Examples of Sovereign Default
A failure of a nation to meet bond repayments has been seen on many occasions. Philip II of Spain defaulted on debt four times - in 1557, 1560, 1575 and 1596 - becoming the first nation in history to declare sovereign default due to rising military costs and the declining value of gold, as it had become increasingly dependent on the revenues flowing in from its mercantile empire in the Americas. This sovereign default threw the German banking houses into chaos and ended the reign of the Fuggers as Spanish financiers. Genoese bankers provided the unwieldy Habsburg system with fluid credit and a dependably regular income. In return the less dependable shipments of American silver were rapidly transferred from Seville to Genoa, to provide capital for further ventures.
In the 1820s, several Latin American countries which had recently entered the bond market in London defaulted. These same countries frequently defaulted during the nineteenth century, but the situation was typically rapidly resolved with a renegotiation of loans, including the writing off of some debts.
A failure to meet payments became common again in the late 1920s and 1930s; as protectionism rose and international trade fell, countries possessing debts denominated in other currencies found it increasingly difficult to meet terms agreed under more favourable economic conditions. For example, in 1932, Chile's scheduled repayments exceeded the nation's total exports (or, at least, its exports under current pricing; whether reductions in prices - forced sales - would have enabled fulfilling creditor's rights is unknown).
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