Default, rescheduling and inflation : debt crisis in Spain during the 19th and 20th centuries

This article provides a historical overview of the factors leading up to debt crises and the default methods used by the governments to solve them, ranging from repudiation and restructuring to inflation tax and financial repression. The paper also analyses the Spanish governments’ graduation to responsible public debt management under the democracy and the last debt crisis starting in 2010. After analysing the evolution of the outstanding public debt, the budget deficits, the Spanish economy’s ability to borrow, the central government’s debt affordability and the profile of the sovereign debt the article concludes that the Spanish case confirms the main hypothesis of Reinhart and Rogoff (2009) about international debt crisis, regarding to: short term borrowing enhanced the risk of a debt crisis; insolvency problems arose when the governments were unwilling or unable to repay the debt; debt crisis took place after large capital inflows; most outright defaults ended up being partial defaults; sovereign debt level became unsustainable when it rose above 60-90 % of GDP; default trough inflation became commonplace when fiat money displaced coinage; financial repression was used as a subtle type of debt restructuring; defaults endangered the creditworthiness of Spanish Finance Ministry and forced disciplined fiscal policies