Was the frequency of repeat business unusually low after the bankruptcy? We define repeat lenders as those who offered funds during one of the preceding 50 transactions. This gives us a time-varying measure of banker turnover. The volume of lending by bankers without a prior relationship was small throughout. During the period as a whole, an average of 85.4 percent of borrowing came from bankers who had lent recently. In the seven years before the 1575 suspension, 91 percent of lending was repeat business; for the seven years thereafter, this figure was 89 percent.24 Repeat lending continued after 1575, and much of Philip’s borrowed money came from bankers who had lent to him earlier. This is inconsistent with the idea that the king’s default brought ruin to successive waves of lenders.
Despite the frequency of repeat business, a group of financiers whose expectations were disappointed by the bankruptcy and its resolution may have decided to cease lending. To examine this possibility, we look at exits from the pool of active bankers. Figure 11 shows the evolution of funds provided by bankers that will not lend again.
Few lenders terminated their lending relationship with Philip II. Conditional on having lent in a single transaction, the same banker had an 88 percent chance of entering into another contract. Crucially, the period before the bankruptcy of 1575 does not show a spike in bankers who subsequently exit our sample. Bankers who lent before the bankruptcy had a 3.8 percent likelihood of dropping out of the business, compared with 4.4 percent afterward. Because our data set ends in 1600, those lending for the first time later in our sample period have less of a chance to enter into repeat business. This explains the gradual increase of the proportion in the “never again” category over the final few years. There was no discontinuity after the payment stop, which suggests that expectations cannot have been disappointed on a major scale.
FIGURE 11. Annual volume lent in terms of future interactions with the king
In figure 12 we refine the analysis; we examine how many of the lenders to Philip II after 1575 already had been lenders beforehand (and hence were probably affected by the payment stop). We see that the overwhelming majority of funds lent after the default actually came from bankers who had been lending to Castile before the decreto. The proportion declines over time, as new entrants also lend to the king. Still, well into the 1590s, up to half of all money advanced to the king came from lenders who were already in business before 1575. Based on this evidence, it cannot be the folly of bankers—lured into lending by the king, only to be ruined by repeated defaults—that accounts for the continued access to cross-border financing.
Our results suggest that banker irrationality is not a probable explanation for continued lending to Philip II. The same banking families, from the same countries, supplied funds to the monarch throughout his reign. They did so regardless of the defaults: the rate of banker turnover did not change after the payment stops. This makes it unlikely that excessively optimistic lender sentiment, as proposed by Braudel, was responsible for the king’s access to funds.
FIGURE 12. Value of lending by new entrants and by bankers with a pre-default relationship, 1566–1600
PENALTIES: THE “TRANSFER STOP” THAT WASN’T
Conklin (1998) held that sovereign lending to Philip II was sustainable because Genoese bankers had a powerful sanctioning mechanism: stopping transfers to Flanders. After the 1575 bankruptcy, bankers would have used this penalty, cutting off funding for the Army of Flanders. This would in turn have caused the 1576 mutiny, which culminated in the Sack of Antwerp. A. W. Lovett (1982, 2) similarly concluded that “the financial prostration of the monarchy led directly to the Sack of Antwerp by Spanish mutineers in the early days of November 1576.” The mutiny and ensuing massacre were highly damaging to the Spanish position. Both the loyal and rebel provinces joined forces in the Pacification of Ghent; Spanish troops were expelled from the Low Countries. Of all the events that facilitated the eventual independence of the Unified Provinces, the Sack of Antwerp is arguably among the most important. It took until 1584 for Spain just to regain its previous footing in terms of territory controlled. Having learned his lesson, the king would have quickly settled with his bankers. According to Conklin, the Sack of Antwerp constitutes a “sanction” in the sense of the modern sovereign debt literature: a painful penalty, beyond a simple exclusion from capital markets, that ultimately forced the king to service his debts.
Table 11. Amounts transferred to Flanders by bankers (in ducats)
Sources: AGS, Contadurías Generales, Legajos 86–93; Vázquez de Prada 1962, 330–33.
Note: The 1577 value is the amount transferred before the medio general.
a In addition to this amount, Conklin reports that the Crown physically transported slightly under four hundred thousand ducats to Flanders in 1576.
To test if a dramatic shortfall of cash was responsible for the Sack of Antwerp, we reconstruct total transfers from the asientos in our database and complement them with transfers not contained in lending contracts, as reported by Valentín Vázquez de Prada (1962). Table 11 shows the volumes transferred to Flanders between 1566 and 1577, as derived from the archival record.25
After the decree suspending payments from September 1575, the Genoese indeed stopped all lending and transfers. Transferring funds by sea or overland was nearly impossible (Lovett 1982).26 Other bankers did not lend, but they moved funds. In total, German and Spanish bankers transferred 2.1 million ducats during the two years of the suspension (Ulloa 1977, 795–96). Combined with the 400,000 ducats transported directly to Flanders, an average of 1.25 million ducats per year was available.27 This was plenty; in the four years prior to the decree, average remittances ran at only 1.1 million per annum. Thus, after 1575, the Crown had access to more money than before in Flanders. Only the peak remittances of 1574–75 were higher than transfers in 1576 and 1577.
As with many early modern armies, troops in Flanders often went unpaid for extended periods. Mutinies were a regular occurrence; Spanish troops there rebelled thirty-two times during the reign of Philip II. During the mutiny of the garrison of Antwerp in 1598, for example, one man was owed back pay since 1584. Even if this was extreme, pay received was normally only a fraction of what was owed. For instance, mutineers at Zechem in 1594 had received 66 percent of the promised wages during 1582–90 (Parker 1972).
There are therefore two diametrically opposed interpretations of the mutinies in the Army of Flanders. One sees them as a desperate response to a dramatic shortfall in financial resources, with the mutiny leading to the Sack of Antwerp as its most egregious case (as argued by Conklin). The alternative sees mutinies as a form of wage bargaining. The scope for settlement should increase when the size of the pie grows. The savage attack of Antwerp is not the logical extension of this arrangement but rather a dramatic illustration of the system breaking down.
To distinguish between these two hypotheses, we use annual data on the frequency of mutinies and transfers to Flanders. If the first hypothesis is correct, mutinies should increase in frequency as transfers fall short. If they are in effect an attempt at bargaining over (back) pay, then an increase in royal resources in the Low Countries should create more conflict. To explore whether mutinies in general were associated with low transfer levels, we compile the number of mutinies declared in the Army of Flanders each year between 1573 and 1598. In table 12, we regress these data on several variables that may have affected the rebelliousness of Spanish soldiers. These include the amount transferred to Flanders, both in the current year and previous ones; the total cost of the Flanders campaign; and the cost of settling mutinies.28
Table 12. Determinants of mutinies, 1573–98
Note: Poisson regressions. Values in parentheses are z-statistics. Significance levels are * <10% and ** <5%. All independent variables are expressed in millions of ducats.
The first three columns regress the number of mutinies on the value of transfers in the same year and with up to two lags. The few significant coefficients have a positive sig
n; mutinies follow years of exceptionally large transfers. This effect persists if we add the total cost of the Flanders campaign, which itself is not significant (column [4]). In column (5), we add the cost of settling mutinies. This last variable is positive and significant, as expected: when mutinies break out, the cost of settling them increases. Furthermore, including it eliminates the importance of the transfers and military expenditure variables. We conclude that mutinies were not caused by a reduction in transfers from Castile. If anything, mutinies occurred in years with larger than normal transfers. This strongly suggests that mutinies were not violent responses to a dramatic shortfall in resources; as their common occurrence suggests, they were part and parcel of the bargaining process between field commanders, the king, and ordinary soldiers.
As a matter of fact, as a result of frequent mutinies, the system had evolved a highly standardized procedure for dealing with the issue of back pay and soldier grievances. In normal times, the mutinous troops would elect a leader, expel all those who were not joining forces with them, and enter into direct negotiations with the government. Demands could include, in addition to back pay, a pardon for the mutineers, a general muster (giving soldiers a chance to join another regiment), a hospital, religious care, and cheap provisions from government granaries (Parker 1972). If resolving a mutiny took time, the government would normally move mutineers to a town of lesser military importance and provide a minimum allowance (sustento) until enough money had arrived to pay off the troops. Mutineers were typically even paid for the months during which they had refused orders. It is unsurprising, then, that as Parker (1973) put it, “few fighting forces could boast of as many mutinies or of mutinies better organized than the Army of Flanders.”
In the run-up to the Sack of Antwerp, the 1576 mutiny was neither the biggest one (in terms of the number of soldiers involved), nor the longest, nor the most costly to resolve (based on the final settlement for the mutinous troops). It began when unpaid troops demanded their due after successfully taking the town of Zierikzee. The mutiny was more expensive than preceding ones, but not by a large margin; the final cost was 633,000 ecus—some 89,000 higher than the previous one (also in Antwerp, in 1574). Many of the subsequent mutinies were larger, involved more people, lasted longer, and resulted in higher demands for back pay. By the standards of the Eighty Years’ War, the amount owed in 1576 was not unusually large. If transfers were ample and mutinies a common occurrence, what explains the unusual violence of 1576 and its grave political and military consequences for Spain?
In contrast to the civilized negotiation process that soldiers and administrators typically engaged in during a mutiny, the culmination of the 1576 episode was dramatic indeed. After storming the city walls of Antwerp on November 4, 1576, Spanish mercenaries raped, burned, and pillaged indiscriminately for three days. More than seven thousand inhabitants in a previously loyal city lost their lives. Citizens who escaped with life and part of their property often had to pay protection money. The events became known as the Spanish Fury and greased the wheels of Protestant anti-Spanish propaganda.29
Why did an everyday mutiny turn into a massacre and major setback for Spanish ambitions in the Low Countries? What was missing were loyal officials willing to carry out Philip II’s orders, disbursing cash sent and finding a settlement with the mutineers (as the king repeatedly urged his appointees to do). The untimely death of the governor-general, Don Luis de Requesens, in March 1576 created a power vacuum. As recognized in some of the historical literature, Don John of Austria’s delay in taking up his post as the new governor-general allowed anti-Spanish sentiment to gain strength.30 Based on a close reading of the letters between the king and local officials, we are able to take the argument further. The Council of State, dominated by Dutch nobles, saw the mutiny as an opportunity to end the war by thwarting Spain’s military ambitions. It therefore decided not to employ the funds sent for the purpose of pacifying the mutineers. To demonstrate the salience of this view, we first show that the Crown never lacked the funds to pay off the mutineers, and then explore the tension between the king and Council of State.
FIGURE 13. The Sack of Antwerp. Scenes of the Spanish Fury at Antorff, 1576, Flemish school, sixteenth century.
In August 1576, Spain’s total debt with the mutineers stood at 123,000 ecus.31 Between May and August 1576, Philip II had sent 400,000 ecus to Flanders—300,000 of which were earmarked for the mutineers. On August 27, 1576, the king wrote to the Council of State:
In an attempt to remedy matters as much as possible, we [the king] have sent a few days ago a bill of exchange for 200,000 ecus, in addition to the other 100,000 ecus already sent, so that you have the means to satisfy the demands of the soldiers. (Gachard 1861, doc. 1699)
By mid-September, the Fugger family alone had transferred 600,000 ecus to the Netherlands on Philip’s behalf. The total transferred after the bankruptcy and before the Sack of Antwerp amounted to 732,000 ecus. This is approximately five times more than the debt at that time with the mutineers and, in fact, more than the eventual settlement. Philip II thus never lacked the funds to put an end to the mutiny or the means to transfer them to the Low Countries. The mutiny and Sack of Antwerp do not reflect a catastrophic shortfall of cash, caused by the bankruptcy of 1575. The money was in Flanders already. It just failed to reach the soldiers owing to political brinkmanship, as we show next.
In August, the king urged the caretaker government to deal generously with the mutineers. He insisted that “it is necessary to avoid this [further conflict with the mutineers] by all possible means, as we expect you will do, by negotiating with one and the other, as well as using the money that we have sent to you in the past days” (ibid., doc. 1699). Yet on August 17, 1576, the Council of State wrote to the king, telling him that all attempts to subdue the provinces fighting under the lead of the Prince of Orange had failed. The only way forward, it urged, was to settle with the rebels. If the king did not agree, the council asked to be dismissed (ibid., doc. 1692).
By mid-September, the king was in despair. He complained to the council of its lack of “obedience and good intelligence, which ministers should have” because the mutiny had not yet been settled with the funds sent. He then commanded the council to use the 200,000 ecus already provided with the express purpose of satisfying the mutineers (ibid., doc. 1712). In a letter to Gerónimo de Roda, one of Philip’s officials in the Low Countries, he emphasized that there was no problem in transferring funds. In his letter from August 27, the king wrote that he would “try to find other sources of funds, to send via the same [said] person, in order not to leave anything undone, so that with divine kindness it will be possible to achieve the true pacification of our good country over there” (ibid.). Clearly the king’s ability to obtain money was the key difficulty—not transferring it. The king underscored that he had good ways of transferring funds through a trusted intermediary with all the right qualities. Money had been available since August 21; it was Philip’s express command that it be used to pay off the Spanish and Walloon mutineers.
Again, the Council of State failed to do as it was told. By October 18, Roda reported that the mutineers had received no more than 43,000 ecus, and that without a further 80,000 plus the two months’ pay since August, they were unwilling to return to the colors (ibid., doc. 1744). Meanwhile, the Estates of Flanders and Brabant had authorized the raising of local troops to defend against the mutineers. Led by a local nobleman, Jacque de Glimes, these troops then arrested the Council of State and expelled the Spanish members. The Estates next published an edict declaring the Spanish mutineers outlaws who must be put to death (ibid., doc. 1729). Instead of negotiating over back pay in a structured and peaceful way, as was typical, the mutineers were suddenly declared criminals subject to summary execution. This left them with no choice but to use force.
The correspondence between Philip II and his ministers in the Low Countries shows that political events—the untimely death of the governor-general as wel
l as the independent agendas of the local assemblies and nobles—determined why a run-of-the-mill mutiny was not quelled quickly. Philip II was fully aware that paying the troops was important to avoid a major setback. He sent more than enough cash and repeatedly urged his officials to use the standard remedies to mutiny in the Army of Flanders—kindness to the soldiers, disbursement of back pay, and avoidance of conflict. All financial means necessary for a settlement were available from August 1576 onward, three months before the Sack of Antwerp. Instead of following the king’s orders, the Council of State along with the Estates of Flanders and Brabant used the mutiny (and death of the governor-general) to pursue their own agenda—making peace with the rebels in Holland and Zeeland, thereby unifying the Low Country provinces with a view to expelling the Spaniards altogether. Deprived of a chance to seek redress from the government in the normal way, the troops were left with few options. They therefore began to sack loyal cities violently—first Aalst and then Antwerp. For the Dutch nobles, this strategy paid off in political terms. After the Sack of Antwerp, the previously loyal cities turned against Spanish rule. As a result of the Pacification of Ghent, the rebellious provinces and formerly loyal ones now joined forces, promulgated religious tolerance, and united in the aim to drive out the Spanish. Don John of Austria, when he finally arrived to take up his post of governor-general, could only do so on the condition that all Spanish troops left.
Lending to the Borrower from Hell: Debt, Taxes, and Default in the Age of Philip II (The Princeton Economic History of the Western World) Page 20
