Lending to the Borrower from Hell: Debt, Taxes, and Default in the Age of Philip II (The Princeton Economic History of the Western World) by Mauricio Drelichman & Hans-Joachim Voth

Author:Mauricio Drelichman & Hans-Joachim Voth [Drelichman, Mauricio]
Language: eng
Format: azw3
Publisher: Princeton University Press
Published: 2014-01-19T05:00:00+00:00

FIGURE 12. Value of lending by new entrants and by bankers with a pre-default relationship, 1566–1600

PENALTIES: THE “TRANSFER STOP” THAT WASN’T

Conklin (1998) held that sovereign lending to Philip II was sustainable because Genoese bankers had a powerful sanctioning mechanism: stopping transfers to Flanders. After the 1575 bankruptcy, bankers would have used this penalty, cutting off funding for the Army of Flanders. This would in turn have caused the 1576 mutiny, which culminated in the Sack of Antwerp. A. W. Lovett (1982, 2) similarly concluded that “the financial prostration of the monarchy led directly to the Sack of Antwerp by Spanish mutineers in the early days of November 1576.” The mutiny and ensuing massacre were highly damaging to the Spanish position. Both the loyal and rebel provinces joined forces in the Pacification of Ghent; Spanish troops were expelled from the Low Countries. Of all the events that facilitated the eventual independence of the Unified Provinces, the Sack of Antwerp is arguably among the most important. It took until 1584 for Spain just to regain its previous footing in terms of territory controlled. Having learned his lesson, the king would have quickly settled with his bankers. According to Conklin, the Sack of Antwerp constitutes a “sanction” in the sense of the modern sovereign debt literature: a painful penalty, beyond a simple exclusion from capital markets, that ultimately forced the king to service his debts.

Table 11. Amounts transferred to Flanders by bankers (in ducats)

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