By the spring of 1922 the Asia Minor campaign of Greece had taken its toll in terms of human life and financial resources. The national treasury was nearly empty and the country was facing economic chaos and bankruptcy. The financial plight of the Greek government was intensified further by the virtual cessation of remittances from Greek immigrants in the United States, Canada, Australia and many countries in Europe.

From October 1921 to March 1922 all efforts to raise a loan in British and American markets failed. The Greek government, therefore, was left with no alternative but to seek a solution within the limits of the country’s resources. The imposition of new taxes on the printing of new money was unacceptable alternatives—in each case the solution was worse than the problem itself.

It was under these circumstances that Minister of Finance, Petros Protopapadakes, conceived his unique plan to force the Greek citizenry to loan the government a portion of its cash holdings, the “Forced Loan of 1922.” On March 24, 1922, Minister Protopapadakes spoke before Parliament. He painted a bleak picture of the military situation and the state of the public treasury; then he proposed a controversial plan of funding fiduciary currency by literally forcing the Greek people to lend their government a portion of their cash holdings. The novelty of the operation caused somewhat of a sensation in American and European financial circles.

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The Forced Loan was carried out literally by a stroke of the scissors on March 25, when the law was drafted, enacted by Parliament, promulgated, and put into force. All persons possessing bank notes of 5, 10, 25, 500, and 1,000 drachmas were required to appear at their nearest bank to receive new currency which was printed in two equal parts. One half, bearing the picture of the founder of the Bank of Greece, constituted legal tender of the Royal Crown, constituted a twenty-year bond at 6.5 % interest and was retained by the bank. This reduced the circulating currency effectively from 3,200,000.00 drachmas ($1,454,545.45) to 1,600,000.00 drachmas ($727,272.72). Foreigners were exempted provided that they applied formally for exemption to their respective legation within ninety days after April 7. It was this provision which was at the center of much controversy throughout the world.

The haste with which the Forced Loan was implemented gave rise to many difficulties and technical problems. The main issue was the fundamental nature of the Loan. It was intended strictly as a piece of municipal legislation directed at the domestic market. However, the ambiguity of its provisions resulted in inconsistencies which let to international complications.

See article "Seek Wisdom and Advice from Sages," also by Christos Papoutsy

The problem regarding Greek currency held abroad was the most serious. Many citizens of Greek origin had savings in branches of Greek banks in many countries around the world. The Greek government argued that all drachmas circulating abroad, either in the possession of individuals or in bank accounts, were being used for purposes of speculation. Smyrna represented a peculiar problem. There were a large number of American firms in Smyrna, and they did not come under the protection accorded to foreigners in Greece proper. In the view of the Greek government, the Greek-occupied sector of Asia Minor had not been annexed to Greece formally, and could only be considered foreign territory for the purpose of the Forced Loan.

In 1926 another Forced Loan was imposed by General Theodore Pangalos; however, it was more limited in its application and much less significant in its international implication.

The novel plan for governments to confiscate funds from banks, attaching their citizens’ bank accounts to meet national moments of financial distress, is an old idea making a return. How many countries will pursue this strategy to supplement their dwindling supply of tax revenues and reduced borrowing capacity? Will history repeat itself?

Cyprus has already considered an outright seizure of a percentage of private monies, labeling this measure a tax to raise desperately needed funds as part of its package of agreements with European Union officials. Vociferous public outrage caused the government to hesitate initially. But a severe monetary crisis forced officials to implement a modified version of their original plan. Just as in the 1920s in Greece, there were significant international implications, repercussions that have begun to reverberate throughout the entire Cypriot economy. Many foreigners, a large number of them businessmen from Russia, will be adversely affected and may opt transfer their businesses and holdings to other countries, amplifying the deleterious effect of the measure.

But Cyprus is not the only country experiencing money woes. Greece, Spain, and Italy--also EU member-states--are similarly grasping for solutions to their difficult economic straits. Money markets and economic experts around the world are watching this situation carefully to analyze the outcome of Cypriot action and its effect upon their own economies. Will the EU urge these countries to undertake similar measures? And with the federal debt of the United States growing exponentially--no plans for serious cost cutting in sight--could Americans, too, experience similar seizures as interest rates rise and the national debt becomes unbearably overwhelming?

(Posting date 05 April 2013)

Christos Papoutsy is the former owner and president of Hollis Engineering-Cooper Electronics Co., with sales in the hundreds of millions worldwide, and director of United States Arbitration & Mediation Co. A noted Greek-American philanthropist, Archon of the Greek Orthodox Church, and member of Leadership 100, Mr. Papoutsy presently writes and lectures on business, entrepreneurship and business ethics. He is also an accomplished musician (santouri, percussion) and the conductor and founder of the 30-piece Hellenic and Near Eastern Musical Society Orchestra. He and his wife, Mary Papoutsy, established the Christos and Mary Papoutsy Endowed Chair in Business Ethics at Southern New Hampshire University in 2001. They also founded and are publishers of Hellenic Communication Service. For more information, see the About Us section of the HCS website or the archives section containing his article and reviews about his books.

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