The public debt crisis has similarities with that experienced in 1400

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Both the financial problems that many institutions of the country know today and the economic , social and political effects that derive from them are not absolutely new: our ancestors experienced them over six hundred years ago, faced with challenges very similar to those of the current ones. Could we say, using an old expression of the scholar J. Miret i Sans who have always tingut bec les oques …? Yes and no, since it would be an operation of doubtful rigor to simply assimilate phenomena that occurred within a feudal society to what is happening today within the framework of an advanced capitalist society. Anyway, it is still interesting to observe certain similarities with the situation lived around 1400 , especially in the area of ​​Catalan municipalities, where some of the most creative measures to get out of the crisis were adopted.

The escalation of debt
As in the rest of the West, Catalonia closed a long period of growth and expansion at the beginning of the 14th century to make way for a period of deep structural crisis. The demographic ravages of hunger and the Black Death were the most obvious signs of the new situation. So was the upsurge in the war, which spread throughout Europe. In Catalonia , the cost of the war fell largely on the municipalities: to pay for the campaigns of King Pere el Cerimoniós (1336-1387), the urban leaders put together a complex fiscal and financial system, which they governed with great autonomy. In this framework, the most original initiative was undoubtedly the creation of a long-term debt.

In order to quickly obtain the necessary money, the municipalities resorted to new financial products that offered considerable advantages over traditional short-term credit. First of all, the debt titles that the municipalities put into circulation after the 1340s were only redeemable at the request of the issuing entity, which allowed obtaining credit without having to return the capital within a certain period. Secondly, the interest of census and violators (that is how those financial instruments were called) was 7.14% and 14.28% respectively, very far from the 20% to the 30% required in the circuits of short-term credit. Third, prospective clients in this market were given the opportunity to invest in a secure manner: the interest on the debt was paid with the proceeds of municipal taxes and was guaranteed – this is important – with the assets of all and each one of the members of the urban community. Finally, the debt securities were transferable and negotiable, with which an active secondary debt market developed.

The adoption of this credit system by the municipalities was a real financial revolution and its success was spectacular. During the second half of the fourteenth century, municipalities issued debt massively for the most diverse reasons; and its acceptance was such that it translated into a decline in interest rates that, at the end of that century, already oscillated between 3% and 5%.

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The financial collapse of the municipalities
However, at the threshold of the fifteenth century, public debt had peaked. At that time, the service of the debt absorbed a very high percentage of municipal expenses and, no matter how hard their leaders tried, the fall in tax revenues often did not allow them to face the interests. This was manifested in a significant increase in the delinquency of local institutions, with the consequent loss of credibility in the debt market, and the logical difficulty to find buyers of new securities that would have alleviated the situation.

In those years there is also a growing social discontent due to the actions of the financial managers, often accused of negligence or corruption. Let us not forget that the public debt was based on indirect taxes-with them the interest was paid-that affected especially the consumption of basic foodstuffs. Therefore, after each increase of those taxes, there were protests from the population that sometimes turned into real fiscal revolts, like the one that accompanied the assault on the Jewish quarter of Barcelona in 1391.

During the first decades of the fifteenth century, this tense situation led to the bankruptcy of some municipalities such as Cervera, Castelló d’Empúries or Valls. The councilors of these localities stopped paying the creditors, an important part of which were rich citizens of Barcelona or other regional capitals. The reaction of these was immediate and, although they activated all the legal resources at their disposal, they did not recover their investments. Finally, to escape this impasse, there was no choice but to reach a political agreement between the municipal governments and their creditors. Normally, the pact consisted of the acceptance, by the creditors, of a generalized reduction of the interest of the debt, in exchange for their decisive intervention in the economic management of the cities. In this way, many places saw their fiscal and financial autonomy drastically reduced, since most of their income was consigned to the creditors.

An original solution: the first public bank in Europe
Almost all municipalities met similar problems, but some found a way out of bankruptcy. The most interesting case was that of the city of Barcelona. In the face of financial difficulties, its leaders devised an extraordinarily original solution: the creation of a public bank, the first of its kind throughout Western Europe. Thus, on January 20, 1401, the Taula de Canvi opened doors, a bank guaranteed with the wealth of all the inhabitants of Barcelona. The deposits were not remunerated and those responsible for the institution were expressly prohibited from lending to individuals. Therefore, the capital of the Taula could only serve to provide liquidity to the municipal treasury at zero interest and, when possible, to amortize debt.

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However, the management of the finances through this procedure created new problems, since the progressive increase of the municipal debt with the Taula made fear the suspension of payments of this banking institution. To conjure up the danger, the municipal government adopted in 1412 some legal norms that bring us closer to what we know today as public budget, with the objective of containing the expense and of achieving a surplus that would allow to reduce the debt. At the same time, the rulers of the Taula were given the task of controlling budgetary rigor. Similar mechanisms of control and intervention in municipal finances were adopted by other urban governments (Girona or Tarragona, for example), but the creation of new public banks did not take place in the Principality until the 16th century.

Many of the solutions adopted during these crucial years have not yet been valued in their proper measure and some historians have contributed to give a uniquely negative image of the phenomenon of public debt in late medieval Catalonia. But it is worth remembering that public indebtedness contributed decisively to the development of the country’s financial system as well as to the consolidation of political institutions -municipalities and Diputació del General- that would become cornerstones of modern Catalonia until its demise by decree at the beginning of century XVIII. This does not mean that, at the end of the Middle Ages, the lack of control of the public debt did not contribute to aggravate the economic, social and political crisis of Catalonia, which would culminate in the civil war of 1462-1472. In any case, it seems evident that a structural crisis of those characteristics required, perhaps as now, something more than the solution of the financial problems of the institutions that governed the country.