Greece: the very symbol of illegitimate debt

3 March 2011 by Eric Toussaint

Summary: The Greek public debt made the headlines when the country’s leaders accepted the austerity measures demanded by the IMF and the European Union, sparking very significant social struggles throughout 2010. But where does this Greek debt come from? As regards the debt incurred by the private sector, the increase has been recent: the first surge came about with the integration of Greece into the eurozone in 2001. A second debt explosion was triggered in 2007 when financial aid granted to banks by the US Federal Reserve, European governments and the European Central Bank was recycled by bankers towards Greece and other countries like Spain and Portugal. As regards public debt, the increase stretches over a longer period. In addition to the debt inherited from the dictatorship of the colonels, borrowing since the 1990s has served to fill the void created in public finances by lower taxation on companies and high incomes. Furthermore, for decades, many loans have financed the purchasing of military equipment, mainly from France, Germany and the United States. And one must not forget the colossal debt incurred by the public authorities for the organization of the Olympic Games in 2004. The spiraling of public debt was further fueled by bribes from major transnationals to obtain contracts, Siemens being an emblematic example.

This is why the legitimacy and legality of Greece’s debts should be the subject of rigorous scrutiny, following the example of Ecuador’s comprehensive audit commission of public debts in 2007-2008. Debts defined as illegitimate, odious or illegal would be declared null and void and Greece could refuse to repay, while demanding that those who contracted these debts be brought to justice. Some encouraging signs from Greece indicate that the re-challenging of debt has become a central issue and the demand for an audit commission is gaining ground.

Factors proving the illegitimacy of Greece’s public debt

Firstly, there is the debt contracted by the military dictatorship and which quadrupled between 1967 and 1974. This obviously qualifies as odious debt Odious Debt According to the doctrine, for a debt to be odious it must meet two conditions:
1) It must have been contracted against the interests of the Nation, or against the interests of the People, or against the interests of the State.
2) Creditors cannot prove they they were unaware of how the borrowed money would be used.

We must underline that according to the doctrine of odious debt, the nature of the borrowing regime or government does not signify, since what matters is what the debt is used for. If a democratic government gets into debt against the interests of its population, the contracted debt can be called odious if it also meets the second condition. Consequently, contrary to a misleading version of the doctrine, odious debt is not only about dictatorial regimes.

(See Éric Toussaint, The Doctrine of Odious Debt : from Alexander Sack to the CADTM).

The father of the odious debt doctrine, Alexander Nahum Sack, clearly says that odious debts can be contracted by any regular government. Sack considers that a debt that is regularly incurred by a regular government can be branded as odious if the two above-mentioned conditions are met.
He adds, “once these two points are established, the burden of proof that the funds were used for the general or special needs of the State and were not of an odious character, would be upon the creditors.”

Sack defines a regular government as follows: “By a regular government is to be understood the supreme power that effectively exists within the limits of a given territory. Whether that government be monarchical (absolute or limited) or republican; whether it functions by “the grace of God” or “the will of the people”; whether it express “the will of the people” or not, of all the people or only of some; whether it be legally established or not, etc., none of that is relevant to the problem we are concerned with.”

So clearly for Sack, all regular governments, whether despotic or democratic, in one guise or another, can incur odious debts.
 [1] .

Following on, we have the Olympic Games scandal of 2004. According to Dave Zirin, when the government proudly announced to Greek citizens in 1997 that Greece would have the honour of hosting the Olympic Games seven years hence, the authorities of Athens and the International Olympic Committee planned on spending 1.3 billion dollars. A few years later, the cost had increased fourfold to 5.3 billion dollars. Just after the Games, the official cost had reached 14.2 billion dollars. [2] Today, according to different sources, the real cost is over 20 billion dollars.

Many contracts signed between the Greek authorities and major private foreign companies have been the subject of scandal for several years in Greece. These contracts have led to an increase in debt. Here are some examples which have made the main news in Greece:
- several contracts were signed with the German transnational Siemens, accused - both by the German as well as the Greek courts - of having paid commissions and other bribes to various political, military and administrative Greek officials amounting to almost one billion euros. The top executive of the firm Siemens-Hellas, [3] who admitted to having “financed” the two main Greek political parties, fled in 2010 to Germany and the German courts rejected Greece’s demand for extradition. These scandals include the sales, made by Siemens and their international associates, of Patriot antimissile systems (1999, 10 million euros in bribes), the digitalization of the OTE - the Hellenic Telecommunications Organization - telephone centres (bribes of 100 million euros), the “C41” security system bought on the occasion of the 2004 Olympics and which never worked, sales of equipment to the Greek railway (SEK), of the Hermes telecommunications system to the Greek army, of very expensive equipment sold to Greek hospitals.
- the scandal of German submarines (produced by HDW, later taken over by Thyssen) for a total value of 5 billion euros, submarines which from the beginning had the defect of listing to the left (!) and which were equipped with faulty electronics. A judicial enquiry on possible charges (of corruption) against the former defence ministers is currently under way.

It is absolutely reasonable to presume that the debts incurred to clinch these deals are founded in illegitimacy, if not illegality. They must be cancelled.

Beside the above-mentioned cases, one must also consider the recent evolution of the Greek debt.

The rapid rise in debt over the last decade

Debt in the private sector has largely developed over the decade of the noughties. Households, to whom the banks and the whole private commercial sector (mass distribution, the automobile and construction industries, etc.) offered very tempting conditions, went massively into debt, as did the non-financial companies and the banks which could borrow at low cost (low interest rates Interest rates When A lends money to B, B repays the amount lent by A (the capital) as well as a supplementary sum known as interest, so that A has an interest in agreeing to this financial operation. The interest is determined by the interest rate, which may be high or low. To take a very simple example: if A borrows 100 million dollars for 10 years at a fixed interest rate of 5%, the first year he will repay a tenth of the capital initially borrowed (10 million dollars) plus 5% of the capital owed, i.e. 5 million dollars, that is a total of 15 million dollars. In the second year, he will again repay 10% of the capital borrowed, but the 5% now only applies to the remaining 90 million dollars still due, i.e. 4.5 million dollars, or a total of 14.5 million dollars. And so on, until the tenth year when he will repay the last 10 million dollars, plus 5% of that remaining 10 million dollars, i.e. 0.5 million dollars, giving a total of 10.5 million dollars. Over 10 years, the total amount repaid will come to 127.5 million dollars. The repayment of the capital is not usually made in equal instalments. In the initial years, the repayment concerns mainly the interest, and the proportion of capital repaid increases over the years. In this case, if repayments are stopped, the capital still due is higher…

The nominal interest rate is the rate at which the loan is contracted. The real interest rate is the nominal rate reduced by the rate of inflation.
and higher inflation Inflation The cumulated rise of prices as a whole (e.g. a rise in the price of petroleum, eventually leading to a rise in salaries, then to the rise of other prices, etc.). Inflation implies a fall in the value of money since, as time goes by, larger sums are required to purchase particular items. This is the reason why corporate-driven policies seek to keep inflation down. than for the most industrialized countries of the European Union like Germany, France, the Benelux countries and Great Britain). This private debt was the driving force of the Greek economy. The Greek banks (and the Greek branches of foreign banks), thanks to a strong euro, could expand their international activities and cheaply finance their national activities. They took out loans by the dozen. The chart below shows that Greece’s accession to the eurozone in 2001 has boosted an inflow of financial capital, which can be in the form of loans or portfolio investments (Non-FDI in the chart, i.e. inflows which do not correspond to long term investments) while the long term investments (FDI- Foreign Direct Investment) have remained stagnant.

In $ million. Source: IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

With the vast amounts of liquidity Liquidity The facility with which a financial instrument can be bought or sold without a significant change in price. made available by the central banks in 2007-2009, the Western European banks (above all the German and French banks, but also the Belgian, Dutch, British, Luxembourg and Irish banks) lent extensively to Greece (to the private sector and to the public authorities). One must also take into account that the accession of Greece to the euro bolstered the faith of Western European bankers who thought that the big European countries would come to their aid in case of a problem. They did not worry about Greece’s ability to repay the capital lent in the medium term. The bankers considered that they could take very high risks in Greece. History seems to have proved them right up to that point. The European Commission and, in particular, the French and German governments have given their unfailing support to the private banks of Western Europe. In doing so, the European governments have placed their own public finances in a parlous state.

In the chart below we see that the countries of Western Europe first increased their loans to Greece between December 2005 and March 2007 (during this period, the volume of loans grew by 50%, from less than 80 billion to 120 billion dollars). After the subprime crisis started in the United States, the loans increased dramatically once again (+33%) between June 2007 and the summer of 2008 (from 120 to 160 billion dollars). Then they stayed at a very high level (about 120 billion dollars). This means that the private banks of Western Europe used the money which was lent in vast quantities and at low cost by the European Central Bank Central Bank The establishment which in a given State is in charge of issuing bank notes and controlling the volume of currency and credit. In France, it is the Banque de France which assumes this role under the auspices of the European Central Bank (see ECB) while in the UK it is the Bank of England.

and the US Federal Reserve FED
Federal Reserve
Officially, Federal Reserve System, is the United States’ central bank created in 1913 by the ’Federal Reserve Act’, also called the ’Owen-Glass Act’, after a series of banking crises, particularly the ’Bank Panic’ of 1907.

FED – decentralized central bank :
in order to increase their own loans to countries such as Greece. [5]. Over there, where the rates were higher, they could make juicy profits. Private banks are therefore in large part responsible for Greece’s excessive debt.

 Evolution of Western European banks’ exposure to Greece (in billion dollars)

Source: BIS Bank for International Settlements
The BIS is an international organization founded in 1930 charged with fostering international monetary and financial cooperation. It also acts as a bank for central banks. At present, 60 national central banks and the ECB are members.
consolidated statistics, ultimate risk basis

As shown in the chart below, Greek debts are overwhelmingly held by European banks, mostly French, German, Italian, Belgian, Dutch, Luxembourg and British banks.

 Foreign holders (almost exclusively foreign banks and other financial companies) of Greek debt securities (end of 2008)


Greek citizens have every right to expect the debt burden to be radically reduced, which means that the bankers must be forced to write off debts from their ledgers.

The odious attitude of the European Commission

After the crisis broke, the military-industrial lobby Lobby
A lobby is an entity organized to represent and defend the interests of a specific group by exerting pressure or influence on persons or institutions that hold power. Lobbying consists in conducting actions aimed at influencing, directly or indirectly, the drafting, application or interpretation of legislative measures, standards, regulations and more generally any intervention or decision by the Public Authorities.
supported by the German and French governments and the European Commission saw to it that hardly a dent was made in the defense budget while at the same time, the PASOK (Socialist Party) government set about trimming social spending (see the box on austerity measures below). Yet at the beginning of 2010, at the height of the Greek crisis, Recep Tayyip Erdogan, Prime Minister of Turkey, a country which has a tense relationship with its Greek neighbour, visited Athens and proposed a 20% cut in the military budget of both countries. The Greek government failed to grab the line thrown to them. They were under pressure from the French and German authorities who were anxious to safeguard their weapons exports. In proportion to the size of its economy, Greece spends far more on armaments than the other EU countries. Greek military spending represents 4% of its GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
, as compared to 2.4% for France, 2.7% for the United Kingdom, 2.0% for Portugal, 1.4% for Germany, 1.3% for Spain, and 1.1% for Belgium. [8] In 2010, Greece bought six frigates (2.5 billion euros) and armed helicopters (400 million euros) from France. From Germany it bought six submarines for 5 billion euros. Between 2005 and 2009, Greece was one of Europe’s five largest weapons importers. The purchase of fighter aircraft alone accounted for 38% of its import volume, with, for instance, the purchase of sixteen F-16 (from the United States) and twenty-five Mirage 2000 (from France) – the latter contract amounting to 1.6 billion euros. The list of French equipment sold to Greece goes on: armoured vehicles (70 VBL), NH90 helicopters, MICA, Exocet and Scalp missiles as well as Sperwer drones. Greece’s purchases have made it the third biggest client of the French military industry over the past decade. [9]

From 2010, increasingly high interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. rates charged by bankers and other players in the financial markets, supported by the European Commission and the IMF, have triggered the usual “snowball effect” : the Greek debt has followed an upward trend as the country’s authorities take out loans in order to repay interest (and part of the previously borrowed capital).

The loans granted as from 2010 to Greece by EU member countries and the IMF will not serve the interests of the Greek people - quite the opposite. The austerity measures implemented entail numerous infringements of the people’s social rights. On that grounds, [10] the notion of “illegitimate debt” should be applied and its repayment contested.

Infringement of social rights and neo-liberal measures implemented in Greece since 2010

Reduction of public sector wages by 20 to 30 %. Cuts in nominal wages that could reach 20%, 13th and 14th month salaries replaced by an annual lump sum, the amount of which varies according to wages. A freeze on wages over the next 3 years. In the public sector, 4 out of 5 workers who retire will not be replaced. In the private sector, massive wage cuts up to 25%.

Unemployment benefits have been cut, and a poverty support scheme implemented in 2009 has been suspended. Drastic cuts in benefits for large families.

Plans to end collective bargaining and impose individualized contracts instead. The existing practice of extended very low paid or even unpaid internships has been legalized. Resorting to temporary workers is now permitted in the public sector.

Drastic cuts in subsidies to municipalities, leading to mass lay-offs of workers. Sacking of 10,000 workers under fixed term contracts in the public sector. Public companies showing a loss to be closed down.

Increase in indirect taxation (VAT raised from 19% to 23% and special taxes on fuels, alcohol and tobacco introduced). Increase from 11% to 13% of the lower VAT rate (this concerns staple goods, electricity, water, etc.). Increased income tax for the middle brackets, but reduced corporate tax.

Intention to privatize the ports, airports, railways, water and electricity supply, the financial sector and the lands owned by the State.

Pension schemes
Pensions are to be cut and then frozen. The legal retirement age has been increased, the number of years’ contributions required to be entitled to full pension benefits will be set at 40 in 2015 up from 37, and the amount of pension will be calculated on the average wages of the total working years and no longer on the last pay. For retired workers in the private sectors, the 13th and 14th month pension payments have been abolished. Spending related to pension has been capped to a maximum level of 2.5% of GDP.

Public transport fares
Price of all public transport fares increased by 30%.

The demand for an audit is gathering momentum

In December 2010, the independent MP Sophia Sakorafa made a speech in the Greek Parliament proposing the creation of a Parliamentary Commission to audit the Greek public debt. This proposal attracted a great deak of attention. [11] Sophia Sakorafa, who was a member of the government party PASOK until a few months ago, voted against the 2011 budget [12] partly because of the heavy debt repayments. When justifying her brave position, she extensively referred to the audit carried out in Ecuador in 2007-2008 which resulted in a significant reduction of the country’s debt. She proposed that Greece should follow the Ecuadorian example and asserted that there was an alternative to submitting to creditors, whether IMF or bankers. In making her case she placed stress on the “odious debt” that should not be repaid. This stance was widely covered by the media. Again in the Greek parliament, the leader of Synaspismos (one of the radical left parties) Alexis Tsipras also asked for an audit commission to be set up “so that we know which part of the debt is odious, illegitimate and illegal.” Greek public opinion is changing and the media are watching.

On 5 December 2010, a leading Greek daily published an op-ed by the Greek economist Costas Lapavitsas entitled: “International Audit Commission on the Greek Debt: an Imperative Request”. In his conclusion, the author writes: “The international commission will have a privileged scope of activity in our country. You only need to think about the debt agreements made with Goldman Sachs’s mediation or intended to finance the purchase of weapons to see how badly an independent audit is needed. If they are proved to be odious or illegal, these debts will thus be declared null and our country could refuse to repay them, while taking the people who incurred them to court.”

On 3 March 2011, Economists, activists, academics and parliamentarians from across the world have supported a call to audit Greece’s public debts. The call demands the establishment of a public commission to examine the legality and legitimacy of debts with a view to dealing with them as well holding those responsible for unjust debts to account. There is widespread anger in Greece because debt has ballooned since the crisis of 2007-9. There is also belief that the debt is unsustainable and that austerity measures are forcing the poorest in society to pay for the economic problems caused by the crisis. The Greek campaign for a public audit has obvious importance for Ireland, Portugal, and Spain, and could lead to broader European action against debt. Trade unions, several political parties and many intellectuals support this proposal as a means of finding a solution to debt through cancellation on the one hand, and penalization of companies and people responsible for this illegitimate debt on the other. It should be noted that a Greek anti-debt committee was set up in 2010. [13] These elements are encouraging. 2011 could mark the start of a welcome change as regards the Left’s ability to devise solutions to resist the diktat of creditors.

Translated by Francesca Denley and Stéphanie Jacquemont in collaboration with Judith Harris


[1According to Alexander Sack, who theorized the doctrine of odious debt, “If a despotic power incurs a debt not for the needs or in the interest of the State, but to strengthen its despotic regime, to repress the population that fights against it, etc, this debt is odious to the population of all the State. This debt is not an obligation for the nation; it is a regime’s debt, a personal debt of the power that has incurred it, consequently it falls with the fall of this power” (Sack, 1927). For a concise overview, see (in French) “ La dette odieuse ou la nullité de la dette”, a contribution to the second seminar on International law and Debt organized by CADTM in Amsterdam in December 2002, . See also “Topicality of the odious debt doctrine”,,3515 and

[2Dave Zirin, “The Great Olympics Scam, Cities Should Just Say No”, : “But for those with shorter memories, one need only look to the 2004 Summer Games in Athens, which gutted the Greek economy. In 1997 when Athens “won” the games, city leaders and the International Olympic Committee estimated a cost of 1.3 billion. When the actual detailed planning was done, the price jumped to $5.3 billion. By the time the Games were over, Greece had spent some $14.2 billion, pushing the country’s budget deficit to record levels.”

[3See a detailed summary of the Siemens-Hellas scandal at . The charges made by the German courts against Siemens were so undeniable that in order to avoid a sentence in due form, the company agreed to pay a fine of 201 million euros to the German authorities in October 2007. The scandal has tarnished Siemens’s image to such an extent that, in an attempt to redress the situation, the transnational company conspicuously announces on its web page that it has contributed 100 million euros to an anti-corruption fund. See :

[4Taken from C. Lapavitsas, A. Kaltenbrunner, G. Lambrinidis, D. Lindo, J. Meadway, J. Michell, J.P. Painceira, E. Pires, J. Powell, A. Stenfors, N. Teles : “The eurozone between austerity ans default”, September 2010.

[5The same occurred at the time for Portugal, Spain, and countries of Central and Eastern Europe

[6Taken from C. Lapavitsas et al., op. cit.

[7Taken from C. Lapavitsas et al., op. cit. According to the BIS in December 2009, the French banks owned 31 billion dollars of the Greek public debt, the German banks 23 billion dollars.

[82009 figures. Among the NATO members, only the United States spends more than Greece (4.7%) in proportion to its GDP.

[9Some of the data mentioned is taken from François Chesnais, “Répudiation des dettes publiques européennes !” in Revue Contretemps n°7, 2010, which is itself based on the data of the Stockholm International Peace Research Institute (SIPRI),

[10At least one argument can be added for that new debt to be declared illegitimate or void, and it goes as follows: for a contract between two parties to be valid, according to Common Law, the principle of contractual autonomy, of the voluntary consent of both parties, must be fully respected, meaning that each party to the contract must be in a position to say no or refuse any clauses of the contract which go against its interests. When in March-April 2010 the financial markets started to blackmail Greece and when then the European Commission and the IMF united to impose draconian conditions on Greece (very harsh austerity measures that infringe social and economic rights), it can be considered that Greece was not really in a position to exert its autonomy and refuse them.

[13See its website This committee joined the CADTM international network in December 2010.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Greece 2015: there was an alternative. London: Resistance Books / IIRE / CADTM, 2020 , Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012, etc.
See his bibliography:
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

Other articles in English by Eric Toussaint (612)

0 | 10 | 20 | 30 | 40 | 50 | 60 | 70 | 80 | ... | 610




8 rue Jonfosse
4000 - Liège- Belgique

00324 60 97 96 80