Iberian colonies produced the vast majority of world precious metals in the Early Modern period, which increased liquidity in the Iberian Peninsula. The chapter focuses on the relationship between liquidity and financial development – including other relevant variables such as instruments and institutions – to examine the efficiency of the financial systems in Castile and Portugal. Public credit, debt management and the cost of public debt service are considered, as well as private debt, the diversity of financial instruments and the cost of capital. Finally, the authors compile their perspective on the main similarities and differences in the development of the financial systems of Castile and Portugal.

This chapter describes the key changes in terms of money, credit and banking in the 1000 to 1500 period within the various kingdoms. It highlights how after a period of late monetization, each Christian kingdom transitioned to centralized models that were well-articulated with their European counterparts while keeping important distinctive traits. Nevertheless, the demand for means of payment on behalf of kings, merchants and other agents stimulated the development of credit. The need for credit spanned the entire Peninsula and the urban/rural divide. Thus, all countries saw the emergence of lively credit markets for (mostly private) borrowers, buttressed by functioning courts and regulations. These markets involved both specialists and non-specialists, but it was only in the Crown of Aragon where financial agents transitioned to institutionalized banks.

Aggregate demand problems can jeopardize the existence of a steady growth path in mature capitalist economies: fiscal policy may be needed to maintain full employment and avoid secular stagnation. This functional finance approach to economic policy endogenizes the movements in public debt. The debt ratio will converge towards a long-run value that depends (i) inversely on the rate of growth, (ii) inversely on government consumption, and (iii) directly on the degree of inequality. The analysis implies that policies and policy debates on the dangers of public debt have been misguided and that the incipient theoretical redirection following the rediscovery of secular stagnation by Summers and others does not go far enough. Unlike in mature economies, functional finance cannot target full employment in developing economies with high rates of underemployment. Instead, high investment rates are desirable, and functional finance should aim to stabilize the level and composition of demand at values that are consistent with a target growth rate of the modern sector; excessive aggregate demand stimulus can squeeze the modern sector and lead to premature deindustrialization.

This chapter outlines the secular convergence of Italy’s GDP. From the mid-1890s to 1913, the centuries-long economic decline was reversed. Institution-building and time-consistent policies of monetary stability and reduction of the debt-GDP ratio were among the main causes. The convergence record of the fascist years is mixed. As growth-reducing factors, we highlight “prestige policies” leading to an overvalued currency, and autarky. Postwar reconstruction was swift, followed by a quarter-century catch-up growth and cultural renaissance. The 1970s were turbulent years, marked by terrorism and inflation. Growth however continued to show unexpected resilience. Seeds of future weaknesses were nonetheless sown. Social tensions were eased by deficit-financed benefits. In the 1980s growth continued but the ratio of debt to GDP rose from 50 to almost 100 percent.

In 1995 Italy’s labor productivity was above that of the USA. In the following quarter-century Italian productivity almost stagnated. This long relative decline of an advanced country has no parallel in modern economic history. The slow adaptation to the second globalization and digital technology is ascribed to financial and political uncertainty. The chapter identifies the areas in which adaptation to the new global environment was too slow (education, R&D, reliance on SME, inefficient bureaucracy, and judiciary). We also emphasize social and political weaknesses resulting in the large public debt. Uncertainty held back domestic and foreign investments. A brief window of opportunity in the early 2000s showed Italy’s potential resilience, when economic decline could have been reversed.

The chapter is devoted to the economic, political, and social crisis of the early 1990s: a shock with long-lasting consequences. The crisis catalyzed the weaknesses of the previous political, social and economic fabric. The economic crisis had several components: a public finance crisis, an exchange rate collapse, and a fall in private investment. But the longer-lasting impact of the crisis came from the corruption scandals leading the judiciary to decapitate the main political parties that had run the country since 1945, as well as most of the industrial powerhouses. At a time when bold decisions were swiftly needed to adjust to the new economic and geopolitical landscape, the early 1990s left a legacy of political fragmentation and financial uncertainty.

The twin crises of 2008–9 and 2011–12 witnessed the largest GDP loss in Italian history, except the last two WWII years. In 2020, Italy’s GDP per person was still below the 2007 level. The economy was slow and uncertain in reacting to the crisis. The fiscal response proved to be inadequate, but it nevertheless resulted in a substantial increase in the debt/GDP ratio, which fed into uncertainty about the future of the country, affecting investments. The growth rate of the economy was low, spreading doubts about debt sustainability in the medium-long run. Zero growth accentuated the antagonistic mentality in politics. The traditional North–South gap widened, as did poverty, income inequality, and social divides. Distributional coalitions gained political leverage. The 2018 general elections yielded a populist majority.

Earlier and contemporary authors had observed the systematic aspects involved in the use of money for the nation’s trade. Locke’s novelty lies in the fact that he observed those systemic connections solely from the perspective of economic phenomena; and ‘necessities’ and the necessity of money constituted the main tool through which he described the phenomena associated with the emerging monetary economy. Instead of making the classic theological reference to usury, Locke built the theoretical foundation and normativity of money on the system of trade and its necessities, and hence on the survival of the nation. In this way he was able to gloss over the earlier theological discourse.

The chapter explains how newly imported ideas faced sharp limits of official interest and perceived commensurability with Late Qing political cosmology, though they did play a role in early diplomatic disputes. While Chinese officials were tentatively exploring a new role for their state in a multilateral world order, however, the jurists of that order were also pondering the world-historical significance of this new “entrant into the Family of Nations” – and the profits to be made from it. It was during these very years in the 1860s–1870s that the field of “international law” in the West took on many of its key subsequent characteristics and a priori assumptions about both itself and the non-Western periphery. China played a major role in that process.

The role of government has evolved significantly over the past 150 years. In the late nineteenth century, only about 10% of GDP passed through the hands of government. This was consistent with the prevailing view that government should only be minimally involved in the economy. By 1960, public spending had increased to 25–30% of GDP as governments focussed on delivering their core tasks: rules of the game, public goods and services and basic safety nets. Private choice still predominated and safeguarded both economic and financial freedom. The Keynesian ‘revolution’ from 1960 to about 1980 saw government grow to 50% and 60% of GDP in some countries and to over 40% on average. Over the next two decades, the classical ‘counter-revolution’ propagated smaller states. Many countries began fiscal reform and rules-based policy-making gained prominence. Spending growth came to a halt, and in some cases reversed. The years since 2000 have seen a revival of Keynesian thinking. Countries engaged in expansionary policies before the global financial crisis and experienced new record highs in public expenditure and debt thereafter. Another wave of reforms brought spending down in some crisis countries in the 2010s. However, public spending ratios on average rose well above the level of 2000.

As a result of the multilateralisation of FDI operations, of the criticism formulated against international investment law and arbitration and of the evolution of States’ policies, limitations placed on the protection of foreign investors have spread and diversified over time in international investment agreements (IIAs). Chapter 7 focuses on these limitations as contained in IIAs concluded in the 2010s, as these IIAs incorporate both traditional limitations and the new limitations that have recently appeared in treaty practice. It provides an analysis of treaty limitations by distinguishing between them on the basis of their scope of application, meaning mainly whether they apply to IIAs as a whole or to specific provisions thereof.

This paper examines the effect of structural (domestic and external finance, trade and product market) reforms on public debt. It applies the local projection method to a dataset of major reforms and regulatory changes for a sample of 90 advanced and developing countries spanning between 1973 and 2003. The results suggest that over the medium term – that is, four to six years after the reform takes place – reforms contribute to lower the debt-to-GDP ratio. This effect depends on the initial debt-to-GDP at the time of the reform. The findings are robust to the inclusion of all reforms simultaneously and to an instrumental variable approach, which uses political economy drivers of reforms as instruments.