Desktop version

Home arrow Business & Finance

  • Increase font
  • Decrease font

<<   CONTENTS   >>

Interest rate in Central Europe in the early 1540s

The process of decreasing the maximum tolerated interest rate in Bohemia basically reflected the more general trend observed in Central European economy of the period. Especially in the context of the rapid process of reformation, most German states in the early 1540s were considering the introduction of a lower interest rate in the range of 5-7% (Brady 1996; Geisst 2013, pp. 74-5). By contrast, large South German banking houses maintained an interest rate of 10%, even in terms of financing the Habsburgs (Homer & Sylla 2005, pp. 115-16), as did the Florentine bankers who, at that time, also maintained their usual (10-12%) interest rate (Bruscoli 2009, p. 90). However, in the absence of knowledge of the exact terms of the loans and their collateral, a mere overview of the documented levels of interest rate in 16th-century Europe may seem quite chaotic (Homer & Sylla 2005, pp. 119-20). Nonetheless, the statutory maximum interest rate was legally binding. If someone was willing to lend money at a lower interest rate or interest-free, they were free to do so.

For King Ferdinand, the idea of forced reduction of the maximum interest rate in Bohemia from a ‘normal’ 10% to a lower level was certainly attractive as he was the country’s largest debtor. However, the first step he took in the early 1540s was aimed against Jewish financiers. They were expelled from the Kingdom of Bohemia by the royal decree of November 9, 1541 and this decree was (with a few exceptions) actually enforced. The formal pretext for the expulsion of the entire Jewish population from Bohemia was their alleged participation in starting the fire of Prague Castle in the same year. However, this did not make much sense because the anti-Jewish decree concerned the whole kingdom, not just Prague (Vorel 2005, pp. 147-8).

The Jewish population was granted only a very short period of time to organize their departure from Bohemia, during which they were also supposed to settle their property matters. For the monarch, such an intervention could only have a short-term economic benefit, as long as the expulsion of the Jewish financiers and their families was also accompanied by the amortization of their claims against the Royal Chamber. However, we do not have any specific data on the ‘unchristian’ interest rate at which it was possible to obtain a loan from the Jewish bankers in Prague at that time.

A certain comparison is provided by the situation in contemporary Rome where Pope Paul III indulged the Jewish business community during the same period but under very harsh economic conditions. The Jewish financiers paid much higher fees than Christian bankers to the papal treasury for legal protection and for the privilege of granting higher-interest loans. In 1543, the twenty ‘old’ Jewish banking houses that had been active in the city for a long time had their maximum interest rate reduced from 60% to 48%. For the next twenty ‘new’ Jewish families that extended the financial sector of the papal Rome, the maximum interest rate was set to a significantly lower level of only 30% (Simonsohn 1991, pp. 413-14; Vorel 2017b, pp. 39-44). The temporal link between the exodus of an influential and large group of Jewish financiers from Prague and other Bohemian towns and the growth of their numbers in Rome only a little later (but under less favourable conditions than those of the ‘old residents’) cannot be supported by material sources for the present but it is a logical assumption.

However, by expelling the Jewish financiers, King Ferdinand deprived himself of the possibility of obtaining flexible loans at a time when he needed them most. Such a situation occurred at the turn of 1541 and 1542 when King Ferdinand, in agreement with his brother Emperor Charles V, tried to organize a campaign of a large Christian army against the Ottoman Empire in the Balkans. The immediate impulse for this action was not only the destruction of the imperial and Spanish fleets off the coast of Algiers, but also the occupation of the capital of the Kingdom of Hungary (nowadays Budapest in Hungary) by the Ottoman army (1541).

From the end of 1541, King Ferdinand sought to convince the Christian rulers of Europe of the necessity of a joint campaign against the Ottoman Empire. The aim was not only to reconquer the capital of Hungary, but all the lands all the way to the south of the Balkan Peninsula. This resonated positively mainly at the Imperial Diet where significant support for the Hungarian campaign was offered to the Habsburgs by the Lutheran princes, associated in the so-called Schmalkaldic League. It was a clear political agreement: Protestant princes and cities in the Roman-German Empire will pay the soldiers to regain Hungary in exchange for a greater leniency of the Habsburgs in religious matters. At that time, an agreement between the Catholic Church and the Lutheran Reformation seemed to be a viable solution to the confessional schism. Therefore, Pope Paul III supported the Hungarian campaign with his own troops. He also announced the long-promised General Council of the Church. This was supposed to start in

Trentino, South Tyrol, already in the autumn of 1542 when everybody would have returned from the supposed victorious campaign against the common confessional adversary.

The Imperial Assembly held at the end of 1541 even approved the financing of the common imperial army but it stipulated the following condition: King Ferdinand was supposed to provide, from his own resources, for another army of nearly the same size. However, King Ferdinand did not have the money to fulfil such task nor did have many options to borrow. To secure the basic needs and pay for the soldiers, he needed at least 100,000 Rhenish guilders in cash. He asked the Bohemian Land Diet for one half; he wanted to get the other half in Austrian countries.

Regarding the economic potential of the Kingdom of Bohemia, the amount of 50,000 guilders was not a major problem. However, the tax system was very cumbersome and it took a long time for the tax to be gradually collected in small amounts from individual taxpayers. Yet, for the purpose of the military campaign, it was necessary to collect the money in a short time and in cash which was not possible without fast lending operations. These could have been arranged by the Jewish financiers who had been expelled from the country by King Ferdinand a few months earlier.

<<   CONTENTS   >>

Related topics