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Serial defaults, serial profits: Returns to sovereign lending in Habsburg Spain, 1566-1600

Mauricio Drelichman and Hans-Joachim Voth

Explorations in Economic History, 2011, vol. 48, issue 1, 1-19

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 (search for similar items in EconPapers)
Date: 2011
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Working Paper: Serial Defaults, Serial Profits: Returns to Sovereign Lending in Habsburg Spain, 1566-1600 (2011) Downloads
Working Paper: Serial defaults, serial profits: Returns to sovereign lending in Habsburg Spain, 1566-1600 (2011) Downloads
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