Note of the Month - December 2012

The Spanish sovereign debt default of 1867

In the history of sovereign debt crises in Europe in the nineteenth century, Spain ranks ahead even of Greece for the number of partial renegotiations and outright defaults. In particular, between the early 1860s and the early 1880s the Spanish debt-to-GDP ratio rose from 60% to over 160%, despite repeated defaults. It was only in 1882 that the default proved sufficiently decisive to stabilise the situation and reduce interest payments to sustainable levels and obviate further changes for over half a century, until the Spanish Civil War.

Foreign bondholders were particularly active in protecting their credit in all parts of the world and French and British private investors or groups of bondholders were able to press their home country to take energetic measures to defend their interests. Striking examples include the French military occupation of Mexico in 1861 (with the initial support of Spanish and British forces) and the imposition of forms of foreign control over the budgets or specific sources of income of defaulting governments, notably in Egypt, the Ottoman Empire and Greece, between the 1870s and the 1890s.

The illustration here shows a certificate issued by the London Committee of Spanish Debt Bondholders following the inconclusive 1867 conversion of Spanish debt. In this case the investor recovered 62.5% of the nominal value of its capital. The Committee lodged a residual unpaid claim for 199 pounds and 5 shillings, out of the original 531 pounds and 5 shillings of nominal value.

Luca Einaudi, Centre for History and Economics