Olga Christodoulaki
PhD Thesis, London School of Economics and Political Science, 2015
Type: Dissertations

Abstract
The establishment of a fully fledged central bank in Greece between May 1927 and May 1928 was a prerequisite for the country’s stabilisation programme prepared by the FinancialCommittee of the League of Nations.
Prior to 1928, the National Bank of Greece had acted as a central bank whilst at the same time being by far the biggest and most powerful commercial bank in the country. Under pressure from the League, its governors faced the challenge of transforming it into a fully fledged central bank by shedding all business that was in the province of deposit and commercial banking. They chose instead for the Bank to retain its commercial activities and instead a new fully fledged central bank was established.
This thesis explores both the central banking and commercial aspects of the National Bank from the enactment of the Law of Control in 1898 until de jure stabilisation in 1928. It addresses the following questions: why was the National Bank not in a position to transform itself into a fully fledged central bank on its own initiative following a path similar to that described by the natural evolution hypothesis? Why were the commercial activities of the National Bank so important that in the end it chose to retain that aspect of its business when prior to 1927 it had so fiercely guarded its central banking privileges? 
It is argued that it was the way in which the governors of the National Bank combined central banking responsibilities with commercial banking that safeguarded and preserved the financial strength and consequently the reputation of the Bank throughout its entire history as a bank of issue.
The financial position of the dual-purpose Bank was also protected by the conservative and risk-averse way in which it pursued its commercial activities. The National Bank’s financial strength was based on its market power and its ability to select high quality assets and liabilities which resulted in its enduring profitability and solvency. The quality of its assets and liabilities was more important for its governors than maximisation of profits per se. The way that central banking reforms were implemented is also studied. The objectives and functions of the new central bank are evaluated as well as its financial position when it first opened its doors for business. It is maintained that the statutes of the Bank of Greece were at the heart of the central banking principles promoted by the Bank of England and were focused on the macro function of a central bank and on its role as the bank of the government.
This thesis also sheds light on the complex relationship that arose between Greek governments and foreign supervisors between the enactment of the Law of Control in 1898 and stabilisation in 1928. Furthermore, it asks questions about the conditionality attached to bailout loans in the late nineteenth century and in the 1920s. The impact that international financial intervention had on monetary reforms is clearly demonstrated. It is argued that monetary developments in Greece between 1898 and 1928 reflect the political economy of the time as well as the historical circumstances. Monetary reforms were shaped by the objectives of the National Bank and the constraints under which it operated rather than foreign control.
These findings provide valuable insights into why Greek governments have unsuccessfully struggled to implement widespread structural reforms demanded by their lenders since 2010 and as a consequence the country has experienced a deep and protracted economic recession.

Supervisor: Kennedy, William P. and Crafts, Nicholas F. R. and Schulze, Max-Stephan

An electronic copy of the PhD Thesis can be found at: http://etheses.lse.ac.uk/3801