The Role Of Institutions To Solve Sovereing Debt Problems: The Spanish Monarchy´S Credit (1516-1665)
The Spanish Monarchy borrowed foreign credit during more than 150 years despite repudiating its agreements from time to time.According to the extant literature on sovereign debt, lenders should not have lent any money to the Spanish Monarchy, especially because they were not organized as a cartel. Sovereign debt theory asserts that the principal constraint on sovereign behavior is the penalty that lenders or an external organization can impose on the borrower. When the sovereign decides whether to honor the loan agreement, his main consideration lies on the size of the penalty he will suffer in the event of a default. The inability to punish the sovereign does not lead to indiscriminate reneging, but to an absence of credit. Thus, the extant theory cannot explain the borrowing that took place in Castile during a large part of the Habsburg dynasty (1516-1665). This paper explains why, in the absence of penalties and having experiences of defaults, bankers kept lending. The mechanism that made this credit possible was based on expectations of the king’s revenues in any given period. Bankers did not have to punish the sovereign because the king was trying to cooperate with many lenders to reduce uncertainty about future credit and to expand the amount of money available.
|Date of creation:||Feb 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.uc3m.es/if
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- David M Kreps & Robert Wilson, 2003.
Levine's Working Paper Archive
618897000000000813, David K. Levine.
- James Conklin, 1998. "The Theory of Sovereign Debt and Spain under Philip II," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 483-513, June.
- Kreps, David M., 1990. "Game Theory and Economic Modelling," OUP Catalogue, Oxford University Press, number 9780198283812, March.
- Chari, V V & Kehoe, Patrick J, 1990.
Journal of Political Economy,
University of Chicago Press, vol. 98(4), pages 783-802, August.
- Telser, L G, 1980. "A Theory of Self-enforcing Agreements," The Journal of Business, University of Chicago Press, vol. 53(1), pages 27-44, January.
- Jeremy A.Rogoff Bulow & Kenneth, 1986.
"A Constant Recontracting Model of Sovereign Debt,"
University of Chicago - George G. Stigler Center for Study of Economy and State
43, Chicago - Center for Study of Economy and State.
- Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
- Jeremy I. Bulow & Kenneth Rogoff, 1987. "A Constant Recontracting Model of Sovereign Debt," NBER Working Papers 2088, National Bureau of Economic Research, Inc.
- Veitch, John M., 1986. "Repudiations and Confiscations by the Medieval State," The Journal of Economic History, Cambridge University Press, vol. 46(01), pages 31-36, March.
- Atkeson, Andrew, 1991.
"International Lending with Moral Hazard and Risk of Repudiation,"
Econometric Society, vol. 59(4), pages 1069-89, July.
- Andrew Atkeson, 2010. "International lending with moral hazard and risk of repudiation," Levine's Working Paper Archive 200, David K. Levine.
- Greif, Avner & Milgrom, Paul & Weingast, Barry R, 1994. "Coordination, Commitment, and Enforcement: The Case of the Merchant Guild," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 745-76, August.
- Herschel I. Grossman & John B. Van Huyck, 1985.
"Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation,"
NBER Working Papers
1673, National Bureau of Economic Research, Inc.
- Grossman, Herschel I & Van Huyck, John B, 1988. "Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation," American Economic Review, American Economic Association, vol. 78(5), pages 1088-97, December.
- Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
- Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1986.
"The Pure Theory of Country Risk,"
NBER Working Papers
1894, National Bureau of Economic Research, Inc.
- Jonathan Eaton & Mark Gersovitz & Joseph E. Stiglitz, 1991. "The Pure Theory of Country Risk," NBER Chapters, in: International Volatility and Economic Growth: The First Ten Years of The International Seminar on Macroeconomics, pages 391-435 National Bureau of Economic Research, Inc.
- Eaton, Jonathan & Gersovitz, Mark & Stiglitz, Joseph E., 1986. "The pure theory of country risk," European Economic Review, Elsevier, vol. 30(3), pages 481-513, June.
- V.V. Chari & Patrick J. Kehoe, 1989.
"Sustainable plans and debt,"
125, Federal Reserve Bank of Minneapolis.
- Douglas Bernheim, B. & Ray, Debraj, 1989. "Collective dynamic consistency in repeated games," Games and Economic Behavior, Elsevier, vol. 1(4), pages 295-326, December.
- Zerbe, Richard O. & Anderson, C. Leigh, 2001. "Culture And Fairness In The Development Of Institutions In The California Gold Fields," The Journal of Economic History, Cambridge University Press, vol. 61(01), pages 114-143, March.
- Greif, Avner, 1989. "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 857-882, December.
- Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-50, October.
When requesting a correction, please mention this item's handle: RePEc:cte:whrepe:wh030804. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.