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Lending to the Borrower from HellDebt, Taxes, and Default in the Age of Philip II$
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Mauricio Drelichman and Hans-Joachim Voth

Print publication date: 2014

Print ISBN-13: 9780691151496

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691151496.001.0001

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(p.1) Prologue
Lending to the Borrower from Hell

Mauricio Drelichman

Hans-Joachim Voth

Princeton University Press

This prologue provides an overview of state debts and sovereign default in the sixteenth century, looking in particular at Philip II's defaults. The debts and defaults of Philip II suggest that there is another way for financing government borrowing: prearranged reduction in what a government owes and has to pay to creditors in bad times. Indeed, lenders agreed to forego interest or extend the maturity of loans if the king experienced a bad shock. This system exhibited remarkable stability, bringing essentially the same banking dynasties together with the monarch for over half a century, providing financing and insurance. Another remarkable feature of the debt issuance system evolved by Philip II and his financiers is the stability of the banking institutions, the main innovation of which was an effective “risk transfer” mechanism.

Keywords:   state debts, sovereign default, Philip II, government borrowing, banking dynasties, insurance, financing, debt issuance system, banking institutions, risk transfer

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