Μake us preferred on Google When Greece’s resistance was overcome by German, Italian and Bulgarian forces in April 1941, the country’s economy was already in poor condition. The war effort and the global economic downturn caused by the conflict had severely eroded purchasing power, and hunger was beginning to spread.
The 3.5-year occupation, which lasted from April 1941 to October 1944, inflicted devastating damage on the Greek economy. Greece estimated its total economic losses at $15 billion in prewar U.S. dollars, while a United Nations assessment put the figure considerably lower, at $1 billion to $2 billion in prewar dollars. Regardless of the estimate, the damage was immense.
The rapid changes in prices and the collapse of the drachma made it extremely difficult to calculate the full extent of the losses. However, studies and historical records consistently describe an economy devastated by shortages, monetary instability and the extraction of resources by the occupying powers.
Hyperinflation sends prices soaring
Hyperinflation was one of the defining features of Greece’s wartime economy. Domestic production fell sharply, goods became increasingly scarce, and prices surged. At the same time, the occupying forces used state funds and the Bank of Greece’s reserves to finance their military operations. They also seized Greek agricultural and industrial products and shipped them to Germany.
The scale of the currency’s collapse was extraordinary. In 1940, one gold sovereign was worth 1,000 drachmas. By 1944, its value had risen to 1.5 billion drachmas.
Research published in 1945 by Sotirios Agapitidis (1910–1997), an emeritus professor of economics at the National Technical University of Athens, illustrates how rapidly the cost of living increased. A basic household basket of goods that cost an average of 3,745 drachmas in 1940 rose to 60,513 drachmas in December 1941 and 333,590 drachmas a year later. By December 1943, it had exceeded 3.1 million drachmas. In December 1944, it cost more than 2 quadrillion drachmas.
The increases were already severe in the first months of the occupation. By October 1941, the cost of living was 7.5 times higher than in April of that year. Compared with 1940 prices, olive oil cost 12.5 times as much, meat nearly 14 times as much, and bread 46 times as much.
Over the following years, prices for olive oil, dairy products, vegetables and fruit rose even more dramatically. By October 1943, these goods cost more than 1,000 times their 1940 prices.
Inflation became uncontrollable in the fall of 1943. Until September, monthly price increases had remained below 65%. In October, prices began rising by more than 100% each month, effectively doubling. In August 1944, prices jumped sevenfold from the previous month, while the monthly increase reached 750% in October.
Agapitidis attributed the increases primarily to shortages caused by disruptions to international trade, declining domestic production, the occupying forces’ financing needs and the breakdown of the country’s distribution networks. The scarcity of goods also fueled an extensive black market, where prices climbed even higher.
The drachma collapses
To meet its financial needs, the Greek state resorted to printing money on an enormous scale. The amount of currency in circulation rose from 11.2 billion drachmas in 1940 to 19.4 billion in 1941 and 79.1 billion in 1942. It then surged to 560 billion in 1943 and exceeded 18 trillion drachmas in 1944.
In a 2019 special edition marking the Bank of Greece’s first 80 years, covering the period from 1928 to 2008, Michalis Psalidopoulos, an emeritus professor of the history of economic theory at the National and Kapodistrian University of Athens, described the period as a “monetary catastrophe.”
The speed at which money lost its value was also reflected in how quickly people spent it. According to American economist Gail E. Makinen’s 1986 study of Greek hyperinflation and stabilization between 1943 and 1946, Greeks in 1938 typically held a banknote for about 40 days before spending it. By November 1944, a banknote remained in a person’s hands for just four hours.
Makinen examined Greece’s experience as one of seven cases of hyperinflation in the 20th century.
After the occupation ended, the Greek government returned from Cairo and made two unsuccessful attempts to stabilize prices. In November 1944, a “new drachma” was introduced, with each new unit equivalent to 50 billion old drachmas.
Efforts to control prices through the creation of a commercial police force failed to produce the desired results. Taxes imposed on rents also proved ineffective. Rents had been successfully frozen throughout the occupation, but the new taxes contributed to the closure of several businesses.
Currency stabilization was eventually achieved in 1946 through a Monetary Committee established in cooperation with Britain and the United States.
Gold sovereigns become a store of value
As the drachma collapsed, gold emerged as a comparatively reliable store of value. Both Greeks and the occupying forces had lost confidence in the currency, making gold sovereigns one of the most sought-after forms of wealth.
To prevent the occupying forces from confiscating the country’s gold reserves, the Bank of Greece secretly transferred its holdings from its branch in Heraklion, Crete, in February 1942, using Navy vessels. The gold continued its journey after the occupation began, eventually reaching Pretoria, South Africa. It was later moved to London, where it remained until the end of the war. Afterward, the reserves were used to support efforts to stabilize the currency.
More than 1.3 million gold sovereigns are estimated to have entered Greece during the occupation, mainly from Italy and through the German occupying forces. Gold was also used to provide financial support to resistance fighters operating in the mountains, with Allied assistance. The occupying forces themselves also used gold sovereigns.
According to the Bank of Greece, the period saw the emergence of a strong Greek affinity for gold, a phenomenon that continues to influence the country today. Greece remains one of the few countries where gold sovereigns are still relatively widely circulated.
The forced occupation loan
Another major financial burden was the compulsory loan imposed on Greece by the occupying powers, Germany and Italy. The arrangement remains a significant chapter in the country’s economic history.
According to the records of Georgios Mantzavinos, deputy governor of the Bank of Greece, the original loan was estimated at approximately 3.4 million gold sovereigns. The arrangement was subsequently extended, bringing the total amount transferred to 7.9 million gold sovereigns.
In drachma terms, the occupation loan is estimated to have exceeded 1 quadrillion. However, the currency’s extreme depreciation makes it nearly impossible to calculate the loan’s actual value.
The occupying forces took 1.5 billion drachmas from Greece’s state coffers every month, without repayment. They maintained that the money was being used to construct and reinforce infrastructure in Greece. Tax revenues, however, were insufficient to cover their monthly demands.
The Greek administration under occupation therefore printed additional money to meet the payments, further accelerating inflation. In an effort to stabilize the drachma, Hermann Neubacher, the German special plenipotentiary for economic and monetary affairs in Greece, reduced the monthly payment to the occupying forces by half, to 750 million drachmas.
