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By Ramses H Abul Naga, Reader in Economics, University of Aberdeen,  2018-2019 IMéRA fellow in partnership with AMSE – Aix-Marseille School of  Economics. Asrecently as 2010, when Greece declared it was likely to default on itssovereign debt, suggestions that its public finances should be managed by aconsortium of foreign governments raised a great outcry. However, as argued bythe historian James Barker in his entertaining Pyramid Sell Off, foreignmeddling in the finances of sovereign nations has had multiple precedents inrecent world history.Issovereign debt a recent phenomenon?Thefirst documented states to issue sovereign debt where the European city states.As early as the thirteenth century, city states were issuing life annuities toraise capital. It is known for instance that Genoa and Venice issued debt at anominal interest rate of 3% by 1600. Larger states such as France and Castillestarted borrowing in a like manner in the sixteenth century. Asargued by Stasavage (2016), the development of sovereign debt was made possibleby the influence the emerging class of merchants and money lenders were able toexercise over political institutions of European nations, and this at theexpense of land owners (who paid land taxes and other indirect taxes). The morecontrol merchants were able to exercise, the lower the resulting nominal rateof interest as the creditworthiness of the sovereign borrower was seen to behigher.Nonetheless,public finances have throughout history been at the root of civil disobedienceand national revolts. In some instances, these national revolts effectivelyforced states to default on their sovereign debt. This was for instance thecase in the city-state of Genoa in 1339. Two centuries later, in 1576, themunicipality of Paris announced it would default on the payment of interest onits Rentes sur l’Hôtel de Ville. The Urabi revolt of 1879-1882 was alsoprompted by the French and British intervention in the public finances of Egyptunder the Commission de la Dette Publique, and later the Law ofLiquidation. Many other cases of early default history, triggered by socialunrest or state institutions, are surveyed in Stasavage (2016). Doesa debt crisis necessarily result in occupation?Onecase in point is the history of sovereign debt of the Ottoman Empire and itsprovinces during the second half of the nineteenth century. Onesuch Ottoman province, Tunisia, had accumulated a large amount of debt underthe rule of its reformer and modernizer Ahmed Bey (who ruled from 1837 to1855). Eventually, Tunisia had to default on its sovereign debt in 1869. A debtcommission representing the interests of the Great Powers was then formed, theso-called Commission FinancièreInternationale, that took control of the public finances of Tunisia. Someyears later, in 1881, France occupied Tunisia under protectorate rule, and tookon the obligation of servicing the country’s debt. The Tunisian financialcrisis hence culminated in the French occupation that would only be terminatedin 1956.Egyptunder the rule of Khedives Sa'id and Ismail had to resort to a large amount ofborrowing from European countries, for multiple reasons ranging from thedevelopment of national infrastructure, a modern bureaucracy and raising therequired capital to undertake the construction of the Suez Canal. When by 1876it was become increasingly likely that Egypt may have to default on itsinternational debt obligations, a Caisse de la Dette Publique was put inplace by the Great Powers, granting the French and British full control overCairo’s public finances. The resulting economic policies of the Great Powers,together with their removal of Khedive Ismail in 1879, lead to the Urabirevolt, that culminated in British occupation in 1882, under the premiership ofGladstone and Foreign Secretary Lord Granville. Britain exercised variablecontrol over the domestic affairs of Egypt until 1952.Overthe 1850s, the Ottoman Empire had to resort to foreign borrowing in order tomodernize its army and to maintain its war effort in the Crimea. However,neither of Germany, Britain nor France decided to impose direct rule on theOttoman Empire, in the aftermath of its financial problems. It is to be notedhowever that while the Ottoman Empire was not occupied, by November 1881 it hadin effect surrendered the control of its public finances to a group of Europeancountries, under the Decree of Muharram. Doesforeign occupation entail economic progress?Itis clear that in the late nineteenth century, the perceived benefits ofeconomic colonialism for France and Britain were deemed to cover the cost ofoccupation and the related political risks. Through the process of takingcontrol of the finances of the borrowing nations of North Africa, the GreatPowers&#160; were also able to lobby forfurther concessions for their nationals and their business interests. Myreading of these occupations is that they effectively enabled the creation ofparallel political institutions in the debtor nations that would serve theinterest of the creditors of the great powers, in the same way that themerchant class was exercising control over the political institutions ofEuropean city and territorial states at an earlier time. Amore subtle question to ask is whether this form of direct or indirectintervention in the domestic affairs of the borrowing nation was in any waybeneficial to it. It is clear that the narrative of the great powers greatlyemphasized the positive aspects of foreign presence: this was needed in orderto maintain political support for occupation in the legislative bodies of Parisand London. Thus, the French and British authorities emphasized progress in thedevelopment of roads, railways, postal services and similar infrastructure aswell as a modern bureaucracy and the growth of agricultural productivity, thisespecially in relation to cash-crops. The British in Egypt were also successfulin reducing the tax burden on farmers, that since the time of the Mamluks hadbeen historically very high. TheLords in EgyptInrelation to the question of who the beneficiaries of occupation are, the caseof Egypt is worth discussing in some detail. Egyptian historians often arguethat the real purpose of occupation was to abort the Urabi revolt of 1879-1882.It is important, however, to recall that because Prime Minister Disraeli hadpurchased around 45% of Suez Canal shares, Britain’s financial stakes in Egyptin the 1870s were substantial. If the real motive of British occupation was tosecure the financial interests of the great powers by avoiding insolvency, itis again important to stress that at the time, experts disagreed on whether theKhedive’s government was effectively bankrupt. Therewere some objective difficulties in assessing the public finances of Egypt atthe time, as national accounts and nationwide censuses were not available inthis part of the world. There were also some further gray areas, as to whatconstituted private property of the Khedive as opposed to proper state assets. LordCromer, the British Consul General in Cairo (1882-1907), maintained thatKhedive Ismail’s administration was bankrupt, citing as supporting evidence thefindings of the British Government’s Paymaster-General mission of 1876, whichcame to be encapsulated in the Cave report. The purpose of this missionwas seen by some to draw an objective and accurate inventory of the Khedive’sfinances. Others however have argued that the intent and purpose of the missionwas to lay the grounds for British occupation. Finally, other experts at thetime were of the view that Egypt had the means to service its accumulatingforeign debt. De Leon for one (1877, chapter 19) expands his argument in somelength that Egypt was in fact solvent, and that instead of occupation, afeasible adjustment of government spending, coupled with a revision of theterms of the loans could have avoided altogether the Egyptian debt crisis of1870s.Becausethe real motives behind the British invasion are still disputed, it is hard ofcourse to find any consensus emerging as to the economic benefits of occupationfor Egyptians. As discussed by Barker (2012), Lord Cromer,&#160; stressed the benefits of British “Guidance”for the “Natives”, while Egyptian historians and nationalists, using the Urabirevolt as historical evidence, argued that occupation largely benefited foreignentities and their employees (see for instance Rifaat, 2005). Itis not impossible however to attempt to find some metrics that correlated withrising living standards at the time. In this respect, Roger Owen observes thatthe increase in the Egyptian population (especially the rural population) musthave been made possible from the rise in agricultural productivity duringBritish rule. When looking at the rise in agricultural output per capita, Owen(1993, p. 228) concludes: “From a purely statistical point of view,therefore, it would seem that there was a substantial rise in the gross incomeof the average Egyptian rural family (if such an entity can be said actually toexist) during the 1890s, and very little progress after that.”Anothermetric of economic success pertains to the state of public finances—though itis not immediately clear that balancing the books has the same distributionalimpact as rising agricultural productivity. A major success of Lord Cromer’stenure was in balancing the budget by the turn of the century. This task wasfar from trivial because of the existing privileges that had been granted toEuropean nationals and entities under the system of capitulations thatCromer inherited from the former rule of Khedives Sa’id and Ismail. However,progress in alleviating the foreign debt was less conclusive.&#160; Cromer’s efforts in this respect werefrustrated by the cost of Lord Kitchener’s campaign in the Sudan (1896-1898) aswell as the decline in the world price of key Egyptian cash crops over the turnof the twentieth century. ConcludingcommentsAsearly as the thirteenth century, European city states were issuing annuities inorder to raise capital. Sovereign borrowing became more widespread in thesixteenth century when larger territorial states and monarchs also started toraise capital using various financial instruments. It is in the nineteenthcentury that the great powers, representing the interests of their creditors,started effectively occupying territories of the South on the grounds thatdirect rule or other forms of intervention were needed in order to help theoccupied nation to meet its international obligations. Be it the Tunisian CommissionFinancière Internationale, the Egyptian Caisse de la Dette Publique, or theOttoman Decree of Muharram, the indebted nations had to effectively surrendersovereignty over their public finances to a consortium representing theinterests of their creditors. As recently as 2010, Greece witnessed foreignmeddling with its public finances following the financial crisis of 2008.Sovereign borrowing may therefore come at a cost much higher than debtservicing, and has been at the origin of some forms of colonialism, especiallyso in the late nineteenth century.&#160; AsStasavage (2016) has pointed out, throughout history, creditors as well aswealthy individuals or corporations have successfully ensured that debtor stateinstitutions were able to secure their specific financial interests. In thisperspective, it is possible to view the occupation of nations of the South asthe creation of a substitute institution in the debtor nation, in the form ofdirect rule, a Lord Cromer type of figure, or an international consortium ofcreditors, that promotes and protects the interests of those creditors. Whetherthe occupied nations did derive any economic benefit from foreign rule dependsto a larger extent on the chosen narrative. France and Great Britain emphasizedthat the public finances of their protectorates improved, in the same way asthe development of national infrastructure and rising agricultural productivity.Nationalist movements however stressed that European corporations as well ascitizens under various institutional and indirect mechanisms were reaping allthe benefits of the presence of the great powers, were exempt from taxation,and had control over lucrative state monopolies of the time such as railwaysand postal services. Whentaking a closer look at the case of Egypt, one can make a case that in somerespects Lord Cromer was acting in good faith, in trying to ease the tax burdenon farmers, and in ensuring that the country could met its international debtobligations. But even then, his economic record was mixed and his success waslimited; perhaps because of his misguided conviction of British superiorityover the “Natives”. Or perhaps because the scope for economic policy was verymuch compromised due to the special legacy of capitulations granted byKhedives Sa’id and Ismail to foreign entities.Intoday’s world, the national sovereignty implications of government borrowingshould be spelled out more clearly in public debates. Sovereign borrowing inthe twenty first century is not likely to lead to direct foreign rule. Butthere is a sense in which surrendering sovereignty to a consortium of banks orinternational agencies—whose interests rarely concur with the immediate vitalneeds of the large majority of nationals of the borrowing nation—is a new formof colonialism.BibliographicalreferencesBarker J. (2012): “Pyramid sell off,” HistoryToday, May 2012, 44-46. De Leon E. (1877): “The Khedive’s Egypt Or, The OldHouse of Bondage Under New Masters”, London, Sampson Low, Marston, Searleand Rivington.Rifaat M. (2005): “The Awakening of Modern Egypt”, PalmPress.Owen R. (1993): “The Middle East in theworld economy 1800-1914”, I.B. TaurisStasavage D. (2016): “What we can learn fromthe early history of sovereign debt” Explorations in Economic History59, 1-16.