Trends in French and British Sovereign
In this chapter I examine the institutional context for French and British sovereign borrowing after 1689. I also investigate borrowing outcomes, focusing on market perceptions of default risk. The two subsequent chapters then attempt to explain observed trends in default risk by analyzing partisan politics in each country. Data on government finances and interest rates on public loans for the eighteenth century are limited compared with what is available for today’s financial markets, but careful work by economic historians has nonetheless generated a surprising amount of information that can be used to investigate sovereign borrowing in France and Great Britain. In synthesizing existing evidence, I identify three basic trends.
First, the English Crown after 1688 did, on average, pay a lower default premium on its debt than had been the case before the Glorious Revolution. But this basic conclusion masks a more complex reality. Interest rates on government debt remained very volatile during the first thirty years after 1688, and at times during this period, the Crown found itself paying rates that were higher than those that had prevailed before the Glorious Revolution. Interest rates on English government debt did not converge with Dutch interest rates until the early 1720s. The interest rates paid by the Estates of Holland serve as a useful benchmark here, because loans contracted by the Estates were widely seen as carrying very little default risk for the reasons discussed in Chapter 3. Basic econometric tests show that economic factors, such as changes in inflation or in government demand for funds, can only partially explain this post-168 8 volatility. In fact, much of the variation is correlated with shifts in partisan control of government between the Whigs and the Tories. This is a finding that is