The major issue confronting Greece with the declaration of war in August 1914 was whether she would go to Serbia’s aid in the advent of an attack by Bulgaria. On October 18/31, 1914, the Greek ambassador in Berlin, Nikolaos Theotokis, telegraphed premier Venizelos providing a summary of a conversation he had with the German Undersecretary of State, Arthur Zimmermann. The latter assured Theotokis that Turkey would not attack Greece and that Bulgaria would not move against Serbia at present. Theotokis stated that Greece had a treaty with Serbia. Zimmermann responded, “that today treaties have very little value.” German foreign policy was to keep Greece neutral. King Constantine was determined to maintain benevolent neutrality at all costs and at the same time not to offend his German brother-in-law, Kaiser Wilhelm II. Premier Venizelos wanted to join the Allies.
During 1915, Greece faced growing financial difficulties due to the large expenditure required for Greek mobilization. In October, Bulgaria joined Germany and Austria in attacking and occupying Serbia, and even the British offer of Cyprus to join the allies didn’t budge Athens from its neutrality stance. Venizelos, however, allowed Anglo-French troops to land in Salonika with intention of going to Serbia’s aid. Stephanos Skouloudis was appointed premier on November 6, 1915, to maintain Constantine’s policy of benevolent neutrality.
On November 10, Skouloudis told the Anglo-French Ministers in Athens, Sir Francis Elliot, and Jean Guillemin, that Greece would stay out of the war and Serbian troops entering Greek territory would be disarmed and interned. Allied troops would be disarmed as well if they entered Greek soil. Skouloudis would apply the Hague Convention allowing a neutral nation to disarm a foreign invader entering its territory. This angered the Anglo-French ministers in Athens who sought guarantees for the protection of their forces in Salonika. Venizelos urged strong action to be taken against his country.
Skouloudis claimed that his remarks were quoted out of context and his explanation proved unsatisfactory to London and Paris.
The French proposed a naval demonstration and the suspension of all provisions and financial aid until Greece clarified its position. Britain suspended all shipments of coal and other supplies, including a proposed loan to Greece. The British foreign secretary, Sir Edward Grey informed the Greek ambassador, Ioannis Gennadius that Athens had to give a clear undertaking about its attitude toward the retreating allied troops before any loan could be given. Skouloudis assured the Anglo-French ministers no harm would come to their troops in Salonika. This resulted in a temporary improvement in Greco-Allied relations.
Germany approached Greece on November 20, 1915, offering a loan of 40 million marks. The proposal was forwarded by Ambassador Mirbach in Athens to Skouloudis. According to George Ventiris, Skouloudis asked whether the loan had any political conditions attached to it, but Mirbach responded in the negative. According to Skouloudis, the German proposal came to the notice of Finance Minister, Dimitrios Rallis and the entire Cabinet, and after a month the Greek authorities secretly negotiated the terms of the loan in early January 1916 with the Bleichroder Bank in Berlin. The loan was negotiated in secret and not even presented to parliament for a vote. Despite the secrecy, the British and French Ministers in Athens pressed Skouloudis about whether the rumors of a loan with Germany were true, but the latter categorically denied it.
In early 1916, Greece’s economic position continued to deteriorate with the allies restricting Greek imports of grain, flour, minerals, coal, and other basic commodities. This didn’t help the allied cause in Greece. Skouloudis suggested that Constantine offer some concessions to the allied demands before the deprivations caused by the blockade pushed the citizenry to desperation. The blockade impacted ordinary Athenians more than the well-to-do – the former couldn’t afford to purchase the daily necessities due to rising prices.
The Allies distrusted Constantine and believed he was passing details of allied troop movements on the Salonika front to the Germans. Even visits by Sir John Stavridis, Denys Cochin, and Lord Kitchener to Athens persuading Constantine to join the allied cause came to naught.
By the end of February, the German loan was insufficient to cover Greece’s economic needs and the continuing mobilization of its army. The Skouloudis government approached the allies for a loan of 150 million francs. Britain and France adopted a different approach to the question of the loan. Elliot suggested “control of the Greek police as a possible condition” whereas Guillemin argued, “demobilization of the Greek army if she refused to join the allies.” If these conditions weren’t meant, the loan should be refused. The allies eventually rejected the Greek loan.
On August 11, 1917, The Times (London) reported a speech made by the Greek Finance Minister, Negropontes, in the Greek Chamber regarding the German loan. He stated that the “loan was concluded through the National Bank of Greece which [thought] that no risks were incurred by the transaction. The (Skouloudis) government had concluded a loan with Germany without deeming it necessary to inform Parliament of its intention, much less consult it. He was at the same time attempting to raise a loan of 125 million drachmae from the allies.” Negropontes made the accusation to Skouloudis “that the conclusion of the loan with Germany coincided with the cession of Rupel to the Bulgarians.” The German loan was negotiated in late 1915/January, 1916 which had nothing to do with the German- Bulgarian occupation of Fort Rupel in late May 1916.
The relevant Greek-German negotiations were published by the Venizelos government in the Greek White Book in 1918. Skouloudis was prosecuted for his ultimate betrayal. In his apology, the former premier argued there was the need for a loan to keep Greece afloat during its difficult period of mobilization, and claimed that he kept the negotiations secret so the Allies would not consider Greece had abandoned her neutrality. Skouloudis also stated that the procedure followed was legal, and had been followed in the past with loans from Entente nations. Venizelos recognized the German loan as legal and promised to repay it.
When the Venizelists regained power in June 1917, they exiled their main political opponents onto islands or abroad. Skouloudis escaped this process because of his advanced age and remained under house arrest until early 1921, when the national assembly of anti-Venizelist composition, effectively declared the accusation and whole process invalid.