Serial Defaults, Serial Profits: Returns to Sovereign Lending in Habsburg Spain, 1566-1600

42 Pages Posted: 30 Sep 2010

See all articles by Mauricio Drelichman

Mauricio Drelichman

University of British Columbia (UBC) - Department of Economics; Canadian Institute for Advanced Research (CIFAR)

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society; Centre for Economic Policy Research (CEPR)

Date Written: September 29, 2010

Abstract

Philip II of Spain accumulated debts equivalent to 60% of GDP. He also defaulted four times on his short-term loans, thus becoming the first serial defaulter in history. Contrary to a common view in the literature, we show that lending to the king was profitable even under worst-case scenario assumptions. Lenders maintained long-term relationships with the crown. Losses sustained during defaults were more than compensated by profits in normal times. Defaults were not catastrophic events. In effect, short-term lending acted as an insurance mechanism, allowing the king to reduce his payments in harsh times in exchange for paying a premium in tranquil periods.

Keywords: Sovereign Debt, Serial Default, Rate of Return, Profitability, Spain

JEL Classification: N23, F34, G12

Suggested Citation

Drelichman, Mauricio and Voth, Hans-Joachim, Serial Defaults, Serial Profits: Returns to Sovereign Lending in Habsburg Spain, 1566-1600 (September 29, 2010). Explorations in Economic History, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1684654

Mauricio Drelichman (Contact Author)

University of British Columbia (UBC) - Department of Economics ( email )

997-1873 East Mall
Vancouver, BC V6T 1Z1
Canada

Canadian Institute for Advanced Research (CIFAR) ( email )

180 Dundas Street West, Suite 1400
Toronto, Ontario
Canada

Hans-Joachim Voth

University of Zurich - UBS International Center of Economics in Society ( email )

Raemistrasse 71
Zuerich, 8006
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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