Foreign Borrowing in 16th Century Spain :: European History Essays

Foreign Borrowing in sixteenth hundred Spain This paper examines the lending by Genoese-led cartel to Phillip II of Spain in the 16th century from the viewpoint of sovereign debt. The Genoese linked specie deliveries from Spain to the broken Countries to lending in order to cartel created a penalty to put on their loans. If the king tried to renege, the Genoese applied the penalty and the king last repaid. I. IntroductionSovereign lending, throughout history, has been marked by occurrences of partial disrespect and repudiation by governments of all kind from medieval princes to dictators to democratic regimes. In the 1970s lending to lesser-developed countries led to the rescheduling and partial defaults in the 1980s. Even the wieldability of the debt of nations much(prenominal) as Belgium, Canada, Italy and even the United States is not free from suspect.The reign of Philip II of Spain provides a good example to extend our knowledge of sovereign lending. Philip II fought war s through out his reign. To finance fluctuations in military expenditures, he had to assume extensively. Repeatedly, Philip IIs Genoese lenders had imposed debt ceilings on the confidential information. Once after reaching the debt ceiling, the Genoese suspended lending. They further punished Spain by put to death a penalty in order to force payment of loans an censor on specie delivered to Spains armies. The military consequence of the embargo was severe. Spain was the dominant military power of the age, and Philip II was the last sovereign to credibly menace to dominate Europe until Napoleon.(Kennedy p30). This played a significant role in testing Philip IIs aspirations in Europe and eventually caused Philip II to cede to the lenders. Sovereign debt theories first must assume the premise that at that place is no third party utilisers and that lenders must be able to enforce claims on their own. In addition these theories use reputation arising through ingeminate in teraction to generate equilibria. It is only then that lending agreements are make and self-enforcing. Bulow and Rogoff (1989b) show that no lending will occur if the only brat is to cut off future lending. This is because merely the threat to withdraw opinion is not a severe enough penalty to prevent the Crown from repudiating his debt. Lenders would then anticipate this, and consequently, they do not lend. There are both classes of models that elaborate on Bulow and Rogoffs result and provide environments where repudiation does sustain positive debt.