As we end a week in which Greece failed to make a payment to the IMF and move into a weekend featuring a referendum that could determine the future of the country’s relationship with the rest of Europe, it’s worth noting that Greece has a long history of financial crises.
In their landmark 2010 paper “From Financial Crash to Debt Crisis” and elaborated on in their book “This Time Is Different: Eight Centuries of Financial Folly,” economists Carmen Reinhart and Kenneth Rogoff assembled a comprehensive timeline of financial crises around the world going back to the start of the 19th century.
Reinhart and Rogoff classified six major types of financial crises:
- Banking Crises: Bank runs and similar events that result in the failure of large financial institutions and require significant government intervention.
- Foreign Sovereign Debt Crises: A government failing to make a debt or interest payment to foreign creditors when it comes due, or when a government’s sovereign debt is dramatically restructured.
- Domestic Sovereign Debt Crises: Similar to the above, but involving domestic rather than foreign creditors. Also includes freezing bank accounts or forcibly converting deposits in foreign currency into local currency.
- Stock Market Crashes
- Inflation Crises: An annual inflation rate of at least 20%.
- Currency Crises: A devaluation of the local currency against the US dollar or historically and geographically relevant major currency of at least 15%.
For each of those six types of crises, Reinhart and Rogoff determined whether or not a country was in that particular type of crisis in each year studied. Here’s the result for Greece between 1829, when Greece became fully independent from the Ottoman Empire, and 2010, the last year for which Reinhart and Rogoff provided data:
As with most countries around the world, the turmoil at the beginning of the Great Depression in the late 1920s and early 1930s is apparent in the chart, with several Greek financial crises beginning then and continuing through the post war years.
Especially relevant to the Hellenic Republic’s current difficulties in paying back its creditors is the fact that, as measured by Reinhart and Rogoff, Greece spent 87 of the 181 years — or 48% — between 1929 and 2010 in a state of external debt crisis. Running into problems paying back foreign debt is nothing new for Greece.