Greece’s money story
From the phoenix to the euro: nineteen stops, with their sources and an Austrian lens.
Praxeologos
At each stop you will find what happened, with its sources, an Austrian lens, and the passages in this site’s texts that explain what is going on. The ribbon shows the monetary regimes in simplified form, following Sophia Lazaretou’s study for the Bank of Greece (2003); tap a stop to jump to it.
- 1877–1909Inconvertible paper money (fiat)
Thirty years of inconvertible paper
The Russo-Turkish War of 1877–78 brings new military expenditure. Domestic loans are only partly covered and the government turns to inflation finance: the drachma becomes inconvertible paper money. Apart from the nine months of 1885, inconvertible paper lasts from 1877 to 1909.
Austrian lensWhenever public finances are under strain, the metallic rule is abandoned: fiat money is first of all a tool for financing the state.
In this site’s texts- “10. Going Off the Gold Standard” — Murray N. Rothbard, What Has Government Done to Our Money?
- “11. Fiat Money and the Gold Problem” — Murray N. Rothbard, What Has Government Done to Our Money?
Sources: S. Lazaretou, “Greek Monetary Economics in Retrospect: The Adventures of the Drachma”, Bank of Greece, Working Paper no. 2, 2003, §5–6
- 1893 · 1898Inconvertible paper money (fiat)
Default and international financial control
In December 1893 the government unilaterally suspends service on the external debt. After defeat in the Greco-Turkish War of 1897 and the heavy war indemnity, the country has to accept in 1898 the International Financial Commission (international financial control). A decade of spending cuts and disinflation follows; in 1909 the drachma is back at its original parity of 1 to 1 with the franc.
Austrian lensGovernment debt is a claim on future taxes; when it is not serviced, the discipline politics failed to impose is imposed by the creditors.
In this site’s texts- “Appendix A Government Borrowing” — Murray N. Rothbard, Man, Economy, and State with Power and Market
- 19 March 1910Tied to gold through foreign exchange
The drachma on gold
Under Law 3642 of 19 March 1910 the drachma enters the gold standard, at a parity of 1 to 1 with the French franc and in a form based on foreign exchange, and Greece becomes a full member of the Latin Monetary Union. The country’s credit standing improves so much that the huge defence spending of the Balkan Wars of 1912–13 is covered by foreign loans without disturbing the parity. The “golden era” lasts four years, until the First World War in 1914.
Austrian lensCommitment to sound money made the country a credible borrower: the wars of 1912–13 were financed without the printing press.
In this site’s texts- “1. Phase I: The Classical Gold Standard, 1815–1914” — Murray N. Rothbard, What Has Government Done to Our Money?
- “2. Phase II: World War I and After” — Murray N. Rothbard, What Has Government Done to Our Money?
Sources: S. Lazaretou, “Greek Monetary Economics in Retrospect: The Adventures of the Drachma”, Bank of Greece, Working Paper no. 2, 2003, §6–7
- 25 March 1922Inconvertible paper money (fiat)
Cutting the banknotes in half
To finance the Asia Minor campaign, on 25 March 1922 the government takes out a forced loan that raised about 1.3 billion drachmas: the banknotes are cut in two. One half stays in circulation at half its value; the other must be surrendered and is exchanged for government securities. A second forced loan follows in 1926.
Austrian lensInstead of printing, direct removal: whoever held cash lent half of it to the state, willingly or not.
In this site’s texts- “1. The Revenue of Government” — Murray N. Rothbard, What Has Government Done to Our Money?
- “2. The Economic Effects of Inflation” — Murray N. Rothbard, What Has Government Done to Our Money?
Sources: Bank of Greece, Museum: catalogue of the permanent exhibition · Kathimerini, “100 years of K”: “Dichotomisi tou nomismatos” (cutting the currency in two), in Greek
- 14 May 1928Tied to gold through foreign exchange
The Bank of Greece
On 14 May 1928 the Bank of Greece begins operating, with the sole privilege of note issue. The foreign creditors had demanded an independent central bank as a condition of the stabilisation loan the country negotiated through the League of Nations. On the same day the drachma is stabilised: it is devalued, pegged to the pound sterling and enters the interwar gold-exchange standard.
Austrian lensThe gold-exchange standard was not gold: it was a promise resting on a promise, drachmas convertible into pounds and pounds convertible into gold.
In this site’s texts- “3. Phase III: The Gold Exchange Standard (Britain and the U.S.) 1926–1931” — Murray N. Rothbard, What Has Government Done to Our Money?
- April–May 1932Inconvertible paper money (fiat)
Off gold, and a moratorium on the debt
When Britain leaves gold on 21 September 1931, Greece does not follow: it pegs the drachma to the US dollar. The drachma comes under heavy selling pressure and the central bank imposes exchange controls. In April 1932 the government devalues the drachma and abandons the gold-exchange standard; a month later it declares a unilateral moratorium on servicing the external debt.
Austrian lensExchange controls are the sign that a currency can no longer stand up in free exchange.
In this site’s texts- “4. Phase IV: Fluctuating Fiat Currencies, 1931–1945” — Murray N. Rothbard, What Has Government Done to Our Money?
- “6. Foreign Exchange Control and Bilateral Exchange Agreements” — Ludwig von Mises, Human Action
- 1941–1944Inconvertible paper money (fiat)
The hyperinflation of the Occupation
The deficits and the expenses of the occupying forces are financed entirely by printing banknotes. The hyperinflation peaks in October 1944: Hanke and Krus put the monthly rate at 13,800%, with prices doubling every 4.27 days. People abandon the drachma for the gold sovereign. In November 1944 the “new” drachma is introduced, equal to 50 billion old ones.
Austrian lensOnce everyone is convinced the printing will not stop, nobody wants to hold the money any longer: this is the “crack-up boom” Mises describes.
In this site’s texts- “8. The Anticipation of Expected Changes in Purchasing Power”, passage — Ludwig von Mises, Human Action
- “F. The Ultimate Limit: The Runaway Boom” — Murray N. Rothbard, Man, Economy, and State with Power and Market
- “2. The Economic Effects of Inflation”, passage — Murray N. Rothbard, What Has Government Done to Our Money?
Sources: S. Lazaretou, “Greek Monetary Economics in Retrospect: The Adventures of the Drachma”, Bank of Greece, Working Paper no. 2, 2003, §9 · S. H. Hanke and N. Krus, “World Hyperinflations”, Cato Institute Working Paper no. 8, 2012
- 1953 · 1954Tied to gold through foreign exchange
Devaluation and Bretton Woods
In April 1953 the drachma is devalued by 50% against the US dollar, from 15,000 to 30,000 drachmas to the dollar, and joins the Bretton Woods system of fixed exchange rates. In May 1954 the “new” drachma is introduced, equal to 1,000 old ones, so the fixed rate becomes 30 drachmas to the dollar. Two decades of a fixed rate against the dollar and low inflation follow, the drachma’s “golden era”.
Austrian lensThe stability was borrowed: the drachma rested on the dollar, and the dollar on a promise of gold that the United States would break in 1971.
In this site’s texts- “5. Phase V: Bretton Woods and the New Gold Exchange Standard (the U.S.) 1945–1968” — Murray N. Rothbard, What Has Government Done to Our Money?
- “4. The Objectives of Currency Devaluation” — Ludwig von Mises, Human Action
Sources: S. Lazaretou, “Greek Monetary Economics in Retrospect: The Adventures of the Drachma”, Bank of Greece, Working Paper no. 2, 2003, §10 · Bank of Greece, “Drachma coins”
- 1971–1975Inconvertible paper money (fiat)
The end of Bretton Woods
The Bretton Woods system collapses in August 1971. The drachma, still pegged to the dollar and under a loose economic policy, depreciates markedly in 1972–73, following the dollar against the European currencies; together with the rise in raw-material prices (the first oil shock), inflation reaches double digits. In 1975 the drachma is uncoupled from the dollar and the policy of the “sliding” drachma against a basket of currencies begins.
Austrian lensFrom here on no currency is tied to metal: money now means fiat money alone.
In this site’s texts- “7. Phase VII: The End of Bretton Woods: Fluctuating Fiat Currencies, August–December, 1971” — Murray N. Rothbard, What Has Government Done to Our Money?
- “9. Phase IX: Fluctuating Fiat Currencies, March 1973–?” — Murray N. Rothbard, What Has Government Done to Our Money?
Sources: S. Lazaretou, “Greek Monetary Economics in Retrospect: The Adventures of the Drachma”, Bank of Greece, Working Paper no. 2, 2003, §10–11
- 1980–1987Inconvertible paper money (fiat)
Inflation and devaluations
The second oil shock and the large deficits of the pre-election year 1980 push inflation above 20% (24.7% in 1980). In the first half of the 1980s deficits are financed by debt and by money creation. The drachma is devalued in January 1983, by 16% against the dollar and 15% against the ECU, and again in October 1985, by 15%, as part of the stabilisation programme.
Austrian lensInflation is a hidden tax and a redistribution: those who get the new money first gain, those on fixed incomes lose.
In this site’s texts- “2. The Economic Effects of Inflation” — Murray N. Rothbard, What Has Government Done to Our Money?
- “4. The Objectives of Currency Devaluation” — Ludwig von Mises, Human Action
Sources: S. Lazaretou, “Greek Monetary Economics in Retrospect: The Adventures of the Drachma”, Bank of Greece, Working Paper no. 2, 2003, §11 · World Bank, “Inflation, consumer prices (annual %) – Greece”
- 1998–2000Inconvertible paper money (fiat)
The road to the euro
On 16 March 1998, after a speculative attack, the drachma joins the Exchange Rate Mechanism (ERM) at a central rate that amounts to a 12.3% devaluation against the ECU. From 1 January 1999 it takes part in ERM II, and on 17 January 2000 its central rate is revalued by 3.5%, to 340.750 drachmas per euro.
Austrian lens“Convergence” meant that issuing money would pass from a national central bank to a supranational one.
In this site’s texts- “9. Phase IX: Fluctuating Fiat Currencies, March 1973–?” — Murray N. Rothbard, What Has Government Done to Our Money?
Sources: S. Lazaretou, “Greek Monetary Economics in Retrospect: The Adventures of the Drachma”, Bank of Greece, Working Paper no. 2, 2003, §12 and annex
- 2001 · 2002The euro
The euro
Greece joins the euro area on 1 January 2001, at an irrevocable rate of €1 = 340.750 drachmas. Euro banknotes and coins circulate from 1 January 2002; dual circulation with the drachma ends on 28 February 2002.
Austrian lensMonetary policy passed to the ECB, not to the market: the euro too is fiat money, and its quantity (M3) has grown 4.0-fold since January 1999.
In this site’s texts- “What has your euro lost?”
- “8. Central Banking: Removing the Checks on Inflation” — Murray N. Rothbard, What Has Government Done to Our Money?
- The data to date: The quantity of money
Sources: European Commission, “Greece and the euro” · S. Lazaretou, “Greek Monetary Economics in Retrospect: The Adventures of the Drachma”, Bank of Greece, Working Paper no. 2, 2003, §1
- 2010–2012The euro
Bailouts and the haircut
On 2 May 2010 the Eurogroup agrees on €80 billion of bilateral loans to Greece, together with €30 billion from the IMF: the first economic adjustment programme. The yield on the Greek 10-year bond reaches 29.24% in February 2012 (monthly average). In March 2012 a second programme is approved, with an additional €130 billion, and the debt held by private investors is restructured (PSI): about €197 billion of bonds take a 53.5% cut in face value, reducing the debt by about €107 billion.
Austrian lensDebt piled up on cheap credit does not vanish; someone always pays for the loss, here the bondholders and the taxpayers.
In this site’s texts- “Appendix A Government Borrowing” — Murray N. Rothbard, Man, Economy, and State with Power and Market
- The data to date: General government gross debt
Sources: European Commission, “Financial assistance to Greece” · European Stability Mechanism, “What was the private sector debt restructuring in March 2012?” · ECB Data Portal, series IRS.M.GR.L.L40.CI.0000.EUR.N.Z (Greek 10-year bond yield)
- 11 June 2014The euro
Interest below zero
On 11 June 2014 the ECB’s deposit facility rate turns negative for the first time (−0.10%). It stays below zero, at its lowest −0.50% (from 18 September 2019), until 27 July 2022, when it returns to 0%.
Austrian lensInterest expresses people’s time preference; a negative rate set by a committee says that tomorrow is worth more than today.
In this site’s texts- “2. Originary Interest” — Ludwig von Mises, Human Action
- “The ECB: When a Committee Sets the Price of Time”
- The data to date: The ECB’s key interest rates
Sources: ECB, “Key ECB interest rates” · ECB Data Portal, series FM.D.U2.EUR.4F.KR.DFR.LEV (deposit facility rate)
- 28 June 2015The euro
Banks closed, capital controls
Deposits with banks in Greece, €244.2 billion in December 2009, have fallen to €125.9 billion by July 2015. On 28 June 2015, after the ECB declines to raise the ceiling on emergency liquidity assistance (ELA) for Greek banks, a bank holiday is declared; ATM withdrawals are limited to €60 a day per card. The banks reopen on 20 July 2015 with restrictions on capital movements, which are fully lifted on 1 September 2019.
Austrian lensUnder fractional reserve banking the deposits do not all exist as cash; when they are demanded all at once, the state allows the banks not to pay.
In this site’s texts- “7. Permitting Banks to Refuse Payment” — Murray N. Rothbard, What Has Government Done to Our Money?
- “The Federal Reserve and Fractional Reserve Banking” — Murray N. Rothbard, For a New Liberty
- The data to date: Deposits with banks in Greece
Sources: S. Schaefer-Brown, “Greece: National Bank Holiday, 2015”, Journal of Financial Crises (Yale), vol. 7, no. 2, 2025 · Hellenic Bank Association, “Restrictions on cash withdrawals and capital transfers (18 July 2015 – 31 August 2019)”, in Greek · ECB Data Portal, series BSI.M.GR.N.A.L20.A.1.U2.2300.Z01.E (deposits with banks in Greece)
What does the picture look like today? See Greece’s economy in numbers: money, prices, debt and interest rates, with the latest official data. And use the tool “What has your euro lost?” to work out how much purchasing power the euro has lost since 2002.
The events, dates and amounts come from the sources cited at each stop; the figures for 2001, 2010, 2014 and 2015 are computed from the ECB series when the page is built. Dates before 1923 are in the Old Style (Julian) calendar. The “Austrian lens” is Praxeologos’s interpretation, based on the texts of the Austrian School, and is not part of the sources. Links to sources open in a new tab.
Sources
- S. Lazaretou, “Greek Monetary Economics in Retrospect: The Adventures of the Drachma”, Bank of Greece, Working Paper no. 2, 2003
- Bank of Greece, Museum: catalogue of the permanent exhibition
- Government Gazette (ΦΕΚ) 2 A, 22 Feb 1833, “On the drachma” (Greek Wikisource)
- Kathimerini, “100 years of K”: “Dichotomisi tou nomismatos” (cutting the currency in two), in Greek
- S. H. Hanke and N. Krus, “World Hyperinflations”, Cato Institute Working Paper no. 8, 2012
- Bank of Greece, “Drachma coins”
- World Bank, “Inflation, consumer prices (annual %) – Greece”
- European Commission, “Greece and the euro”
- European Commission, “Financial assistance to Greece”
- European Stability Mechanism, “What was the private sector debt restructuring in March 2012?”
- ECB Data Portal, series IRS.M.GR.L.L40.CI.0000.EUR.N.Z (Greek 10-year bond yield)
- ECB, “Key ECB interest rates”
- ECB Data Portal, series FM.D.U2.EUR.4F.KR.DFR.LEV (deposit facility rate)
- S. Schaefer-Brown, “Greece: National Bank Holiday, 2015”, Journal of Financial Crises (Yale), vol. 7, no. 2, 2025
- Hellenic Bank Association, “Restrictions on cash withdrawals and capital transfers (18 July 2015 – 31 August 2019)”, in Greek
- ECB Data Portal, series BSI.M.GR.N.A.L20.A.1.U2.2300.Z01.E (deposits with banks in Greece)