Timing is everything. In the mid-1820s, Greece was fighting for its independence from the Ottoman Empire. In London, the market for foreign sovereign bonds, some of them of low quality, was booming. So, Greece was able to secure borrowed money in London even when it was in the midst of a war of independence, extremely divided, and not yet recognized by any powerful countries, even those where it was raising money. While the usual aversion to such a speculative loan may have been absent, the risks were not. Greece defaulted on these early borrowings and the situation was not resolved until decades later.
Support for Greek Independence
A provisional government established in Greece led the country’s fight for independence. This government and the war it waged were precariously funded by plunder, borrowing within Greece, some taxes and duties, and donations, often from sources abroad. The course of the war in its early years suggested this was inadequate.
Foreign support became substantial though. In Britain, the cause of Greek independence was strongly supported by the newspapers. Besides the papers, reports and books, such as The Greek Revolution by Edward Blanquiere, propagated a positive picture of the Greek cause. Britain was interested in Greek independence for political and economic reasons. Political liberty, especially for the heirs to Ancient Greece, was thought a worthwhile cause in a country that saw itself in a liberal light. The economic justification included the potential benefits to trade as British exporters and merchant marine could serve a new unprotected market. Thus, the supporters of the Greek cause in London included many merchants.
Interest in Greek independence extended to many other prominent people. Foreign Secretary George Canning and Member of Parliament John Gladstone, father of the future prime minister, were supporters. Another notable backer of Greek independence was the poet Lord Byron who further popularized the struggle in Britain. Lord Byron even made an advance of £4,000 to the provisional Greek government to be repaid by an upcoming loan for the county to be raised in the UK.
Raising Loans in London
It was an open question as to whether the rhetorical support would be complemented with financial aid. Potentially allowing the former to deliver the latter, London was the center of international sovereign lending after the Napoleonic Wars. The city was home to many merchants and financiers, including some from Greece, eager to participate in these loans. Firms like Baring Brothers & Co. and N. M. Rothschild & Sons placed large loans for foreign governments and during the 1820s, there was a boom in foreign lending, particularly to newly independent countries in Latin America, but also for European countries.
Greece came to see London as the best market at which to secure a loan. Paris was unlikely because France had closer relations with the Ottoman ruler of Egypt, Mohammed Ali Pasha, softening the prospects of securing a loan there. By contrast, a Greek Committee was established in London in 1823 to provide assistance to Greece, which sent members of its parliament to London to negotiate a loan. These representatives worked with the Greek Committee in arranging the first international loan for an independent Greece.
Besides supplying them with funding, the Greek government thought that raising money in London would support their case for receiving international recognition; as a Greek admiral put the objective: “Get as many millions as you can so we can force them to recognize us.” Others were thinking the same thing. Some were even arranging a loan for an independent Cyprus, then still under more secure Ottoman rule. Friends of Greece thought this other effort something of an unwelcomed distraction.
1824
In any case, an £800,000 loan was agreed between bankers, the Greek Committee in London, and the representatives of the provisional government. Each bond would be payable by subscribers in installments of £10. In return, they earned 5% interest over a 30-year loan. Two years of their interest would be reserved upfront and a sinking fund was set up to gradually repay the loan.
Loughnan and Son would underwrite the loan. According to a letter from member of parliament John Cam Hobhouse to Lord Byron, the much more substantial banking firm of Barings did consider the opportunity but declined. In any case, Byron eagerly awaited the details of the loan in Greece but because of delays in communication, he wouldn’t learn of its closing until shortly before he died. Hobhouse suggests that disunity among the advocates for the loan disinclined Barings from leading it, a signal of trouble to come with the Greek loan.
Still, the subscription books opened on February 21, 1824. The bonds were sold at a price of 59% of face value. As such, it raised only £472,000. The was the weakest pricing of any large foreign loan in London and one of the smallest loans too. The price rose to 63 but then fell below 54. By this point, only the first installment by investors had been paid in. There was concern that the depreciated price could cause subscribers for the loan to abandon it by defaulting on their remaining payments of installments. Loughnan and the Greek Committee urged the Greek representatives in London to use the proceeds of the loan’s first installment to support the price of the bonds by buying them in the market. The Greek representatives reluctantly agreed.
John Bowring, a founder of the Greek Committee in London, wrote to Bryon on March 19, 1824 that the first £40,000 from the loan would shortly be on its way to Zakynthos (Zante) but the Greek government would not see any of the money from the first installment until the summer. In fact, after fees and other items, they would see only £348,000 of this £800,000 loan.
Though he was writing positively to Byron, Bowring was accusing Greek representatives in London of funneling loan proceeds to political causes they favored rather than cover agreed-upon costs. Greece was politically fractious with a civil war underway at the same time as its war of independence so this is not entirely unbelievable. Meanwhile, the Greek delegates thought their bankers were making various demands that were in their interests rather than in Greece’s interests.
The relationship between the Greek representatives and their London bankers, together with the Greek Committee, broke down amidst disagreements in the timing of the fourth installment from investors, due in June. Making matters worse, a negative report on the situation in Greece was published and the market price of the Greek bonds was falling. This reversed though when a speculative fever in London got underway, causing the bonds to recover around October.
1825-26
Prices for the bonds reached 60 once more. This was strong enough to enable further borrowing. A £2 million loan was negotiated and an agreement was reached in February 1825 with the bank J. & S. Ricardo, the bank of the famous economist David Ricardo. The loan was issued at a price of 55.5. This loan was negotiated directly with the new bankers; John Bowring’s Greek Committee was uninvolved. Still, relations broke down once more over disputes about the use of proceeds of the loan, specifically amounts that were supposed to be set aside to fund a naval expedition to Greece but which the bankers believed were being diverted to other purposes.
This time, there would be no strength in the bond market to keep the Greek bonds in demand. The bubble in foreign loans had deflated. In fact, there were numerous bank failures in the ensuing Panic of 1825 and even the Bank of England’s reserves were briefly at risk of being exhausted. Greek bond prices fell sharply from mid-1825 onward.
Bondholders were doubting their investments. Prices fell below 40 by August and below 30 by October. Sentiment was made worse by political disharmony and military setbacks in Greece, in particular the fall of Missolonghi to the Ottomans in April 1826. By this point, the bonds were already below a price of 20% of face value. There was no recovery. Recriminations between Greek representatives in London, the bankers, and other supporters of the Greek cause became public. Newspapers once praising the Greek cause were now covering disputes. Some blamed bankers for the outcome of Greek borrowers, others blamed the reality of Greece’s struggle for independence that fell short of romantic ideals.
Plans for a third loan in 1827 went nowhere, payments on the old bonds were missed that same year, and Greece was locked out of credit markets abroad. This did not reflect dropping foreign support for the Greek struggle. In fact, foreign military intervention, notably at the naval battle of Navarino, kept the Greek war of independence going. However, a third international loan for Greece would not be raised until 1833, after independence; this one would be guaranteed by Britain, France, and Russia with the intent of rebuilding the country. The two loans of 1824 and 1825 though would not be settled until 1878.
Lesson
Without official support from other states, it’s difficult for a provisional government in a vulnerable position, especially one at war and not yet recognized, to raise money. Lenders are much more sensitive to losses than gains as the latter are fixed at a percentage of their loan. Rarely does it make sense to lend to a borrower whose existence is in substantial doubt. It may seem surprising therefore that Greece was able to raise a loan at all, but conditions in London were not normal in 1824-25. There was a boom in foreign lending that brought many new issuers to London. Even still, the Greek loan received much worse terms than usual. When the bubble deflated, the typical state of things was restored and Greek bonds quickly lost value and the emerging country was unable to access the market any longer.
More from the Tontine Coffee-House
Read about the larger boom in sovereign lending in mid-1820s London, a loan raised for a fictional country during that bubble, and a bailout for Greece in the 1890s. Consider subscribing to this blog’s newsletter or checking out book recommendations, which include many of the sources often referenced in my posts.
Further Reading
1. Bartle, G. F. “Bowring and the Greek Loans of 1824 and 1825.” Balkan Studies, vol. 3, no. 1, Jan. 1962, pp. 61–74.
2. Chatziioannou, Maria Christina. “War, Crisis and Sovereign Loans: The Greek War of Independence and British Economic Expansion in the 1820s.” The Historical Review/La Revue Historique, vol. 10, Dec. 2013, pp. 33–55.
3. Cochran, Peter, editor. “Byron’s Correspondence and Journals 16: From Greece, July 1823-April 1824.”, Mar. 2011.
4. Klopfer, Eric. “Debt and Independence: Information Asymmetries and Market Reaction in the Early 19th Century London Foreign Debt Market – the Case of the Greek ‘Independence Loans.’” Economic History Student Working Papers, London School of Economics and Political Science, no. 011, July 2023.
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