UPPSALA PAPERS IN ECONOMIC HISTORY1993

WORKING PAPER NO 10

Foreign Capital and Greek Developmentin a Historical Perspective

Margarita DritsasUniversity of Crete

Department of Economic History

ISRN UU-EKHI-WP--1O-SEISSN 1102-1306Uppsala universitetReprocentralen HSCUppsala 1993

IntroductionMost studies of foreign capita1 in various countries have traditionally em-phasised only the economic aspects of the phenomenon. Whenever thepolitical dimension has been examined, it usually succumbs to the ideo-logital standpoint of the author. In the latter case, most ofien, foreigncapita1 is blamed for all sorts of problems that arise in the host coun-triesl.

Theoretical approaches seem over the years to have crystallised in twoparadigms: the liberal economic theory and the dependency theory.Ofien, however, researchers tend to focus their analyses on brief periods,or on certain aspects only of these relations and, consequently, these tendto lack historital depth. On the other hand, stritt adhesion to one or theother theoretical perspective tends to lead to twisting of fatts in orderthat they may fit particular patterns.

The purpose of this paper is to argue that any analysis of foreign capi-tal relations should on the one hand follow a historital outline, and takeinto consideration the degree of development of a host country, and onthe other, not alienate politital factors. Furthermore, politics is a compli-cated process and when analysing a politital situation or a politital effectvarious factors should be borne in mind. For instance, the geopoliticalstrategic considerations of a capita1 exporting country - despite any de-gree of relative autonomy that individual participants, such as investors,on the one hand, or types of govemment (socialist, liberal or otber) onthe other, may have - can determine the choice of host areas, the amountof capita1 exports and the terms of investment. It is also important to notethat as capita1 flow is not a unified process, antagonisms among betweenthese participants may emerge, which in their tum may neutralise or ac-celerate development.

Furthermore, looking at things from the viewpoint of the capita1 im-porter country, it should be kept in mind that the participants are just asimportant as the amounts of capita1 and areas of investment. The morethat politics is interrelated with the economy, the higher the involvementis of individual participa_nts - businesses, developers, bureaucrats and soon. This involvement and the related antagonisms between the various

1 For a notable exception, see Dertilis (1983).

groups often lead to politital crises. The participants - in politics and inthe economic field - tend to form complex networks in order to enhancetheir power. An important aspect of this inter-relation, which is alsousually overlooked, has to do with the process and flow of information.Adequate and correct information that flows from these networks is im-portant because it allows hast govemments to conduct more efficientnegotiations. Another important factor is the existence of a consensus onthe strategy to be followed for capita1 amaction, and the setting of priori-ties by a plamring authority, i.e. the state, as well as measures to controlcapita1 imports and their effects.

A brief look at some instances of capita1 penetration in Greece (acountry often starved of capita1 but not included in the most favouredareas for capita1 imports) during the last 150 years, may help to elucidatesome of the points made above.

Foreign capita1 may take various forms ranging from private or govern-ment loans to direct investment (fdi) ventures either in industry or inother sectors of the economy and the appearance of multinational enter-prises (h4NEs). In the case of Greece, foreign capital tame in all of theseforms, althot& never as massively as for other markets, e.g. LatinAmerican countries. Chronologically, loans preceded fdi. In all cases,there were instances of heavier or lighter politital pressure exerted fromcapita1 investors either to secure economic advantages but also, and mostimportantly, to inlluence politital and military developments. In manycases powerfitl networks involving both Greek and foreign participantsintervened in tbc process of negotiation, inllow, distribution and han-dling.

British Loms in the 19th CenturyGreece emerged as an independent nation state in the early 19th century.In the wake of the French Revolution, it marked the fust expression ofnational awakening in Europe. Her polititally pioneering role, however,was not matched by her ability to quickly form a national central statestructure, or to attract and correctly channel foreign resources. Her ca-pscity to overcome the distorbons that four centuries of Ottoman rule hadcaused in the fibre of her economy and society remained limited and se-verely constrained the process of modemisation. The declaration of In-dependence in 1821 and the successive victories of the Greeks againstthe Turks until 1824 were based on a deep rooted desire to throw off theOttoman yoke. But the effort could not be fully successful without fman-cial assistance which would also speed up the formation of a modem

regular national arrny and navy. Finantially, so far, most operations werebased on private contributions from rich Greeks of the diaspora or ship-owners of certain islands, e.g. Hydra, Spetse, Psara, as well as from extrataxation. This, however, enhanced the power of lotal leaders to the det-riment of any centralising efforts. A modem national forte could only bebuilt with additional resources, non-existent in Greece, and the prospectof obtaining a loan abroad seemed inevitable. The timing of the operationcoincided with the particular situation created in Europe whereby largetinancial resources had been accumulated and were now looking formore profitable opporhmities in new areas and markets - not coloniesany more, but newly independent states such as Latin America and theMiddle East. Moreover, politi4 antagonism between France, Britainand Russia was escalating with an obvious stake in the control of theEastem Mediterranean, and philhellenism especially in Britain was at itsheight, advocating support for Greek independence.

Competition for negotiating a loan tame from various couutries. Manybankers became interested including the Rothschild House, JacquesLafitte and the Behrendos & Co. Finante was also seen as a means ofpolitital influence. Finally, Britain carried the day granting the two loansthat tame to be known as the “Independence Loans”. The whole of the19th century became the age of loans, and bankers competed for thecontrol of new countries like Greece and Latin America. Jacques Lafitteexpressed the fatt eloquently, when, at the time of the recognition ofGreek Independence by Europe in 1830, he exclaimed “And now bank-ers Will begin their reign”2. The outcome of the negotiations was deter-mined to a large extent not only by the more efficient diplomacy of Brit-ain which was in full harmony with her strategic and economic interestsin the areas and by her unquestionable international economic power, butalso by the ability of her bankers to form and control networks withGreek fighters and polititians through the philhellenic committees thathad sprang up all over Europe. The aim of these committees, inspired bythe ideas of Romanticism, was to express solidarity with the tightingGreeks in various ways, including raising funds and sending troops to

2 Quoted by K.Th. Demaras in the preface of Dertilis,G. 7?1e Banking Question1871-1873, Athens 1980.

3 In 1823, Britain, fearing that Russia might become the protector of Greeks fight-ing against the Turks and thus threaten the integrity of the Ottoman Empire, changedits anti-Greek foreign policy and now sought to control the outcome of the War ofIndependence and the subsequent politital developments in a way that would notharm the Ottomans.

fight alongside the Greeks”. The first loan went to the bankers Loughman& O’Brien who maintained close friendly relations with the secretary ofthe Philhellenic Committee, John Bowring. The setond loan was negoti-ated by the banker Ricardo, a relative of the famous economist andmember of the Philhellenic Committee. The two Greeks who negotiatedthe loans, Andrew Louriotes and John Orlandos, were close fiiends ofthe important polititian, Alexander Mavrokordatos, and founders of the“English” party that maintained close relations with English politital andeconomic circles.

The two loans negotiated in 1824 and 1825 were advanced in ex-change for the Greek authorities’ approval that Greece be placed underthe protection of England. Both loans also carried extremely onerousterms. In addition to high interest rates, tommissions and purchasing ofEnglish goods, they involved the pledging of Greek fertile lands andrevenues and the appointment of particular agents for the handling oftheir flow. These agents were none other than polititians who acted asnegotiators and were the beneficiaries of tommissions and orders andwho a little later founded the “English” politital party (Mavrokordatos,Orlandos, Louriotis, and others). Needless to say no national army wasformed. Most analysts agree that both loans were squandered either inGreece to satisfy the particularistic regional demands of leaders of therevolution, hence resulting in civil war strife, or abroad for controversialorders.

The first loan was negotiated for the amount of £SOO,OOO but was is-sued at 59 per cent with a 5 per cent ammal interest on its nominalamour@. The setond loan of £2,000,000 was issued at 55 112 per cent6.

4 The most famous case is perhaps that of Lord Byron and Messolonghi but therewere many others from various countries. [Sweden seemed to have important re-cruits in Greece, usually serving as offtcers in the artillery. Most of them had foughtin Finland, or Germany or Naples. They were mercenaries looking for new opportu-nities, e.g. Major C.F. Aschling of the Artillety. cf. Simopoulos,K. (1984) Pos eidanoi xenoi ten Hellada tou ‘21, (How foreigners saw Greece in 1821) Vol. B. Athens,p. 344-349 Some were disillusioned with their country’s offtcial policy. Swedenmaintained friendly relations with the Ottoman Empire sinte the era of Charles X11and viewed Russia as the tommon enemy].5 National land was pledged for its repayment as well as all duties from customs,and the salt and fisheries taxes. P.S. 60,000 were further deducted for comissions andexpenses.6 The amount of £64,000 was paid immediately as a comission fee to the banker Ri-cardo for mediating his own loan! According to the London Times (5.9.1826) thissum was twice the total amount of funds contributed by all European Philhellenic or-ganisations - Committees, associations, schools, universities etc. Another £407,000

In the end, Greece only received 314 of the first loan and 20 per cent ofthe setond. The rest of the funds remained in England7. Only £392,000were used to cover orders for six steam boats to be manufactured inEngland and two tiigates from America (the order for the engines of theboats was given to the same contractor (Alexander Galloway) that sup-plied Mohamed Ali, ruler of Egypt, and the Ottoman fleet with the resultthat they became subjett to interminable delays, causing irreversibledamage to the outcome of the fighting in Greece. The corvette “Karteria”,initially plamted to be delivered in August 1825 when she would havebeen able to relieve the siege of Mesolonghi, finally sailed to Greece inSeptember 1826, after the disastrous fall of the town to the Turks. Theother boats proved totally unseaworthy and soon sunk or ran aground).Compared with other developing parts of the world, Greece seemed toget a much worse deal. Loans were given to Latin American countries forinstance, during the same period with better terms. In the case of Mex-ico, the issue of a loan was fixed at over 89 per cent, in Peru at 88 percent, in Colombia at 84 per cent, and in Chile at 70 per cent. A loan toRussia, a developed European country, was fixed at 81 per cent.

The explanation for Greece’s weakness probably had to do not onlywith the fatt that Greece did not have much to offer as a potential eco-nomic partner (she lacked raw materials or other valuable resources andshe was less interesting as a new independent market than as part of thevast Ottoman Empire), but with political instability too. In 1825, theGreek struggle had taken a negative tum and its outcome was uncertain.Her strategic importante was still doubtful as her sovereignty was notyet fully recognised abroad and, internally, no central govemment en-joyed undisputed recognition*. Her fmancial status, therefore, appealedonly to hard speculators. When in 1827, a default on payment of theseloans was proclaimed, the reputation of the new nation phuneted andGreece was excluded from the international capita1 markets. All effortsfor a compromise with the creditors subsequently made by Greek gov-emments were frustrated by the Great Powers until the late 187OV’.Until the installationof King Otto in 1832 no more loans were given to

was deducted for prepaid interest for two years and an amount of £212,000 was usedfor bond repurchasing (bonds were repurchased allegedly to keep their value low)rather than for the purchase of arms and war boats.7 Andreades, (1939) &gu, Vol.11, p. 306.8 Petropoulos (1968).9 For details ofthese toans, Petropoulos(l968) pp. 144-46, 175, 344.

Greecelo. In tontrast, the European Powers advanced various donationsrather at whim or as an instrument of htrther intervention. When finally aloan of 64,000,OOO drs. was granted in 1832, it was negotiated by thePowers and by Bavaria in the absente of Greece and at 94 per cent. Inthe 1832 Treaty of Recognition of the Greek state, a clause was includedgiving to the representatives of the Powers the right to ensure that theloan dues would be promptly paid by the Greek treasuryii was included.This clause anticipated the system of International Finantial Controlwhich was imposed at the end of the century. It also legitimised the rightof the Powers to intervene polititally.

Be this as it may, most of this loani2 was squandered by the Bavariancourt and solved none of the urgent problems facing Greece. In 1843, thegovemment once more defaulted on its payments. This debt became thejustification for many a foreign political/military intervention in Greece,everytime there was a new development in the Eastem Question resultingfrom territorial claims by Greece in the Balkansis. Foreign influence wasexercised with regard to the creation in 1841 of the National Bank ofGreece. For ten years English circles were battling with the Austrians,the Swiss and the Dutch for control of the banking sector.14 From 1844until 1879 no foreign loans tame into Greece. Until the last quarter ofthe 19th century, the country’s economy remained quite undeveloped,with a backward and fragmented agricultural system and an undifferenti-ated export structure. It relied on internal resources - taxation, internal

10 As early as 1830, the possibility of a loan amounting 60,000,OOO drs. bearing theguarantee of the Great Powers was proposed by the pretender to the Greek throne,Prince Leopold and the Govemor, 1. Capodistria. It would have solved the militaryand administrative problems of the country but it was also frustrated by Europe.ThePowers insisted that only 37,000,OOO should be granted and should be used exclu-sively for the military. This was not accepted and the Prince renounced the thronewhich went to the setond pretender and favourite of the Powers, Prince Otto ofBavaria, still a minor in 1832.“As early as 1830, the possibility of a loan in the amount of 60,000,OOO drs. bearingthe guarantee of the Great Powers was proposed by the pretender to the Greekthrone, Prince Leopold and the Govemor, 1. Capodistria. It would have solved themilitary and administrative problems of the country but it was also frustrated byEurope. The Powers insisted that only 37,000,OOO should be granted and should beused exclusively for the militaty.12 For details of the loan guaranteed by the Powers, Andreades (1939), p. 332-8.l3 An example is fumished by King Otto’s irredentist policy after the Crimean Warwhich provoked the naval blockade of Piraeus in 1856-57.14 For details of the diplomacy involved Loukos (1986)

loans, forced loans - and, from 1867, on a monetary policy based mostlyon forced circulation (suspension of convertibility) of the Greek cur-rency. Meanwhile the territorial question was by no means solved andseveral military campaigus were undertaken before Thessaly, Epirus andCrete were annexed. The ability of the Greek governments to finantethese campaigns and to meet other urgent needs of the country wereseverely restricted leaving no alternative than to seek another externalloan. This became possible only after a compromise on the old debt wasreached with Greece’s creditors which coincided with changes in theinternational politital arena.

More Foreign Loans - The French ConnectionA setond phase of capita1 imports began. It spanned the period from1879 to 1893-7 and ended with another default more painhtl than theprevious one, involving the imposition of foreign finantial and diplomaticcontrol on Greece. Characteristically, before Thessaly could be annexedin 1881, Bismark forced Greece to compromise on the question of theold debt towards Bavaria dating back to1843. More pressure was yet onthe way.

During the setond half of the 19th century, the control of the Mediter-ranean basin continued to be the object of intense antagonism betweenthe European powers. Commerce and banking had entered a new phaseof intemationalisation and technology was further advanced. It was theera of large publit works, mainly in transport and communications epit-omised by the building of railways and canals which were financed byharge specialised banks (banques d’affaires). The accumulation of savingsand the railway boom in the first half of the century pushed investors fora while towards entrepreneurial activity rather than state bonds. Mean-while interest rates began to fall in Europeis. Many banks, especially inFrance in the 1880’s went bankrupt and capita1 began to look for newmarkets. Sinte Russia, Brazil and the Ottoman Empire were, however,still little known to the average capita1 holder and the investment risk wasconsidered too big, special terms were devised to attract and safeguardthe investors’s interests.

In 1879, Greece joined this group of countries and capita1 began toflow in again. It was basically revenue borrowing. Until 1890, sevenloans - of which live after 1884 - amounting to 630,000,OOO drs.(nominal capital) yielded a real capita1 of only 458,622,OOO drs. Interest

i5 In the late 1880’s interest on English bonds was reduced to 2 1/2 per cent

rates varied between 4 and 6 per cent. Greece’s return to the Europeancapita1 markets coincided with the premiership of Charilaos Trikoupis, aliberal leader of great esteem who also encouraged the advent of protec-tionism. A new monetary policy of free convertibility was introduced,import tariffs were revised and new taxes were raised to cover budgetdeficits. Trade agreements were signed with 25 countries. Greece was onthe way to achieving stabilny and some measure of prosperity in spite offoreign intervention and finantial problems. During the two decades until1897, the territory grew by 35 per cent after the integration of the IonianIslands in1864 and Thessaly and Epirus in1881; the population more thandoubled from 1,096,810 in 1862 to 2,500,OOO in 1896; commerce grewfrom 83.4 million drachmae in 1862 to over 198 million in 1897 withexports increasing sixfold in thirty years; publit revenues had also in-creased sixfold sinte the 1860’s.

Yet severe strnctural weaknesses had not disappeared. Greek agricul-ture was fragmented and antiquated, industry barely present, the civilservice already inflated with an inefficient bureaucracy, exports wereundifferentiated, and the budget chronically in deficit; illiteracy was highand technical skills low. Furthermore, the country was developing at atime when the rest of Europe was stagnating (1873-1896). This contra-diction seriously affected the character of foreign investment. Character-istically, between 1887 and 1889, when the country was already on theverge of bankruptcy, loan terms for borrowing were better than at thebegimring of the period. Speculation on Greek bonds was rampant: Theywere bought at low prices and tommission charges were exhorbitant. In1887, a loan from the Comptoir d’ Escompte was granted by this bankmainly because it would be used for the construction of two destroyersmanufactured by a firm in which the same bank had a harge stake. Otherbankers, knowing that new loans would be used for the repayment ofolder ones, bought bonds of the latter at prices below paris. Borrowingterms were still hard: two English loans of a tota1 nomina1 capita1 of&6,200,000 were issued at between 68.5 per cent and 72.75 per cent atinterests varying from 4 per cent to 6 per cent. The French loan (by theComptoir d’ Escompte) of 135,000,OOO l?. only fetched 90,990,OOO fr.They were used to repay older loans but had no strings attached. Britain,in tompetition with France, and having realised the strategic importanteof Greece was using its financial might to outmanoeuvre her rival.

If a harge part of the responsibility for the unproductive nature offoreign loans lay with the foreign powers, the Greek state cannot be ex-

l6 Andreades (1939) p. 432-3. For a general overview of such investment, cf Born(1983) p.30-46).

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onerated of the blame for not trying or not being able to control the proc-ess by setting priorities and by following a coherent plan for develop-ment. Apart from a general view that Greece should develop and acquirea certain itiastructure, the Trikoupis government, eager to attract foreignand diaspora capital, was unable to make foreign investment fit the needsof the country. For instance, a large portion of the loans was used tocover the chronic state deficit while little effort was made to reduce it byother means. In one instance (in 1890) a loan negotiated expressly for theconstruction of railways was used for other purposes, bringing downfurther the already poor reputation of Greecel’. Very little was done forthe improvement of productive sectors. Agriculture remained antiquatedand the system of monoculture (turrants) was intensified, rendering thecountry and her exports more vulnerable to external fluctuations.

Nor were productive areas systematically served by the transport sys-tem for which the Trikoupis era is mostly known. Road projects, forexample, instead of being decided as part of a development scheme,were determined rather by the need to secure politital party support.Greek talent was alienated. In 1882, the Greek govemment appealed tothe French govemment to send a mission of engineers from the Corps desPonts et Chaussées to design and carry out various projects - roads,railways, canals, ports etc. Projects were designed with the prime pur-pose of yielding quick and high profits. Railways were built using twodifferent widths of track and linked mainly toastal cities, leaving theheart of the country where most of the exporting products were produced- turrants, tereal etc. - untouched. Their multiplier effect was even morerestricted as they did not lead to the creation of any related industry.Technology, parts, rolling stock, and expert engineering staff were allimported. No integrated transport network was ever created. The moststriking case was the construction of the line linking Piraeus with Larissa(almost a border town then). In 1889 a loan was negotiated for89,500,OOO f?. of which only 60,000,OOO were covered. Of those only22,000,OOO were dedicated to the construction of the line. The Englishcontractor firm Eccersley & Co. which undertook the project, startedfrom the finantially less demanding sections of the line because therewas a state subsidy for each kilometer constructed. At the end, therewere only dispersed sections of tracks finished. The Company was sub-sequently wound up without ever finishing the project. Finally, in 1902,the state intervened with a new loan. The cost per km of track reached226,960 fr., almost a hundred times higher than the average cost of26,500 fi./km of track for the lines constructed in the 1880’s. In other

1’ Loan of P S. 3,595,OOO for the construction of the Piraeus-Frontier line.

cases, negligence andlor haste on the part of the contractors resulted inmistakes in the calculations; the state again intervened to finante thecompletion of the projects. The consequence was invariably a rise in thecost. Railway companies, mainly foreign, meanwhile benefited from ex-propriated land granted to them for exploitation, exemption from dutieson imported machinery and state subsidies. According to contemporaryanalysts, the railway policy based on loan capita1 and foreign investmentdevised by the Trikoupis govemment was wrong and resulted in lossesfor the courmyrs.

Equally ineficient was the use of loans for road projects. Roads builtdid not complement toastal lines. The recently (in 1881) annexed regionof Thessaly was not linked to the old kingdom. As a result, in 1886, atthe time of the crisis in relations with Bulgariats, the Greek army facedserious problems when its supply lines were tut off due to a sea blockadeimposed by the Powers. Politital interference was also responsible forthese wrong choices20. Other reforms plamred by the State and designedby foreign missions, such as the Belgian for the postal services and theFrench for publit works and military modemisation, were no more suc-cessful. The plans were often unrealistic and the salaries and otherbenefits of the foreign tonsultants disproportionately high for the possi-bilities of the country2t.

What was happening in Greece was not different from the situationprevailing in other Meditetmnean or generally in recently bom nations,such as Egypt and Serbia, and Latin American countries. Loans werenegotiated for the construction of sumptuous projects that involved theapplication of new methods and techniques. The same engineers - usu-ally French - were involved in most of these large infrastructure projects.Suez was not very different from Corinth or Panama where canals forinstance were opened. The proposal for the opening of the Corinth Canalsubmitted in 1869 was seen as the materialisation of the dream to be in-tegrated into Europe; it was used to secure a generous toncession to the“Société d’ Etudes du Canal Maritime de Corinthe” for 99 years. Thestate would offer vast lands (over 5,000 hettares) that were not only

l8 Andreades (1939) p. 373-9. cf also Papagiannakis (1982) passim, Dertilis (1985)p. 95-97.l9 At that time Bulgaria annexed Eastern Rumelie and presented more claims onGreek territories.2o On government wrong choices, cf Dertilis(l985) p.98).21 The French mission dealing with the road project cost 70,000 gold francs permonth, Andreades (1939) p. 385

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required for the opening of the canal but included arable, mining, quarryand forest land to be exploited extending to 30 km on either side of thecanal as guarantee for the capita1 invested. What was even more impor-tant, the engineer G. Pia@2 and the banker M. Chollet, founders of thefirm and beneficiaries of the agreement, secured priority in railway con-struction for important lines. The total cost for the work was estimated at20,000,OOO fr. and the interest was tixed at 7 per cent for the whole du-ration of the construction. The agreement was never activated. Anotherproposal was made a few years later and the final agreement was con-cluded in 1881. General Ttirr, assisted by the Comptoir d’ Escompte deParis, founded in Paris the “Societe Intemationale du Canal Maritime deCorinthe” with a capita1 of 30,000,OOO fr. contributed by French capita1holders. The Comptoir d’Escompte de Paris became involved and througha Franco-Greek network managed to crystallise its interest in Greece.Capita1 proved insufflcient23. A. Syngros, a diaspora Greek who at thetime showed great interest in various investment projects in Greece,tame to the aid of the French fum24. As with many railway lines, theusefulness of the canal also proved inferior to expectations; so did itsprofitability, and most maritime lines as late as 19 10 avoided sailing theirboats through it. The labour forte was imported. Only a minority wasGreek, as most of the manual labourers were immigrant Italians, Turksand Armenians. The same labour forte moved from Suez to Corinth,

22 In 1869, Piat remained in Athens and became involved in the construction ofprominent residential buildings such as the Vouros residence and the Skouloudesmansion in Athens. In 1876, he was again found in Athens as an entrepreneur whosubmitted a proposal to the Athens Lotal Authority to undertake the completion ofthe National Theatre building. He was also responsible for the construction of severalother large bourgeois residences. For more details, see Biris (1966) Vol A. p. 178.23 New contributions were demanded. The cost of the operation was estimated at24,000,OOO fr. and a contract was signed with the “Société des constructions et destravaux maritimes”. Difficulties, however, soon arose: mistakes made in the calcula-tions of the work and expensive machinety imported caused a rise in the cost. In1889, 42,000,OOO fr. was expended and the project was far from completed. After anew unsuccessful appeal for more capita], the project was interrupted and the firmwent bankrupt. AAer the dissolution of the French Company, the contractor acquiredan extension for the completion of the works through A. Syngros.24 The works were undertaken by a Greek engineer, A. Matsas, whose payment wasgiven in shares of a newly founded Greek Company. In it the old French shareholdersalso participated. The whole operation was guaranteed by Syngros’ bank, the Privi-leged Bank of Epirus-Thessaly and the National Bank of Greece. Matsas’ share wassoon transferred to A. Vlastos, an executive of the Comptoir d’ Escompte. In 1890,the new ftrm launched a loan for 46,667 bonds of nominal value, 500 fr each issuedat 470 fr. and 6 per cent annual interest, and a 75 year duration

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possibly also to Panama25. The Company, unable to produce profits, gaveup and in 1906 the canal, having absorbed 60,000,OOO fr., was sold inauction for 430,000 drs.!! It was bought by the National Bank of Greecewhich founded a new Greek firm for its exploitation, in which, however,the French shareholders maintained their interest. Under the pressure ofthese bondholders (and their govemment) the Greek govemment ensuredthat no maritime fmn acquired it. The new policy included generous re-ductions in the crossing duties for boats of large European maritime linesand other benefits. The main avenue of achieving influence was to grantloans to foreign governments for the construction of large works forwhich French companies were used as contractors and suppliers. TheComptoir d’Escompte de Paris also had a very harge stake in Egypt andwas involved in the construction of the Ottoman, Serbian and Russianrailways. In Greece three loans, those of 1879, 1881 and 1884, werenegotiated by it and were used for army mobilisation purposes. A. Vlas-tos, a diaspora Greek, was its vice-chairman and the involvement inGreece was based on the close contact he maintained with other diasporabankers interested in Greece, such as A. Syngros, Baltatzis and others.The bank entered into serious antagonism with British capita1 overGreece. Capita1 flows had other dimensions too. Dependency was estab-lished not orrly in terms of amounts of capita1 inflow but also in terms oftechnology used.

The gathering of intelligente, usually ignored by historians, was impor-tant too. French engineers and technicians of the mission were collectingall sorts ofinformation on many aspects of the economic and politital lifeof the country which they passed to their govemment. The importarme ofintelligente and information was to be painfully realised at the time of thesubsequent default on foreign payments in 1893 and the politital pressureexerted by bondholders represented by foreign circles, especially theGerman govemment. A large part of loan bonds were owned by diasporaand resident Greeks holding accounts with foreign banks, but this wasunknown to the Greek state which negotiated only with foreign bankofficials and diplomats acting as representatives of bond holders. Suchbanks were the merchant bank of Hambros of London and several others,such as the Comptoir d’ Escompte de Paris, the Banque Franco-Egyp-tietre, the Zarifis-Zafiropoulos in Constantinople, the Arrglo-EgyptianBank in Alexandria, the Synadinos, Rallis and Co. in Alexandria and theSociété de Credit Suisse in Zurich. All these banks floated Greek loans in

25 Details about the toncessions accompanying the agreement to open the CorinthGanal are given by Papagiannopoulou, (1989), passim.

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European capitals as well as in Constantinople, Alexandria, and else-where.

ln conclusion, it could be said that French interests appeared in Greeceat a time of European crisis and recession, they were of a particularlyspeculative character and were furthermore determined by transnationalantagonism for the spoils of new areas. All these factors minimisedwhatever positive effects they might have had for the development ofnew areas.

Foreign loans concluded after 1884 (especially the 135 million francloan in 1887) involved for the first time direct manipulation by represen-tatives of the creditors of publit revenues from state monopolies pledgedas guarantee for the loans. This toncession implied that any alteration inthe legislation regarding these revenues would be subjett to the agree-ment of the creditors, reducing thus the sovereign right of the Greek stateto make law. This fatt acquired enormous importante when, afier longyears of rising state budget deficit and military campaigns, in Decem-ber1893, the Greek state defaulted on its foreign payments. Negotiationsfor a compromise started immediately and lasted for four years (1893-1897). Representatives of the foreign bond holders went to Athens andthen to Paris (1895). Germany, representing a minority of bond holders,claimed that the 40 per cent honouring of commitments by Greece wasunsatisfactory and boycotted the agreement. The imposition of a navalblockade against Greece was demanded26. The foreign press in generalstigmatised Greece’s behaviour and also suggested the use of forte. Ger-many went even further by inducing Turkey to declare war on Greeceand by introducing the idea of foreign direct diplomatic control. Greecewas defeated in the war, and Germany insisted that reparations should bepaid to Turkey for damages caused. Sinte no capita1 was available, itwas suggested that a big foreign loan be negotiated, the payment ofwhich warranted the imposition of direct international diplomatic control,in addition to economic control. When in 1897, afier this unfortunateepisode, a treaty was signed in Constantinople, Britain and France acqui-esced to a clause being included in the Greco-Turkish treaty providingfor the payment of reparations, subjett to an agreement reached with theForeign Powers and not affecting in any way the rights of Greece’s oldercreditors. For the first time in international law, a clause was included ina bilateral treaty specifically favouring European creditors by imposingdirect control on a country. Germany had managed to use the Greek debtas a weapon that allowed her to further her interests in the Near East andespecially in Turkey with which she remained an ally for a long time. In

26 Andreades (1939), p. 456-7.

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spite of protests (after the event) by prominent European statesmen suchas G. Clémenceau, who denounced the arrangement as “dishonest”, or ofE. Law, who considered it “savouring of servitude”, the law of “Control”was voted by the Greek Parliament in 1898. An International Finantial(Control) Conmrission was fornred (IFC) whose members - diplomaticrepresentatives - were nominated by the Powers (Germany, France,Britain, Russia, Austria and Italy) and the jurisdiction of which far ex-ceeded the purpose of safeguarding the bondholders’ interests. TheCommission was to supervise a special organisation fornred to handle therevenues - monopolies, customs, taxes etc. from salt, petrol, matthes,playing cards, cigarette paper and emery from Naxos - assigned for therepayment of the debt, which now included a new loan of 170 million fr.isstred in 1898 under the guarantee of Britain, France and Russia27. TheIFC was also to supervise the monetary policy and stabilise thedrachma2s. Greek monetary foreign control was not lifted even during orafter tbc First World War and the IFC guaranteed the service of subse-quent loans. Despite the negative aspects of control, it must be said thatapart from effectively stabilising the currency for a while, it also con-tributed to a certain administrative reorganisation and rationalisation ofpublit finantes. Its positive impact might have been greater had the FirstWorld War and the subsequent Asia Minor Disaster not intervened toupset the balarme that had so painfully been reached.

The participation of Greece in World War 1 as well as the type of theregime established during the Interwar years became issues closelylinked with economic arrangements, and pressure was again applied fromforeign powers. Sinte 1909, Greece had been undergoing deep polititaland social restructuring and liberalism appeared as the new forte, asdemonstrated in the politics of the charismatic leader E. Venizelos. Thenew fortes tame into direct conflict with the old regime of King Con-stantine (related to the Kaiser by his wife, Sophia) on all fronts, includingtbc question of Greece’s participation in the War. Greece became a di-vided nation. On the question of foreign policy, the King favoured a neu-tral stand which was essentially pro-German, while Venizelos was forGreece’s immediately entering the war on the side of the Allies. Finally,Greece declared war on the Central powers, rather late in 1917, after theKing was forced to step down from his throne in favour of his setond

z7 The impact of such an arrangement was somewhat attenuated when it was de-cided that these fimctions would be undertaken by the older Greek Monopoly Com-pany which had been responsible for the administration and control of the revenuesassigned for the repayment of the Monopoly Loan in 1887.28 For details cf Dritsas (1994).

16

son, Alexander. Soon afierwards, in 1918, an agreement was signed inParis with the Allies stipulating that Greece would be given a credit of750,000,OOO f?. (raised to 850,000,OOO in 1919) from Britain, France andthe USA for the support of the military campa@. However, the Agree-ment also subjected all fi&ure external loans to the assent of the AlliedPowers. But in 1920 the tables were turned: Alexander died of a monkeybite, Venizelos lost the election to the royalist People’s party and Con-stantine retumed after a plebiscite was held. A finantial embargo wasimmediately imposed on Greece and the allied credits were blocked. Theimpact on Greece’s economy could not have been worse, as it cancelledall previous restraints imposed by the IFC and caused a derailing of themonetary circulation which deteriorated further because of the Asia Mi-nor military campa@. In the aftermath of the terrible Greek military dis-aster of 1922 the monarchy was abolished, but the embargo was main-tained until 1924, apparently in an effort to prevent this, as Britain per-ceived it, unacceptable development. Meanwhile the Treaty of Lausannewas signed in 1923 stipulating the compulsory exchange of populationsbetween Turkey and Greece. The issue of the allied credits remained inabeyance until 1927 and was used as a weapon in the finantial negotia-tions of Greece with Britain and the USA, for urgently needed resources.

The Interwar PeriodCapita1 Inflow

- New Avenues of Foreign

The year 1924 marked the begirming of another phase of foreign borrow-ing guaranteed by the League of Nations. By 1940, Greece borrowed732,250,OOO fr. The loans were granted for the settlement of the 1.5million refugees from Asia Minor, for agricultural development and formore general economic stabilisation. The period was also marked by theinfluence exercised by the League of Nations, an institution essentiallycontrolled by Britain29. Because these loans were used also for develop-ment purposes, other organisations besides the League of Nations tameinto play, especially where utilities were concemed, and powefil net-works were created. In fatt, an unmistakable characteristic of the era wasthe increasing importante of British capita1 and the increasing influenceexercised by particular agencies such as the Bank of England, the Treas-my and Hambros Bank of London.

29 For details of the negotiation and use of the Refugee Loans cf Dritsas (1990) andMinoglou (1993).

17

Utilities were not exactly new to Greece. By the end of the 19thcentury, whereas there was very little foreign direct investment inGreece, some utilities had been established. The new century dawnedwith the realisation that infiastructure was still insufficient and inefi-cient, especially as regarded big urban centres, on the one hand, and themain productive sector, agriculture, on the other. Govemments tried toraise capita1 for development purposes. A limited number of utilities, e.g.the telegraph service (Eastem Telegraph Co.), the electric trams of Ath-ens and the Gas Company, had been established in Greece not long be-fore but many of the older railway projects undertaken in the 1880’s and1890’s were still awaiting completion. The awful state of agriculture de-manded inI?astructural improvement works. A most important land rec-lanration project, the Lake Copais Scheme, which involved the reclama-tion of 14,000 hettares of land (5,600 acres) was for the first time under-taken by British capital. The project involved the establishment of a newIirm, the Lake Copais Co., which was to manage the toncession. Thefimctioning of the tirm, however, did not always prove to be smooth, astension developed in its relations with the peasants and the state. An-tagonism continued well into the 20th century and the toncession wasfinally taken away by tbc Greek State in the late 1930’s.

Foreign capita1 inflow linked to harge state and private loans and ac-companied by the installation of utility fnms in Greece intensified afierthe Balkan Wars (1912-1913) and especially after World War 1. It tookplace within the framework of the new Greek liberal govemment policyof autarchy through land reform and distribution of land to peasants andrefugees, and fm-thermore, within that of an increasing American pres-ence on the European scene.

On the whole, it can be said that the pattem of foreign tompetitionduring this period had changed. For one thing, partners were different.France was no longer considered a serious competitor and Germany wasusing alternative paths of penetration and domination through tradeagreements. Intense tompetition was now taking place between the Brit-ish and the Americans for the new developing markets. The means topenetrate were not only loans but agencies too, such as contractors andengineering firms. Britain, however, and more particularly for the case ofGreece, Hambros Bank, were determined not to cede any ground to thenewcomers. The stakes involved much more than just quick profits. Thetype of development, geopolitical considerations and the long term aspi-rations of Britain were central issues. Publit works, considered by theGreek govemments to be of the utmost importante for the future of thenation, became the core of this process as indeed they still are today.They also constituted a field in which powerful entrepreneurial networks

18

were formed and business was increasingly politicised. Not only thetreasury and the Foreign Office and the Bank of England, but also privateagencies were aggressively involved in every step of the way in whichcapital tame into Greece, especially where state loans were concemed.This practice talled for an equivalent structure of negotiation on theGreek side and was at the heart of the powerful business-bank-govem-ment links that appeared during this time. On the other hand, as far as theUSA was concemed, despite the reputed efficiency of American multi-nationals (usually engineering flrms), which appeared on the Greek stage,no coherent American foreign commercial and tinancial policy had ap-parently yet been devised, with the result that the American Govemmentleft business to itselP.

Until the early 193O’s, several karge projects, such as the reclamation ofthe Vardar Valley in Macedonia, or the Athens Water Works or theelectrification of Atbens, were given to foreign firms with or without theinflow of specific foreign loans. The first two projects illustrate well thepattem of antagonism between British and American capital. The VardarValley F’roject was given to the American tirm “Foundation Co”., which,though American in nationalny, had strong British connections withHambros Bank and had a subsidiary in London. Through them, it wasalso comiected to the National Bank of Greece (NBG) which played anactive part in the negotiations. (Diomedes, the Govemor of the NationalBank and a personal fiiend of the Hambros, was introduced to the presi-dent of the Foundation Co. by the Hambros farmly in London)31. NoAmerican capita1 was supplied directly as the contractor did not providefinancial backing, there was no exclusive loan and no management firmwas established. The project ran into trouble however, and twelve yearslater, in 1937, the state directly took over its completion.

The Athens Water Scheme went to the American firm Ulen and Co.and was the only project for which American capita1 was used, althougbGreek capital was also invested. Thus, even if the nationalny of the lirmswas American, the capita1 they used as we have seen was British ormixed.

The major Greek partner in securing capital for the Water Project wasthe Bank of Athens, originally an agent of French capital and an oldcompetitor of the biggest Greek bank, the National Bank of Greece,which, during this period, had almost become a formal representative ofBritish capital. It was the last major project that the Bank of Athens

3o Minoglou (1993), p.229.

31 Minoglou (1993), p.274.

19

managed to secure during this time. In tontrast, the NBG maintainedvery close relations with Hambros Bank. Because of its long history offinancing the Greek state, it acted as an official intermediary between theGreek and foreign govemments or other agents, such as bankers andentrepreneurs, for the attraction of foreign capita1 and for the negotiationof all foreign loar+. It did not, however, become a real developmentagency for the country. With the exception of the Athens Water Worksloan, all other loans of tbc interwar period were negotiated by the Na-tional Bank. It would not be an exaggeration to say that both tbc NationalBank and the Hambros wanted to monopolise loan capita1 and publitwork business in Greece. Large networks linking various entrepreneurswere created and on several occasions Hambros pushed their favouritecontractors for deals33.

Publit work projects gave rise to a new type of large firm, as specialcompanies were set up for the management of the water works, as wellas for electricity. They grew into large concems employing several thou-sands of workers, at a time when the rest of the economy was marked byextreme fiagmentation. They thus strengthened the dual character of tbcGreek economy. They became the subjett of party politics, they pro-voked hot parliamentary debates and aroused much hostility f?om thepublit. This was especially true in the case of the only real fdi project,the General Hellenic Electricity Company. It was founded by the BritishPower and Traction Co. which was considered to have been grantedscandalous terms for the exploitation of electric energy, including theexploitation of electric trams in Athens. A consortium was set up by theBritish firm Power and Traction Co. in which naturally Hambros and theNBG were the prime movers. Competition tame from the Belgian andthe French side, represented by the Bank of Athens, but proved totallyineffective. The British side offered a complete study for electrificationand transport and the Treasury guaranteed the necessary bond loan of£2,000,000. Total cost was estimated at £3,270,000. The lion’s share,£2,000,000 was used for the purchase from Britian of equipment for the

32 For the importante of the National Bank and of its relations with Hambros,Dritsas (1991).33 The example of the road works is a case in point. This deal is not examined in de-tail here for lack of space. Charles Hambro offered to provide a substantial overdr&for the project on the condition that the project would be awarded to P.G. Makris.Makris was also the favourite of the Americans, being the dealer of Shell Petroleumproducts in Greece. The road scheme which his Company was awarded fitted wellwith his main interest which was monopolising the import of petroleum products inthe country.

20

central station of St. George. The proposal was drawn up by technicaladvisors &the British Treasury, and the British Ambassador had offi-cially stated to the Greek Ministers of National Economy that the projecthad the full technical and finantial support of the British govemment.Despite opposition from across the whole politital spectrmu and tiom theMinistry of Transport, the deal went through with the help of the NBG.The terms of the 60-year toncession were literally of a “colonial” type,giving the Company complete freedom and full autonomy korn any statecontrol over prices, administrative practices, supplies, quality control,deadlines for the completion of the works, majority share ownershiptransfers to foreigners, salary strncture of its executives (salaries werecolossal) etc. The deal was denounced as anti-constitutional and pro-voked serious social unrest on several occasions, threatening polititalstabilny. In 1930, several rallies were organised by trade unions and pro-fessional organisations demanding the annuhnent of the contract, whilepopular outbreaks of violence were not avoided34. When the publit be-tame intolerant towards it, politital pressure was once again used (theBritish fleet sailed into the port of Piraeus). In the case of the Athenswater works, it took some work before the basic agreement was am-mended so that the govemment would have a say in purchases of mate-rials or subcontracts given to Greek firms. Other scandalous toncessionsconcemed, in 1926, the Belgian firm New Antwerp Electrical for thecountry’s telephone network which, however, was never put into opera-tion and finally talled off altogether in 1930 when the toncession wasgranted to Siemens-Halske. The cable telegraph toncession of the Britishtirm Eastem Telegraph Co., established earlier, for communication wasrenewed for 50 years and was extended to include wireless telegraph.

Most British deals were preceded or accompanied by politital pres-sure. Sir Eric Hambro used his connections to exert influence directly onthe Greek govemment. Hambros Bank was not particularly popular inGreece and polititians in general wished to reduce its influence. Perhapsthe choice of American firms gave, in a simplistic way, that hope of real-isation. However, the Hambros managed to circumvent Greek resistanceby using American firms financed by them.

Alongside the quantative importante of these deals there was a quali-tative aspect which was just as significant. Projects financed by foreigncapita1 strengthened the technological dependence of the country. Quali-fied stti usually consisted of foreigners, while the majority of the

34 There is an abundante ofinformation on this deal mainly in contemporary pressreports. For a detailed study of the negotiation process and the whole issue of elec-tric energy in Greece, Pantelakis, (1991), passim.

21

“unskilled” labour employed were Greeks. In the case of the WaterWorks, despite the Greek government’s efforts, tbe contractor purchasedexpensive machinery and material in the USA. The Greek state did notprove particularly efficient in controlling such deals. Weakness was alsoshown by the Greek state over the control of a railway project under-taken by the Sociéte Génerale de Belgique. The Company was allowed tosupply virtually all materials at its own prices which tumed out to be 80per cent above the world market prices. This deal went through duringthe dictatorial rule of general Pangalos (1925-1926) who, eager to secureinternational recognition and to further his militaristic aspirations, nego-tiated loans in exchange for monopolies.

Between 1930 and 1945 no more foreign loans tame into Greece. Af-ter the constraints applied by the League’s stabilisation programme undertbc influence of the British Treasuty and tbc Foreign Office, foreign loansfor Greece had to be approved by the Finantial Commission of theLeague of Nations and Britain and America had to be asked before anysuch loan was negotiated. After 1932, another embargo was imposed.

Foreign direct investment in industy was another avenue of foreigncapita1 during the interwar years. It was part of the more general effortsmade by the NBG to attract foreign capital and again it took place withthe help of the British. An Anglo-Hellenic Trust was founded for thatpurpose, under the intluence of Hambros Bank, but, even tbough theestablishment of the Trust meant new practices and modem organisa-tional methods for Greek industry, the actual capital channeled to thesecondary sector was not very significant. Furthermore, it went only tothe already large, stable and well established firms in a few sectors. Ce-ment, distilleries, wine, electricity and textiles received 61 per cent of theloans. Cement and construction materials alone received 27.5 per cent.The impact of these loans was limited for Greek industry. Nevertheless,it prepared the ground for the subsequent domination of industrial creditby the National Bank of Greece. The Hambros were not particularly keenon letting Greek industry develop, as they considered that Greece shouldreally be a market for British manufactured goods. The NBG was unableto circumvent Hambros’ policy in that respect, nor had the Greek statedevised any coherent industrial policy yet which would alter the basicorientation of British investment35.

Although German capita1 inflow is not analysed here in detail, it is per-haps worth mentioning that it followed alternative methods of penetrationbased on the clearing agreements and involving the establishment of sub-sidiaries using already existing business networks. The construction and

35 Dritsas (1990).

22

engineering finn, A. Zachariou S.A., for instance, which at the beginningof the period operated as an agent of several German exporters - includ-ing Siemens - after 1930 became a Siemens’ subsidiary. A. Zachariouhad for a long time maintained close and fiiendly relations with Germanbusinessmen and was considered by Siemens their “man in Athens”s6.

Post-War Investment Patterns and the Appearanceof Multinationals

After World War II foreign capita1 played a very important part in theevolution of the Greek economy, albeit not always positive. It is uncer-tain whether it contributed to the modernisation of Greek industry. TheUSA became Greece’s major partner after the war, and the articulationwith politics cannot be disputed37. Capita1 inflow was channeled throughMarshall aid and it is estimated that between 1945 and 1952, two billiondollars were transferred to Greece. However, half of this amount wasdedicated to military expenditure in support of the Greek govemmentfighting a Civil War against the Democratic Army after 1945. More than25 per cent was spent on imports of consumption goods while a verysmall part only was channeled to industry. Infrastruttural projects werealso undertaken (road network, electric energy etc.). The debate aboutthe decisive factors of this policy is still ongoing. It is certain, however,that a shift in the strategic considerations of the USA occurred and thatGreek institutions, before achieving minimum efficiency levels during theinterwar period, were once again utterly disarticulated during the war andoccupation years and proved therefore incapable of posing any barrieragainst foreign intervention. The sheer presence of a good number ofAmerican politital, diplomatic, military and cultural agencies in Greecebears witness to the heavy involvement of this country in the post-warfortunes of Greece.

During the next twenty years from 1952 to 1973 the main attitude ofpolitital and economic circles in Greece concerning development re-mained unchanged. Foreign capital was still seen as “deus ex machina”for development. The differente was that govemments were now willingto go further in attrracting it. This was a period of growth for Greecealthough strucutral problems remained. GNP grew at 5.5 per cent annu-ally, but the pace was faster between 196 1 - 1970 (7.1 per cent). Industry

36 Dritsas ( 1992) in Cottrell, Lindgren & Teichova ( 1992)37 Stathakis (1991).

23

grew at an average annual rate of 9 per cent and production rose sixfold.Services also grew at 6 per cent, the primary sector (basically agricul-ture) enly grew at 4 per cent, while production doubled. Imports contin-ued to outgrow exports by far while budgets continued to be iu deficit.During this period, the state iutervened deeper in the economy and alarge publit sector began to operate. On the other hand, in the privatesector, there was a shift towards fdi which took place in new areas suchas oil refineries and heavy iudustry. Big industrial conglomerates werecreatedJ*. Strategic iudustries such as both the Thessaloniki refinery andthe steel industry were afflliated to large American multinational+‘.Greek overseas shipping capital, having benefited from conjunctural cri-ses such as the Korean war, the Suez crisis, etc. and having managed toextratt favourable incentives from the Greek govemments, was leadingthe process of investing in joint ventures40.

The new intemationalisation was greatly facilitated by liberal legisla-tion for the attraction of foreign capital in the early 1950’s. Capita1 in-flow, whether in the form of share capita1 or loan capital, was equallyprotected. It concemed imports of machinery and equipment, raw mate-rial, foreign currency, patents, know-how, trade marks and technologytransfers that could be invested in wholly foreign or mixed companies.Tax incentives were also introduced, as well as the right to repatriateboth the initial capita1 (at a rate of 10 per cent ammally) and a substantialpart of any eventual profits. Property belonging to a foreign firm couldnot be expropriated. For loan capital, 10 per cent of ammal interest couldbe transferred abroad. There were special arrangements for the transferof accumulated profits and interest. These already quite favourable termswere extended Mer during the period of the military dictatorship(1967-1973) when additional incentives - exemption from duties andother taxes for ofice equipment imported by foreign firms, exemptionfrom income tax for their expatiate staffs revenues, and so on - wereoffered to foreign investors. Indeed, it was explicitly stated in the Five-Year Economic Development Plan for 1968-1972 that foreign capita1 andprivate initiative were the determining factors for the success of the plan.

38 For example, the Andreadis group which controlled five banks, several insurancecompanies, various industries, tourist facilities and holding companies.39 Standard Oil Corporation controlled Greek refineries in Thessaloniki and theAmerican Republic Steel the Greek steel industry; Aluminium of Greece S.A. wasowned by the French Pechiney.

4o These issues have not interested economic historians much yet. Most existingstudies are matro-economic analyses of Greek industry. For a concise and clear out-line see Babanasis-Soulas (1976), Giannitsis (1988).

24

This new institutional framework made possible the establishment inGreece not only of industrial firms but of commercial and shipping com-panies too. A large number of MNE’s bureaux coordinating their intema-tional business emerged, transferring the weight of investment towardsthe service sector. This trend was reinforced after the Civil War in Leba-non. In 1979, there were 375 such bureaux (209 belonging to AmericanIirms) operating in Greece. Several of them were engineering and con-struction enterprises that used Greek technicians or engineers for super-vising publit works in Middle Eastem countries such as Saudi Arabia,Iraq. In fatt from 1967 to 1970, 101 new commercial-industrial and 304shipping finns opened offices in Greece. It is beyond doubt that the stepstaken by Greek govemments eased foreign penetration and accentuatedstruttural inbalances.

From 1960 onwards fdi took place within the fiamwork of EEC affili-ation and, later, integration. Greece became associated in 1962 and fullyintegrated as a member in the 1980’s. Gross intlow of foreign capital, interms of foreign currency orrly (excluding machinery and other categoriesof products), reached 640,l million dollars between 1963 and 1978. Ithad soared to that amount from 19.2 million dollars in 1954. Of these, anamount of 283 million dollars, or 44 per cent, was reexported as repatri-ated capital. The EEC share in capita1 infIow and outflow was 24.5 percent and 34.7 per cent respectively. Although initially the weight ofAmerican investment was greater, it gradually shifted in favour of EECinvestors. During the 1960’s direct foreign investment was chamreled tocompletely new branthes or to already existing and expanding ones inthe area of intermediate products and capita1 goods. It also contributed tothe creation of some very big firms. As far as numbers are concemed,there were 190 multinationals in Greece in 1970 and 292 in 1975.Whereas with regard to the origin of capital, USA MNEs dominatedbetween 1963 and 1970 (70.8 per cent, against 18 per cent for the EEC),in the next decade their weight was considerably reduced (59.1 per centagainst 31.9 per cent). The establishment of American firms coincidedwith the rule of repressive regimes in Greece, epitomised by the militarydictatorship of 1967. European companies began to settle more f?eely inthe next decade. Both American and European firms worked closely withtheir govemments’ guidelines. European fums, however, followed a moreeffective policy - granting loans and better commercial credit terms -which was better adapted to the conjunctural character of the Greekeconomy, on the one hand, and to the policies of their governments onthe other. Whereas their exports were facilitated, their long-term com-mitments to Greece remained limited. European MNEs in fatt, with fewexceptions, seemed interested rather in controlling a larger portion of

25

trade relations with Greece but not production. Although research so fardoes not allow any firm hypotheses to be formulated, one should notexclude the significance of politital instabilny and the rather chaoticbusiness environment of the period, for explanring this choice.

This strategy also coincided with a new orientation in Greek policy:emphasis was placed on the aspiration to participate in the internationaleconomy by playing an intermediate role in the EEC and in the expansionprocess of MNEs. Some Greek firms for example, by offering MNEstheir facilities in Greece so that the latter could expand into the South-East Mediterranean, were able themselves to expand in the Arab and Af-rican world, a market that had traditionally been considered within thesphere of action of Greek business. Many Greeks also worked for theMIWs, and this alleviated the burden of unemployment. If in 1968, 36per cent of assets in the whole Greek industry was controlled by foreignfirms, or finns with foreign participation or with Greek overseas partici-pation, purely foreign were a handhtl of companies in metallurgy, chemi-tals and petroleum related products. Assets of JSCs controlled by foreigninvestors reached 95.9 per cent in petroleum production, whereas incommercial Iirms of petroleum products it reached 73.5 per centdi. Inthese same branthes as well as in textiles there was also a considerablenumber of joint ventures. In tontrast, foreign control was insignificant inconstruction firms (0.7 per cent), minimal in textiles (4.3 per cent), inhotels (4.8 per cent), in tourism in general (8.1 per cent), and still belowaverage in beverages (11.7 per cent), the food industry (12.5 per cent)and clothing (13.9 per cent). In banking, although there were severalforeign banks operating, (12 in 1974), their deposits never exceeded 10.5per cent of the total and their credits remained below 14.5 per cent.Compared with their American counterparts, European MNEs were moreflexible in participsting in mixed ventures rather than insisting on havingcomplete control of firms established in Greece. MNEs that settled inGreece included Unilever (Holland), Henninger (Germany), SniaViscosa(Italy), Pirelli (Italy), Air Liquide (France), Hoechst (Germany), Dexion(England), AEG-Telefunken (Germany), Siemens (Germany) and Phillips(Holland). Apart from purely economic considerations, it could be arguedthat historital factors were also at play. European firms have had a longhistory of cooperation across geographical boundaries. Compared withAmerican firms, they exhibit a higher degree of cultural affinity and theirexecutives were better equipped to cape with the Greek bureaucracy.

A certain reorientation in the policy of MNEs was observed in the1980’s when a shift occurred towards more traditional industries such as

41 Babanasis-Sodas (1976) p. 135.

26

textiles, non-iron ores and electrical equipment, whereas the share ofMNEs in export items such as plastics, petro-chemicals and in iron prod-ucts was reduced. This development probably signified a change of di-rection towards the domestic market and it can logitally be hypothesisedthat this was a result of the Association Agreement with the EEC. Whilethe market was theoretically extended for Greek industries, the fatt thatthey were still vulnerable, having been supported for too long by protec-tionist tariff barriers and state benet& limited their competitiveness.Only those branthes that were already quite competitive - usually out-ward looking and orientated towards exports (e.g. cement) - couldbenelit, while at the same time it was made much easier for foreign tirmsto conquer the Greek market. Still later, the rise in the standard of livingfor Greeks and the change in the consumption pattems of the Greek mar-ket coincided with the lifting of import controls because of EEC regula-tions. MNEs were there to cover the demand as Greek industry was slowto catch up. Both commercial outlets and subsidiary production plantswere founded. On the Greek side, resistance levels to these develop-ments once again proved weak as no new central industrial policy wasdevised. The domination of Germany was certainly not only the result ofshort-term interests encouraged by Greek law. It was rather a new ex-pression of the old Central European aspiration to dominate in South EastEurope (polititally and economically). It is not without importante thatcountries like Germany, Britain and France have sinte the early centuryalso established important cultural institutions in Greece and can claimcredit for educating a large proportion of the Greek eliteaz.

Much discussion among theorists of multinationals has to do with theobjectives of the MNEs and there has been a tendency to generalise. Thecase of Greece shows that objectives differed according to nationalityand timing. Within the EEC, American MNEs settling in Greece from the1960’s onwards were interested in conquering other European or NearEastem markets rather than controlling the less important Greek market.They could also benet3 from preferential tariff policies for exports to therest of the EEC. They could exploit the relatively low leve1 of wageswhere labour intensive production outlets were concemed. The latterbecame a more important factor in the 1970’s and the advantage was notrestricted to American finns only. Branthes such as ready made clothesand electical appliantes had a high presence of German MNEs. ForEuropean hJNEs, the progressive lowering of import duties and the lim-ited protection of Greek infant industries created an environment where“tariff factories” had no particular purpose.

42 The importance of the USA became obvious much later.

27

Few MNEs were established to secure control of supply andlor pricesof raw materials. Greece is not particularly rich in valuable resources.Significant perhaps was the case of Pechiney, which was, however,established before the EEC Association agreement was drawn up and forwhich lower tariffs did not make any differente because what countedwas the availability of abundant bauxite resources in Partrassos.

Of particular importarme to host countries was (and still is) the contri-bution of MNEs to their development either in terms of increasing ex-ports or in terms of promoting industrialisation. On the whole, exports byMNEs established in Greece have not been able to counteract the in-crease of imports because these firms still import raw materials and semi-timshed goods, and the value added on the final products is low. So far,it seems that MNE development has paralleled the rise in imports43. Be-sides, they did not contribute to the creation of complementary industries,nor to an extension of the market for related products (backward link-ages), as in the case of tar and machine assembly plants or chemicalsand electrical appliantes. In tontrast, both in terms of share capital, tech-nology use and employed manpower they accentuated the dual characterof the Greek economy. Their spill-over and multiplier effect were verylimited. The reliance, if not dependence, of MNEs on their central com-panies for supplies of raw materials, intermediate or finished goods,transfer of technology and other inputs, through the existence of efficientnetworks led rather to an increase in imports, maintained or enhancedtechnological dependence and prevented the organic articulation betweenproduction of finished goods and intermediate products.

Considering the major theses about the rise of multinationals either as aresult of organisational needs44 or because of the need to dominate agiven market45, on the basis of the Greek experience, probably boththeories are correct but not for the whole period under review. Multina-tionals as described by Chandler appeared in Greece in the late 1960’sand 1970’s; yet as we have seen, some multinationals had settled before,though on a limited scale. Research so far in this area is almost non-exis-tent in Greece. Very tentatively, it could be argued that the establishmentof American multinational firms in the 1960’s and 1970’55 especially as

43 Giannitsis (1988).44 This thesis is mainly argtred by A. Chandler Jr. in a trumber of his works. For abrief presentation, see his contribution “Technological and organizational underpin-nings of modern industrial multinational enterprise: the dynamits of competitive ad-vantage” in Teichova et al (1986).45 Cf for instance U. Olsson’s arguments about Swedish multinationals in his bistoryof Ericcson. (1977).

28

supervising bureaux for distant markets (for example, General MotorsOverseas Corp. with an area office in Athens whose jurisdiction ex-tended as far as Pakistan, or the Gulf Oil Corp. and others) was a re-sponse both to organisational needs and a market policy. These needswere coupled with motives arising from the favourable policy of theGreek govemment and from extra-economic fortes such as the Lebanoncrisis. Once established, their facilities and personnel were managedfrom their central offices in the USA. This was true for both manufactur-ing and trade orientated torporations (such as the General Motors Over-seas Corporation office in Athens, the Procter and Gamble Corp. mainlyinterested in trade, or the Ideal Standard S.A., an affiliate, and theAmerican Standard Corporation, manufacturing vitreous chinaware forthe Greek and for foreign markets). Olsson+. market theory may be cor-roborated too. The case of the American Standard is apt here, but usingOlsson’s argument, it is clear why, until recently, there were no SwedishMNEs in Greece and there were in general no research-orientated MNEsof any origin. The market is indeed small, Greece is rather underdevel-oped scientifically and she has limited raw materials which, moreover,were controlled relatively early in the process by other MNEs. Thoseraw materials that do exist are probably not very useful for Swedish mul-tinationals. The main markets for Swedish MNEs are industrialised areaswith high demands for quality and product satisfaction (e.g. larger EECcountries or the USA) and certsinly Greece did not answer these re-quirements until very recently. Another factor that may have some rele-vante, however, is the absente from the history of Greco-Swedish rela-tions of politital pressure or strong economic intervention or the fonna-tion of effective networks. As has been argued consistently in this paper,politital influence of various degrees was present all along in the case ofBritish and, much later, in the case of American economic presence inGreece.

ConclusionTo conclude, it is worth repeating that when the influence of foreigncapita1 in a host country is analysed, several parameters should be takeninto consideration. As shown in the case of Greece over the last 100years, each avenue of capita1 inflow had its own speciticities arising fromthe particular timing of the investment and the leve1 of development(economic as well as social and cultural), as well as from the particularhistorital position of the exporting country. French, British and Americancapita1 in Greece appeared at different points in time. Although capita1

29

exports ofien took the same form (loan capital), the objectives, the fimc-tioning, the negotiation and the results were very different. Politital pres-sure, however, was almost constantly present. The details of Germancapital inflow have been left out of this analysis, though it is worth men-tioning, in passing, that with regard to the negotiation stage, the Germangovernment in the 1890’s went beyond any tommon practice followeduntil then and set a precedent in politital intervention. In all cases, impor-tant networks of polititians and entrepreneurs were formed, or pre-exist-ing networks were used, which facilitated the process of intervention.

In the 20th century development considerations appeared to be moreimportant in the hierarchy of priorities. Avenues of capita1 inflow werealso diversified. Loans negotiated were not only used to cover budgetdeficits (revenue borrowing) but now covered important tiastructureprojects and publit works which involved new organisations and newnetworks (development loans). Concessions for monopolies were part ofthis process too, often granted without tender bids. The politi& dimen-sion was strengthened as state intervention was stepped up in the wholeof Europe and business began to be increasingly politicised. Powerfulnetworks were created which integrated the two milieux. It is, however,doubtful whether they were effective for the modernisation of developingcountries such as Greece as they facilitated the process of contractingrather on the basis of personal contacts and not as a result of well thoughtout govemmental plans, thus debilitating the state even more. Polititalinfluence was now used on both sides - capita1 exporters and host coun-tries - although the latter were usually in a weaker position. Loans andbusiness deals were ofien delayed or blocked in order to forte the hostgovernment to accept the point of view of the investor. Host authoritiesused foreign capita1 to further their clientelist party interests, and the re-gional power base of even individual careers. The major feature of thepre-World-War II situation was the domination of British capita1 and in-tervention methods.

Mer World War II, yet other forms of capita1 inflow began to appear,essentially in the shape of multinational enterprises. Although the impor-tance of politics has not always been obvious as in the case of LatinAmerican countries, it is worth underlining its role as a deterrent forbusiness activity (politital instability). On the other hand, both beforeand after the Setond World War some host govemments used capita1imports and MNEs as a means of gaining international recognition andtihering military objectives. Both the Pangalos dictatorial regime in1925 and the military regime in 1967 were responsible for such policies.

30

The foregoing observations and remarks do not pretend to analyse ex-haustively this vast and important topic. They should rather be seen onlyas a modest contribution to an on-going debate.

31

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33

Uppsala Papers in Economic History consists of the following series:

RESEARCH REPORTS

1. Bo Gustafsson:

2. Mats Essemyr:

3. Göran Rydén:

4. Alf Johansson:

5. Lena Sommestad:

6. Li Bennich-Björkman:

7. Håkan Lindgren:

8. Alice Teichova:

9. Lynn Karlsson &Ulla Wikander:

The Causes of the Expansion of the Pub-lic Sector in Sweden during the 20th Cen-tury. 1983.

Food Consumption and Standard of Liv-ing: Studies on Food Consumptionamong Different Strata of the SwedishPopulation 1686-1933. 1983.

Gammelstilla stångjärnssmedja - en ma-nufakturindustri. 1984.

Market, Nature and Work: The basics ofwork organization in a nineteenth-centu-ty export sawmill. 1984.

Strukturomvandling och yrkessamman-sättning: Ala sågverk under mellankrigs-tiden. 1985.

Nationalekonomi och ekonomisk histo-ria. Inställningen hos nationalekonomertill ämnet ekonomisk historia 1929-1947.1985.

International Firms and the Need for anHistorital Perspective. 1985.

Economic Policies in Interwar EastEurope: Freedom and Constraints of Ac-tion. 1985.

Kvinnoarbete och könssegregering isvensk industri 1870-1950: Tre uppsatser.1985.

10. Bo Gustafsson: Det antika slaveriets nedgång: En ekono-misk teori. 1985.

11. Mats Morell: Eli E Heckscher, utspisningsstaterna ochden svenska livsmedelskonsumtionenfrån 1500-talet till 1800-talet. Samman-fattning och komplettering av en lång de-batt. 1986.

12. Ragnhild Lundström & Methodological Problems in BusinessKersti Ullenhag: History: Two Papers. 1986.

13. Kersti Ullenhag (editor): Books and Articles from the Departmentof Economic History at Uppsala Univer-sity. 1986.

14. Georg Péteri: The Role of State and Market in theRegulation of Capita1 Imports: Hungary1924-1937. 1987.

15. Håkan Lindgren: Banking Group Investments in SwedishIndustry: On the emergence of banks andassociated holding companies exercisingshareholder influence on Swedish indu-stry in the first half of the 20th century.1987.

16. Mats Morell: Om mått- och viktsystemens utveckling iSverige sedan 1500-talet. Vikt- och rymd-mått fram till metersystemets införande.1988.

17. Juergen Salay: The Soviet Union River Diversion Pro-jett. From Plan to Cancellation 1976-1986.1988.

18. Göran B. Nilsson: Kreditens jättekraft. Svenskt bankväsen-de i brytningstid och genombrottstid vid1800-talets mitt. 1988.

19. Maurits Nyström: En spegel av ett sekel. Riksdagens resor iNorrbotten 1880-1988. 1988.

20. Lars Magnusson: Korruption och borgerlig ordning - na-turrätt och ekonomisk diskurs i Sverigeunder Frihetstiden. 1989.

21. Hans Sjögren: Kreditförbindelser under mellankrigs-tiden. Krediter i svenska affärsbanker1924-1944 fördelade på ekonomiska sek-torer och regioner. 1989.

22. Eskil Ekstedt: Knowledge Renewal and KnowledgeCompanies. 1989.

23. Karl-Gustaf Hildebrand: Om företagshistoria. 1989.

24. Gert Nylander: Företagsarkiv och företagshistoriskforskning. 1990.

25. Bo Gustafsson: Gunnar Myrdal 1898-1987. Liv och verk.1990.

26. Gaim Kibreab: The State of the Art Review of RefugeeStudies in Africa. 1991.

27. Lena Schröder: Från springpojke till fullgod arbetare:Om bakgrunden till 1930-talets ungdoms-reservarbete. 1991.

28. Ulla Wikander Delat arbete, delad makt: Om kvinnorsunderordning i och genom arbetet. 1991.

29. Anders Floren &Göran Rydén

Arbete, hushåll och region. Tankar omindustrialiseringsprocesser och densvenska järnhanteringen. 1992.

30. Maths Isacson Arbetslivsforskaren i det offentliga sam-talet. 1992.

31. Gunnar Nordström

WORIUNG PAPERS

1. Alice Teichova:

2. Fritz/Kastner/Larsson:

3. Elizabeth A Boross &Håkan Lindgren:

4. Volker Wellhöner &Harald Wixforth:

5. Ragnhild Lundström &Jan Ottosson:

6. Agnes Pogany &György Kövér:

Mo och Domsjö och arbetareorganisatio-nerna intill 1940. Frans Kempes personal-p o l i t i s k a p r o g r a m o c h D o m s j öarbetareföreningen. 1993

Rivals and Partners. Banking and Indus-try in Europe in the First Decades of theTwentieth Century. (Reportfrom the Vien-na Banking - Zndustry Symposium 1988.)1988.Banking and Bank Legislation in Europe1880-1970. (Report from the ViennaBanking-Zndustry Symposium 1988.)1989.

Bank-Industty Connections in Hungaryand Sweden. Two Studies. (Repotifiomthe Vienna Banking-Zndustv Symposium1988.) 1989.

Bank-Industry Relations in Theory andPractise. Two Studies. (Repor? from theMenna Banking-Zndustry Symposium1988.) 1989.

Bank-Industry Relations in Sweden:Ownership and Interlocking Director-ates. (Reportsfrom the Vienna Banking -Zndustry Symposium 1988.) 1989.

Banking and Industry In Hungary. (Re-ports from the Vienna Banking - ZndustrySymposium 1988.) 1989.

7. Ulla Wikander (ed.): The Sexual Division of Labour, 19th &20th Centuries. Six essays presented atthe Ninth International Economic Hist-ory Congress, Berne 1986. 1989.

8. Agneta Emanuelsson,Lynn Karlsson,IJlla Wikander &Ingrid Åberg (red.):

Kvinnohistoria i teoretiskt perspektiv.Konferensrapport från det tredje nordis-ka kvinnohistorikermötet. 13 -16 april1989.1990

9. The Banking Project: The Network of Finantial Capital: Essaysin Honour of Ragnhild Lundström. 1990.

10. Margarita Dritsas: Foreign Capita1 and Greek Developmentin a Historital Perspective. 1993.

BASIC READINGS

1. Håkan Lindgren &Kersti Ullenhag (eds.):

2. Britta Jonell-Ericsson: Skinnare i Malung. 1987.

3. Håkan Lindgren &Hans Modig:

The Swedish Match Company in the In-terwar Years. An International Perspec-tive. 1987.

4. Bo Gustafsson:

5. Bob Engelbertsson &Lynn Karlsson:

Teorier och teoretisk tillämpning i före-tagshistorisk forskning. Med bidrag avHerman Daems, Erik Dahmén, HåkanLindgren och Kersti Ullenhag. 1985.

Den ekonomiska vetenskapens utveck-ling. Del 1: Från Aristoteles till AdamSmith. 1988.

Seminarieuppsatsen. En genomgång avformella krav. 1989.

6. Mats Larsson &Håkan Lindgren:

Risktagandets gränser. Utvecklingen avdet svenska bankväsendet 1850-1980.1989.

7. Paulina De Los Reyes: Bortom Europa. Käll- och litteraturväg-ledning i u-landsstudier. 1992.

8. Håkan Lindgren (red.): Teori, empiri och metod i ekonomisk-his-torisk analys. 1992.

UPPSALA PAPERS IN FINANCIAL HISTORY

1. Mats Larsson: Aktörer, marknader och regleringar. Sve-riges finansiella system under 1900-talet.1993.