J + 10 : How the Pope financed Spain
Spanish King Philip II (1527 - 1598) was never able to balance his State Budget
Yesterday was a full day. Four islands in 24 hours : Climbing Monte Vulcano after sunrise, swimming in the waters of Lipari and excursion to its charming capital in the afternoon, Panarea for dinner and Stromboli for the eruptions!
Stromboli Eruption a few Minutes past Midnight
Yesterday’s beautiful events stretched into the morning. At 6.30 am we bumped into a fisherman checking his Gamberini traps. He had a lucky day. His white plastic bucket was filled to the brim with small shrimps – we bought half and have them for dinner tonight.
The Stromboli Fisherman caught 5 kilos of delicious Gamberini
We bought 2 Kilos for EUR 40 for tonight's Dinner
Yesterday, Lipari’s Spanish citadel made me wonder, how much the Spanish King spent to defend his realm against the Ottoman Turks. All coastal towns in Sicily, Syracuse, Augusta, Cantania and Messina were heavily fortified. Their modern artillery bastions, deep trenches, overlapping fields of fires, demi lunettes and horse shoes were not cheap. Building them must have cost a fortune. So must have Lipari’s citadel, albeit on a smaller scale. After the Turkish Corsair Barbarossa raided the island and enslaved the entire population, King Philip II had no choice. In 1569, the new Citadel was completed. Lipari could be repopulated.
The Lipari Citadel was built to accommodate the Population of
the entire Island in case of a military Threat
There is no easily available literature on Spain’s military expenditure in the 16th century. And the few existing books are written in Spanish, a language I do not speak. Am pretty sure a historian could find a lot of interesting documents in Spain’s well-organized archives. The only one I know is the Archivo de Indias in Seville. It is impressive. One day I hope these valuable documents will be accessible on-line.
Archivo de Indias - I found here 16th Century Maps of Cavite and Manila in the Philippines
When talking about Spain’s finance in the 16th century, we are talking about serious money. In the early years’ of Philip II’s reign, his annual budgets fluctuated between 1.5 Mio and 3.0 Mio Golden Ducats ( = 5.25 tons of Gold; a ducat had 3.5 grams of fine gold). At today’s gold prices, this is USD 0.75 bn – 1.5 bn. The number is low compared to the current US budget. As the USA today, Spain was a global superpower at its time. I know that we should not take current gold prices for these calculations. Still, the number is a valuable proxy. By 1570, Philip's budget increased to 5 – 6 million Ducats. By 1590 it reached 10 million Ducats. 40% were spent on interest payments.
Spanish Double Ducat from 1582, weighting 7.02 grams (Spanish Netherlands)
More important than the revenue numbers was the debt Philip II had inherited from his father Charles V. He left him with 30 Mio. of debt. Which amounts to about USD 15 billion. This is tiny compared to today's US debt which stands at 33 trillion! The key drivers of this amount were interest rate payments and the staggering cost of military campaigns. The Spanish Armada (1588) alone cost 10 million Ducats equal to one full year of revenue or roughly USD 5 billion at today’s gold price (it now buys you half an US aircraft carrier).
The Spanish Armada sailed in 1588 against England with a large Invasion Force but got scattered and destroyed by bad Weather and the English Fleet. It cost 10 Mio Ducats.
The Spanish Kings per se did not have tax revenues. It belonged to the Spanish regions, its Kingdoms (like Sicily) or the Principalities (like Lothringia) which made up the empire. To increase taxes the kings had to call on their assemblies which – as absolute monarchs – they preferred not to do. The annual flow of silver from Bolivia was thus a big game changer and is often talked about. The 20% silver mining tax belonged to the King alone. He could use it as he wished. From 1500 – 1600, Spain extracted 25’000 tons of silver or 250 t p.a., which gave the King a whopping 50 tons of silver every year. As the Silver – Gold exchange rate was 11:1 at that time, this amounted to 4.5 tons of Gold or 1.3 million golden ducats. Almost financing the entire budget in Philip II’s early years - but not nearly enough in 1570.
The Silver Mountain of Petosi in Bolivia was Spain's most productive Silver Mine
The help from the Pope is less well known but was probably even more important. The Popes allowed the Spanish Kings to keep three types of church taxes which were before paid to the Curia in Rome:
a) The Cruzada – money raised to finance crusades
b) The Subsidio – taxes levelled on church properties which were usually tax free
c) The Excusado – allowing the Spanish Kings to keep the 10% on all Church income
These three exceptions funnelled church taxes to the Spanish crown and provided it with 1.2 – 1.4 millions Golden Ducats in extra revenue. In other words, the Pope’s concessions were worth more than all the silver arriving from Latin America. A massive subsidy hardly anybody talks about.
Pope Pius V (1566 - 1572) was Philip II's biggest Supporter
No wonder the Spanish Kings were the Pope’s most important and loyal allies. The Spanish Empire needed the Popes to survive. In 1571, the Pope contributed only 7 galleys to the fleet gathering in Messina. Venice furnished 94, Spain 49, Genoa 27, Tuscany 5, Savoy 3 and the Maltese Knights 3 as well. 7 galleys was just 4% of the total. In reality though, probably all of Spain’s and Genoa’s galleys were directly or indirectly financed by papal contributions. Makes 82 galleys including Malta and Tuscany or 45% of the total. The Popes were a major war party without saying it publicly. Now it makes total sense that several Turkish Sultans had plans to conquer Rome. They looked at the Popes as the key financial sponsor of the Christian war efforts.
For Creditors, profits and repeated Defaults by the Spanish Crown were not exclusive. The Lenders increased the Credit Margin which made the Repayment of Debt even less likely. By 1600, the Spanish Kings paid 40% of the annual Budget in interest.
But even the papal contributions were not sufficient to keep Spain from defaulting. Philipp II had to suspend debt payments four times in his life time. The empire became known as serial defaulter. Being on the black list of creditors, it had to significantly increase the credit spread it offered to refinance defaulted debt. Whilst this worked for the next round, it killed Spain's ability to spend. The 4 million Ducats it paid to service its debt were 3 times the empire's budget just a few decades earlier. Not surprisingly, Spain's expenditure had to fall. It could not afford to be a global empire any longer. Its slow but steady decline began. Today we are puzzled how the first global Empire shriveled. But it did.
The Spanish Empire included around 1580 also Portugal - it was a true Global Empire
The only reason the Popes could afford such larges was the 10% tithes they obtained on any church revenue anywhere in the world. Plus the celibacy of the clerics. Even the wealthiest cardinal had to surrender his fortune on his deathbed. As long as the Catholic church could keep these revenues, it was a powerful player in world politics. With the Napoleonic Wars these privilerges were cancelled though. And thus the means to buy direct influence. It led to Stalin’s famous saying, “How many divisions does the Pope have?” It was the beginning of a serious misunderstanding about the spiritual power of the Church. Communists had to learn it the hard way with Pope Woityla or John Paul II in 1980 and the subsequent collapse of the Sovjet regime in Eastern Europe.
Pope John Paul II's Message was stronger than the Sovjet's 25'000 Tanks
Back to the Mediterranean. After 8 hours of sailing, we safely arrived in Palinuro (Campania). Situated between two rivers with fresh water and below a plateau easy to defend, this natural harbour was used by Greek mariners on thier way to and from Naples. We will use it for dinner and a good night's rest tonight.
``` Venus is dropping over the protecting Cliffs of Palinuro
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