Unraveling historical sovereign debt crises: Impact on financial markets, legal frameworks, and economic stability
On 20 June 2024, the Leibniz Institute for Financial Research SAFE co-hosted the Financial History Workshop titled “States of Distress: Sovereign Debt Crises and the World They Made 18th – 20th Century”. Organized by the House of Finance, the Institute for Banking and Financial History, and SAFE, the event convened leading scholars to explore the historical impact of sovereign debt crises on political outcomes and state sovereignty.
Florian Heider, Scientific Director of SAFE, welcomed the participants, followed by an introduction by Marc Flandreau, currently Visiting Professor of Financial History at Goethe University Frankfurt, and Howard S. Marks Professor of Economic History at the University of Pennsylvania. “First of all, Frankfurt and Philadelphia are sister cities and have a long historical relationship. I am pleased to be part of this exchange as I am currently teaching in Frankfurt”, Flandreau said. He emphasized the importance of interdisciplinary collaboration and highlighted the long-standing ties between the two cities, both known for their historical and current impact on financial history.
Flandreau delivered the keynote address, “Rise of the Vultures: Jobbing Nations in the early 19th Century London Stock Exchange,” which set the workshop’s thematic foundation. His presentation explored the influence of stock exchanges on the financial and political spheres, the interconnectedness of the economic and political environments, and the significant political changes during the Age of Revolution linked to economic developments. Flandreau also discussed the concept of the "Distressed Debt Cycle" and strategies such as the "Loan to Own Principle" through case studies such as the “Portuguese Job” (1824-1834). Karina Patrício Ferreira Lima discussed critical aspects of the paper. Coming from a legal perspective, her discussion focused on the legal techniques used by the investors and their resulting impact on Portugal’s legal operations.
In addition to Marc Flandreau's keynote, the workshop featured several presentations focusing on sovereign debt crises. Peter T. Veru from the University of Colorado presented an example of investor relations activities in the 18th century, aimed at raising money and preventing default, geopolitical backgrounds of sovereign debt pricing and restructuring processes as well as challenges arising from the increasing complexity of creditor structures. Damian Clavel of the University of Zurich examined the aftermath of the Poyais Crash in "After the Poyais Crash: Moskitia in the Scramble for Central America 1824-1842," with commentary by Mariusz Lukasiewicz of the University of Leipzig. Maria Stella Chiaruttini, of the University of Vienna discussed how public debt shaped nineteenth-century Italy in "Born in debt," followed by comments from Gabriel Geisler Mesevage of King's College London.
Elya Zhang of the University of Pittsburgh presented "Modern China’s Defaults and their Legal Afterlives," with commentary by Tobias Straumann of the University of Zurich. Kim Oosterlinck of the Université Libre de Bruxelles presented joint work on "Domino Secessions: Evidence from the U.S.," followed by commentary by Vincent Bignon of the Banque de France. Tobias Straumann returned after the break with "The Young Debts and their Aftermath," with commentary by Marc Flandreau. Karina Patrício Ferreira Lima of the University of Leeds concluded with "Beyond Gentlemen’s Agreements," examining creditor diversification and legal governance in sovereign debt restructuring, with comments from Kim Oosterlinck. Carsten Detken, Head of Division at the European Central Bank, delivered the keynote "From the European Debt Crisis to the New Macroprudential Regime: A Short History," highlighting the evolution of macroprudential policy not least in response to contemporary debt challenges. These presentations enriched the discussions on historical and modern sovereign debt issues.
The Financial History Workshop provided a detailed overview of the evolution of financial instruments, debt management strategies, and the legal and institutional frameworks that underpin these practices. Through historical context and case studies, participants comprehensively understood how financial markets and legal systems have adapted to manage financial distress and promote economic stability.
