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

Foreign adoption in 16th Century Spain This paper examines the lending by Genoese-led trust to Phillip II of Spain in the 16th century from the viewpoint of sovereign debt. The Genoese linked specie deliveries from Spain to the Low Countries to lending in roll to agreement created a penalty to enforce their loans. If the king tried to renege, the Genoese apply the penalty and the king eventually repaid. I. IntroductionSovereign lending, throughout history, has been attach by occurrences of partial(p) default and repudiation by governments of all anatomy 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 sustainability of the debt of nations such as Belgium, Canada, Italy and even the United States is non free from suspect.The reign of Philip II of Spain provides a good example to sway our knowledge of sovereign lending. Philip II fought wars throug h out his reign. To finance fluctuations in armed services expenditures, he had to borrow extensively. Repeatedly, Philip IIs Genoese lenders had enforce debt ceilings on the Crown. Once after reaching the debt ceiling, the Genoese suspended lending. They pull ahead punished Spain by executing a penalty in order to force payment of loans an embargo on specie delivered to Spains armies. The military consequence of the embargo was severe. Spain was the predominant military power of the age, and Philip II was the lastly sovereign to credibly threaten to dominate Europe until Napoleon.(Kennedy p30). This played a significant role in testing Philip IIs aspirations in Europe and eventually ca calld Philip II to cede to the lenders. Sovereign debt theories first mustiness assume the premise that there is no third party enforcers and that lenders must be able to enforce claims on their own. In addition these theories use reputation arising through repeated interaction to generate equilibria. It is only wherefore that lending agreements are made and self-enforcing. Bulow and Rogoff (1989b) show that no lending leave occur if the only threat is to cut off future lending. This is because nevertheless the threat to withdraw credit is not a severe full penalty to prevent the Crown from repudiating his debt. Lenders would then anticipate this, and consequently, they do not lend. There are two classes of models that elaborate on Bulow and Rogoffs resultant role and provide environments where repudiation does sustain positive debt.