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

Mauricio Drelichman and Hans-Joachim Voth

Economics working papers from Vancouver School of Economics

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)
Pages: 36 pages
Date: 2010-04-01, Revised 2011-07-04
New Economics Papers: this item is included in nep-his and nep-ifn
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http://mauricio.econ.ubc.ca/pdfs/Serial_Profits.pdf

Related works:
Journal Article: 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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Persistent link: https://EconPapers.repec.org/RePEc:ubc:bricol:mauricio_drelichman-2010-12

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