From near-default to debt-restructuring: the inventive methods of the duke of Brabant and its council around 1290-1320 for the salvation of the public finances

This paper analyzes an example of sovereign debt financial crisis in the Late Middle Ages, and is an attempt to analyze a case of debt-restructuring. We also show the political reconfiguration of power implied by the interaction of the various actors and the reinforcement of the controlling power of various local and urban elite. The debt was mainly caused by war expenses and was initially funded at least partially by heavy tax levies. When the new young duke of Brabant John III came in power, his position was weakened both by the huge amount of the debt and the reaction of the various elite groups dissatisfied with the tax levies. We show that the recourse to foreign merchant-bankers was quite considerable – probably a chosen move by the duke to avoid political negociations implied by the recourse to either taxes or internal credit. But the reimbursement of the debt was quite difficult and needed some urgent measures, the more so that Brabantine merchants suffered from trade sanctions abroad. A process of debt restructuring was therefore launched under the influence of various influential financial groups coming mainly from the local burghers. Their interests were put forward in the innovative use of classical financial tools to reimburse the debt as well as new representative institutions of control and monitoring of ducal expenses and debt. We have particularly analyzed the case of the Flemish and Walloon charters of 1314, confirming the rising weight and influence of the interests of the mercantile and urban elite, but also various experts and technicians of more modest social ranks. The mechanisms put in place were nevertheless rather constraining for the ducal discretion regarding the management of its debt and expenses. This was really the rise of a clear debt-monitoring mechanism, that could only reinsure future lenders (especially domestic ones).