors to repay in the pre-1914 market was the explicit policy conditionality via assignment and control of future revenues. This has been a particularly topical theme for the governance of the sovereign debt market. Especially since the establishment of the International Monetary Fund (IMF) and after the Latin American debt crises of the 1980s, signing a “letter of intent” and accepting a “structural reform programme” has been a precondition for obtaining IMF programme assistance. In some cases, the governments of the countries concerned were persuaded to approve targets for fiscal prudence. Despite the significant differences in post-Bretton Woods and pre-1914 international financial architectures, I argue below that in the context of the pre-1914 sovereign debt market, assigning certain assets of the sovereign as a security to borrow internationally was another form of implementing a fiscal prudence target. Therefore, the emergence and functioning of IFC upon default before 1914 implied policy conditionality, which prefigured that of the IMF.97

Tunçer’s case for IFC as policy conditionality seems to rest on the ‘fiscal prudence targets’ that both apparently share as an essential characteristic. In my opinion, this is reductive of both IFC and of IMF-style policy conditionality. As I will describe later on, IMF programmes since the 1980s have increasingly veered towards structural reforms of the debtor’s economy in addition to the macroeconomic conditionality that it required before, and which did indeed focus on ‘fiscal prudence’, that is budget deficits and the money supply. ‘Fiscal prudence targets’ is therefore not an accurate description of the

97 Tunçer, A. C. Sovereign Debt and International Financial Control, p. 15.

41 current focus of IMF programmes. Neither do I believe that even macroeconomic policy conditionality can readily be used to describe IFC. Although there certainly were IFCs that included such targets, not all of them did. Greece’s IFC, for instance, did feature monetary policy, but it also featured administration of state monopolies. ‘Fiscal prudence’ was not the aim of the latter, and if it was a by-product, is was not so essential as to allow us to see fiscal prudence as the defining element that both IFC and policy conditionality share. This is not, of course, to say that conditionality was not a feature of IFC. It obviously was, but it is not its defining or most thought-provoking feature. What is interesting is the type of conditionality used in each age: why does the IMF focus so much on structural policy reform, and why did the late nineteenth century want direct control by foreigners? Pointing out that IFC was a form of conditionality, as Tunçer equally does, is therefore platitudinous:

Although the term conditionality has frequently been used in the context of IMF lending, it can be interpreted [as] yet another mechanism to reduce the risk of future default, since it implies that if a country takes certain specified actions, continued financing will be provided […]. In this broad sense of the term, IFC or foreign control over the revenues of the defaulting states was a direct form of conditionality as it increased the likelihood of future repayment of debts for creditors, and it implied a set of conditions for borrower countries to access international financial markets in the long term.98

Tunçer’s work – which is otherwise invaluable – therefore suffers, in my opinion, from an attempt to find continuity through conditionality – which arguably is a feature of every debt contract – where it is the dissimilarities – the type of conditionality – that are far more interesting. In a sense it might be called the result of a rather indirect import of legal and economic concepts into the historiography of IFC, which until recently had rather tended to see IFC as a manifestation of imperialism. From a legal point of view, however, I believe it is much better to keep IFC and policy conditionality separate, since they both represent distinct solutions to the same problem, rather than the same solution cloaked in a different historical guise.

The idea of IFC as being linked to fiscal prudence is not unique to Tunçer. In a paper comparing the 1930s to the 2010s, George Chouliarakis – soon to be alternate finance minister in the Tsipras cabinet and negotiator of the third bailout package – and Sophia Lazaretou write that:

Our starting point is 1898. That year Greece agreed on a debt compromise with its foreign creditors after the 1893 unilateral debt default. In turn, foreign creditors demanded economic policy move in the direction of fiscal prudence and monetary stringency. Recession thus

98 Tunçer, A. C. “Conditionality, Fiscal Rules and International Financial Control in the European Periphery before 1914.”, p. 3.

resurfaced and lasted several years. The International Finance Control (IFC) was in effect until the outbreak of WWII. Our ending point is 1939.99

The link between fiscal prudence and IFC is not wrong in itself: Greece’s IFC did indeed feature some elements that can be qualified as what we today call fiscal prudence. It was however not its main characteristic, as I pointed out above. In the case of Chouliarakis’s and Lazaretou’s paper, the qualification even seems to lead to mistaken factual observations: 1898 was not followed by a resurface of recession that lasted several years – on the contrary, the economy set in a period of strong growth.100

A word should finally be said about the qualification of IFC as policy conditionality in general (as opposed to policy conditionality linked to fiscal prudence). I have found no authors that explicitly proclaim IFC to be policy conditionality in general, but the idea might superficially seem appealing, especially given the not infrequent confusion of the terms ‘conditionality’ and ‘policy conditionality’. Policy conditionality does what its name says it would do: it requires certain policies to be enacted in order to receive loans. Again, this appeared in some IFCs but far from in all of them. Supervision of administration, for instance, or functioning as a receiving organ of government revenues, is not about ‘policy’. This attempt to trace modern practice back to the past would therefore result in both a skewed interpretation of the present and a misguided understanding of the roots of the present.

99 Chouliarakis, G. & Lazaretou, S. Déjà Vu?, p. 30. 100 See Kostis, K. “Ta kakomathiména paidiá tis Istorías”, pp. 502-503.

Receivership

Receivership is a concept stemming from private law, and implies a form of control over an insolvent debtor’s economic activities and assets. Michael Waibel has applied the term to IFC under the guise of ‘quasi-receivership’.101 Waibel provides neither a definition of quasi-receivership nor an explanation as to how exactly quasi-receivership differs from ordinary receivership. At any rate, he uses ‘quasi-receivership’ synonymously to my IFC:

External interference in Greek public finance has been a perennial theme since Greek independence in 1832. The IFC102 is a leading example among several others of quasi- receivership of countries – a mechanism for creditors to closely intervene in the financial and economic affairs of a country by creditor countries. This extreme form of intervention that led de facto to the suspension of economic sovereignty for a limited period of time was a fairly common response to sovereign financial distress at the turn of the 20th century for countries on the periphery. Creditors established similar institutions in other peripheral countries, such as Egypt, the Ottoman Empire, Tunisia and Haiti. The IFC, alongside the Ottoman Council of the Public Debt, represents the most elaborate system of financial control.103

Elsewhere, Waibel has this to say:

The quasi-receivership of countries with high levels of debt was a method of enforcement short of military intervention. Several examples are found on the European continent. In Greece, for instance, the International Financial Commission of Control managed several revenue source pledged for service of external debt from 1898 onwards. Such pledges were a common feature of international debt administration in the late nineteenth century.104

These descriptions of IFC are fairly uninteresting and somewhat inaccurate105, so they need not keep us in themselves. Can the term ‘quasi-receiverships’ nonetheless be used to describe IFC?

101 In 1975, Leon Carl Brown, in a study of Tunisia under Ahmed I, also used ‘quasi receivership’ to describe the Tunisian, Egyptian, and Ottoman IFCs. Brown was a historian, not a jurist, and he does not say where he got the term from. I do not know whether a link exists between Brown and Waibel. See Brown, L. C. The Tunisia of Ahmad Bey 1827- 1855, p. 7. 102 Technically, only Greece’s IFC used ‘IFC’ as the official term. In common parlance, the term has since then expanded to include all control agencies, and Waibel is fairly unique in using ‘IFC’ to only refer to Greece. Of course, this is linked to the fact that he uses another term to describe the phenomenon, namely quasi-receivership. 103 Waibel, M. “Echoes of History: The International Financial Commission in Greece”, p. 18-19. 104 Waibel, M. Sovereign Defaults before International Courts and Tribunals, p. 42. 105 ‘Pledges’ were a common feature not only of international debt administration, but of international debt issuance in general. That they were used in IFCs is not surprising, and the only interesting thing is why IFCs were used to administer them.

A strict one-on-one resemblance between IFC and receivership is obviously impossible: receivership’s modalities differ from country to country. We can, however, take a step backwards from the details of the procedure and consider the idea that IFC puts the debtor under a structured form of foreign control, and in this way correlates with private receivership. This is conceptually interesting and even fruitful, in my opinion. It is indeed noteworthy that IFC was a structured form of control, which, while sometimes highly interfering, also put limits on what was allowed to the exercisers of the control. In this way, an analogy may indeed be made with receivership in private insolvency procedures. Indeed, the very purpose of a receivership in insolvency procedures is to prevent private creditors from haphazardly grabbing what they may from an insolvent creditor. Waibel himself, however, seems to use ‘quasi-receivership’ as relating to its aspect of intervention in a debtor’s affairs. This I believe to be a less fruitful path. IFC was not noteworthy because it allowed creditor states to intervene in a debtor state – a gunboat would serve that purpose equally well – but because it did so in a structured manner. This equally applies to private creditors: while the odds of them having gunboats at their disposal were somewhat smaller, what differentiates IFC from other forms of intervention or pressure is that it happened in a structured manner, and not ad hoc. For all its usefulness as a concept, I will refrain from using ‘receivership’ and ‘quasi- receivership’ to refer to IFC: use of term risks soliciting unwanted comparisons to the modalities of receivership existing in the reader’s country of origin. It is useful as an analogy, but when used to excess it risks obscuring more than it reveals.

Supersanctions

Mitchener and Weidenmier see IFC as an example of a ‘supersanction’, a particularly heavy sanction consisting of ‘the use of military force or the imposition of foreign control over the fiscal and monetary administration’ that was applied in order to punish defaulters.106 These supersanctions, they find, were particularly effective, dramatically decreasing the probability of a future default and equally dramatically lowering yield spreads on the defaulting countries’ new bonds.107 The utility of the concept of supersanctions is questionable for a number of reasons, however. A first clue is provided by Mitchener and Weidenmier themselves108:

Even though [supersanctions] were applied selectively during the gold standard era (typically when the defaulting nation had strategic or military importance to one of the creditor countries), all nations that defaulted on sovereign debt ran the risk of gunboats blockading their ports or creditor nations seizing fiscal control of their country if they defaulted. We find that, conditional on default, the probability that a country would be “sanctioned” (either via supersanctions or seizures of assets by private creditors) was greater than 40 percent during the period 1870-1913. Moreover, roughly two-thirds of these sanctions took the form of gunboat diplomacy or the loss of fiscal sovereignty by the defaulting country, i.e. supersanctions.

The point is indeed that ‘supersanctions’ were typically applied when the defaulter was politically important to one or more creditor states. The mere occurrence of default did not necessarily lead to the imposition of IFC. From this perspective, whether foreign control was really an economic sanction becomes questionable. Although a punitive aspect was often present, IFC equally performed a certain protective role in that could prevent a further deterioration of the debtor’s financial situation. The very decrease in yield spreads, which Mitchener and Weidenmier make so much of, contributed to this purpose. Moreover, some governments, including Greece, managed to actively manipulate their controlling commission into serving as a guarantee for their creditworthiness.109 Both politically and economically, therefore, supersanctions were not really sanctions, and their success did not stem from the punitive aspect. Beyond the unsuitable name, however, I believe that the usefulness of the concept of supersanctions is restricted because it groups two phenomena which actually are very different: military intervention and financial control. As I have noted repeatedly before,

106 Mitchener, K. J. & Weidenmier, M. D. Supersanctions and Sovereign Debt Repayment, p. 5. 107 Mitchener, K. J. & Weidenmier, M. D. Supersanctions and Sovereign Debt Repayment, p. 3. 108 See Tomz, M. & Wright, M. L. J. “Do Countries Default in ‘Bad Times’?”, who make the same point as well. 109 See Andreopoulos, G. J. “The International Financial Commission and Anglo-Greek Relations (1928-1933).”, p. 343.

46 financial control was structured whereas military intervention was not. They do no therefore serve one and the same role as ‘supersanctions’. The far more interesting question is why military intervention was used in one instance and IFC in the other. The concept of ‘supersanctions’ eliminates this complexity and tells us very little about the past, expect that back then they did not do what we do.110

110 Mitchener and Weidenmier’s article indeed came out in support for an argument made by Caballero and Dornbusch (Caballero, R. and Dornbusch, R. (2002). “Argentina: A Rescue Plan that Works.” Op-ed in: The Financial Times, 8 April 2002.) in which they stated that the solution for Argentina’s debt crisis was the imposition of foreign control. Their argument showed no consideration whatsoever for the modalities and subtleties that marked historical IFC, reducing it instead to a complete abandonment of the right to exercise essential functions by the debtor state. If anything, Caballero and Dornbusch’s argument and Mitchener and Weidenmier’s quantification of it serve as a warning against a superficial reading of what IFC was about.

Core-periphery

The study of IFC has always been approached from different angles. While it is true that some of the older historiography on IFC has tended to interpret the phenomenon within the context of imperialism, developing a rather uniformly negative view of it – a view that still continues in some national historiographies – 111, other authors, such as Andreades and Strupp, did not see IFC as on the whole unsuccessful, even as they criticized some aspects of it. Nevertheless, it has become something of a commonplace among recent authors to believe their predecessors to have been quite exclusively focused on imperialism. They have compensated for this perceived shortcoming with a far from unfruitful lurch towards a creditor perspective112; but far less has there been an attempt to fit IFC into a modernized understanding of the world system. In this last category, I only know of Murat Birdal as an example of an author who has combined a detailed study of the Ottoman IFC with reflections on that IFC’s position within the world system. Nonetheless, I believe that there are some observations to be made about that position, although we unfortunately cannot provide conclusive answers for lack of a sizeable body of research addressing it.

Murat Birdal’s book on the Ottoman Empire provides a valuable starting point, even as we must of course seek to avoid undue generalization of the Ottoman case. Starting from a world system / dependency approach, Birdal argues that the Ottoman IFC – the Ottoman Public Debt Administration – should be seen as part of the process of peripheralization of the Ottoman Empire, that is, the process of integration of the Ottoman Empire into the world economy centred on the Western European states.113 While all countries that ended up with IFC were undoubtedly situated in the periphery of the world economy, the term ‘peripheralization’ strictu senso is appropriate maybe only for the Ottoman Empire, for the Ottoman Empire had previously been a ‘world Empire’ – that is, a largely self-contained unit – in a way that Greece, Egypt, and Serbia never had been. Indeed, we might surmise that in the case of those countries, the process was rather one of integration from one world system into another, all the while maintaining peripheral status (even as the position of Greece and Egypt vis-à-vis the Ottoman centre had been far less peripheral than it became vis-à-vis Western Europe).114 Seen this way, it becomes understandable that for the

111 Examples are Blaisdell, D. C. European Financial Control in The Ottoman Empire, and Levandis, J. A. The Greek Foreign Debt and the Great Powers. 112 Most notably Tunçer but also Lazaretou. 113 Birdal, M. The Political Economy of Ottoman Public Debt, p. 3. 114 The eighteenth century had actually witnessed a deepening of the integration of Greece into the Ottoman economy, through among others the development of the taxation system and the commercialization of the Greek economy. This process was of course largely undercut by the Greek revolution. See Kostis, K. “Ta kakomathiména paidiá tis Istorías”, first chapter.

Ottoman Empire ‘[t]he peripheralization of the Ottoman Empire brought about a weaker state apparatus, but also a more efficient one in terms of facilitating the operations of the world economy.’115 It can in no way be said that IFC led to a weaker state apparatus in Greece. One of Birdal’s main conclusions is that IFC in the Ottoman Empire served a ‘dual role’. On the one hand it ‘played a crucial role in the transfer of economic surplus from the Empire to the core economies’, on the other it contributed to the modernization of the Ottoman state.116 It could therefore both serve as an introduction of ‘the best features of European financial management’ to the Empire and at the same time ‘there is no doubt that the [Ottoman Public Debt Administration] contributed to the underdevelopment of the economy’ through the transfer of surpluses to the core economies.117 This ‘dual role’ seems a fruitful approach to the study of any instance of IFC.

Going beyond Birdal, many questions remain open on the relationship between IFC and imperialism, or its role within the world system. Three related questions seem particularly relevant to me. First, why pre-1914 European IFC’s were always exercised by multiple Powers. Second, why the Great Powers did not stick to their original practice of using diplomacy and military force to recover unpaid debt. Third, why some countries placed under IFC were eventually colonized, and why others were not. The answers to these questions can at the moment only be tentative for lack of sufficient research. However, my personal guess is that the countries that experienced IFC played a particular role in the international system from a political point of view. This if of course not a new insight, as contemporaries hinted at it from the very beginning, but modern research, being strongly creditor-focused, seems to have somewhat relegated it to the background. However, it is noteworthy that IFCs exercised by a single Great Power did not appear in Europe before 1914. Indeed, Great Power status could serve as a ticket for inclusion in the controlling commission of an IFC, as happened to Italy in Greece’s case, even though Italy had no bondholders of Greek obligations to speak of among its nationals, and it was not even a model of financial rectitude. Moreover, something brought the Great Powers to develop the IFC mechanism in an age where they aggressively set about colonizing large parts of the globe. What was it that made gunboat diplomacy insufficient, and why did they opt for a collective answer to a problem, where they had no such qualms about unilateralism in other parts of the world?118 As we admit that IFC had a very strong, maybe even predominating, political component, we are led to the question why such a politically motivated solution led to increased creditor confidence. Did the drop in a country’s yield spreads correspond to a

115 Birdal, M. The Political Economy of Ottoman Public Debt, p. 1. 116 Birdal, M. The Political Economy of Ottoman Public Debt, p. 173. 117 Birdal, M. The Political Economy of Ottoman Public Debt, pp. 8, 15. 118 Admittedly, France and the United Kingdom did concert their actions against Greece in the mid-nineteenth century. However, this remains an ad hoc solution as opposed to the institutionalized and much broader collectivization that was brought about by IFC.

49 real increase in the country’s capacity to pay back its debts, or was part of the decrease merely a result of the ‘seal of approval’119 that IFC seemed to confer, without corresponding to real capacity building? In other words, what core country elements were transferred to the periphery through IFC: the reputation, or the actual practices? And why was IFC required, and not simply the presence of foreigners in, say, the Treasury? Or did, on the contrary, IFC not lead to an improvement in either economic capacity or reputation, but did it simply signal the Great Powers’ commitment to the recovering of the country’s unpaid debt, thus serving as a deterrent to non-payment? The picture of this economic questions is further complicated through the existence of private IFCs: why did these have the same effect as state-to-state IFCs? At the same time, however, the strengthening of a country’s creditworthiness through IFC, whatever the underlying reasons, led to a paradox on the political field: it decreased the influence of individual creditor countries. Indeed, since Greek independence, France and the United Kingdom had repeatedly used Greece’s outstanding loans as a weapon to pressure Greece to follow the prescribed line. Why did they surrender this weapon, and indeed, surrender it to a committee of foreign powers that until then had had far less influence in Greece than they had had?120 These questions do not directly concern the legal components of IFC. However, the fact that we cannot answer them as for now demonstrates the large gaps in our understanding of IFC, and this obviously impacts our comprehension of IFC’s legal functioning.

119 The ‘seal of approval’ has been used in theoretical literature to describe the effect of the adoption of the gold standard on a country. The concept might be of use here as well. See Bordo, M. & Rockoff, M. “The Gold Standard as a “Good Housekeeping Seal of Approval”. 120 An interesting observation on this matter is made by Lea Heimbeck (whose work I will discuss in the next chapter):

These two issues – the asymmetric structure of international financial transactions and the (non-)normatization of these deals – led to two consequences which might sound contradictory at first sight: both issues had the capability of pacifying international relations and of leading to force or at least consolidating power relations. Yet, both these asymmetric relations and legal instruments did not either support peace or power relations but they did one through the other, or they accomplished both results at the very same time through the very same means. Moreover, these two aspects did not only have this paradoxical effect separately, but the asymmetric power relations and their consequences for peace or power were supported by legal instruments surrounding them. (Heimbeck, L. “Legal Avoidance as Peace Instrument”, p. 112.)

Legal avoidance

When confronted with the paucity of legal doctrine and the lack of uniformity in state practice, one may legitimately wonder to what extent IFC was a legal phenomenon at all. This issue was confronted in the work of Lea Heimbeck. She identified state insolvency as a prime example of ‘legal avoidance’:

Norms can be set by legal subjects as methodological tools to foster their interests. Yet legal subjects can also intentionally decide to support their goals by not creating any norms. Both approaches – juridification and legal avoidance – form a means of order to reach the aim of organizing subjects' relations in a particular way. Regarding the liquidation of state bankruptcies subjects used both approaches.121

Many different actors were then interested in the mode of liquidation of a debtor state[’]s bankruptcy: the debtor state, creditor states, stock exchanges, domestic and foreign banks, investors and creditor protection committees. Those different interest groups sometimes cooperated, and sometimes their obstruction to each other was mutually [sic]. The main challenge was that an international insolvency regime did not exist in public international law. Domestic legal systems were not applicable vis-à-vis sovereign debtors. Actors had thus to decide how to interact on a case-by-case basis which was mostly determined by the surrounding political circumstances. Financial considerations played a minor role in the relationship between debtor and creditor states. Thus, state bankruptcies were dealt with in an area that was originally "free of law", at least with respect to public international law.122

According to Heimbeck, this situation lasted for the entire nineteenth century. However,

Around the end of the century governments still did not sign treaties or introduce customary international law regarding the liquidation of state bankruptcies. International lawyers instead started to mention some of the instruments which were used in state practice to liquidate particular insolvencies, namely international debt administrations and Mixed Courts. Jurists still did not discuss these tools in the context of an "international insolvency law" - they did not mention such a problem at all - but they used them as examples to justify the existence and enlargement of general legal institutes in public international law. Lawyers thus instrumentalized state practice in order to foster legal doctrine.123

The doctrine on IFC should not, in other words, be seen as trying to solve the problem we are addressing in this thesis – how debtor states return to regular financing on private

121 Heimbeck, L. “Liquidation of State Bankruptcies in Public International Law”, p. 1. 122 Heimbeck, L. “Liquidation of State Bankruptcies in Public International Law”, p. 3. 123 Heimbeck, L. “Liquidation of State Bankruptcies in Public International Law”, p. 5.

51 financial markets – but as arguing for the existence of an autonomous, supranational field of law. This led to a grouping together of what were really vastly different phenomena:

Yet, as public international law was a young legal discipline, lawyers tried to strengthen it vis-à- vis other legal disciplines or even to expand its scope. Therefore, they used the international debt administrations in Egypt and the Ottoman Empire – which differed so fundamentally – as justification narratives to legitimize the existence and the usage of international commissions as a legal institute in public international law. This phenomenon of instrumentalization becomes clear when examining major contemporary textbooks.124

I have already repeatedly remarked upon the tendency of authors on IFC, past and present, to group the private and public categories of IFC together without much ado. According to Heimbeck, this was a fiction created by lawyers in a field where other actors actively avoided the juridification of the field, at least until the inclusion of the Drago Doctrine in the Hague Convention of 1907. Should we, however, assume that other actors did not remark upon the similarity of the different manifestations of IFC, given that their underlying differences were so extensive? I believe not, for several reasons. First, there is an obvious progressive emergence of the notion of IFC. Andreades maybe put in best:

Il suffit d'ailleurs, pour mesurer le chemin parcouru, de comparer le protocole 6 timide par lequel, dans le traité de Berlin, on conseille à la Turquie de s'entendre avec ses créanciers, avec l'article des préliminaires de paix de Constantinople qui, dix-neuf ans plus tard, impose à la Grèce un contrôle diplomatique.125

[It is sufficient, by the way, in order to measure the distance covered, to compare the timid sixth protocol through which, in the Treaty of Berlin, Turkey was advised to come to terms with its creditors, with the preliminaries of the peace of Constantinople which, nineteen years later, impose upon Greece a diplomatic control.]

The importance of this observation increases when we take into account that the result of the Berlin Treaty was a private control in the Ottoman Empire, whereas just a few years before France and the United Kingdom had imposed a public type control in Egypt. Moreover, Greece’s creditors in the 1890s had clamoured for a financial control in Greece since before even the bankruptcy of 1893 – and this control would have been a private one.

124 Heimbeck, L. “Liquidation of State Bankruptcies in Public International Law”, p. 475. She cites Franz von List (writing in 1898) and Emanuel von Ullmann (writing in 1908) as mentioning the Ottoman and Egyptian cases in the same breath. I have not included an in-depth study of such writings in this thesis, as they do not discuss the actual functioning of IFC. Moreover, Heimbeck only includes examples of German jurists: representing a total picture of international legal doctrine on this topic would require far more research, without contributing directly to the aim of comparing 1898 and 2010-2018, which is, after all, the ultimate object of this thesis. 125 Andreades, A. “Les contrôles financiers internationaux.”, p. 10.

In other words, states and creditors recognized some such as thing as a ‘financial control’, regardless of the specifics it took in each particular case. Second, there was a gradual refinement of IFCs. As remarked, Tunisia IFC had been rather crude and legally ‘inelegant’ as a mixed type: later IFCs were much clearer in this regard. They equally tended to become less intrusive as time progressed. Again, there seems to be a recognition of an overarching concept of IFC, regardless of its actual implementation, that allowed for gradual finetuning. Third, IFC exhibits a marked departure from previous state practice. Even if it is true that no international insolvency regime was developed – it still does not exist as a matter of fact –, we cannot but notice that the law acquired and importance for IFC that it had not possessed in previous state debt cases. In the mid-nineteenth century, the Great Powers routinely used gunboat diplomacy or diplomatic pressure in debt-related issues, and intervention of this type was based a rather vague legal grounds. IFCs were much more specific: the intervention was regulated and circumscribed in detail in a foundational law or treaty. When seen against previous forms of state intervention in debt-related matters, IFCs do exhibit an internal incoherence at the legal level regardless of whether they were private or public. The above does not contest the validity of Heimbeck’s research on IFCs instrumentalization by lawyers for other purposes: it is indeed remarkable that Strupp, writing more than half a century after the first IFC appeared, was the first to recognize the distinction between private and public IFCs, whereas previous authors had been blissfully unaware that some of the control agencies they showcased did not fall under public international law at all. However, I do believe that imagining IFC as occurring in a context of ‘legal avoidance’ somewhat overshoots the mark – lawyers might avoid the matters, but other actors interested in the law did not. To what extent we can describe IFC as a legal phenomenon and not just a practical phenomenon with marked legal characteristics, then, is a question I will address in concluding our search for IFC’s essential characteristics.

Conclusion on characteristics

We have reached the end of our survey of the most important currents of thinking about IFC. We are now in a position to develop an integrated overview of IFC’s essential characteristics. Part of this will be a reprisal of the overview I gave after discussing Andreades and Strupp; part of it will be modified through the addition of later insights.

The constitutive elements of IFC, absent which the term should not be applied, can, I believe, be based on Wells’s definition of the ‘legal substance’ of what he calls control agencies. They are the following:

1. There is an obligation between a debtor and a creditor. In other words, IFC is implemented for the execution of a specific obligation; it does not apply to cases of generalized control, such as might be found in colonies, federations, or supranational institutions. 2. The execution of the obligation is safeguarded through foreign supervision of certain of the debtor’s economic functions. This supervision can appear in different guises, going from simple inspection of the books to directly collecting revenues. The supervision only concerns certain of the debtor’s economic functions: this again points to the essentially circumscribed character of IFC. 3. The foreign supervision is exercised through an organ that is somewhat separate from the supervising state or organization. The supervising body is, as a consequence, often created specifically for the exercise of the IFC. An obligation on the debtor country to send its budget for inspection directly to the supervising state or organization, or to directly report on reforms to that state or organization, should not be called IFC. 4. There is a legal arrangement, to be found in either a treaty or a municipal law. IFCs never function ad hoc, or as the result of continuous diplomacy. There is a legal instrument that regulates and circumscribes in detail the powers of the controlling agency.

These four constitutive elements are obviously anachronistic to the nineteenth century in the sense that they were only explicitly recognized in the 1950s; before that they date, I have found no such clear summary of what IFC essentially is.126 Nonetheless, I believe that they underlie every qualification of in an instance of foreign supervision as IFC from the nineteenth century onwards, and thus form the reason why Strupp could point to the connexité matérielle assez étroité that seemed to link all IFC, regardless of whether they found

126 And even after that date, they were not widely taken up since Wells’s article was largely unknown. I repeat that I have adopted Wells’s definition for its merits, not because it was influential.

54 their origin in international or domestic law. I know of no instance of IFC that did not qualify for all four requirement. Did these four constitutive elements have legal value in themselves? It is too early to tell. Far more research is needed on whether some sort of customary law on IFC every came into existence; on whether contemporaries were prepared to evaluate the applicability of solutions developed for problems in one IFC to those found in another; and, in other words, on whether they recognized some sort of precedential value for solutions found in other IFCs. Moreover, if such a customary law did develop, it should be differentiated from what would apply to other systems of lending and intervention. For the moment, we can therefore go no further than Strupp’s connexité matérielle assez étroite – a trend, not necessarily a rule127 – , and recognize that legally speaking, IFC’s building blocks differed greatly. Nonetheless, that there was a strong link between IFC and the law should be clear by now: we have every reason to assume that the existence of a legal arrangement, whatever shape it might take, was a constitutive element of IFC. In this, IFC certainly differed from state practice in the preceding period.

The recognition of these four constitutive elements allows for a very broad application of the concept of IFC across time, extending to at least the Marshall Plan.128 In itself this is not a weakness, as this very broadness provides us with an overarching concept for research on about a century of state debt practice. Naturally, this research will ultimately be indispensable to judge both the accuracy of such a broad concept and to what extent we can indeed group the period stretching from the mid-nineteenth to mid-twentieth century together, in opposition to what happened before and after. For the moment, however, we must work with the superficial indicators that led me to my conclusion. The broadness of the definition does risk obscuring the nature of pre-1914 IFCs. Some elements must be added to the four constitutive ones in order to adequately cover the essence of these older IFCs. I will discuss these now, although I will try to formulate them in such as to keep open the link to later IFCs.

a. The IFC is exercised by one or more international entities – states or organizations – that play a stabilizing role in the international system. As noted before, research is largely lacking on the role IFC played in the international system. However, I believe it is clear that IFC exhibited a rather strong link to the stability of the international system on the political level, as opposed to that of economics. In Europe, this stability was maintained by the Great Powers; in America, at least towards the end of the nineteenth century, the role fell to the United States; and after the First World War, organizations like the League of Nations were expected to play a similar role. IFCs

127 As Wells put it (Wells, E.J.M. “Guarantees in International Economic Law.”, p. 444). 128 The use of the term ‘IFC’ is maybe somewhat unfortunate when applied to something like the Marshall Plan. However, no unifying term exists, and neither is there an obvious candidate. Since this thesis deals primarily with the late nineteenth century, I consistently use ‘IFC’.

exercised by small but financially sound countries did not occur, which betrays that the supervisor was not expected to be economically but politically powerful. b. The goal of pre-1914 IFCs was to prevent ‘acts of bad financial administration’. Later IFCs placed a greater emphasis on how loans should be spent. At the risk of undue generalization, earlier IFCs tended to be reactive and later ones proactive. c. Pre 1914-IFCs were more creditor-oriented that later ones. This is not to say that they existed only for the benefit of the creditor, as some authors claimed.129 However, they arose in reaction to the debtor state’s payment difficulties, whereas the emphasis of later IFCs shifted to broader economic troubles.

129 That they existed only for the benefit of the creditor is belied by the fact that political clout, more so than the presence of creditors to the debtor state among the country’s nationals, contributed to a country’s inclusion in an IFC. Moreover, if they existed only for the benefit of the creditor, the Ottoman Empire and Serbia would hardly have set up an IFC of their own accord. Earlier IFCs were certainly less benevolent than later ones, but they did bring benefits to the debtor country as well. An interesting line of further research would be to investigate to what extend debtor countries were aware of these benefits before they agreed to the setting up of an IFC. Was the resumption of regular borrowing on private markets a sufficient prize, or did they foresee other benefits as well?

IFC in Greece

The IFC implemented in Greece in 1898 was of the European and public type. It was, in other words, exercised by the representatives of multiple Great Powers. Its foundational documents were the Preliminaries to the Peace of Constantinople of 1897 at the international level, the actual Peace Treaty between Greece and the Ottoman Empire, and Law 2519 ‘on international control’ of the Kingdom of Greece of 26 February 1898 (which I will henceforth refer to as the ‘Law on Control’.130

130 Its name in Greek is Περί διεθνούς ελέγχου Νόμος ͵ΒΦΙΘ΄. In this thesis, I will cite from the French version that appears in the report of the international commission that prepared the law (‘Arrangement financier avec la Grèce’). The French version is the original anyway: Law 2519 is a translation.

Legal basis

The international legal basis of Greece’s IFC is somewhat complicated. The Preliminaries to the Peace of Constantinople, signed on 6/18 September 1897, were remarkable in that they did not include Greece but did include the Ottoman Empire; counterparties to the Ottomans were the United Kingdom, France, Germany, Russia, Austria-Hungary, and Italy. Per the text of the Preliminaries, the reason for Greece’s absence was that the Great Powers were acting on behalf of Greece, which had ‘confié aux Grandes Puissances le soin de ses intérêts en vue du rétablissement de la paix avec la Turquie’. Greece was therefore a party to the Peace Preliminaries only indirectly, to the extent that it had appointed the Great Powers as its representatives. Article 2 of the Peace Preliminaries reads:

La Grèce payera à la Turquie une indemnité de guerre de 4 millions de livres turques. L’Arrangement nécessaire pour faciliter le payement rapide de l’indemnité sera fait avec l’assentiment des Puissances, de manière à ne pas porter atteinte aux droits acquis des anciens créanciers détenteurs des titres de la dette publique de la Grèce. A cet effet il sera institué à Athènes une Commission internationale des Représentants des Puissances médiatrices à raison d’un membre nommé par chaque Puissance. Le Gouvernement hellénique fera adopter une loi agréée préalablement par les Puissances, réglant le fonctionnement de la Commission et d’après laquelle la perception et l’emploi de revenus suffisant au service de l’emprunt pour l’indemnité de guerre et des autres dettes nationales seront placés sous le contrôle absolu de la Commission.131

[Greece will pay to Turkey a war indemnity of 4 million Turkish pounds. The Arrangement necessary to facility rapid payment of the indemnity will be made with the agreement of the Powers, in such a way as to not prejudice the rights of the old creditors that hold titles to the public debt of Greece. To this effect, there will be installed in Athens an International Commission of representatives of the mediating Powers, with each Power appointing one member. The Greek Government will undertake to adopt a law agreed upon beforehand by the Powers, that determines the functioning of the Commission and as a consequence of which the collection and the use of revenues sufficient to the servicing of the loan for the war indemnity and the other national debts will be placed under the absolute control of the Commission.]

In the Peace Treaty concluded between Greece and the Ottoman Empire a few months later, on 22 November / 4 December 1897, Article 2 referred to the Peace Preliminaries:

131 Affaires d’Orient. Négociations pour la paix - traité gréco-turc, mai-décembre 1897, p. 65.

La Grèce payera à la Turquie une indemnité de guerre de 4 millions de livres turques, conformément aux conditions prévues à l’article II des Préliminaires de paix.132

[Greece will pay to Turkey a war indemnity of 4 million Turkish pounds, in accordance with the conditions provided for in Article II of the Peace Preliminaries.]

The Greek Law on Control of 26 February 1898 again referred to the Peace Preliminaries, without mentioning the Greco-Ottoman Treaty:

En conformité à l’article II des Préliminaires de la paix entre la Grèce et la Turquie signés à Constantinople le 6/18 septembre 1897 par les Puissances médiatrices et de l’article final déclarant exécutoires les clauses dudit acte, la perception et l’emploi de revenus suffisant au service de l’emprunt pour l’indemnité de guerre et des autres dettes nationales seront placés sous le contrôle absolu d’une Commission internationale des Puissances médiatrices siégeant à Athènes.133

[In accordance with article II of the Peace Preliminaries between Greece and Turkey signed at Constantinople on 6 / 18 September 1897 by the mediating Powers and the final article, declaring enforceable the clauses of this act, the collection and the use of revenues sufficient to the servicing of the loan for the war indemnity and the other national debts will be placed under the absolute control of a Commission with its seat in Athens.]

It should be remarked that Greece did participate in the drafting of the Law on Control, both through proposals by the Greek cabinet and the presence of the Greek minister of finance at some of the meetings, and through the collaboration of Greek civil servants, without whose providing of information it would have been impossible for the International Commission to work out the functioning of the IFC.

This basic legal architecture has several interesting consequences:

1. There was no formal treaty between Greece and the Powers that were to exercise the IFC. The treaties that were signed, with Greece participating indirectly (the Preliminaries) and directly (the Peace Treaty itself), were with a counterparty that did not receive a seat on the IFC, namely the Ottoman Empire. In asking for the Great Powers’ mediation, Greece had declared that it “leur abandonnait le soin de ses intérêts et adhérait sans réserves à leurs conseils et leurs recommandations.”134 One might legitimately dispute whether the Powers exceeded the limits of their mandate; at any rate, I do not believe that Greece ever did so, and the Law on Control was duly voted.

132 Affaires d’Orient. Négociations pour la paix - traité gréco-turc, mai-décembre 1897, p. 84. 133 Article 1, Arrangement financier avec la Grèce, Arrangement financier avec la Grèce, p. 41. 134 As quoted by Andreades, A. “Les contrôles financiers internationaux.”, p. 61.

2. Conceptually, the direct agreement between Greece and the controlling Powers took the shape of a Greek municipal law, voted upon by the Greek Parliament after the preliminary approval of the Great Powers. Greek involvement in the acceptance of the principle of IFC was therefore minimal, but its involvement in the actual elaboration of its provisions was more extensive. 3. The establishment of the IFC was clearly linked to the outcome of the Greco-Turkish war of 1897. The Great Powers intervened to restore stability on the Balkan Peninsula, not to safeguard Greece’s financial survival – although the latter was indispensable to the success of the former. 4. The International Commission was to find itself in the somewhat awkward position of being appointed the guardian of the old creditors’ interests without being able to speak in their name.135 The most direct consequence of this, as we shall see, is that no reduction of the debt owed to them was imposed on the creditors. 5. The principle of the establishment of the IFC was split from the elaboration of how it would actually function. More than five months would pass between the Preliminaries and the Law on Control. 6. These considerations show that Greece’s IFC was a clear example of the tendencies I remarked upon in my general treatment of IFC. The IFC’s prime purpose was the restoration of international stability. Its establishment was legalistic: there was a request for mediation, several treaties, and a Greek municipal law, although it is quite paradoxical that it was the municipal law that featured some sort of negotiation whereas the treaty between Greece and Turkey amounted to a unilateral imposition by the Great Powers. Physical force was exercised only by the Ottomans, not by the Great Powers or the creditor countries.

In addition to these legal grounds, several authors, amongst others Andreas Andreades136, have argued that article 12 of the Treaty of 7 May 1832, by which Otto of Bavaria was installed as king of an independent Greek state, contained ‘provisions from which the institution of financial control could “germinate”. Article 12 detailed the guarantee that the United Kingdom, France and Russia would issue to a loan raised for the benefit of Otto and his young state. Its sixth clause reads as follows:

The sovereign of Greece and the Greek state shall be bound to appropriate to the payment of the interest and sinking fund of such instalments of the loan as may have been raised under the guarantee of the three Courts, the first revenues of the State in such a manner that the actual

135 As remarked by the Commission itself in its report. Arrangement financier avec la Grèce, p. 18. 136 Andreades, Ιστορία των εθνικών δανείων, Athens, 1904, p 82. I did not access this book, but Levandis, (The Greek Foreign Debt and the Great Powers, p. 37, quotes the argument. Kostas Kostis also maintains that ‘several writers’ have occupied themselves with article 12 as containing the seed of IFC. To Kostis, ‘although it has rightly of course been said that it was never implemented, this clause nevertheless precisely provided the legal pretext for continuous intervention by the Great Powers in the field of Greece’s internal politics.’ Kostis, K. “Ta kakomathiména paidiá tis Istorías”, p. 265 (my own translation).

receipts of the Greek treasury shall be devoted, first of all, to the payment of the said interest and sinking fund, and shall not be employed for any other purpose, until those payments on account of the instalments of the loan raised under the guarantee of the three Courts, shall have been completely secured for the current year. The diplomatic representatives of the Three Courts in Greece shall be specially charged to watch over the fulfilment of the last mentioned stipulation.137

This argument is something of a long stretch. A settlement on the 1832 loan had been reached in 1878, and all other loans on which Greece had defaulted dated from after 1881. Moreover, Germany, Austria-Hungary and Italy were not guarantors to the 1832 loan and thus beneficiaries of article 12, whilst at least German nationals did have strong interests in Greek bonds in 1898. Article 12 was indeed cited by bondholders protesting against the Greek default and did provide a pretext of sorts to Great Britain and France when intervening in Greece’s affairs in the mid-nineteenth century138. Their right to intervention however could also simply be based upon the fact that Greece owed them money; article 12 was not so much needed for that. In reality, the application of article 12 never went beyond mere rhetoric. When an Anglo-French force occupied Piraeus in the 1850s, they did so in order to ensure Greece’s neutrality in their war against Russia, not in order to enforce their rights under article 12. The argument therefore seems rather a case of Hineininterpretierung than a reflection of reality at any other time than 1832. Indeed, what is remarkable is that article 12 features neither in the Constantinople Treaties, nor in the Law on Control. However inelegant the legal scaffolding of IFC in 1898, it was based upon something more extensive and concrete than an article in a sixty-year-old treaty that vaguely obliged Greece to give the United Kingdom, France and Russia right of precedence in its payments. In this way, rather than providing a pretext for IFC, article 12 shows how much had changed between 1832 and 1898.

137 As quoted in Levandis, J. A. The Greek Foreign Debt and the Great Powers, p 36 138 Levandis, J. A. The Greek Foreign Debt and the Great Powers, p. 37. Levandis notes that although it was used rhetorically, no attempt was ever made to enforce it.

Concrete provisions

Whereas the legal basis of Greece’s IFC was rather clumsy and did not show much consideration for Greek national pride, the mechanism through which it operated, contained in the Law on Control, was much more refined. The twin poles around which it was organized were the International Commission and a company under Greek law, the Société de Régie. This arrangement has been applauded by several authors. To Wynne, it combined

the maximum of security for the bondholders with a minimum of apparent interference with the ordinary administration of the country. Direct collection by the international control was out of the question in a highly democratic country like Greece. The obvious solution to the problem, and the one adopted, was to delegate the task of collection to the Greek company – the Société de Régie des monopoles – which had been administering the monopoly revenues since its establishment in 1887.139

Andreades was equally laudatory:

C’est ici toute l’originalité du système, la perception des revenus affectés est confiée à la Société de Régie, qui se trouve sous le contrôle absolu de la commission financière, mais est de nationalité hellénique. […] Ainsi la [commission financière] se trouva débarrassée du souci d’organiser une administration, qui, comme le prouva l’expérience faite par la dette ottomane aurait demandé beaucoup de peine et de temps. Surtout, l’ingérence étrangère n’est pas sensible aux yeux des Grecs, qui ont en face d’eux une société fonctionnant dès 1887. On peut dire que si l’institution du contrôle n’a pas provoqué les réactions qu’on appréhendait, c’est à cette ingénieuse combinaison qu’on le doit, d’autant que les pouvoirs de la [commission financière] sont très étendus.140

[In this lies the entire originality of the system. The collection of the earmarked revenues is entrusted to the Société de Régie, which finds itself under the absolute control of the financial commission, but which has Greek nationality. […] In this way, the Financial Commission is free from the care or organizing an administration, which, as proven by the experience of the Ottoman debt, would demand a lot of work and time.

139 Wynne, W. H. State Insolvency and Foreign Bondholders: Selected Case Histories of Governmental Foreign Bond Defaults and Debt Readjustments (Volume II). p. 320-321. 140 Andreades, A. “Les contrôles financiers internationaux.”, p. 62.

Above all, foreign interference is not sensitive in the eyes of the Greeks, who are confronted with a company in existence since 1887. One can say that if the institution of control has not provoked the reaction that were feared, it is due to this ingenious combination, even more so since the powers of the Commission are very extensive.]

The International Commission

The basic structure of the International Commission went back to the Peace Preliminaries: all six Powers appointed one delegate.141 No refinements to this principle were made in the Law on Control. In this, Greece’s IFC differed from preceding versions in that Greece had no direct participation in the Commission at all. In Egypt, the members of the commission were appointed, at least theoretically, by the Khedive, who moreover had a veto right over their dismissal.142 In the Ottoman Empire and Serbia, Ottoman and Serbian nationals served as members of the commission.143 Neither the Greek state nor Greek bondholders in contrast contributed a delegate, and they had to content themselves with a Royal Commissioner who was to serve as a liaison between the Commission and the Greek authorities.144 Nonetheless, the members of the Commission were paid for by Greece145 and were entitled to Greek retirement benefits.146 The Commission decided by absolute majority.147 The Commission’s tasks were several: it was to oversee the use of the loans made upon establishment of the IFC, oversee Greece’s monetary policy, supervise the Société de Régie, and ensure payment to the bondholders.

Two new loans were contracted by Greece in 1898. The first was intended to cover the war indemnity to the Ottoman Empire. It was to be placed entirely at the disposition of the Commission, who was to ensure its transfer to the Ottomans. Any residue of the loan after fulfilment of the war indemnity was to be passed on to the Greek government, although its use was to be determined jointly with the Commission.148 The second loan was a consequence of the work of the Commission that arrived in Greece in order to draft the Law on Control. In the process of its work, it had come to the conclusion that Greece would be unable to financially survive without an additional loan. In a throwback to 1832, the United Kingdom, France, and Russia agreed to guarantee the resulting ‘Economic Loan’ jointly and severally, meaning that all three accepted liability for the entire loan, instead of just a third as in 1832. This guarantee allowed Greece to address

141 After the First World War, the number would be reduced to three, with Germany, Austria-Hungary, and Russia being excluded. 142 Andreades, A. “Les contrôles financiers internationaux.”, p. 62. 143 Andreades, A. “Les contrôles financiers internationaux.”, p. 66. 144 Law on Control, Article 6, Arrangement financier avec la Grèce. 145 Ibid, Article 4. 146 Ibid, Article 5. 147 Ibid, Article 3. 148 Ibid, Article 7.

64 its most pressing financial needs at an interest of 2,5%.149 Again, the entire sum was to be delivered to the International Commission and was specifically earmarked for covering the deficit of 1897, repayment of debt for the year 1898, and the conversion or repayment of the floating debt. In accordance with the Law on Control, the Greek government could spend this sum only in concert with the Commission.150

In the preceding decades, Greece had at several reprisals been forced to declare the inconvertibility of the drachma. Likewise, after being cut off from financial markets in 1893, Greece had financed itself through the issue of paper money. This was obviously an obstacle to the regular repayment of Greece’s foreign bondholders. A chapter on the reduction of the money supply was therefore inserted in the Law on Control. The debt in bank notes was to be aggressively amortized. This amortization could stop only with the agreement of the financial Commission, and as long as the debt in paper money was not entirely amortized, the issue of new fiat money was likewise made subject to the Commission’s prior approval. 151 The government was equally prevented to issue treasury bills above the ceiling of 10 million drachmas without the approval of the Commission.152

The Commission’s influence on revenue collection in order to pay back bondholders was much more indirect. The contention contained in the Law on Control, and repeated by later authors, that the Société was under the ‘absolute control’ – terminology that stems back to the Peace Preliminaries – of the International Commission is therefore somewhat exaggerated. The Société’s board of governors was appointed by its shareholders; the Commission only had veto power over the nomination of its Director-General and Assistant Director.153 Moreover, the Société de Régie’s operations were circumscribed by the framework of the Law on Control and a new convention to be concluded with the Greek government, which would stipulate the Société’s tasks and privileges.154 Neither the Société’s statutes nor this convention could be modified without the Commission’s consent.155 Both the Law on Control and the Société’s statutes confirm the essentially supervisory nature of the Commission’s relationship towards the Société. A member of the Commission was entitled to be present during meetings of both the board of governors and shareholders; he had a provisional veto power, the definitive veto right being reserved to the full Commission. This delegate was moreover entitled to go through the registers, document and correspondence of the Société de Régie.156 According to the Statutes, the Commission could demand the exclusion of any employee it had complaints about; the Law on Control,

149 Wynne, W. H. State Insolvency and Foreign Bondholders: Selected Case Histories of Governmental Foreign Bond Defaults and Debt Readjustments (Volume II). P. 318-319. 150 Law on Control, Article 10, Arrangement financier avec la Grèce. 151 Ibid, Article 30. 152 Ibid, Article 29. 153 Société de Régie statutes, Article 44, Arrangement financier avec la Grèce. 154 Société de Régie statutes, Article 1. 155 Law on Control, Article 14, Arrangement financier avec la Grèce. 156 Ibid, Article 3.

65 however, stipulated that, in case of irregularities, the Commission was to appeal to the government to have the situation remedied or the employees concerned replaced. 157 It is not clear to what extent the statutes and the Law on Control supplement or contradict each other. Inversely, employees could not be replaced unless the Commission was informed as to the reasons of their replacement. 158 The Commission’s members had a right to look into the activities of the Société de Régie by visiting local offices and inspecting all its books and accounts, ‘en vue de s’assurer de l’exacte application des dispositions légales et réglementaires’ [in order to ascertain the exact application of legal and regulatory stipulations]. It could likewise appoint agents to perform these inspections, but their appointment was conditional on the government’s approval, and they had no right to intervene directly in the management of the collection service. A third option open to the Commission was to entrust these inspections to the government. The heads of the collection services concerned were to send detailed reports of their activities to the Commission, through the intermediary of the government.159 The Commission was the recipient of the the Société de Régie’s earnings on a weekly basis, and was responsible for its conversion into foreign currency in order to repay foreign bondholders.160

157 Ibid, Article 37. 158 Ibid, Article 37. 159 Ibid, Article 36. 160 Ibid, Article 49.

The Société de Régie

The direct management of the revenues assigned to the repayment of the creditors was entrusted to the Société de Régie. That company had been founded in 1887 as Société de Régie des Monopoles de Grèce in order to manage the state monopolies, the revenues of which had been pledged for the service of the loan the government took out in that year. Renamed to Société de Régie des Revenus affectés au service de la Dette publique hellénique to convey its new function within the IFC, the guarantees it provided to the creditors were significantly augmented.161 There was, however, no radical break with the past: the board of governors of the old Société de Régie des Monopoles de Grèce was to stay in function for the first five years after the reorganization.162 Options on a third of the newly created shares were to be reserved for the original shareholders.163 The revenues under the Société’s management were significantly expanded. It kept control over the old monopolies: salt, petrol, matches, playing cards, cigarette paper and Naxos emery. To these were added the taxes on tobacco, certain stamp duties, and the customs duties in the Piraeus.164 If the real value of these revenue posts would turn out to be below 85% of the estimated value, provision was made that the customs duties of the ports of Laurium, Patras, Volos, and Corfu were to be added to the originally provided revenue posts.165 This precaution turned out to be unnecessary, as proceeds far exceeded the original evaluations. The regulatory framework on these revenue posts remained largely unchanged. The Government maintained its role in concluding contracts with foreign suppliers of matches, playing cards and cigarette paper, although it have to obtain the Commission’s agreement. Only on the mining of Naxos emery did the Law on Control explicitly state that the Government and the International Commission would stipulate the conditions of its exploitation.166

161 Tunçer, A. C. Sovereign Debt and International Financial Control, p.112. 162 Société de Régie statutes, Article 16, Arrangement financier avec la Grèce. 163 Société de Régie statutes, Article 4. 164 Law on Control, Article 11, Arrangement financier avec la Grèce. 165 Law on Control, Article 12. 166 Law on Control, Article 15.

Overall relationship between IFC and Greek state

As became apparent, both the Commission and the Société de Régie were dependent on the Government’s active collaboration for a large art of its operations. A barrier to hindrance by the Government was introduced to the extent that the Law on Control could not be modified without the assent of the Great Powers. The Commission likewise held veto power on modifications to the Société’s statutes, to the regulations on the monopolies, and to the tobacco duties and the stamp duties. Reductions on tariff rates were allowed, as long as the Government provided compensation for any diminution of revenue that might follow from them.167 In other cases, however, the Law on Control is remarkably free from mechanisms to force the Government to do the IFC’s bidding. Emphasis was clearly placed on dialogue. A Greek Royal Commissioner was allowed to be present during the Commission’s meetings and those of the Société’s board of governors and of its shareholders.168 In case of disagreement between the Commission and the Greek Government ‘on the interpretation or execution of the present law and the royal decrees issues in accordance with its dispositions’, it was only ‘in last resort’ that the Law on Control authorized the parties to proceed to arbitration. Unless the Commission and Government could agree on the choice of a sole arbitrator, an arbitrator would be appointed by each party. If these two arbitrators could not reach agreement among themselves, they were to nominate a third, sole arbitrator; if they were unable to do so, the Law on Control designated the president of Switzerland as the final choice.169 In yet another display of the Government’s lasting importance, the Law on Control stipulated that in case of disagreement between the Société de Régie and the Commission, the Société was to address its grievances to the Government, which was then to take up the issue with the Commission. In the absence of agreement, the arbitral procedure mentioned above was prescribed, in which the Government would continue to represent the Société’s interests.170

167 Law on Control, Article 38. 168 Law on Control, Article 6 and Société de Régie statutes, article 47. 169 Law on Control, Article 32. 170 Law on Control, Article 33.

The twenty-first century: policy conditionality

The events in Greece over the last decade present an altogether different challenge to the nineteenth century. We have far more material to deal with, both in terms of documents produced by the international surveillance itself and of doctrine written about it. At the same time, far less material is needed to actually understand its essential characteristics. It is not necessary – and given the volume of the writings on them, quite impossible – to go into the specifics of such phenomena as shareholder litigation and the precise content of reform programmes before we can understand the underlying mechanism. A comparison of those specifics with their nineteenth-century equivalents – to the extent that these existed – would be of a different order than the one we are pursuing in this thesis. In what follows, I will therefore only pay attention to those elements of modern state debt practice, and its incarnation in Greece, that are necessary to make a comparison with the nineteenth century possible.

General considerations

The defining idea of the twenty-first century answer to sovereign default is policy conditionality. This term suffers from being used in a variety of meanings – an unfortunate situation that is not helped by the fact that is often abbreviated to ‘conditionality’ pure and simple.171 I should therefore wish to emphasize that the following concepts should be adequately separated from each other:

1. Conditionality: loans are made conditional on the fulfilment of certain obligations. This idea is not new and arguably lies at the very heart of debt. Guarantees by third powers, pledges of revenues or assets, monetary requirements, IFC, policy conditionality sensu lato and sensu stricto, even mere rent, are all examples of conditionality. 2. Policy conditionality (sensu lato): this refers to a requirement that a certain policy be adopted as a condition for receiving a loan. This is equally a very broad term, and such conditions may be as varied as a requirement to support the lending state against an enemy; to lower tariffs; to raise taxes; to build roads; or, as in the case of Greece in 1832, to accept a Otto of Bavaria as monarch. 3. Policy conditionality (sensu stricto): this refers to a highly specific phenomenon that appeared in the second half of the twentieth and the first part of the twenty-first century. It is in this historicized sense of the term that I will be discussing ‘policy conditionality’ from now. In keeping with modern terminology, I will use the shorthand ‘conditionality’ as well. Its meaning remains that of policy conditionality strictu senso, namely, that of a specific historical phenomenon.

There is no commonly accepted definition of policy conditionality sensu stricto.172 Indeed, most authors do not provide a definition at all. This is probably due to the fact that it has become so synonymous with the International Monetary Fund, that discussions of policy conditionality are almost tantamount to discussions of IMF practice. The phenomenon is

171 Readers of the (rather short) English-language Wikipedia article on ‘Conditionality’, for instance (accessed on 4 August 2019), will never be informed about the fact that they are reading about policy conditionality sensu stricto, and not conditionality in general. More academic works are equally guilty of this, in my opinion, unhelpful confusion of terms. 172 Babb, S. L. & Carruthers, B. G. “Conditionality: Forms, Function, and History.”; for instance, is well aware of the different nuances attached to the term, but in terms of definition still goes no further than ‘According to the Oxford English Dictionary, conditionality means “the quality of being conditional.” In the policy parlance of the IMF and other official donors, however, the meaning of the term is much more specific. A country borrowing from the IMF is not free to do as it pleases with the loan it receives; rather, it must follow a set of predetermined policy conditions. Failure to comply can endanger the full disbursement of the loan and even the provision of subsequent loans.’ (Babb, S. L. & Carruthers, B. G. “Conditionality: Forms, Function, and History.”, p. 14).

70 not limited to the IMF, however, but it cannot be understood without consideration of IMF history and practice. It is therefore to the IMF that we must turn first.

The IMF

At the time of its founding in 1944, policy conditionality was not envisaged as part of the IMF’s mode of operation. The European countries, led by Great Britain, had refused to enable the IMF to enforce deflationary policies on cash-strapped European countries. The Fund’s lacklustre performance in its early years quickly made the Europeans eager to enlist stronger American involvement by agreeing to some measure of conditionality, as the United States had already desired at Bretton Woods in 1944. The practice quickly gained force, and by the 1960s policy conditionality was an integral part of the IMF mechanism.173 Policy conditionality in these early decades targeted macroeconomic variables, being concerned with matters such as the budget deficit, interest rates and the money supply. By the 1980s, the IMF abandoned this original monetary focus and started adding what are known as structural conditions: requirements of market-friendly reforms such as privatizations and trade liberalization, as well as reforms in the country’s governance structure.174 Following a period of intense criticism in the mid-2000s, the IMF proclaimed to have changed this intrusive approach in the post-2008 period.175 This shift does not seem to have been carried beyond rhetoric however, as the number of structural conditions had returned to pre-2008 levels by 2014.176 In addition to the divide between macro-economic and structural conditions, IMF conditionality can be divided into ex ante and ex post conditionality as well. In the case of ex ante conditionality, loans are disbursed in tranches, with each tranche made available upon successful completion of the prescribed programme, as monitored by the IMF. Ex post conditionality requires the prior fulfilment of conditions, before any loan is made. Given the crisis conditions in which IMF aid is most often sought, ex ante conditionality is the more common of the two. In addition, disbursement can be made conditional upon compliance with other lenders’ programmes, such as those of the World Bank.177 Combining these approaches, the IMF itself qualifies its condition types as follows:

173 Babb, S. L. & Carruthers, B. G. “Conditionality: Forms, Function, and History.”, p. 17, Dell, S. On being grandmotherly, the evolution of IMF conditionality, p. 8-10. 174 Babb, S. L. & Carruthers, B. G. “Conditionality: Forms, Function, and History.”, p. 16. 175 In 2014, the IMF’s managing director Christine Lagarde remarked: ‘We provide lending, and, by the way, structural adjustments? That was before my time. I have no idea what it is. We do not do that anymore. No, seriously, you have to realize that we have changed the way in which we offer our financial support. It is really on the basis of a partnership. There is always in partnership a bit of hardship to go with it.’ (Transcript of the International Monetary and Financial Committee (IMFC) press briefing,” 12 April 2014.) 176 Kentikelenis, A. E., Stubbs, T. H., & King, L. P. “IMF conditionality and development policy space, 1985-2014.”, p. 14. 177 Babb, S. L. & Carruthers, B. G. “Conditionality: Forms, Function, and History.”, p. 15.

1. Prior actions, that is, ex post conditionality. Examples are the elimination of price controls and a ‘budget consistent with a fiscal framework’. 2. Quantitative performance criteria: these are measurable conditions related to macroeconomic variables. Examples are a ceiling on government borrowing and a certain budget surplus. 3. Indicative targets: these are less strict versions of quantitative performance criteria, in order to accommodate the uncertainty of economic trends. An example is a minimum amount of domestic revenue collection. 4. Structural benchmarks: these are non-quantifiable reform measures, such as privatizations and improvement to the financial sector.178

The number of conditions in IMF programmes has tended to rise over the years. In the 1996-2007 period, the median number lay at 42 per programme. Russia and Ukraine were outliers with over 140 condition in the late 1990s. Immediately after 2008, the number dropped to a median of 33-35, although the number of high conditionality programmes rose in the same period, with nine countries agreeing to programmes featuring more than 60 conditions at least once between 2009 and 2014.179 In 2014, the median was back again at 44. Pre-2008, the mean number of structural conditions in IMF programmes lay at 12; following a drop immediately post-2008, the mean returned to the normal of 12 in 2014.180 The majority of conditions in IMF programmes is, in other words, still macroeconomic, i.e. focussed on monetary, fiscal, and financial matters. Nonetheless, a non-negligible percentage of conditions is structural.

What is moreover of note, is that the IMF is an exclusively state-controlled institution that works on the basis of a shareholder model: countries are given votes in accordance with their contribution to the IMF’s capital. This has resulted in the IMF being controlled by rich countries, with the United States, as the biggest contributor, being given the largest share of votes and, in addition, veto power over several major decisions.181 Notwithstanding the consequent absence of private bondholder representation, bondholders routinely insist on an IMF programme and standby facility before they resume lending. In this regard, the IMF is doubly powerful over the debtor country: not only can it provide much-needed cash, but its participation is indispensable in order that a country may find such cash elsewhere.182 Finally, before we move on to other instances of policy conditionality, we may note that the IMF is a single, centralized institution lending to a variety of countries.

178 “Factsheet: IMF Conditionality.” International Monetary Fund, 5 March 2019. 179 Afghanistan, Bangladesh, Bosnia and Herzegovina, Côte d’Ivoire, Ghana, Greece, Haiti, Jamaica, Ukraine. 180 Kentikelenis, A. E., Stubbs, T. H., & King, L. P. “IMF conditionality and development policy space, 1985-2014.”, p. 10-14. 181 Babb, S. L. & Carruthers, B. G. “Conditionality: Forms, Function, and History.”, p. 20. 182 Wood, P. R. “How the Greek Debt Reorganisation of 2012 Changed the Rules of Sovereign Insolvency.”, p. 18.

Other forms of policy conditionality

The term ‘policy conditionality’ has been applied to other entities than the International Monetary Fund. The most important of these, at least for our perspective, are the World Bank and the European Union.

The World Bank originally provided funding primarily for infrastructure projects. In 1980, it initiated a structural adjustment lending facility, which quickly overtook infrastructure lending as the organization’s main focus. The rationale was that in the changing international environment, marked by rising oil prices, shifting international trade, and high levels of indebtment in several developing countries, far-reaching structural reforms would be necessary to remedy balance-of-payment problems. In this manner, the World Bank became complementary to the IMF: whereas the IMF would provide aid against short-term financial problems, the World Bank would provide funds to make longer-term adjustments possible.183 In reality, of course, the distinction was not so neat. As noted, structural conditions in IMF programmes – which ipso facto addressed the longer term – equally took off in the 1980s, leading to the already noted joint programmes, where implementation of World Bank programmes were linked to access to IMF funds.184

The type of conditionality that is most associated with the EU differs from that of the IMF and World Bank. It is aimed at candidates for EU membership (‘membership conditionality’) and other parties, upon whom human rights requirements are imposed in return for trade agreements or other forms of cooperation (‘human rights conditionality’).185 This type of conditionality is for the most part not directly debt-related, but it can have an indirect effect on debt, to the extent that EU membership in itself may lower the interest rates states are required to pay on their bonds. In this case, the ‘seal of approval’ issued by a third party – the EU – has an impact on the relationship between creditor and debtor. Other conditions are directly related to debt, such as the Excessive Deficit Procedure (EDP) requiring that EU member states keep their budgetary deficit below 3% and that their total public debt may not exceed 60% of GDP. Despite their differences, IMF-style and membership/human rights conditionality do seem to have a certain methodology in common: both advance fairly specific and fairly extensive lists of conditions. Moreover, especially in the case of IMF-style conditionality and human rights conditionality, they both feature at least some conditions that are not

183 Mosley, P. Development Finance and Policy Reform, p. 9; Babb, S. L. & Carruthers, B. G. “Conditionality: Forms, Function, and History.”, p. 18. 184 Babb, S. L. & Carruthers, B. G. “Conditionality: Forms, Function, and History.”, p. 15, 19. 185 Babb, S. L. & Carruthers, B. G. “Conditionality: Forms, Function, and History.”, p. 24.

74 directly related to the main goal of the agreement, i.e. obtaining a loan or a trade deal. They differ in that IMF-style conditionality is strongly linked to crisis periods, whereas EU-style conditionality is not meant to address short-term circumstances (with World Bank-style conditionality somewhere in the middle). Despite not being directly relevant to debt crises, it bears remembering that conditionality is a tool that the EU is very familiar with. The EU did develop a conditionality-based tool to address the post 2010 debt crisis in the form of the European Stability Mechanism and its predecessors. Moreover, the European Central Bank developed a conditionality of its own during the crisis years as well. I will treat these when discussing the Greek debt crisis. Suffice it to say for now that these do not deviate from the types of conditionality I discussed until now. They all emanated from a single institution, and featured detailed and extensive lists of conditions that were not necessarily related to the primary goal of addressing the financial crisis.

Essential characteristics of policy conditionality

The overview of policy conditionality I have given in the preceding two chapters is much shorter than what I needed to explain IFC. Part of the reason for this is that there has been much less of an attempt to abstract policy conditionality from its concrete functioning than has been the case for IFC. Legal discussions of policy conditionality tend to address practical concerns, not the mechanism itself. The fact that policy conditionality is so strongly associated with just a handful of institutions makes this approach viable. IFC, on the other hand, could not be understood without taking into account its many manifestations.186 Nonetheless, for all its brevity, I do believe that we can extract policy conditionality’s essential characteristics from what I noted above. Policy conditionality can thus be understood as a historical phenomenon that corresponds to the following elements:

1. It is situated completely within the public sector. Private bondholders are never directly involved. 2. It is centralized within single organizations, that is, one organization issues multiple conditionality programmes. 3. It features detailed and fairly extensive lists of conditions. In other words, the margin of appreciation open to the debtor is fairly reduced. 4. Not all conditions are directly linked to the restoration of the debtor country’s creditworthiness. In itself, this idea is not new. Loans have historically been made with a variety of non- debt-related conditions. A prime example is the Greek loan of 1832, that featured stipulations on the new Greek monarch’s position within and outside of Greece, in addition to some – rather vague – provisions aimed at enhancing the likelihood of repayment by Greece.187 What is new for the contemporary period, however, is the salience taken by these – in IMF parlance structural – conditions. They have come to be associated with policy conditionality programmes to such an extent that the IMF believed that mitigating their occurrence, at least rhetorically, would counter the opprobrium heaped upon the IMF in the mid-2000s. This analysis in itself is wrong: a lot of the conditions under critique – such as budget cuts and fiscal restrains – are macroeconomic.188 It is nevertheless remarkable that this type of conditions has since

186 Of course, a more in-depth study of policy conditionality as a historicized legal phenomenon is possible. The amount of material to be perused has precluded any attempt to do so in this thesis, however. 187 See page 60. 188 Of course, one may argue that reforms such as liberalization of the economy may contribute to the restoration of the country’s creditworthiness. This is true, but only to the extent that liberalization contributes to a third factor, namely the overall performance of the economy. In the case of practices such as guarantees by third parties, pledges

the 1980s acquired a prominence that it did not have before. It follows from this that policy conditionality has long-term as well as short-term aims. 5. It has a strongly prescriptive ideological component. This is currently neoliberalism, as most prominently expressed in the ‘Washington consensus’. Neoliberalism is not in itself an essential feature of policy conditionality – indeed, the ideology only came into full force after about 1980 – but the bias towards ideologically driven conditions is unmistakable in the policy conditionality of both today and that of pre-1980. There is no consensus either scientifically or politically that the conditions required by both the IMF and other institutions are beneficial to a country’s economic wellbeing.189 A prime example of this prescriptivism, and the relative remove from circumstances on the ground that accompanies it, can be found in the EU’s membership conditionality. The Stability and Growth Pact prohibits EU member states from having their budget deficit and their total public debt exceed 3% and 60% of their GDP respectively. There is, however, no evidence whatsoever that keeping the deficit and total debt below 3% and 60% respectively is required in order to permit a qualification of state debt as sustainable. Indeed, some states have been able to sustain far higher debt-to-GDP ratios in the past, whereas others have defaulted at far lower levels than 60%. The choice for 3% and 60% was therefore ideologically driven, meant to reflect a moral choice that budget deficits and large public debts were something to be avoided.190 It was not directly related to economic reality.

of revenue and assets, or even certain monetary requirements, repayment capacity is not dependent on such a third factor. They enhance the likelihood of repayment in themselves, regardless of the economy’s overall performance. 189 See for instance, Chang, H. Kicking Away the Ladder: Development Strategy in Historical Perspective, or, from a different ideological angle, Easterly, W. The Tyranny of Experts. Economists, Dictators, and the Forgotten Rights of the Poor. 190 Dyson, K. States, Debt, and Power, p. 487. As noted by Vreeland, J. R. The International Monetary Fund, p. 2, policy conditionality contains a paradox in itself: ‘If the policies imposed by the IMF are so good for countries, why must governments be enticed through conditional lending?’

The policy conditionality regime in Greece

The conditionality regime imposed on Greece between 2010 and 2018 essentially brought together various institutions that had been involved with conditionality in the past – although not all with the type of conditionality now required. This is hinted at by the popular use of the term ‘troika’ to refer to the three main institutions that organized Greece’s bailout. However, legally speaking, Greece’s bailout was set up and delivered by more parties than just the IMF, the European Central Bank, and the European Commission. The exact relationship between all parties involved was highly complex. A part of the bailout funds was provided by the IMF, which also participated in supervising the implementation of the conditionality programmes, as well as in the negotiations with Greece. The largest part of the bailout funds was provided by the eurozone member states – that is, the ones that were still financially capable of providing such funds – on a bilateral basis. Coordination nonetheless occurred within the Eurogroup, with the European Commission functioning as a facilitator and participating in the supervision of the implementation of the conditionality programmes on behalf of the eurozone member states. In order to provide some degree of institutional structure to the lending programmes addressed at various European countries that were being set up in 2010, this process was streamlined through the establishment of the European Financial Stability Facility (EFSF) in May 2010. Although the establishment of the EFSF was formally the result of a decision by the Council of the European Union, the EFSF nevertheless only drew on funds of eurozone member states. In 2012, the EFSF was integrated into the new European Stability Mechanism (ESM). Contrary to the EFSF, the ESM did have a legal basis in an amendment to article 136 of the Treaty on the Functioning of the European Union. A smaller facility, the European Financial Stabilization Mechanism (EFSM) was set up at the same time as the EFSF. Contrary to the EFSF, the EFSM drew on the European Union budget directly and was thus under the direct control of the European Commission. It was equally absorbed into the ESM upon its establishment in 2012. The European Central Bank was involved in negotiating and supervising the implementation of the conditionality programmes. It entered into the role of de facto lender as well however, when it started buying Greek bonds in May 2010 under the ‘Securities Market Programme’. This turned the ECB into the single largest holder of Greek bonds, and, in this way, a beneficiary of the bailouts provided to Greece, which were used to repay outstanding bonds.191 Moreover, as the ECB started its Outright Monetary Transactions

191 Papadopoulos, T. & Roumpakis, A. “The Greek welfare state in the age of austerity”, p. 207; see also Buccheit, L. C. “Restructuring a Nation’s debt.”, p. 49. The profits the ECB reaped from the Greek bonds it held were returned to Greece, but these returns were temporarily suspended out of concern for the new SYRIZA government’s attitude

78 programme in 2012, it announced that it would only do so for countries that abided by the conditionality required by the EFSF/ESM programmes.192 It is clear from the overview above that the Greek conditionality regime rested on the twin pillars of the IMF and a conglomerate of EU-related countries and institutions. The latter side featured a complex and frankly befuddling interplay between the eurozone, eurozone countries, the EU, and EU institutions. A clear functional differentiation in the roles played by all these entities cannot be found. Funding was provided by the IMF, the eurozone countries, the European Commission, and the ECB, with the European side partially operating through the EFSM, EFSF, and ESM. Supervision of the conditionality programmes was exercised by the IMF, the European Commission (both for its own bailout funds and that of the eurozone countries), the ECB (for eurozone countries’ bailout funds), with part of these supervisory activities equally being exercised by the EFSM, EFSF, and ESM. The façade behind which all these entities operated was the troika, which served as a negotiating partner with Greece. Part of the negotiations also took place in Eurogroup meetings, which in any case had a de facto veto power over the proceedings, since the majority of the bailout funds came from eurozone countries.193 The interplay on the European side, and thus their answer to the Greek debt crisis, was very much ad hoc. The attempt at streamlining through the founding of the ESM (and the preceding EFSM/EFSF) did not change this. Although the ESM took a part of the disbursement of funds and the supervision of the conditionality programmes under its umbrella, other EU-related institutions – the Commission and the ECB – remained directly involved, both in the fields of disbursement of funds, that of supervision of the conditionality programmes, and that of negotiating with Greece. An exact delineation of the roles of the IMF, the European Commission, the European Central Bank, and the ESM/EFSM/EFSF was never formalized. The presence of the Commission and the ECB in themselves may nonetheless be called problematic. Both performed internal, non-crisis-related roles in Greece, as the most significant part of the functions of the Greek central bank had been devolved to the ECB and an important part of executive and legislative power had been devolved to the Commission in the preceding decades. The Commission thus ended up providing funds to Greece, supervising conditionality programmes on its own behalf and that of the eurozone states, and negotiating with Greece, all the while exercising its normal EU-related functions vis-à-vis Greece.194 The ECB’s roles were even more complex: it provided funds, supervised the programmes, negotiated with Greece, bought, owned, and was paid rents on

towards the conditionality programmes. This clearly demonstrates the many hats the ECB was wearing by then: supervisor of the existing programmes, negotiator for the next, holder of Greek bonds, and central bank of the eurozone. 192 Wood, P. R. “How the Greek Debt Reorganisation of 2012 Changed the Rules of Sovereign Insolvency.”, pp. 26- 27. 193 Wood, P. R. “How the Greek Debt Reorganisation of 2012 Changed the Rules of Sovereign Insolvency.”, p. 27. 194 Its normal functions, which in fact also include debt-related matters such as ascertaining member states’ compliance with the Stability and Growth Pact, against the breach of which the Excessive Deficit Procedure may be started.

Greek bonds195, injected liquidity into the crisis-ridden eurozone, tried to remain the stability of the euro itself, all the while exercising its functions as part of Greece’s central bank system.

On the temporal level, the Greek conditionality regime was punctuated by three ‘Memoranda of Understanding’ (MoU) that imposed new sets of conditions on the country (the MoUs were officially known as ‘Economic Adjustment Programmes’. The first was signed in May 2010, the second in March 2012, and the third in July 2015. As the third MoU expired in August 2018, Greece formally exited the bailout regime. Monitoring of the longer-term commitments undertaken by Greece in the MoUs nonetheless remained in place, even as a lack of compliance could no longer be punished through the withholding of the next tranche of bailout money. Each MoU envisaged the disbursement of bailout funds in tranches.196 Each tranche was to be disbursed only when the Troika, following a review, was satisfied that Greece had complied with the commitments it had agreed it to. These intermediate commitments were detailed in so-called ‘supplementary memoranda’. Payment of several tranches was postponed after an unsatisfactory review.197 Each MoU contained an extensive list of conditions.198 Their key measures can be summarized as follows (note that this is of course only a very partial list)199:

1. Fiscal measures. These included both cuts in public expenditure (ranging from layoffs and wage reductions for civil servants to abolition of certain subsidies) to increases in revenue (through tax hikes and large scale privatizations of state-owned assets, ranging from the port of Piraeus to motorways, airports and the Greek lottery). 2. Financial measures. The most important was the recapitalisation of Greek banks;

195 As noted by the European Court of Auditors, in a report on ‘The Commission’s intervention in the Greek financial crisis’ (p. 9): ‘Despite the complex institutional arrangements within the programmes, the operational details of the Commission’s co-operation with programme partners, primarily the IMF and the ECB, were never formalized.’ 196 The First MoU envisaged a total of 110 billion euros; the Second 172.6 billion: and the Third 86 billion. 197 The first MoU included six tranches, for instance. The last tranche, originally to be disbursed in October 2011, was first postponed to December and then finally to March 2012, when it was subsumed into the Second MoU. See Papadopoulos, T. & Roumpakis, A. “The Greek welfare state in the age of austerity”, p. 206. 198 Although maybe only of anecdotal value and from a highly partisan point of view, Yanis Varoufakis’s description of the negotiating process of the Third MoU is quite illustrative: ‘Convening at 9 p.m., we received more than a thousand pages – which read as if translated from troika-English into Greek by something like Google Translate – to sift through overnight before the vote scheduled for early the following morning.’ (Varoufakis, Y. Adults In The Room, p. 512.) To be fair, the actual Third MoU only ran to 32 pages. The European Court of Auditors nonetheless came to similar results, even as it was only evaluating the European Commission’s role: ‘There were no specific internal Commission guidelines on the actual design of the programmes’ conditions, for example in terms of scope or level of detail. Despite a growing number of conditions, the first and second programmes did not adequately prioritise their relative importance and they were not embedded in a broader strategy for the country. The Commission did put in place a functioning system for assessing the conditions, but we found consequential weaknesses, in particular for the assessment of implementation of structural reforms.’ (The Commission’s intervention in the Greek financial crisis. Special Report. European Court of Auditors, 2017, p. 8-9.) 199 The three MoU were not entirely complementary: the later ones modified the conditions of the earlier ones.

3. Structural reforms. These were very wide-ranging, going from labour market reforms to the lowering of the minimum wage and measures to avoid tax evasion.200

This list is, of course, very partial. All three MoUs contained highly specific provisions, that did not necessarily form part of one overarching strategy.201 The specificity did not necessarily translate into detailed and precise provisions, however. One example out of many – I picked on randomly – may be found in the supplementary memorandum to the Third MoU of 5 July 2017:

Mechanism for diagnosis of labour market needs. Procedures will be developed by December 2017 to ensure the use of the results derived from the integrated mechanism for diagnosis of labour market needs to be taken into account by Ministries and OAED202 in designing and implementing future ALMPs [active labour market policies]203

No additional information is given. The reader – and, consequently, the Greek government – is thus left in the dark as to what exactly these ‘procedures’ would be how, or how the Government’s ‘taking into account’ of these procedures is to be evaluated.204 In the Third Memorandum itself, seemingly no mentions is made of this ‘mechanism for diagnosis of labour market needs’, although one may find related provisions:

Technical assistance. For the effective implementation of the reform agenda, including labour market reform, VET [vocational education and training] and capacity building of the Ministry of Labour, the authorities will use technical assistance, benefiting inter alia from expertise of international organisations such as the OECD and the ILO.205

A quick glance at any of the memoranda or supplementary memoranda will reveal stipulations of the same type. Some, of course, correspond to higher standards, but it may be called noteworthy that seven years into the bailout regime, an agreement between Greece and its creditors still included phrases of this type.

Another significant aspect of the Greek conditionality regime was the restructuring of Greek bonds held by private creditors in 2012 (also known somewhat euphemistically as

200 Papadopoulos, T. & Roumpakis, A. “The Greek welfare state in the age of austerity”, p. 219; Wood, P. R. “How the Greek Debt Reorganisation of 2012 Changed the Rules of Sovereign Insolvency.”, p. 28; Ladi, S. The Eurozone Crisis and Austerity Politics, pp. 15-16. 201 See, for instance, the remark of the European Court of Auditors in note 195. 202 A Greek government institution targeting unemployment. 203 Supplemental Memorandum of Understanding (second addendum to the Memorandum of Understanding) between the European Commission acting on behalf of the European Stability Mechanism and the Hellenic Republic and the Bank of Greece. 2017. At the risk of sounding overly cynical, I might add a [sic] after the final word, as no full stop was included in the document. 204 As a Supplementary MoU, this text was the basis for a review upon which depended the disbursement of the next tranche of bailout funds. 205 Memorandum of Understanding between the European Commission acting on behalf of the European Stability Mechanism and the Hellenic Republic and the Bank of Greece. 2017, p. 22.

‘private sector involvement’) in the world’s largest-ever debt restructuring.206 The terms were very generous for Greece: 97% of privately held Greek bonds lost 53,5% of the face value.207 Both the support of the Troika and the fact that most Greek bonds had been issued under Greek law were instrumental in achieving this result. The latter made possible the insertion of collective action clauses into the bonds, which force a restructuring arrangement on holdout creditors when a supermajority of bondholders agrees.208 The former allowed for both pressure on private creditors to accept the arrangement and enticements to cooperate: 1- and 2-year bonds were issued by the EFSF, for instance, were offered to investors as part of a debt exchange.209 The significance of this large haircut of private debtors was very much diminished, however, by the fact that the largest share of Greece’s outstanding debt was by then owed to the public sector.210 This debt was not included in the restructuring. Only later, in 2017 and 2018, some measure of debt relief was introduced for debt owed to the public sector, although this went no further than reducing interest rates and increasing maturities and came nowhere near what was imposed on Greece’s private creditors.211

A final remark to be made about the Greek conditionality regime is that Greece never officially defaulted on its debt, apart from a 20-day period in mid-2015 when Greece was officially ‘in arrears’ on its debt to the IMF.212 The official declaration of default was avoided for a variety of reasons. Admission of default risked triggering credit events that might lead to spreading the Greek crisis across Europe. At any rate, the ECB would not accept the bonds of country in default as collateral. European countries were moreover afraid that a Greek default might compromise their own credibility, and the idea of default was more generally strongly associated with notions of moral shortcomings.213

206 Airapetian, S. “Managing Sovereign Debt”, p. 396. 207 “Explainer on ESM and EFSF financial assistance on Greece.” European Stability Mechanism, 20 August 2018. 208 Butenski, J. “Tango or Sirtaki”, p. 173. 209 “Explainer on ESM and EFSF financial assistance on Greece.” European Stability Mechanism, 20 August 2018. 210 Before 2010, 75% of Greek debt had been held by foreign banks. After 2010, the majority was in the hands of the public sector, although a significant amount of bonds not issued under Greek law (and thus not susceptible to a modification of Greek law) remained in the banks’ portfolio. (See Argyropoulou, V. “Convergence and Divergence between International Investment Law and Human Rights Law, in the Context of the Greek Sovereign Debt Restructuring.”, pp. 174-175) 211 “Explainer on ESM and EFSF financial assistance on Greece.” European Stability Mechanism, 20 August 2018. 212 As noted before, there is no commonly accepted definition of ‘default’. One may well argue that Greece defaulted de facto, if not de jure. The IMF itself avoids the use of the term and instead prefers the use of ‘in arrears’, which may or may not – according to your definition – correspond to ‘default.’ 213 Wood, P. R. “How the Greek Debt Reorganisation of 2012 Changed the Rules of Sovereign Insolvency.”, p. 22- 23, Dyson, K. States, Debt, and Power, pp. 239-240.

Systematic comparison between IFC and the policy conditionality regime

Now that we have established the essential characteristics of IFC and policy conditionality and their concrete manifestations in Greece, we are in a position to conduct a comparison between the two mechanisms. I will draw on information from both the general chapters and those on Greece specifically, although the object of my comparison strictly speaking is only the version of both forms of international surveillance that appeared in Greece.

Modus operandi When examining the Greek IFC of 1898, one struck by its essentially negative role. It does not take much initiative of its own: its main task lies in supervising the activities of the Société de Régie and of the Greek government. It does so either reactively – by inspecting their activities – or, especially in the case of the Greek government, proactively – by requiring that the International Commission agree to steps the Greek authorities wish to take. The Commission is at any rate fully dependent on the collaboration of the Société de Régie and of the Greek government: it has almost no capacity for autonomous action. It can veto much more than it can decree. The judgment of British member of the Commission in 1900 thus seems not far off the mark:

The duties of the Commission are confined to seeing that the numerous provisions of the Law of Control are accurately carried out: to providing for the service of the foreign debt in all its details, to watching over and controlling the administration of the Société de Régie and to concerting with the Hellenic Government for the provision of an adequate supply of the monopolised articles. Through its agents it inspects Salines, Tobacco-cutting establishments, Emery depots etc. it can demand the reform of abuses and the dismissal of incompetent or dishonest officials. With regard to the repression of smuggling and contraband it can only draw the attention of the Government to particular instances and make suggestions which the latter may or may not be pleased to adopt. Beyond the discharge of its clearly defined duties, the Commission has no direct influence one way or the other over the action of the Greek Government nor, as long as nothing is done to jeopardise the interests of the Creditors, has it any control over that Government’s Expenditure. By the arrangement come to in 1898, the Powers set Greece on her legs again and gave her a fair start: they did not put her in leading strings nor diminish by one iota the responsibility of her statesmen.214

214 Quoted in Tunçer, A. C. Sovereign Debt and International Financial Control, p. 113.

There were two exceptions to this general observation. The first was the Commission’s much greater presence in the first year or so after the establishment of the IFC. The war indemnity to the Ottoman Empire and the additional guaranteed loan to Greece fell essentially under its control. Once the immediate crisis situation has passed, however, the Commission returned to the supervisory role described above. The second exception is that of Greece’s monetary activities. These are placed under a much more forceful international control. The money supply was severely and aggressively restricted, and the duration of this control was long-lasting. The Greek government was in principle only to regain its monetary autonomy after it had completely amortized its outstanding paper debt. This constituted, of course, a severe restriction on Greece’s economic policy. It effectively guaranteed that Greece’s creditors would be paid back at increasingly favourable exchange rates. In this field, Greece’s IFC was among the most severe of its time, and Andreades, for instance, while essentially conceding that the results of the IFC have been beneficial for Greece, strongly criticized how unfavourably Greece had been treated, especially when compared to the Ottoman Empire’s IFC.215 If we take this as a first instance to make a jump to the 2010-2018 period, the severity of Greece’s monetary regime under IFC contrasts sharply with wat happened in the past decade. Far from being the most tightly controlled part of Greece’s economy, its continued use of the euro was continuously put under discussion, exposing Greece’s remaining private creditors to the possibility that their debtor’s currency would rapidly loose value. Neither was the ECB’s stance overly concerned with tight money in general: after an initially hawkish stance, it turned aggressively dovish from 2012 onward until the time of writing of this thesis. In the 19th century, concern over Greece’s currency was so strong that it was the only part of Greece’s economy that was put under tight control. In the 21st, the strength of Greece’s currency was almost irrelevant. Greece’s IFC – and, it would seem, IFC in general – was to a very large extent a procedural phenomenon. The Law on Control devoted a great deal of attention to the way in which the Commission would exercise its task. Only rarely did it prescribe a certain substantive course of action: the only real examples, in fact, were the monetary question and the spending of the ‘Economic Loan’ the Powers had guaranteed in 1898. Both of these covered crucial matters: the ‘Economic Loan’ was Greece’s immediate lifeline, and if the Greek Government were left a free hand in the issuance of paper money, it could circumvent many of the IFC’s provisions. In the rest of the Control, however, a procedural approach was followed: the International Commission, the Société de Régie and even the Greek Government would serve as a form of checks and balances against each other. The system could not function without the active participation of all members of this triad. The emphasis on consensual conflict resolution in the Law on Control only emphasizes this

215 Andreades, A. “Les contrôles financiers internationaux.”, pp. 66-67.

84 point, as does the recourse to third-party arbitration in extremis. No party was allowed to impose its will on the other.216

The regime of policy conditionality that held sway in Greece between 2010 and 2018 took an entirely different approach. Procedure was almost entirely absent: the framework for discussion between the Greek Government and Troika at most consisted of the existing European institutions, and even there almost no measure of organizational clarity existed. The respective responsibilities of the IMF and the various European institutions were never clearly delineated. Rather than by procedure, the policy conditionality regime operated by prescription. Greece was required to follow a set of desirable policies. The Greek Government’s ability to intervene in established what policies were to be called desirable were limited by its continued reliance on the Troika for funding. Refusal to agree to a condition either preliminarily or by refusing to enact it afterwards risked resulting in a suspension of funding. (This is a major difference with 1898 as well: that was the only year in which the Powers provided Greece with funding. After that, it was completely reliant on private funding and dependent on the International Commission only to the extent that it needed it to ensure access to private funding. Once more, the term ‘checks and balances’ seems appropriate.) The prescriptivism inherent in the policy conditionality regime was enhanced by the large number of conditions and the poor quality of their wording. The reader of the Law on Control needs only a general knowledge of the law and of Greece’s economic structure, and maybe an hour to spare; the various Memoranda of Understanding are incomprehensible without in-depth understanding of various disciplines and of the negotiations themselves. Spyridon Deïmezis, a Greek ex-minister of finance, was able to write in 1898 a detailed evaluation of the Control in only 80 pages217; Nikolaos Politis, then a young professor of international law, needed 36 in 1901218. As late as 2017, DiaNEOSis, a Greek think-tank, was able to publish a 84-page report entitled The 140 preconditions of the memorandum in simple words219 which purported to explain only the Supplementary Memorandum of May 2018, since the accompanying article noted that

Το "Mνημόνιο" είναι ένα κυρίαρχο στοιχείο του δημόσιου διαλόγου εδώ και οκτώ χρόνια, πολυσυζητημένο, εκτενώς αναλυμένο αλλά ακόμα, από ό,τι φαίνεται, πρακτικά άγνωστο. Ξέρουμε σε γενικές γραμμές περί τίνος πρόκειται, αλλά γνωρίζουμε ελάχιστα για το τι περιλαμβάνει. Αποφασίσαμε λοιπόν να κάνουμε το εξής: να πάρουμε τη συγκεκριμένη λίστα και να περιγράψουμε με πολύ απλά λόγια τι είναι το κάθε ένα από τα 140 προαπαιτούμενα μέτρα εκείνης της αξιολόγησης.220

216 This observation does not of course fully hold for the Peace Preliminaries themselves, where Greece had very little say over the matter. However, after the establishment of IFC, the imposition by the Great Powers disappears. 217 Déiméizis, S. Le Contrôle International sur Les Finances Grecques. 218 Politis, N. “Le contrôle international sur les finances helléniques”. 219 Nikolaïdis, I. Ta 140 Proapaitoúmena Tou Mnimoníou Me Aplá Lógia. DiaNEOSis, December 2017. 220 Georgakopoulos, T. “Ti eínai to mnimónio?”, December 2017.

[The memorandum has been an essential element of public dialogue since eight years, much under discussion and intensely analysed, but still, it would seem, practically unknown. We know in general lines what it is about, but we know very little what it contains exactly. We decided therefore to do the following: to take the concrete list and describe in very simple words what every one of the 140 preconditions of the [Supplementary Memorandum] is.]

This is, of course, only anecdotal evidence, but it aptly illustrates what I have hinted at above: the policy conditionality regime was much more extensive and esoteric than IFC. Its modus operandi was one of effective usurpation of legislative power221; that of IFC one of checks and balances that aimed to curb bad policies and administrative practices. Consequently and with some generalization, one may observe that policy conditionality primarily targets the legislative power of a state, and IFC the executive.

Aim of the international surveillance The primary aim of IFC was the restoration of creditworthiness by enhancing the probability that pre-existing private creditors would be repaid. This holds true for all IFCs before 1914. This focus on the interests of private creditors is rather narrow. There is not a single provision in the entire Law on Control that is not in the direct interests of the private creditors, apart from that on the war indemnity to the Ottoman Empire. One may, and several authors have, criticize the fact that no bondholder representatives were included in the International Commission, but this does not obviate the fact that the rest of the IFC’s architecture was completely geared towards enhancing guarantees for private creditors. This is all the more remarkable since only half of the members of the Commission came from countries whose nationals held Greek bonds. This does not mean that the interest of Greece played absolutely no role. The checks and balances inherent in the system could, of course, work against the creditors’ interest and for that of Greece. Indeed, as time progressed, the Greek Government became aware of the opportunity provided by the presence of the International Commission and started using it to gain more favourable terms in the bonds it issued. Likewise, the fact that IFC seems to have played a role in ensuring the stability of the international system means that the members of the Commission, who were, after all, the representatives of the Great Powers, might on occasion act against the concerns of the creditors if their interest or that of the international system so demanded. All this, however, could only happen within a legal framework that was completely geared towards the interests of the creditors.

221 I do believe that the word ‘usurpation’, strong as it is, is apt for the case. As it was financially dependent on the Troika, Greece was in no position to effectively participate in the process of selecting the conditions.

The aim of the conditionality regime in Greece is much more diffuse. However, at least theoretically, it cannot be denied that the wellbeing of the debtor state ranks highly in the logic of policy conditionality. The conditions required are supposed to be good for the debtor states, and enable them to escape from the structural weaknesses that seem to plague their economies and that led to the debt crisis in the first place. This explains why Greece was kept off private financing for eight years222: it needed a period of reprieve to enact necessary reforms and time for the reforms to work and convince private markets to resume lending to Greece at acceptable interest rates. The policy conditionality regime between 2010 and 2018 accorded little importance to Greece’s private creditors – at least those whose loans were not repaid by the bailout funds that the Troika awarded Greece. The remaining private creditors saw their colleagues replaced with public creditors who either had preferential treatment or might claim preferential treatment.223 In 2012, they were forced to accept losses of over 50% on their investments. The likelihood of repayment of future loans has increased only to the extent that the Greek economy has become more stable, and revenue collection more effective, as a result of the reforms.224 It is too early to tell whether this will be the case. At any rate, Greece’s debt-to-GDP ratio, while not an accurate predictor of creditworthiness, is still at far higher levels than before the crisis. Greece’s reform package did include a substantial amount of liberalization and privatization, opening up opportunities for private investors. However, the risk profile of these investments differs considerably from that of government bonds, so that it may be surmised that these could not serve as replacements for the losses inflicted by the haircut of 2012. There was considerable fear that the Greek malaise would spread to the other European economies, since not only Greece was afflicted, but Cyprus, Ireland, Spain and Portugal as well, with risk of contagion of the core economies of France and Germany through their banks, which held significant amounts of Greek government bonds. This undoubtedly played an enormously important role in how the Greek crisis was addressed. However, it falls beyond the scope of this thesis to deal with this complex issue. Suffice it to say that while this may have been one or even the primary reason for the provision of bailout funds by the eurozone countries, this does not explain the exact shape the policy conditionality regime took. The conditions included in the memoranda did not serve primarily to ‘save the eurozone’. In this, we find a parallel with 1898: in both cases, core countries lent money to keep a country afloat which might otherwise destabilize the international system. On the level of the details of IFC and the policy conditionality regime, however, we find a paradox. 19th-century IFC, while designed to safeguard private interests, left Greece much

222 Greek did partially return to private financing in 2014, but the experiment was short-lived. 223 Buccheit, L. C. “Restructuring a Nation’s debt.”, p. 49. 224 After 1898, the overall performance of the Greek economy did not matter that much anymore: even if the economy tanked, repayment to the creditors would have gone on unless the loss in revenue was so large that it would not even cover the payment of creditors. Short of that, only the Greek government’s unilateral abrogation of the system would have imperilled the creditors’ security.

87 more room to set its own priorities; policy conditionality, while more solicitous about the debtor country’s interests, proved far more strict and arguably more nefarious for Greece.

Bondholder participation As noted, Greece’s bondholders were not awarded a seat in the International Commission, and neither were they included in the preparatory survey that led to the drafting of the Law on Control and the concomitant texts in late 1897 and early 1898. Nonetheless, the proposals that de bondholder representatives had made in 1896 strongly inspired the Law on Control. The provisions on the amortization of the paper debt were copied in their entirety. The proposal to make use of the Société des Monopoles was adopted as well, although it was modified to the extent that a second entity was created, namely the International Commission.225 In the short term, the bondholders’ non-participation turned to their benefit: as the International Commission believed that ‘it [had not] received authority from the creditors either to formulate demands or to make sacrifices in their name’, no haircut was imposed on the bondholders.226 In this the Greek case was fairly unique: in Tunisia, Egypt, Serbia and the Ottoman Empire capital or interest reduction were part of the bargain.227 On the longer term, the absence of direct bondholder participation in the International Commission did pose risks. As Albert Wuarin, writing his doctoral thesis, noted in 1907:

L’administration financière de la dette d’un Etat confiée à des délégués nommés directement par les Puissances peut donc ne pas être représentative des seuls intérêts des créanciers ; ces délégués peuvent, en effet, devenir des instruments politiques : c’est là un premier danger. Il y en a un second : il se peut très bien que l’avis de ces représentants à l’occasion de telle mesures qu’ils doivent prendre, n’exprime pas l’opinion de la majorité des porteurs de titres. Et ces derniers pourront n’avoir ni le droit de recours contre les représentants qui leur auront été imposés ni le droit de faire modifier leur vote. […] Cette représentation des porteurs par les délégués des gouvernements étrangers, qui offre incontestablement de grands avantages, en investissant la commission d’une importance internationale considérable, peut néanmoins provoquer de justes critiques pour les raisons que nous venons d’indiquer.228

Greece’s bondholders in the 21st century were equally excluded from participation in the policy conditionality regime. They differ from their predecessors more than a century earlier in that their governments only looked after the interests of some of them. The bailout

225 Andreades, A. “Les contrôles financiers internationaux.”, pp. 65-66. The bondholders’ proposal had envisaged the addition of five foreigners to the five Greek members of the Société’s board of governors. Under this proposal, foreign supervision and local execution would have been brought together in one institution; under the Law on Control, the two were split. Andreades argued that the creation of the International Commission was more humiliating for Greece, but one may well argue that the split actually proved beneficial in that it lessened the power of both the Commission and of the Société de Régie. 226 As quoted in Wynne, W. H. State Insolvency and Foreign Bondholders: Selected Case Histories of Governmental Foreign Bond Defaults and Debt Readjustments (Volume II). p. 328. 227 Andreades, A. “Les contrôles financiers internationaux.”, pp. 66-67. 228 Wuarin, A. Essai sur les emprunts d’états et la protection des droits des porteurs de fonds d’états étrangers, p. 222.

88 provided by the Troika allowed creditors from 2010 to 2012 to be repaid in full. As noted, the remaining creditors initially saw their situation deteriorate now that their fellow creditors were from the public sector, and subsequently were forced to accept a loss of over 50% on their investment. A part of Greece bondholders thus received treatment comparable to that in the 19th century, albeit because their governments bailed out the Greek and not because the Greek government itself was required to pay them in full. The other part suffered a treatment far worse than that of their predecessors in 1898.

Public sector involvement In both the 19th and the 21st century, core European countries exerted pressure on Greece in order to maintain the stability of the international system. Both the modalities and the outcome of this pressure was vastly different in each case, however. In the 19th century, as noted, creditors to Greece came from only half of the Powers who forced Greece to accept IFC in the Peace Preliminaries and who were later represented in the International Commission. Even the other three’s commitment to their bondholders varied: Germany aggressively pushed for IFC, but the United Kingdom was reluctant in equal measure, and France was to be found in between these two extremes. In the 21st century, however, no country or institution participated in the supervision of the policy conditionality regime that did not have financial interests in Greece. The risk that Greece posed to the international system in the 21st century was economic foremost. In the 19th, it was political. Most of these financial interests in the 21st century only came as a result of the bailouts, but some preceded even these, at least indirectly. A Greek default threatened the stability of banks whose failure would prompt massive government intervention in their own country. These official creditors/supervisors accorded themselves preferential treatment over the remaining private creditors: they suffered no haircuts on their loans. In the 19th century, no special treatment was foreseen for the guarantors of the Economic Loan of 1898. At any rate, their creditor status towards Greece would only be activated if Greece defaulted on the Economic Loan, thereby triggering the Powers’ guarantee. In the 21st century, the issuing states raised the funds at their own interest rates and Greece immediately became their debtor. Far from solidifying the influence of the Great Powers, IFC actually diminished it. They, and especially the United Kingdom and France, in the earlier 19th century had continuously been using Greece’s inability to service its loans as a weapon. IFC replaced this system of political pressure, which essentially knew no limits, with a circumscribed, procedural form of influence. Low-intensity but long-term influence thus replaced high-intensity but short- term leverage. In addition, the old Powers with influence in Greece now had to share it with newcomers. The exercise of raw power on Greece thus became more difficult than it had been before.

In the 21st century, the policy conditionality regime greatly augmented the power of the creditor states and institutions. At no time before had they been able to dictate Greek policy to such a considerable extent.

Involvement of the Greek Government Tremendous pressure was brought to bear on the Greek Government in both time periods. The difference is that in the 19th century, that pressure preceded the establishment of the IFC; in the 21st century, it was an integral part of it. As already noted, the Greek Government in 2010-2018 was barely in a position to oppose the Troika’s demands, as it was entirely dependent on it for funding. Its active participation was only required to the extent that it the Troika could not implement the reforms in its stead. Even at this level, however, the Government’s freedom of action was very circumscribed, however: further funding – especially through the system of Supplementary Memoranda – depended on the Troika’s satisfaction at the fulfilment of the conditions. Against this, we can maybe only argue that the conditions were often so vague that the Greek Government in practice had a lot of room for interpretation, but this very vagueness could equally cut the other way: the Troika was, theoretically at least, always in a position to find a condition that had not been adequately fulfilled. IFC, as repeatedly emphasized, could not function without the Government’s active participation. The system was in fact not even dual: the Société de Régie also had substantial room for autonomous action. Each of the three players was in a position to enlist the help of another against the third. Even this sharing of power need not even have resulted in a net loss of power for the Government: the presence of the Commission and the Société de Régie could be used as a smokescreen by reform-minded members of the elite, although I have not as yet found evidence of the use of this tool in Greece.229 The only policy areas in which the Greek Government was severely restricted were the spending of the war indemnity and of the Economic Loan, and the monetary question. That revenue collection was outsourced to the Société de Régie did not in itself limit the Government’s power: on the contrary, in case of high revenue – as actually happened – a part of the surplus went back to the Government. Some provisions were included in the Law on Control to allow the Government to exercise a certain amount of economic policy through the raising or lowering of taxes, although this ability was of course not limitless and at the very least had to be compensated if it would lead to less revenue.

Internal cohesion of the international surveillance Neither in the 19th nor in the 21st century did the international surveillance present a monolithic whole. In both cases, they contained the capacity for internal divergence.

229 Dyson, K. States, Debt, and Power, p. 283 describes the use by elites of foreign intervention to impose desired reforms. The two decades after 1898 were periods of intense reform in Greece, as had been the preceding decades. The texts by Deïmezis and Politis, largely laudatory as they are about IFC, may be prime candidates for a discourse analysis seeking to investigate this use of IFC as a legitimating device for internal political choices. I have not done this myself.

The Greek IFC was primarily exercised by the International Commission and the Société de Régie. Both exercised distinct tasks: with some generalization, the International Commission supervised and the Société de Régie carried out the actual revenue collection. Their interests were not necessarily aligned. Although the aim of both was to ensure that Greece’s private creditors were repaid, they both held different primary allegiances. The members of the International Commission were ultimately beholden to their sending states, and the Société de Régie to its shareholders.230 The Law on Control and the Société de Régie’s statues foresaw the possibility of conflict between the two, in which case the Société’s interests were to be taken up by the Greek Government. Both were dependent on the Government’s support for their adequate functioning. Not only did the IFC operate as a system of checks and balances – these very checks and balances were necessary to hold together the centrifugal elements that the Greek Government, the International Commission and the Société de Régie actually were. The policy conditionality regime in the 21st century was even more diffuse. It was exercised by the eurozone countries, the European Commission, the ECB, the IMF, and the ESM/EFSF/EFSM. Contrary to the situation in the 19th century, their competences overlapped. As it happened, no major disagreements between the partners occurred, but is very much unclear how such disagreement would have played out. On the other hand, while united, this diffuse character strengthen the already powerful hand of the Troika even more: each partner was able to deflect responsibility to another.231

Country-centred versus institution-centred The unit around which IFC is organized is the debtor state232; for policy conditionality, it is the creditor institution. The reader will remember Andreades’s remark that ‘there is no IFC, there are only IFCs’. IFC varied according to the country in which it appeared: so much differed from country to country that any attempt at classification seemed doomed to failure in Andreades’s eyes. This great variety occurred not just because each IFC was tailored specifically to each country’s needs: other factors, and even historical coincidence, played their parts as well – Greece’s six-member International Commission would never have existed if it had not been for the Great Powers’ mediation after the War of 1897. In any case, no single institution or agency exercising multiple controls seems to have appeared before the Second World War.

230 Wynne, W. H. State Insolvency and Foreign Bondholders: Selected Case Histories of Governmental Foreign Bond Defaults and Debt Readjustments (Volume II). p. 344 231 As occurs repeatedly in Yanis Varoufakis’s memoir Adults in the Room. 232 This is certainly true for pre-1914 IFCs. Central institutions such as the League of Nations do become more important after the First World War, but the propensity to organize per country instead of per country seems to have lingered on for some time. There did not exist a centralized institution at the League of Nations that exercised the IFC in all countries that had requested League of Nations aid. Countries did not share controlling agencies. It seems that only by the time of the Marshall plan, the centralized, institutional approach won out. We are, of course, in a completely different geopolitical context: as long as Europe remained powerful, the tendency to centralism was kept in check by the presence of multiple Powers. After 1945, the United States could make much greater demands of unipolarity.

The institution thus showed a great flexibility, and proved capable of shedding even some of its seemingly most essential characteristics, such as the creditor-centredness that had so marked pre-1914 and that was largely absent after the War. At the risk of making claims about something that I have not studied in depth, IFC seems to have evolved much more between, say, 1880 and 1930 than IMF conditionality did between 1969 and 2019. Policy conditionality was a much more institution-centred phenomenon than IFC. The benchmark was set by the IMF, that on its own issued conditionality programmes across the globe. The paradox of this centralism, however, was that the creditor entities proved incapable of fully integrating – and thus centralizing – all supervising entities in Greece. The existing institutions simply could not be abolished. Even the European institutions did not manage to unite everything behind the ESM: both the Commission and the ECB maintained an autonomous presence. The Troika model was never abandoned, even as more players than just the IMF, the Commission and the ECB were involved in the Greek programmes. As noted before, the system did work, but the diffuseness hardly contributed to transparency and respect for the role of the Greek government. Moreover, one can seriously question whether this centralism does not lead to a one-fits-all approach that exacerbates policy conditionality’s inherent prescriptivism.

Use of legal instruments The two regimes varied markedly in their use to legal instruments as a means of approaching the Greek debt crisis. The solution found in the 19th century was essentially legal; in the 21st, political. The policy conditionality regime in Greece almost studiously avoided the use of the law, both formally and substantially. Its most salient instrument, the memorandum of understanding, is explicitly not a treaty, and, as we have seen, its language often lacked the clarity to truly turn them into legal instruments. The European side was equally diffuse in the legal relations between the various entities. No clear pattern can be discerned in the legal order on which each instrument drew. The ESM was indeed an attempt to find a more solid footing in the European treaties, but, as I have repeatedly remarked, it only merged part of the creditor side, and was in itself an example of ambiguity since it drew on the European treaties but was used only for the eurozone. This lack of institutional clarity preceded the Greek crisis, and, as argued by Dyson, allowed the core creditor countries to exert more influence than they would have had under a more formal approach.233 Exactly such a more formal approach is what marked IFC. Formally, it was composed entirely of instruments of law: treaties at the international level, and laws, statutes, and contracts within Greece itself. The weakest part in its architecture, legally speaking, was the invitation by Greece of the Great Powers’ mediation, and this is also where the presence of substantial law is weakest. For everything else, however, the solution chosen substantially consisted of the development of legal instruments. As I noted before, they limited the room

233 Dyson, K. States, Debt, and Power, p. 615.

92 for influence that some of the Great Powers had possessed until then: their political power was constrained by the development of a legal procedure that drew on a logic of checks and balances. There was little or no ambiguity in these legal instruments, and a procedure for dispute settlement was foreseen. One may doubt to what extent IFC was a legal instrument in itself – and several authors have done so – but it cannot be denied that its toolkit was strongly legal. This becomes especially clear when comparing IFC to its successor regime in the 21st century – or to the far more political practices that preceded it, for that matter.

Situation within the international context Although Greece’s crisis in 1893 occurred within a context of a general international contraction, its debt crisis in itself was not related to that in other countries. No fear of contagion was therefore present. In 2010, however, the Greek crisis was part of wider phenomenon of European government debt crises, either because of a pre-existing government debt or after the government assumed private sector debt. Fear of contagion of even more countries was pervasive. Greece’s IFC was the fifth in a row of IFC in the same geographical area. Refinement of practices compared to the preceding decades had been noticeable. In the 21st century, Greece was the first case in Europe, but also, given the length of its policy conditionality regime, the last. Some conditions were replaced by others in subsequent memoranda after they had turned out to be ineffective, but, judging from the admittedly anecdotal evidence of several badly written conditions as late as 2017, it would seem that the extent of refinement of the policy conditionality mechanism itself can be questioned. This is even more salient when we take into account that modern policy conditionality itself had been practiced since at least the 1980s, and that its most prominent practitioner, the IMF, was also involvement in the Greek regime.

Duration The Greek debt crisis in the 19th century lasted five years, that in the 21st eight years. This period in the latter case fully coincided with the policy conditionality regime. In the former, the start of the IFC marked the end of the debt crisis. The preceding five years were spent negotiating with private creditors who would eventually take no part in the IFC. Their proposals were nonetheless incorporated into the design of the IFC. Moreover, the International Commission spent several months analysing Greece’s economic situation and drawing up the relevant laws, statutes, and contracts, and several members of the Commission had done research on the Greek economy in the past. The IFC was thus the result of at least five years of intellectual development. In the 21st century, the policy conditionality was imposed immediately, and could thus draw only on knowledge derived from other cases instead of in-depth research into the Greek economy itself.

Conclusion

Comparisons with the past inevitably lead to the question whether any lessons can be drawn for the present. We are confronted with a basic observation: everybody’s interests were better served in the 19th than in the 21st century. The Greek state, the Greek population, private creditors and foreign states obtained what they wanted to a much greater extent in the settlement of 1898. The Greek state doubled its territory within fifteen years; the Greek public was not greatly impoverished; private creditors suffered no losses and found attractive investments in new Greek loans; and foreign states succeeded in stabilizing the international system.234 Apart from the expansionism that we should replace with the more pacific goals of contemporary state, all of these interests were shared by their twenty-first century successors. However, what they obtained was a far-reaching loss of sovereignty in all its aspects for the Greek state; a dramatic fall in living standards for a large part of the Greek population; the loss of more than fifty percent of their investment for the private creditors; and billions of euros poured into a project that hardly made the project of European unification look good in the eyes of a large part of the world.235 How much of the difference can be explained by the respective choice for IFC and policy conditionality? Our eye, used to austerity in Greece, is naturally drawn to developmental successes of the Greek state in the fifteen years after the installation of IFC. It is in this field, however, that I believe the role of IFC was smallest. Without detracting from the contingency that ultimate marked these developments236, Greece between 1880 and 1913 found itself in a process that would naturally lead to a stronger Greek state. The building of railroads, ports, the penetration of the state into local communities were processes that took their time, but they were indispensable if Greece were finally to achieve the capacities of a modern Greek state. Since metapolitefsi, however, Greece has found itself on an ultimately unsustainable track: its reliance on external debt did not lead to a strengthening of state capacity, but in fact detracted from it, in that it allowed Greece to ignore the structural problems that plagued it. IFC did not change the trajectory of the Greek state and neither did the policy conditionality regime, as far as we can tell. IFC may have contributed to the process, by importing sounder budgetary practices, more efficient collection of revenue, and better

234 Or rather, they gained a reprieve from major upheaval until the outbreak of the Balkan Wars. The results of the IFC were not all positive: the deflationary policies imposed on Greece may have had especially negative effects on small peasants, who already were hard pressed under the tax regime. 235 Why this absurd situation arose, unfortunately exceeds the scope of this thesis. An easy answer does not exist. 236 The most important might be Venizelos’s rise to power, who initiated the last buildup of Greek military capacity before the Balkan Wars. However, Venizelos could draw on infrastructure projects which had been going on for thirty years already – and arguably these infrastructure projects ultimately mattered more for the economic wellbeing of ordinary Greeks than the military culmination they knew under Venizelos – which was, after all, the beginning of a decade of bloodshed abroad and sixty years of bloodshed at home.

94 fundraising abroad. It did not, however, modify anything substantial in the structure of the Greek state. Neither would it seem that the policy conditionality regime managed to do such a thing. Notwithstanding its plethora of conditions, the fundamental problems that plague the Greek state have not been solved: an unfair tax structure, a clientelist political culture, and, in fact, the weakness of the Greek state in general.237 It would on the hand even seem likely, of course, that the policy conditionality regime seriously set back the capacity of the Greek state, with plummeting living standards, a large and fairly unchanging public debt, and an unravelling of social trust. The fundamental modus operandi of the Greek state has not changed, however. The impact on Greece’s private creditors was in contrast much greater. The treatment of its bondholders in 1898 was exceptionally generous, even for IFC standards. Their treatment in 2010-2018 on the other hand was exceptionally severe, especially given the fact that Greece was after all a comparatively rich country. They suffered a haircut on their investment of over 50%, and they have no guarantee that they will not be treated similarly in the future. In 1898, however, the odds that Greece would once more withhold payment to them had become seriously lower than in 1893. Other states, and especially the Great Powers, in 1898 managed to stabilize Greece and therefore momentarily freeze the ‘Eastern Question’. They did so by collectivizing their influence on Greece, where before each country had looked after its own interest. The latter could of course go on, but now a country seeking to do this not only had the weak Greek state to deal with, but representatives of the other Great Powers as well. 2010-2018, by contrast, made manifest the flaws in the governance structure of the European Union. Billions of euros underwritten by other states – taxpayers – were poured into Greece to boot.

In designing a better state insolvency regime, we can take with us that a more generous solution for private creditors and other interested international actors is possible. Whether a better regime for the states themselves – one that truly addresses the ills that plague a debtor state – is possible, is a question that has to remain open. Neither IFC nor policy conditionality – even though intended to do so – have managed to address these structural problems. In waiting for a breakthrough in this field, the best we can do is try and avoid that any positive developmental processes in which a state may find itself be hampered, and at the same time prevent that bad practices continue. What elements, then, made IFC perform better than the Greek policy conditionality regime?

237 A small example of this lack of fundamental reform may be that during the entire crisis, not a single article of the Greek constitution was changed. The last revision of the constitution took place in 2008.

1. Focus was maintained at all times on the real, short-term: the fact that Greece had been cut off from private financial markets.238 A return to private funding was the immediate goal, and it was reached by giving additional guarantees that bondholders would be paid, regardless of the overall performance of the debtor state’s economy. Other taxpayers’ money – and even then only indirectly, through a guarantee – was used only to bring about this return. 2. Structural reforms were practically non-existent. They were not necessary for a return to private financing, compromised Greek representative government, and would have taken many years to take effect. Moreover and more in general, we have a bad track record of identifying and remedying these structural problems, and they take many years to have effect. 3. Time was taken to study Greece’s specific situation. Default was not avoided at all costs. The link existing today between bailout money and conditionality inevitably leads to the application of supposedly universally applicable recommendations; it moreover excludes discussion on policy details with the debtor state. 4. The state and its leaders were allowed to claim ownership of their actions, both positive and negative. Cooperation of the state was essential to carry out any structural adjustments, both in identifying the problems and in adequately addressing them. Greek politicians still had ample room to engage in substantial politics. 5. The power of all parties were limited. All parties involved – debtor state, bondholders and other states – had legitimate interests; there was no reason why those of one of them should have taken absolute precedence over those of the others. Cooperation by all parties was essential to make the system work. 6. Procedure took precedence over substance. This made possible remark number 4 and 5. Without an adequate procedure, one or more of the parties is in a much better position to impose its will on the other, and the rewards for non-cooperation become potentially higher. 7. Foreigners acquired a more direct stake in the debtor country’s success. If the country were to default again, responsibility for it would lie on the supervisors. This may be the only real exception to the observation that ownership of political action remained with the state and its leaders. Under policy conditionality, creditors or their states of nationality held no responsibility for the success or failure of the reforms they imposed.

Two major problems come along with an IFC-style arrangement. The first is that IFC may bring along a symbolical value that exceeds its real impact, making creditors more eager to invest in a country than objective circumstances would allow. This problem is not unique to IFC, and indeed lies at the basis of about every bubble, including the one in the American

238 It is quite remarkable how little attention is paid to this ultimately rather straightforward observation in both practice and theoretical literature.

96 housing market and the one in Greek obligations after Greece joined the eurozone. The solution to this problem would solve far more than just the matter of state insolvency. A second problem is the fact that IFC, certainly in its pre-1914 variant, involved the effective alienation of state property, in the form of both physical property and of revenues. This problem, however, I believe to be somewhat exaggerated. We perfectly allow companies to be owned by foreigners: in the case of the Greek IFC, it was not even the property rights of the Société de Régie that were held by foreigners, but a right of supervision by an international commission. This amount of foreign control is lower than that which affects foreigner-owned companies.

Politics has come to dominate the modern world’s solutions to sovereign debt crises. This development has to a large extent been invisible, as much of the language in which policy conditionality is clothed sounds like legalese. Moreover, bondholder litigation has skyrocketed in recent decades. Language and a few legal skirmishes on the fringes do not obviate the fact that the essential questions are settled in a field where a few large players are able to impose their will on others, without much constraint. Some scholars have pointed to the law as a remedy for this, but they tend to focus on the holy grail of an insolvency procedure for sovereign entities, much like the ones we know for private actors.239 IFC, however, presents us with a smaller-scale example of how a more legalized procedure can help balance the interests of all parties concerned – and still leave ample room for a substantial politics at the national levels, where recent debt crises such as the one in Greece have shown it to be far too absent for a democratic state.

239 See, for instance, Paulus, C. (ed.). A Debt Restructuring Mechanism for Sovereigns - Do We Need a Legal Procedure?

Suggestions for further research

This study – and the recommendations for the modern period I derived from them in the preceding pages – is based on a comparison of a mere two cases. More research is needed to confirm, invalidate, or otherwise change my observations. In concluding my thesis, I would like to make some suggestions in this regard.

Case-studies on IFC from a legal perspective are sorely lacking. Most modern studies depart from a historical or economic perspective, and show comparatively little attention to the legal architecture of what they are studying. The results of this thesis show that the legal perspective is indispensable to fully grasping the operation of IFC.

Likewise, legal theory on IFC is not very well developed. The last substantial works on them were written in the 1950s. Frankly, I found none of them to be entirely satisfactory. Moreover, there is no research whatsoever on the extent to which IFC had legal value. Did people confronted with a problem in one IFC accept the solution found in another as authorative? We do not know.

The concrete operation of IFC is also fairly unknown. This field is more vast than the preceding ones, since a detailed understanding of the political, social and economic operation of the country in question would be required. Literature on all these aspects is not always available. It would nevertheless be fascinating to gain more insight into how states manipulated IFC to their benefit.

For the purpose of comparison between the past and present, a far better understanding of the shift from IFC to policy conditionality is needed. Both share similarities, which of course grow stronger the more they approach each other in time. Studies – both of IFC and of policy conditionality – have tended to look at these similarities to the detriment of the differences, in order to align past and present. I may have exaggerated the differences due to my focus on only two cases, lying more than a century apart. Only further research can tell. How strong were the similarities and dissimilarities with the preceding period? To what extent were the dissimilarities a reaction to the preceding period?

All of the above will contribute to a better understanding of modern policy conditionality. Current literature on it is fairly ahistorical. This may largely be due to the fact that research on concrete – instead of theoretical – alternatives is very limited. A better understanding of the past will allow us to historicize IFC and better understand what it does and does not do.

Bibliography

Primary sources on IFC in Greece

Affaires d’Orient. Négociations pour la paix - traité gréco-turc, mai-décembre 1897. Paris, Imprimerie Nationale, 1898.

Arrangement financier avec la Grèce. Travaux de la commission internationale chargée de la préparation du projet. Paris, Imprimerie Nationale, 1898.

Pre-1960 legal literature on IFC

Andreades, A. “Les contrôles financiers internationaux.” In: Recueil des cours de l’académie de droit international de la Haye 1924 - IV. Paris, Librairie Hachette, 1925, pp. 1-108.

Borchard, E. State Insolvency and Foreign Bondholders: General Principles (Volume I). Yale University Press, 1952 (reprinted 2000 by Beard Books).

Strupp, K. “L’intervention en matière financière.” In: Recueil des cours de l’académie de droit international de la Haye 1925 - III. Paris, Librairie Hachette, 1926, pp. 1-124.

Wells, E.J.M. “Guarantees in International Economic Law.” In: International and Comparative Law Quarterly (4), 1955, pp. 426-444.

Wuarin, A. Essai sur les emprunts d’états et la protection des droits des porteurs de fonds d’états étrangers. Geneva, Imprimerie du journal de Genève, 1907.

Wynne, W. H. State Insolvency and Foreign Bondholders: Selected Case Histories of Governmental Foreign Bond Defaults and Debt Readjustments (Volume II). Yale University Press, 1952 (reprinted 2000 by Beard Books).

Other literature on IFC, legal and non-legal

Andreopoulos, G. J. “The International Financial Commission and Anglo-Greek Relations (1928-1933).” In: The Historical Journal (31:2), 1988, pp. 341-364.

Birdal, M. The Political Economy of Ottoman Public Debt. Insolvency and European Financial Control in the Late Nineteenth Century. London-New York, Tauris Publishers, 2010.

Blaisdell, D. C. European Financial Control in The Ottoman Empire. A Study of the Establishment, Activities and Significance of the Administration of the Ottoman Public Debt. New York, Columbia University Press, 1929.

Bordo, M. & Rockoff, H. “The Gold Standard as a “Good Housekeeping Seal of Approval”.” In: The Journal of Economic History (56:2), 1996, pp. 389-428.

Brown, L. C. The Tunisia of Ahmad Bey 1827-1855. Princeton University Press, 1974.

Chouliarakis, G. & Lazaretou, S. Déjà Vu? The Greek Crisis Experience, the 2010s versus the 1930s. Lessons from History. Athens, Bank of Greece (Working Paper), 2014.

Déiméizis, S. Le Contrôle International sur Les Finances Grecques. Athens, Imprimerie Anestis Constantinidis, 1898.

Dellas, H. & Tavlas, G. S. “The Gold Standard, the Euro, and the Origins of the Greek Sovereign Debt Crisis.” In: Cato Journal (33), 2013, pp. 491-520.

Dertilis, G. B. “Dette publique et dépenses militaires : la grèce et la question d’Orient.” In: Andreau, J., Béaur, G., Grenier, J.Y. La dette publique dans l’histoire. Paris, Institut de la gestion publique et du développement économique, 2006, pp. 395-422.

Dertilis, G. B. I istoría den epanalamvánetai kai den didáskei: oikonomikés kríseis kai krátos stin Elláda. Notes for a lecture before the Hellenic Foundation for European & Foreign Policy, 4 March 2010.

Dyson, K. States, Debt, and Power. ‘Saint’ and ‘Sinners’ in European History and Integration. Oxford University Press, 2014.

Heimbeck, L. “Discovering Legal Silence: Global Legal History and the Liquidation of State Bankrupties (1854-1907).” In: Duve, T. (ed.). Entanglements in Legal History: Conceptual Approaches. Max Planck Institute for Global Legal History, 2014, pp. 461-487.

Heimbeck, L. “Legal Avoidance as Peace Instrument. Domination and Pacification through Assymetric Loan Transactions.” In: Hippler, T. & Vec, M. Paradoxes of Peace in Nineteenth Century Europe. Oxford University Press, 2015, pp. 111-127.

Heimbeck, L. “Liquidation of State Bankruptcies in Public International Law: Juridification and Legal Avoidance between 1824 and 1907.” Journal of the History of International Law (15:1), 2013, pp. 1-23.

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Kostis, K. “Ta kakomathiména paidiá tis Istorías”: I diamórfosi tou neoellinikoú krátous, 18os-21- os aiónas. Athens, Polis Editions, 2013.

Kostis, K. History’s Spoiled Children: The Formation of the Modern Greek State. London, Hurst Publishers, 2018.

Lazaretou, S. Greek Monetary Economics in Retrospect: The Adventures of the Drachma. (Working paper No. 2). Athens, Bank of Greece, 2003.

Lazaretou, S. The Drachma, Foreign Creditors and the International Monetary System: Tales of a currency during the 19th and early 20th century. (Working paper No. 16). Athens, Bank of Greece, 2004.

Levandis, J. A. The Greek Foreign Debt and the Great Powers, 1821-1898. New York, Columbia University Press, 1944.

Megliani, M. Sovereign debt: Genesis - Restructuring - Litigation. Springer, 2014.

Mitchener, K. J. & Weidenmier, M. D. Supersanctions and Sovereign Debt Repayment (Working Paper 11472). National Bureau of Economic Research, 2005.

Panizza, U., Sturzenegger, F. and Zettelmeyer, j. “The Economics and Law of Sovereign Debt and Default.” In: Journal of Economic Literature (47:3), 2009, pp. 651-698.

Peter, M. Estimating Default Probabilities of Emerging Market Sovereigns: A New Look at a Not- So-New Literature. HEI Working Paper No: 06/2002. Geneva, The Graduate Institute of International Studies, 2002.

Politis, N. “Le contrôle international sur les finances helléniques et ses premiers résultats (1898-1901) In: Revue générale de droit international public (Tome IX), 1902, pp. 5-41.

Tomz, M. & Wright, M. L. J. “Do Countries Default in ‘Bad Times’?” In: Journal of the European Economic Association (5), 2007, pp. 352-60.

Tunçer, A. C. “Conditionality, Fiscal Rules and International Financial Control in the European Periphery before 1914.” In: Cardinale, I. et al (eds.). The Political Economy of the Eurozone. Cambridge University Press, 2017, pp. 96-128.

Tunçer, A. C. Sovereign Debt and International Financial Control. The Middle-East and the Balkans, 1870-1914. London-New York, Palgrave Macmillan, 2015.

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Waibel, M. “Echoes of History: The International Financial Commission in Greece.” In: Paulus, C. (ed.). A Debt Restructuring Mechanism for Sovereigns - Do We Need a Legal Procedure? Beck, 2014, pp. 3-19.

Waibel, M. Sovereign Defaults before International Courts and Tribunals. Cambridge University Press, 2011.

Primary sources on policy conditionality in Greece

Memorandum of Understanding between the European Commission acting on behalf of the European Stability Mechanism and the Hellenic Republic and the Bank of Greece. 2017. Accessed at https://ec.europa.eu/info/sites/info/files/01_mou_20150811_en1.pdf on 5 August 2019.

Supplemental Memorandum of Understanding (second addendum to the Memorandum of Understanding) between the European Commission acting on behalf of the European Stability Mechanism and the Hellenic Republic and the Bank of Greece. 2017. Accessed at https://ec.europa.eu/info/sites/info/files/smou_final_to_esm_2017_07_05.pdf on 5 August 2019.

Literature on policy conditionality

“Explainer on ESM and EFSF financial assistance on Greece.” European Stability Mechanism, 20 August 2018. Accessed at https://www.esm.europa.eu/assistance/greece/explainer-esm-and-efsf-financial- assistance-greece on 7 august 2019.

“Factsheet: IMF Conditionality.” International Monetary Fund, 5 March 2019. Accessed at https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/21/28/IMF- Conditionality on 10 August 2019.

“Transcript of the International Monetary and Financial Committee (IMFC) press briefing.” International Monetary Fund, 12 April 2014. Accessed at https://www.imf.org/external/np/tr/2014/tr041214b.htm on 10 August 2019.

Airapetian, S. “Managing Sovereign Debt: A More Long-Term Debt-Restructuring Solution.” In: Southern California Interdisciplinary Law Journal (22), 2013, pp. 385-420.

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Argyropoulou, V. “Convergence and Divergence between International Investment Law and Human Rights Law, in the Context of the Greek Sovereign Debt Restructuring.” In: Journal of Business, Entrepreneurship and the Law, 2018, pp. 165-206.

Babb, S. L. & Carruthers, B. G. “Conditionality: Forms, Function, and History.” In Annual Review of Law and Social Science (4), 2008, pp. 13-29.

Buccheit, L. C. “Restructuring a Nation’s debt.” In: International Financial Law Review (29), 2010, pp. 46-49.

Butenski, J. “Tango or Sirtaki: The Argentine and Greek Dance with Sovereignty and an Multilateral Sovereign Debt Restructuring Framework.” In: Boston University International Law Journal, pp. 157-194.

Caballero, R. and Dornbusch, R. (2002). “Argentina: A Rescue Plan that Works.” Op- ed in: The Financial Times, 8 April 2002.

Chang, H. Kicking Away the Ladder: Development Strategy in Historical Perspective. London, Anthem Press, 2002.

Dell, S. On being grandmotherly, the evolution of IMF conditionality. Essays in international finance (No. 144). Princeton University, 1981.

Easterly, W. The Tyranny of Experts. Economists, Dictators, and the Forgotten Rights of the Poor. New York, Basic Books, 2013.

Georgakopoulos, T. “Ti eínai to mnimónio?”, December 2017. Accessed at https://www.dianeosis.org/2017/12/memorandum/

Kentikelenis, A. E., Stubbs, T. H., & King, L. P. “IMF conditionality and development policy space, 1985-2014.” In: Review of International Political Economy (23:4), pp. 543- 582.

Ladi, S. The Eurozone Crisis and Austerity Politics: A Trigger for Administrative Reform in Greece? GreeSE Paper No. 57. Hellenic Observatory Papers on Greece and Southeast Europe, April 2012.

McLean, B. & Nocera, J. All the Devils Are Here: The Hidden History of the Financial Crisis. Portfolio Penguin, 2010.

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Mosley, P. Development Finance and Policy Reform. Essays in the Theory and Practice of Conditionality in Less Developed Countries. New York, St. Martin’s Press, 1992.

Nikolaïdis, I. Ta 140 Proapaitoúmena Tou Mnimoníou Me Aplá Lógia. DiaNEOSis, December 2017. Accessed at https://www.dianeosis.org/wp- content/uploads/2018/02/Mnimonio_050217_Upd.pdf.

Papadopoulos, T. & Roumpakis, A. “The Greek welfare state in the age of austerity: anti-social policy and the politico-economic crisis.” In: Social Policy Review (24), pp. 203- 227.

Sandbu, M. Europe’s Orphan: The Future of the Euro and the Politics of Debt. Princeton University Press, 2017.

The Commission’s intervention in the Greek financial crisis. Special Report. European Court of Auditors, 2017.

Varoufakis, Y. Adults In The Room: My Battle With Europe’s Deep Establishment. London, The Bodley Head, 2017.

Vreeland, J. R. The International Monetary Fund. Politics of conditional lending. London-New York, Routledge, 2007.

Wood, P. R. “How the Greek Debt Reorganisation of 2012 Changed the Rules of Sovereign Insolvency.” In: Bus. L. Int'l (3), 2013, pp. 3-50.

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Summary

This master’s thesis analyses how Greece returned to fiscal solvency in two periods of its history. The solution in each case involved a form international supervision: International Financial Control (IFC) in the 19th century, and the policy conditionality regime in the 21st. The mechanisms behind these solutions are analysed and finally compared. This comparison led to the following observations: 1. IFC (certainly in its pre-1914 variant) was resolutely oriented towards the interests of private creditors. Its main goal was guaranteeing that they would be repaid. By contrast, policy conditionality tries to address structural problems in the debtor state. Paradoxically, the interests of the debtor state were safeguarded to a much greater extent under IFC than under modern policy conditionality. 2. The policy conditionality regime operated in a far more political than IFC, which operated essentially through legal means. IFC paid much more attention to the procedural than the substantial aspect of the supervision. In this, it operated a form of checks and balances that allowed none of the parties involved – the Greek government, foreign states, and foreign private creditors – to dominate the other. A concrete legal approach is thus presented as an alternative to today’s practices. 3. IFC was country-based (i.e. centred on the debtor state), whereas policy conditionality is institution-based (i.e. centred on the lending and condition-setting entity). IFC thus tended towards differentiation, whereas policy conditionality tends towards uniformity. 4. IFC operated through essentially negative means. With exceptions, its main modus operandi was that inspection and of prevent unwanted acts, rather than developing a policy of its own. IFC did not prevent national governments from engaging in substantial politics.

Particular attention is paid to understanding the legal characteristics of IFC, on which almost no modern literature has appeared. To this end, I have attempted to present IFC as a specific institution by pointing to divergences with other mechanisms. Existing literature, by contrast, has paid far more attention to the similarities behind all these mechanisms, leading to a fairly ahistorical approach.

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Samenvatting in het Nederlands

Deze masterproef analyseert hoe Griekenland haar kredietwaardigheid herwon in twee perioden van haar geschiedenis. De oplossing in beide gevallen bestond uit een vorm van internationaal toezicht: Internationale Financiële Controle (IFC) in de 19e eeuw, en een beleidsaanpassingsregime (policy conditionality) in de 21ste. De mechanismen achter deze oplossing worden geanalyseerd en uiteindelijk vergeleken. Deze vergelijking leidde tot de volgende vaststellingen: 1. IFC (zeker in zijn variant van voor de Eerste Wereldoorlog) was resoluut georiënteerd op de belangen van de private schuldeisers. Zijn voornaamste doel was te garanderen dat zij terugbetaald zouden worden. Het beleidsaanpassingsregime probeert daarentegen om de structurele problemen in de schuldenaarsstaat aan te pakken. Paradoxaal genoeg werden de belangen van de schuldenaarsstaat veel beter behartigd onder IFC dan onder het modern beleidsaanpassingsregime. 2. Het beleidsaanpassingsregime opereerde op een veel politiekere wijze dan IFC, dat op zijn beurt essentieel op juridische wijze werkte. IFC besteedde veel meer aandacht aan procedure dan aan de substantiële inhoud van het toezicht. Het gebruikte een vorm van ‘machtenscheiding’ die geen van de betrokken partijen – de Griekse overheid, buitenlandse staten, en buitenlandse private schuldeisers – toestand de ander te overheersen. Een concrete juridische aanpak wordt aldus voorgesteld als een alternatief voor de praktijk van vandaag. 3. IFC werd georganiseerd omheen het land – de schuldenaar – terwijl het beleidsaanpassingsregime zich op de instelling richt die geld leent en daar voorwaarden voor in de plaats stelt. IFC neigde op die manier naar differentiëring, daar waar het beleidsaanpassingsregime naar uniformiteit neigt. 4. IFC werkte essentieel op een negatieve manier. Met enkele uitzonderingen bestond zijn voornaamste modus operandi uit inspectie en het verhinderen van ongewenste handelingen, en niet uit het ontwikkelen van een eigen beleid. IFC verhinderde niet dat de nationale overheid aan een substantiële vorm van politiek bleef doen.

Ik geef er bijzondere aandacht aan de juridische eigenschappen van IFC te begrijpen, waarrond haast geen moderne literatuur bestaat. Daarom heb ik geprobeerd IFC voor te stellen als een specifieke instelling, waarbij ik wijs op de verschillen met andere mechanismes. Bestaande literatuur heeft daarentegen meer aandacht verleend aan de gelijkenissen tussen al deze mechanismes, wat tot een eerder ahistorische aanpak heeft geleid.

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