868.51 War Credits/669
The Minister in Greece (MacVeagh) to President Roosevelt4
My Dear Franklin: I wish to thank you for your Note of January 16th5 and to reply as promptly as possible to your request for my opinion as to the present and future ability of the Government of [Page 534] Greece to pay us a little more on the debt. The question is a complicated one, and must be looked at from the political as well as from the economic standpoint. I think some consideration should be given, too, to the reduced present-day value of Greece’s funded debt to us and the possibilities of settlement which this offers in connection with trade concessions and commercial bargaining.
From a purely economic standpoint there appears to be no reason why Greece should not make substantially larger debt payments to the United States Government during 1934 than in the preceding two years. The Bank of Greece reported reserves of gold and foreign exchange totalling over four billion drachmas (nearly 40 million dollars) on December 31, 1933, representing 36.7 per cent of banknote circulation plus sight liabilities. Furthermore, these reserves have shown a steady upward trend for many months, the Bank’s ratio having risen from 21.7 per cent at the close of 1932. The Greek budgetary situation is less satisfactory, however, and expenditures for the fiscal year ending March 31, 1934, are expected to exceed revenues by about 6 per cent. Nevertheless, it may be assumed that a few hundred thousand dollars could be found for payments to the United States. You may not have seen that, on account of the rise in the cost of living in Greece, the salaries of Greek Army Officers and Government Employees, including Deputies, have just been raised to the tune of 420,000,000 drachmas, or over four million dollars.
Business conditions in Greece have shown steady improvement since the early part of 1933. The future is regarded with some optimism and further recovery should lead to a material increase in Greek capacity to meet foreign debt payments. But the devaluation of the Greek currency to 43 per cent of its 1931 gold parity has produced a heavy increase in the drachma value of the foreign debt, most of which is in terms of gold dollars or sterling. Even fifteen months after the drachma depreciated to its present level, prices are only 32 per cent above the low point reached in August, 1931, as against a 130 per cent increase in the price of gold. Current revenues of the central government absorb nearly a quarter of the national income without providing for more than a fraction of the service of the public debt, and can hardly be increased. In the meantime, Greece has been forced to pay higher drachma prices for imported commodities than ever before. Until this disparity between prices of domestic and imported products disappears, the full service of the Greek foreign debt would represent an abnormally large percentage of national income and of total government revenues. Judging by past experience, however, Greek price levels will adjust themselves in time, and government revenues will again be adequate to cover all expenditures, including the full service of the foreign debt. So much for the economic aspects of the situation.
[Page 535]The political factors are less encouraging. Since the first Greek loan was floated abroad 101 years ago, this country has periodically increased its foreign indebtedness. Maturing obligations were normally met by additional borrowing, and there was apparently little thought that Greece should ever attempt an actual reduction of its foreign debt. The habit of a century is difficult to break. Greece was for generations a pawn of the Great Powers, and it is not surprising that a general feeling still exists in this country that the world owes Greece a living. When new foreign loans were not available, as at present, Greece played poor and complained of the enormity of its debt burden, as though the latter had never been assumed voluntarily. Whatever the purely economic aspects, the fact remains that any Greek Government which attempted too sudden a reversal of these established policies would scarcely remain long in power.
There is probably little question as to Greek financial ability to meet the modest annuities provided for in the American debt funding agreement.6 But what the United States may actually collect will depend upon the future action of Greece’s other creditors and upon any steps taken to render further payments to the United States politically palatable to the Greek public. This latter problem I believe presents a real crux here as in other European countries. Some combination of debt readjustment, trade concessions and export credits for American agricultural products would seem to present the most attractive possibilities, and such a combination would better express the true Greek capacity to pay than any financial balance-sheet.
In the funding agreement between the United States and Greece, interest on the older part of the debt ($18,125,000) was calculated at 0.3 per cent, and on the newer portion ($12,167,000) at 4 per cent. In this way, Greece was to repay the principal in full, while the very low interest rates were intended to bring aggregate payments within Greek financial capacity. It appeared to the American public, and less favorably to the Greek public, that full payment was being exacted. But during the same period Greece was borrowing money in New York and London on terms to yield 8 per cent and more. Appraised on this basis, the true value of the debt funding agreement of May 10, 1929, was scarcely more than $12 millions as against a nominal total of over $30 millions. Meanwhile, events since 1929 have indicated that an 8 per cent interest rate was by no means too high as a measure of the risk involved. Current quotations for Greek bonds in New York are in the neighborhood of 25 per cent of their face value. On this latter basis, the present value of the debt as funded would be less than $8 millions, a figure which might well prove attractive to the Greek public [Page 536] and good business for the United States to accept as a basis for an early settlement in full, particularly if combined with trade advantages.
Any attempt at a true appraisal of the value of Greece’s debt to the United States must produce a figure which seems unimportant in comparison to other American economic interests in Greece. This country has been for years the largest market in American agricultural and manufactured products in the Balkans and the Near East. When the United States was selling wheat at export prices prior to 1931, total Greek imports of American products were in excess of $20 millions annually. Nor was this trade unbalanced. The United States is the only wheat exporting nation which also absorbs large quantities of Greek products. Including invisible items, notably emigrant remittances and tourist expenditures, the balance between the two countries has been in Greece’s favor for many years. She continues to import very considerable quantities of wheat, cotton, rice and other products which the United States is in a position to supply. In 1934, she must import over ten million bushels of wheat and around fifty million pounds of rice. Both figures are well above the average Greek imports of these commodities from American sources during the past ten years.
Summing up, in answer to your question I would say that Greece has the financial and economic ability to pay us more than she is doing right now, and would probably be able to increase the payments in the future as her condition improves, but that it is highly unlikely that any Greek Government would dare, in the face of Greece’s other engagements and the temper of her people, which is that of Europe at large, to make any serious attempt to live up to this particular obligation. I have even been warned, unofficially, that we shall have difficulty in collecting 27½% of the interest on the 1929 loan this year. What appears to be the best possible way out of our difficulties is, therefore, in line with the ideas you expressed to me before I left Washington last year; namely a fixed settlement in guaranteed cash payments to a greatly reduced total, perhaps based on the true value of the debt today plus trade advantages which a popular government could accord in return for the maintenance of its credit without flying in the face of the general European prejudice against “Uncle Shylock.” The reduction in the figures could be played up as a gesture from us and the trade concessions proved to be of advantage to Greece, whereas our position could be shown at home to be well taken. In other words, looked at from all the pertinent angles, Greece can indeed pay us out to a great extent, but only partly in cash.
Devotedly yours,
- Received in the Department March 30; original letter returned to the White House.↩
- Not found in Department files.↩
- Signed at Washington, May 10, 1929; for text of agreement, see Annual Report of the Secretary of the Treasury on the State of the Finances for the Fiscal Year Ended June 30, 1929 (Washington, Government Printing Office, 1930), p. 308.↩