868.51 Refugee Loan, 1924/94

The Chargé in Greece (Morris) to the Secretary of State

No. 2156

Sir: I have the honor to refer to my despatch No. 2146 of May 16th relative to the protest against the Greek foreign debt default. I am enclosing a copy and translation of the reply addressed to me by the Hellenic Foreign Office and a copy and translation of the reply addressed to the British Minister in answer to his protest delivered the same day.10 I also enclose a copy of my Aide-Mémoire left with the Minister for Foreign Affairs, Mr. Michalakopoulos, on May 7th, to which reference is made in the reply of the Foreign Office to my note of May 14th.

It will be noted that the reply addressed to me by the Foreign Office is identical with that addressed to the British Minister, leaving out inappropriate sections of the reply to the British note. There is only one thing in the Greek Government’s reply which introduces any new element of argumentation to be added to those already used both publicly and in previous official communications. That is the statement that the total reserves of the Greek Government in the hands of the Bank of Greece amount at the present time to only $2,350,000. Just before Greece went off the gold standard Mr. Veniselos made the statement in Parliament that the Greek reserve had shrunk from some $30,000,000 in September, 1931 to approximately $13,000,000 at that time. It is difficult to reconcile the enormous divergence between the figures which Mr. Veniselos gave out in April and the figures given in the Foreign Office note. While it is certain that the amount of foreign exchange in the hands of the Greek Government is very small, compared to its needs, it may well be doubted whether the sum of $2,350,000 is an accurate statement or whether it is not scaled down for effect. The official figures of the Bank of Greece indicate a larger sum of money on hand.…

On May 19th the French Chargé d’Affaires and the Italian Minister handed notes to the Minister for Foreign Affairs identical in nature to the protests made by the British Minister and by myself on May 14th. They received the same reply as that given to the British Minister. Yesterday the British Minister visited Mr. Michalakopoulos informally and gave him what he termed a “piece of friendly and unofficial advice from Sir John Simon.” Sir John Simon wished to make it known to the Greek Government that it should in its own interest not leave the Greek public to expect that definite relief would [Page 393] be obtained by Greece at the coming Lausanne Conference,11 and he let it be known that Greece would make a much better showing at the Lausanne Conference if before going there it took the necessary steps to enter into contact with the British bond-holders in a sincere effort to arrive at a mutual understanding in respect of the debt default. Mr. Michalakopoulos told the British Minister in reply that he was no longer in a position to state how far the advice of Sir John Simon would be followed, in view of the fact that the cabinet of which he is a member had submitted its resignation.

Respectfully yours,

Leland B. Morris
[Enclosure 1—Translation]

The Greek Minister for Foreign Affairs (Michalakopoulos) to the American Chargé (Morris)

Monsieur le Chargé d’affaires: With reference to your Aide-Mémoire dated May 7th,12 as well as to your note dated the 14th instant, No. 166, I hasten to bring to your knowledge the following with regard to the question of the transfers required for the service of the American loan placed under the control of the International Financial Commission.

Greece has been almost the only one amongst the small countries which took part in the War which, during its course and after the catastrophe of Asia Minor, has continued to pay in full the service of its debts in gold. If she now finds herself in the inescapable necessity of delaying temporarily the transfer of the necessary sums in foreign money for the service of her foreign debt, this is entirely due to the monetary situation of the country which is causing the deepest anxiety to the Hellenic Government. In order to give an exact idea of this situation it will suffice that I cite to Your Excellency the fact that the total reserve of the Bank of Greece in gold and foreign money amounts at the present moment to $2,350,000. Now the national money has already suffered during these latter days a depreciation which continues, of almost 50% of its value without, however, stopping the tendency to a still more sensible depreciation. To continue in these conditions to effect the necessary transfers for the regular service of our foreign debt could only bring about a complete collapse of the drachma with all the disastrous consequences which this would have, not only for the budget balance but also for the interior order and the social peace of the country. In [Page 394] truth there would be no other remedy to prevent the considerable deficit which would result to the budget from this than to have recourse to new emissions of paper money which would bring about with certainty a financial, economic and social catastrophe such as was seen in Germany in 1922–1923. The first to feel the grave consequences of this would be the creditors of Greece, seeing the material impossibility which the latter would be in to continue to pay her foreign and her domestic debts.

To the contrary of this, it is to be hoped that the temporary suspension of the transfer of the sums in drachmas which the Hellenic Government will be able to set aside by the budget of the fiscal year 1932–1933 for the coupons of the foreign debt will permit Greece to await the result of the approaching Conference of Lausanne and to arrive at an agreement with her creditors. Greece desires to hope that the decision of this Conference and the measures to be taken to prevent economic disaster in the countries of the Southeast of Europe will permit her to avoid the grave dangers which she is facing at this present moment. The creditors of Greece will only be the gainers in these circumstances which would permit the Hellenic Government, while at the same time looking out for the economic and financial situation of the country, to make propositions in the very near future of an equitable nature and as satisfying as possible to the holders of the Greek debt.

In the meanwhile the Ministry of Finance is proceeding to a complete study of the financial situation and in a few days will be in a position to present the budget for the fiscal year 1932–1933 to the Chamber, and will not fail to follow very closely the evolution of the financial situation to the best of the interests of the country and of her creditors.

In order to give a proof of its respect for its international engagements, the Hellenic Government desires to state that it would be quite ready to submit the whole of this question to an arbitral discussion. This arbitration could be extended advantageously for all the parties concerned on the point of learning what is really Greece’s capacity of payment.

The Government of the Republic likes to believe that the Government of the United States of America which in all circumstances has given proof of such good-will towards this country, will appreciate with full understanding the gravity of the moment which Greece is now passing—the Greece which, as I have already said, has made an effort to execute its engagements with a scrupulous precision—and will be good enough to recommend to the American bond-holders not to adopt an attitude of unreasonableness which for [Page 395] the reasons above mentioned would be diametrically opposed to their own interests which are well understood.

Please receive [etc.]

A. Michalakopoulos
[Enclosure 2]

The American Legation to the Greek Ministry for Foreign Affairs


The American Chargé d’Affaires called upon the Hellenic Foreign Minister and with further reference to the matter of the suspension by Greece of the service upon her external debt held in the United States, reiterated the views which his Government held in this matter and which had been the subject of his verbal representations to the Foreign Office on April the 30th.

Mr. Morris stated to His Excellency Mr. Michalakopoulos that the explanation contained in the Foreign Office’s Aide-Mémoire which Mr. Lambros handed Mr. Morris on April 30th as to the imperative necessity for the Greek Government’s action in preventing the Bank of Greece from transferring the May 1st maturities of the 1924 Greek Government 7% Loan, is not regarded by the Secretary of State of the United States as adequate. The Secretary of State has emphasized to the Hellenic Minister in Washington his view that because of the commitments given by the Greek Government to the International Financial Commission the present action of the Greek Government assumes an unusually serious aspect and if allowed to stand will add to the disappointment and criticism with which Greek credit will be viewed. The Hellenic Minister at Washington was also told of the seriousness with which default in payment will be regarded by American investors who have contributed so much to the development of Greece and aided so greatly in meeting various Greek national emergencies.

Mr. Morris reiterated several reasons why, in the opinion of his Government, the Greek Government should exert itself to the utmost to meet its external financial obligations and to make all necessary sacrifice to that end. In the case of the 1924 and 1928 loans the lenders were influenced in part by the thought that they were assisting in the reconstruction of the Greek nation in a period of emergency. They felt that in return for financial assistance given at a time of such great need, the Greek Government would surely fulfill its promises. Mr. Morris recalled that there existed the strongest foundation for this belief because the representatives of the Greek Government made a clear and emphatic declaration in this sense to the Financial Committee and to the Council of the League of [Page 396] Nations, and to the American Government. The fact that the Greek Government requested the support of these bodies in its application for financial assistance was taken as a guarantee that the Greek Government would always meet its responsibilities.

In view of the foregoing considerations, Mr. Morris expressed to His Excellency the Hellenic Foreign Minister the belief of his Government that the Greek Government should exert itself to the utmost to meet its obligations in the fullest possible measure.

  1. The reply addressed to the British Minister not printed.
  2. See vol. i, pp. 636 ff.
  3. Enclosure 2, infra.