Tuesday, April 3, 2012

Ottoman Banking, Public Debt and Surrender To West

Part 1

Between 1854 and 1881, the Ottoman Empire went through one of the most critical phases of the history of its relations with European powers. Beginning with the first foreign loan contracted in 1854, this process was initially dominated by a modest level of indebtedness, coupled with sporadic and inconsequential attempts by western powers to impose some control over the viability of the operation.

From 1863 on, a second and much more intense phase began, which eventually led to a snowballing effect of accumulated debts. The formal bankruptcy of the Empire in 1875 resulted in the collapse of the entire system in one of the most spectacular financial crashes of the period.

It was only six years later, in 1881, that a solution was found in the establishment of the Ottoman Public Debt Administration that would control a large portion of state revenues. The new system restored the financial stability of the Empire, but profoundly modified its rapports de force with Europe by imposing on it a form of foreign control that would have been unthinkable only ten or twenty years earlier.

While bringing a much-needed stability to the flailing Ottoman financial situation and thus opening the way to economic development, the new system also radically changed the very nature of the process of integration, by introducing an imperialist dimension that had been lacking in the previous decades.

(Notes: Kemal Ataturk in taking over power in 1909 allowed 4 western banks to operate an monopoly of paper money system in modern secularised Turkey...)

Part 2: .........................................................................

The collapse of most empires does not happen for military reasons it seems. It happens for financial and economic reasons. It happened to the Soviet Union and it happened to the Ottoman Empire.

In The Arabs: A History by Eugene Rogan we find this happening to the Ottomans in an excerpt below:

The single greatest threat to the independence of the Middle East was not the armies of Europe but its banks. Ottoman reformers were terrified by the risks involved in accepting loans from Europe. In 1852, when Sultan Abdulmecid sought funds from France, one of his advisors to him aside and counseled strongly against the loan: “Your father [Mahmud II] had two wars with the Russians and lived through many campaigns. He had many pressures on him, yet he did not borrow money from abroad. Your sultanate has passed in peace. What will the people say if money is borrowed?” The advisor continued: “If this state borrows five piasters it will sink. For if once a loan is taken, there will be no end to it. [The state] will sink overwhelmed in debt.” Abdulmecid was convinced and canceled the loan, though he would return to European creditors within two years.

What ensued was the Ottoman default and Europe coming in to take control of the economy. The Ottoman state continued to grow weaker economically and militarily until the end of World War I. Then the partitioning of the empire began.

Now today in the United States we have a national debt and Republicans have been focused obsessively with it ever since President Obama took office (not before though). Yet they fail to see what allowing banks to do as far as lending and debt has brought us. The national debt is a concern and it needs to be addressed, but also look at the banks and let the Consumer Financial Protection Bureau operate and do what must be done to regulate.

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