Germany Ravaged the Greek Drachma - OZY | A Modern Media Company
German Airborne Troops Before The Flight To Crete In Germany On June 2nd 1941


Stability and prosperity in Greece may depend on patching up differences with Germany.

By Steven Butler

It doesn’t take a history buff to know that the Greeks don’t take too kindly to others throwing jabs their way. “Who is Mr. Schäuble to ridicule Greece?” Greek President Karolos Papoulias asked a few years ago, referring to the powerful German finance minister’s opposition to a second bailout for Athens. But that wasn’t enough to stop the comments. Even last month, after Greece had (once again) capitulated to the financial demands of the European Union, Wolfgang Schäuble remarked: “It won’t be good for Europe if we are too generous with the Greeks.” Ouch.

There’s lots of history behind Papoulias’ initial flash of anger — history on both sides. And it’s easy to see why remarks like that would provoke anger in Greece today, where some Greeks are still pressing Germany to pay reparations for World War II misdeeds. Yet the truth is that today’s reality of German financial rectitude — and moralizing over it — versus Greek profligacy is only a modern phenomenon. When the Nazis occupied Greece during World War II, back when Papoulias fought in the resistance, they didn’t just brutalize and starve much of the population; they also grossly mismanaged the Greek economy, especially the currency, the drachma. After all, why not pay for the occupation by just printing somebody else’s money?

Greeks must wonder how historically mismanaged Germany has nearly complete control over Greek economic policy today.

To be sure, Germany didn’t originally intend to invade and occupy Greece, and Athens tried to stay neutral. But fascist Italy — then a Nazi ally — jumped the gun and tried to pick off Greek territory, invading from the north. When Greek troops successfully fended off the attack, Hitler figured he had to come to the aid of his ally, so his troops rolled down the Balkan Peninsula in 1940. They arrived without provisions and simply took what they needed. Germany stripped the economy bare.

“They have all become thieves,” wrote musicologist Minos Dounias. “They empty houses of whatever meets their eye.” As a result of that, and massive disruption of the economy, tens of thousands died from famine through the winter of 1941, and as many as 250,000 perished throughout the occupation from lack of food, according to figures cited by Columbia University historian Mark Mazower in Inside Hitler’s Greece.

Drachmas in circulation jumped from 24 million in June 1941 to 109.8 million a year later, Mazower chronicles, while the official price of bread rose from 70 to 2,350 drachmas. With paper money having become so worthless, other “currency” gained favor — olive oil, cigarettes and wheat, for example. Money in circulation hit 4 billion by January 1944, and rocketed to 68.8 billion by that summer. An oke of corn — 2.75 pounds of it — cost 25 million drachmas, making the official currency, for the most part, impractical as a unit of exchange.

A Greek 20-drachma coin lays on a map showing Greece.

A Greek 20-drachma coin.

Source Karl-Josef Hildenbrand/Landov

The ravaging inflation rivals Germany’s experience during the ill-fated Weimar Republic. James Grant, writing in Grant’s Interest Rate Observer, notes that the Greek money supply was a mere 826-million-fold greater in 1944, when the Germans abandoned Greece, compared to 1939, before the war. In Germany, the money supply grew by 3,250 million times. That appears to make the German experience more severe, although it took place over a longer period, from 1914 to 1923.

The Weimar experience of hyperinflation is often cited as a reason why Germans today are so sensitive about even a hint of rising prices, although the historical record isn’t so clear. It was the deflation — falling prices — of the Great Depression in the early 1930s that brought Hitler to power. And whatever the experience at home, the Germans plainly had no compunction about letting Greek printing presses churn out an endless supply of money, giving contemporary German disdain for Greek economic management a hollow ring.

After the war the German mark emerged as a strong, stable currency, while Greece had a weak, inflation-prone currency. “Greece’s experiments with managing its own currency have not been encouraging,” Grant tells OZY, citing repeated defaults, devaluations and bouts of inflation. Greece decided to join the Eurozone — giving up its own currency in 2000 for the euro — in part to escape that past. And there’s no hiding the fact that Greece’s current economic woes are mostly of its own making: overborrowing, overspending, corruption and rampant tax evasion.

Still, given Germany’s own tangled history of economic mismanagement, Greeks must surely wonder how it is that Germany today has nearly complete control over Greek economic policy. After all, joining the Eurozone was supposed to strengthen Greek democracy and independence, not undermine it. “It’s a live issue,” Mazower says. “To what extent today is Greece independent?”

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