Screwing the moneylenders

The PIGS are squealing.

Barely a day has passed this summer without rumour of sovereign debt default panicking already skittish markets. Greece would have defaulted without massive EU intervention, but even this hasn’t prevented fresh fear of Eurozone-wide contagion.

France is the latest casualty, with shares in its financial institutions paying a heavy price this week.

The Euro monument outside the ECB in Frankfurt, Germany By This photo (C) Lars Aronsson (Own work) [CC SA 1.0 (], via Wikimedia Commons

The spectre of sovereign debt default is not contained to the Eurozone. American politicians played a game of fiscal chicken as the US Treasury came within hours of being unable to service its multi-trillion dollar debt. Both sides eventually flinched, with emergency legislation being passed on 2nd August. Xinhua, the Chinese news agency and voice of US’s biggest creditor, was harsh in its assessment, stating that:

“It is time for the naughty boys in Washington to stop chicken games before they cause more damages.”

It might seem that such financial crises are a product of our financially interdependent and globalised age. But debt crises and sovereign defaults stretch back to when such lending was extended to city-states, kingdoms and empires and when sovereigns were, well, sovereigns.

Struzenegger and Zettelmeyer’s surprisingly accessible book on debt default reveals that the first recorded  sovereign debt default occurred in the fourth century B.C.

Temple of Isis, Delos By Bernard Gagnon (Own work) [CC BY-SA 3.0 ( or GFDL (], via Wikimedia Commons

Ten out of the thirteen members of the Attic Maritime Association defaulted on loans issued by the Delos Temple. Whether these errant city-states were subject to divine wrath is not recorded, but their earthly representatives had a practical response – they took to lending to private concerns rather than public bodies.

This default kicks off a long recorded history of financial irresponsibility which has come full circle with today’s Greek crisis.

Debt default was the exception to the norm of dealing with financial problems by currency debasement. The Roman denarius started life in the Republic with an almost pure 4.5 grams of silver.

Silver denarius bearing the portrait of Emperor Nero Classical Numismatic Group, Inc. [GFDL ( or CC BY-SA 2.5 (], via Wikimedia Commons

By the time of Nero this had reduced to 3.8 grams, and the fall of Rome was highlighted by the coin being substituted for a bronze issue in the reign of Diocletian.

Henry VIII found himself desperately short of money as he pursued foreign conflict in the 1540s. The short term solution was a wholesale debasement of English coinage beginning in 1546.

By 1551, the silver content of the coins was barely a sixth of those minted in the reign of his father, Henry VII. The ‘golden age’ of Elizabeth was accompanied by a silver age for English coins, as quality and confidence in the currency were restored.

Currency manipulation was not a complete solution, however, and, ultimately, a day of fiscal reckoning would come. In 1345, Edward III of England repudiated his debt to the societies of the Bardi and the Peruzzzi in Florence, triggering a financial crisis that would ultimately cause the fall of these two great banking houses.

Edward III owed 900,000 florins to the Bardi, and 600,000 to the Peruzzi  – vast sums roughly equal to $6bn in purchasing power terms or $240m based solely on today’s value of the gold at stake.

Edward_III_(18th_century) See page for author [Public domain], via Wikimedia Commons

Defaults would become more common from the 16th century onwards. France and Spain lead a dubious club of European debtors, defaulting eight and six times respectively between 1500 and 1800.

The historical antecedents for the solvency of the PIGS are not promising. In modern times Portugal has defaulted five times (1837, 1841, 1845, 1852 and 1890), Greece four times (1826, 1843, 1860 and 1893), Italy once (1941) and Spain a whopping seven times (1820, 1831, 1834, 1851, 1867, 1872 and 1882).

The so-called Anglo-Saxon economies appear to be historically sounder bets – the UK and USA have never defaulted (although the 1840s did see public debt default in the USA as nine states either temporarily or permanently repudiated all or part of their debts (Maryland, Pennsylvania, Indiana, Illinois, Michigan, Arkansas, Louisiana, Mississippi, and the Territory of Florida form the roll of dishonour)).

All of this shows that sovereign debt defaults are nothing new. Even global financial interdependence is far from being a uniquely 21st century phenomenon  – think of those 14th century sun-baked Tuscans suddenly impoverished by royal command in a remote, rain lashed island far to the north.

Perhaps the long view gives some hope – sovereign debt default has happened with surprising frequency, yet the world keeps turning.

Further reading