The Greek government, from the time that it took office at the beginning of 1822, had been desperately short of money. It had three possible sources of income. First, plunder, including ransom money for wealthy captives, but this was generally kept by the captain who had seized or extracted it. Second, taxes and duties were still imposed but these were increasingly hard to collect in a war-torn country from Greeks who felt that the departure of the Turks should mean the end of taxation. Finally, there were contributions from abroad, but these were far too little to finance a country at war. Individuals might contribute some hundreds of pounds sterling, and foreign committees might raise thousands, but the government needed hundreds of thousands – the national budget for 1823–4 showed expenditure exceeding income by the equivalent of £500,000. The only way of raising such sums – tens of millions in today’s terms – was through commercial loans from abroad.
The Greek government had been trying to raise money by this means from its inception, authorising the borrowing of £200,000 equivalent from abroad as one of its earliest acts, but had had no success. The government’s agent for exploring this avenue was Andréas Louriótis, who went first to Spain and Portugal, but ‘the Constitutionalists, being on the brink of ruin, could afford him only compliments and professions of esteem’.1 In February 1823 Louriótis arrived in London, where he was introduced by Edward Blaquiere to the prominent London philhellenes who were about to set up the London Greek Committee. The Committee held its first meeting at the Crown & Anchor tavern in the Strand on 3 March that year, and consisted at its birth of some two dozen prominent figures, two-thirds of them Members of Parliament and also including Jeremy Bentham, Thomas Gordon and Byron’s friend John Cam Hobhouse, with John Bowring as secretary. The Committee’s first act, as we have seen, was to despatch Blaquiere and Louriótis to Greece to report on the state of the country and to persuade the Greek government to send to London official agents who could contract a loan on its behalf. Blaquiere and Louriótis lost no time, and the day after the Committee’s first meeting set sail for Greece. On the way there they called on Byron in Genoa, and in one visit sealed the fate of their host and reordered the prospects for Greece. In September Blaquiere returned to London bringing with him a ludicrously overblown account of the commercial vitality of Greece which he said could, when liberated, become ‘one of the most opulent nations of Europe’.2 The stage was now set for the launch of the first English loan.
London was the best possible place, and perhaps the only possible place, to raise a loan of the size which the Greeks needed. The underlying reason was that, thanks to Britain’s early lead in the industrial revolution, more capital had been generated than domestic agriculture and industry could absorb, so that a weight of money built up in London seeking other outlets. Thus London had developed a group of active traders, often highly disreputable, to promote such outlets: ‘With huge pocketbooks containing worthless scrip; with crafty countenance and cunning eye; with showy jewellery and threadbare coat; with well-greased locks and unpolished boots; with knavery in every curl of the lip, and villainy in every thought of the heart, the stag, as he was afterwards termed, was prominent in the foreground.’3 Other considerations made loans to foreign governments, as in newly independent South America, particularly attractive. In 1822 the interest rate on British government bonds was reduced from 5 per cent to 4 per cent, and in 1824 fell a further ½ per cent on the day after the Greek loan was floated, a conjunction so favourable to the loan that to suspect collusion is hardly cynical. Interest payments had been made more secure by an innovation of Nathan Rothschild whereby interest on foreign securities was paid in sterling, not the local currency. Loan promoters had been further safeguarded by the new syndicate system, whereby the responsibility for the loan was shared among a number of issuing houses and not confined to one.
Finally, there was the puff, intended either to encourage initial purchase of the stock or to maintain its value afterwards. Blaquiere was the main author of puffs for the Greeks, and followed up his first glowing report to the London Greek Committee with two books, hurriedly published in 1824 and 1825, which taken together amount to an extended false prospectus. ‘I should have no hesitation whatever’, he wrote in 1824, ‘in estimating the physical strength of regenerated Greece to be fully equal to that of the whole South American continent.’ In the 1825 book he provided long lists of the exportable products of each Greek region (down to valonia, the husks of acorns used in tanning), praised individual places (Vivári near Navplion was ‘perhaps one of the finest harbours in Europe’, and there was ‘not a more productive region in Europe’ than Thessaly), gave optimistic estimates of the government’s income, and concluded that there was ‘no part of the world … [with] a more productive soil, or happier climate, than Greece’. Thus ‘of all the countries or governments who have borrowed money in London within the last ten years … Greece possesses the surest and most ample means of re-payment’.4 Those on the spot saw things differently. Philip Green, writing from Zákinthos, recorded his ‘sincere conviction that there is not the slightest probability of the re-payment of either interest or capital’.5 If the London Greek Committee and its financier friends had listened to Green rather than Blaquiere there would have been no Greek loan.
On 21 January 1824 the two Greek deputies with powers to contract a loan reached London: Andréas Louriótis, the original agent, and Iánnis Orlándos. Orlándos was a reassuring choice for potential investors. He had served briefly as president of the Senate before making way for Mavrokordhátos and was linked by marriage to the family of Georgios Kondouriótis, the president of the Executive and a consistent opponent of Kolokotrónis. Thus Orlándos’ appointment signalled that the loan money would go to a responsible government and not to a band of unscrupulous captains. Soon after the arrival of the deputies a banquet was given in their honour in the splendid setting of the Guildhall at which Canning, now foreign secretary, another member of the Cabinet and the Lord Mayor of London were present. On 19 February the deputies, on the advice of the London Greek Committee, signed a loan agreement with the issuing house of Loughman, O’Brien, Ellis & Co., and on the following day the loan stock was put on sale to the public.
The bonds of the type issued to raise the Greek loan worked very much like today’s government bonds. Each nominal £100 worth of the bonds would initially be offered at a discount, but the interest would be based on the nominal £100 value, so the greater the discount the better the interest rate. During the life of the bonds – indefinite in the Greek case – they would change hands at different prices depending partly upon whether better interest was available from other investments, and partly on confidence in the bonds: confidence that interest on them would continue to be paid, confidence that each £100 bond would eventually be repaid at £100, and confidence, or the lack of it, that repayment would be made at all.
The Greek bonds had a nominal value of £800,000, but the stock was offered at 59 per cent so that the amount to be actually subscribed was only £472,000; this was a huge sum in relation to Greece’s true resources, but small compared with the £3 million or more loaned to some of the new South American governments. Interest was at 5 per cent on the nominal value, equivalent to over 8½ per cent on the actual investment, and therefore much better than the interest rate on British government bonds. The issuers retained two years’ interest (£80,000) and a further 1 per cent (£8,000) as a contribution to a sinking fund for the eventual repayment of the loan. These retentions, plus commissions to the promoters of some £38,000 (including £11,000 to Bowring), reduced the sum available to the Greeks to something under £350,000. Nevertheless their guarantee to repay the full £800,000 was written on the back of the loan certificate: ‘To the payment of the annuities are appropriated all the revenues of Greece. The whole of the national property of Greece is hereby pledged to the holders of all obligations granted in virtue of this loan until the whole of the capital which such obligations represent shall be discharged.’6 Thus to the London investor the Greek loan appeared to have everything in its favour. It was of a relatively modest size, to an apparently rich country. It seemed to have support at the highest levels of government. Interest was generous and two years of it was already secured. There was the expectation of capital gain when each £59 invested was repaid as £100. Finally, the loan was guaranteed by the total resources of the Greek state. It is no wonder that Bowring, not then a rich man, bought £25,000 worth with his own money, and that the loan was three times oversubscribed.
Nevertheless before long the loan was in trouble. After an initial rise from 59 to 63, helped by optimistic reports from Stanhope which were fed to the press, the price of the stock began to fall. At first there was no news from Greece and by the end of March the stock had dropped to 54, five points below the issue price; as the Morning Chronicle put it, ‘The long want of news from the Morea has in no small degree hurt the interest which was early taken in this Loan.’7 Then there was catastrophic news: on 14 May London learnt that Byron was dead, and the stock plummeted to 44¾. The fall was accelerated by a provision in the loan agreement that the £59 due for £100 worth of stock was to be paid in six instalments paid monthly from the beginning of March. This had a ratchet effect: as the price dropped in the early months, investors would cut their losses and sell off their partly paid stock, thus depressing the price still further. One remedy was to use money raised by the loan to buy up stock to support the price, and in April Bowring and others persuaded the Greek deputies to do this. Bowring and many of his associates had invested heavily with their own money, and so faced a personal crisis. Bowring extricated himself by selling his stock to the reluctant deputies at 49, ten points below what he had paid but six points above the current price of 43. In a similar manoeuvre Joseph Hume MP, a founder member of the London Greek Committee, sold to the deputies his £10,000 worth of stock, which had cost him £5,900, for £4,600, three points above the current price, limiting his loss to £1,300; when the stock improved he asked the deputies for the £1,300 he had lost plus £54 interest, and got both.
Relations between the loan’s promoters and the Greek deputies were further soured by disagreement about how the loan money should be applied. Bowring and the loan’s issuing house had agreed that the distribution of the loan should be in the hands of British commissioners in Greece, to be nominated by the London Greek Committee. The first nominees were Byron and Stanhope, but within weeks of the loan’s launch the Greek deputies were complaining that this purely British arrangement impugned the honour and damaged the interest of Greece. They therefore proposed as a third commissioner Lázaros Koundouriótis, elder brother of the president of the Executive, brother-in-law of Orlándos, and owner of one of the finest houses on Hydra. But there were objections to Koundouriótis as being bound to favour Hydra and the islands, so Bentham, called upon to mediate, proposed an intricate solution: that there should be an additional Greek commissioner (giving Greeks parity with British), that he should be of the anti-government party (to provide balance), but that he should be nominated by Orlándos and Louriótis (to ensure acceptability). It is highly doubtful if this ingenious plan would have worked in practice, but it foundered on Bowring’s objection that the two Greek commissioners ‘would unite in a scheme of depredation for mutual benefit’.8
There were further difficulties over who the British commissioners should be. Byron died on 19 April. In May Stanhope learnt that as a serving British officer he had been recalled to England by the army authorities. Napier, Gordon and John Cam Hobhouse all declined the appointment. Thus when the first £40,000 of the loan – £30,000 in gold sovereigns and £10,000 in Spanish dollars – reached Zákinthos on board the Florida at the end of April and was deposited with Samuel Barff, Byron’s banker, Barff retained it on the grounds that only the commissioners could order its release and that Byron’s death invalidated the commission until a successor was appointed. The second instalment arrived in the Little Sally on 13 June and was similarly retained by Barff. This second delivery prompted the Ionian government to issue a proclamation forbidding such deposits and imposing heavy penalties on anyone involved in forwarding them to Greece. The impasse was finally broken at the end of July when Barff reportedly defied the Ionian government and took a firm stand, declaring: ‘If the money is intended for the Greeks, to the Greeks it shall go, though I should be obliged to go along with it.’9 However Barff may not deserve the praise he has received for his boldness, since in early June the colonial office in London had overridden the Ionian ban by ruling that the Greek loan was a commercial transaction in which the government should not interfere, and news of this would very probably have reached Zákinthos before Barff took his initiative. Whatever the reasons for Barff’s decision, the first £40,000 of the Greek loan was now despatched to the Greek government, followed a few weeks later by a second £40,000. The loan money arrived in Navplion during a lull in the civil strife that tore Greece apart during virtually the whole of 1824.