The Invincible Fleet to invade England in 1588 increased the debts of Philip II´s Monarchy
Yesterday we talked about the consequences of maintaining big empires: huge armies to subjugate the different peoples and defend the territories, high administration costs... Philip II´s heritage entailed a lot of responsibilities and huge expenses. During his rule the Hispanic Monarchy went bankrupt four times: in 1557, 1560, 1576 and 1596. Although big quantities of precious metals arrived from the Indies every year, this was not enough to cover the war expenses and the State couldn´t pay its debts. The Fuggers, a familiy of German bankers who worked with the Hispanic Monarchy since Charles V´s times, went also bankrupt when Philip II couldn´t pay his debts. The creditors had to accept that they couldn´t receive all their money (debt deduction). This is what we call debt restructuring: reducing the money the debtors had to give back, changing the period of payment, giving them more time to pay...
The Hispanic Monarchy was the first State to go bankrupt. During Philip III´s rule, there were two more defaults in 1598 and 1607. The same happened during Philip IV´s rule in 1627, 1647, 1652 and 1662. There was a last Habsburg default in 1666 during Charles II´s reign, which led to a monetary reform to control inflation and stabilize prices. The first Bourbons controlled the economic situation during the 18th century, but expenses rocketed in the 19th century, due to several wars, and sovereign defaults came back in 1809, 1820, 1831, 1834, 1851, 1867, 1872 and 1882. The last Spanish default took place during the Spanish Civil War (1936-1939). Spain holds the historical record of sovereign defaults.
If you think about the present situation in Greece, you can imagine how things were here everytime the State went bankrupt. So, what do you think? Are Empires worth it?
Here you have some interesting links to learn more about sovereign defaults:
- List of countries which went bankrupt and had to restructure their debt:
- A Financial Times article which compares Philip II¨s defaults with the present situation in Greece:
List of the historical sovereign debt defaults of some European countries