Rise of Empires: Spain.

Chapter 413 Naval Construction Debts

Because Carlo did not participate in this cabinet meeting, the final decision was made by Prime Minister Baron Orcajo.

Although Prime Minister Angelo Orcajo is not from a military background, he is a true confidant of Carlo and is naturally aware of Carlo's thoughts.

Although it wasn't explicitly stated, many high-ranking officials in Spain knew that a war between Spain and Britain was inevitable sooner or later.

His Majesty the Great King of Spain has repeatedly mentioned the matter of retaking Gibraltar, which is currently in British hands.

To retake Gibraltar from the British, war was inevitable. The British were powerful primarily because of their navy, which explains one of the reasons the naval department proposed this ten-year shipbuilding plan – precisely to counter the British threat in terms of naval power.

Since Prime Minister Angelo Orcajo was aware of Carlo's ambitions, he naturally understood that the military's proposed shipbuilding plan had the support of His Majesty the King.

In any case, this naval shipbuilding plan will not have a significant impact on Spain's industrial development, and Prime Minister Olcajo has no reason to stop the naval shipbuilding plan.

It's clear that the Ministry of Defense was quite well-prepared for this naval construction plan. They not only formulated a seemingly reasonable warship construction plan, but also found sufficient justifications for Spain's warship construction.

After Defense Secretary Jyoti answered all the questions from other cabinet ministers, the cabinet meeting entered a brief discussion phase.

After a long discussion, no conclusion was reached, and Prime Minister Orcajo realized that it was time for him to express his opinion.

The Prime Minister does not need to express his or her opinion at the beginning of the meeting, as this would only disrupt the discussion atmosphere of the cabinet meeting and force cabinet ministers to conform to his or her views.

Prime Minister Olcajo rose through the ranks step by step. Although becoming Prime Minister was somewhat sudden, he is now in his second term as Prime Minister and is quite familiar with some political tactics.

Only when a cabinet meeting reaches a stalemate should the prime minister express his position. After all, as the initiator and chair of the meeting, the final decision on all discussions rests with the prime minister.

"Gentlemen, I believe that it is very necessary to vigorously develop the navy at this time." Prime Minister Orcajo first stated his position, and then proceeded to explain in detail:

We possess colonies spanning the globe, and our powerful navy ensures the security of both our homeland and our colonies. Although our navy is currently the third largest in the world, we still lag behind the British and French navies, and Germany, Russia, and even Italy are catching up.

If we don't prioritize naval development, we might soon become the world's sixth-strongest navy.

The annual cost of 1.5 million pesetas for building warships is not an excessive expenditure for the government's finances, and it is perfectly acceptable to us.

Given our sound financial situation, I believe there is no need to cut budgets for various departments. We can issue naval construction bonds to the public to win the support of the Spanish people.

If we can successfully complete this naval construction plan without affecting the financial budgets of various departments, it will be great news for us.

Our goal is not to be third in the world; our goal is to surpass Britain, develop our navy into the world's number one, and wash away the shame of being defeated by Britain.

When discussing the conflicts between Britain and other countries, the first to be mentioned are the long-standing historical animosity between Britain and France, and the currently intense rivalry between Britain and Russia.

What many people don't know is that Spain and Britain also have a long-standing feud.

The landmark event marking the decline of Spanish naval power was the defeat of the Spanish Armada by the British Royal Fleet.

Britain then occupied Gibraltar during the War of the Spanish Succession, which led to centuries of enmity and conflict between the two countries over Gibraltar.

From 1779 to 1783, Spain launched a major siege of Gibraltar. Unfortunately, despite all its efforts, Spain failed to recapture Gibraltar, which exacerbated the animosity between Spain and Britain.

Following this, Britain strongly supported Portugal against Spain and prevented Spanish colonization of Morocco in the 19th century.

Although the animosity between Britain and Spain was not as intense as that between Britain and France, for most Spaniards, reclaiming Gibraltar and washing away the shame of the Armada's defeat by the British Navy had always been their long-cherished wish and goal.

All private interests must yield to the national interest. For Spain, recapturing Gibraltar and defeating the British in naval battle were certainly more important than the financial budgets of various departments.

Not to mention that Prime Minister Olcajo's plan did not sacrifice the budgets of various departments, which can be considered a win-win situation for the Spanish government and the navy.

Although issuing national bonds will burden the Spanish government with hundreds of millions or even billions of pesetas in debt, given the Spanish government's financial situation, this debt can be repaid in just a few years.

After all, the Spanish government's total annual fiscal revenue reached a new high of 15.678 billion pesetas last year, and the total cost of building warships over the next ten years is actually only equivalent to Spain's annual fiscal revenue.

Moreover, Spain's annual total fiscal revenue is also constantly increasing, so for the government, carrying a certain amount of debt is not necessarily a bad thing.

After all, having enough debt means that the government has enough funds for national development, and as long as the economy develops, repaying these debts will be very easy.

Thirty years ago, Spain was burdened with a debt of only a few hundred million pesetas, which put immense pressure on Carlos and the Spanish government at the time.

With a little saving, the current Spanish government could pay off these debts in as little as a year.

It was precisely because the Spanish government at the time raised sufficient funds for development that it effectively promoted reforms in various sectors of Spanish industry, leading to a golden period of development for Spanish industry and economy.

If the Spanish government at the time had not obtained sufficient funds through loans, Spain's reforms and development would likely not have been so smooth.

With Prime Minister Angelo Orcajo's remarks, the cabinet meeting's discussions essentially concluded.

Finance Minister Orr Acosta had no objection to this, because for Spain's finances, allocating 15 billion pesetas over ten years for the construction of warships was indeed not a difficult task.

The cabinet government acted swiftly.

Despite the heated debates during meetings, once the cabinet government issues a decision, the relevant decrees are quickly distributed to all levels of government and implemented rapidly throughout Spain.

In order to avoid squeezing the budgets of various departments, the cabinet government had no choice but to issue naval construction bonds to the private sector. The good news is that after more than 30 years of development, the average annual income per capita in Spain has increased significantly.

While it may not make everyone wealthy, many families still have some savings.

In this situation, the government can effectively raise some private funds by issuing naval construction bonds to the public.

After all, government bonds are backed by the nation's credibility. If cabinet ministers don't want their reputations to be ruined, they must do everything they can to maintain the government's credibility and repay the government bonds purchased by the public in full within the stipulated time.

This is, in fact, the first time since Carlos became King of Spain that national bonds have been issued to the public.

This issuance of national debt was quite a lively affair. As soon as the government announced the issuance of naval construction bonds, it immediately attracted the attention of many people.

For most Spanish citizens, government-issued bonds are still preferable. Although the interest rates on these bonds are not as high as those offered by private banks, the government's credibility provides a guarantee, so the public doesn't need to worry about bad debts.

Buying bonds issued by private banks, some of which do offer high interest rates, is appealing. However, these private banks carry the risk of bankruptcy, and unless they are issued by Spain's two major official banks, the Spanish public is generally reluctant to buy bonds issued by private banks. Although there is a strong public desire to buy government bonds, the issuance of these bonds still requires the finance department to consult with a group of financial experts and undergo lengthy discussions before a decision can be made.

The exact number of government bonds to be issued, their repayment terms, and interest rates all require careful calculation.

Low interest rates can discourage people from buying government bonds. High interest rates, on the other hand, can increase the government's fiscal burden.

Different repayment terms will also represent different interest rates, since currencies are subject to devaluation. Although currencies under the gold standard are pegged to gold, this does not mean that currencies under the gold standard are immune to devaluation.

The longer people hold government bonds, the greater the risk they bear. In this context, it is necessary to offer higher interest rates to those who hold government bonds for the long term.

After discussions with a group of financial experts, the Ministry of Finance decided to issue 10 billion pesetas in naval construction bonds to the public.

The remaining 5 million pesetas will be covered by the government's budget. In recent years, the government has accumulated a considerable amount of fiscal surplus each year, so 5 million pesetas is not a huge burden for the Spanish government.

The naval construction bonds, totaling 10 billion peseta, will be issued to the public in two installments of 5 million peseta each over 10 years.

民众可以自由选择购买5年，10年和20年期限的国债，这些期限分别对应的年利率为3%，5%和7%。

Despite the seemingly high interest rates, buying government bonds actually carries significant risks for the public. While the government will not default on its debts, it has numerous methods to postpone repayment.

The reason for setting such a high interest rate is twofold: firstly, to attract the public to buy government bonds, and secondly, to indirectly enhance the country's credibility. By spending a fortune to buy a horse's bones, the government aims to convince the public that government-issued bonds will be repaid on schedule and have high interest rates, thus making them believe that buying government bonds is a completely good thing.

The reason for doing this was actually to prepare for the world war that followed.

Don't be fooled by Spain's current annual fiscal surplus; that's because Spain hasn't waged any war. Once war breaks out, military spending in all countries will increase several times, or even dozens of times, in scale.

If Spain wants to prolong the war, it must find every possible way to raise more funds. If it can convince the public to issue government bonds, then issuing bonds will be a very effective way to raise funds during the war.

For the Spanish government, both a 3% and a 7% interest rate are perfectly acceptable.

If all of them are calculated at an interest rate of 3%, Spain will issue a total of 10 billion pesetas in government bonds, with an annual interest rate of 3000 million pesetas. After 5 years, the total principal and interest will amount to 11.5 billion pesetas.

If all of them are calculated at an interest rate of 7%, with a total of 10 billion pesetas of government bonds issued, the annual interest rate will reach 7000 million pesetas, and after 20 years, the total principal and interest will amount to 24 billion pesetas.

At first glance, this interest rate seems quite high. However, considering the risk of currency devaluation and the growth of the Spanish domestic economy, such an interest rate is actually quite acceptable.

The actual situation is certainly not that extreme. People will choose different maturities of government bonds based on their own circumstances, and naturally there will be different interest rates on government bonds.

In addition to issuing government bonds to the public, Spain can also choose to obtain low-interest loans from other countries.

However, these low-interest loans are conditional, either requiring collateral of domestic mineral resources and other assets, or an exchange of political interests.

In short, there is no such thing as a free lunch.

Although the interest rates on foreign loans appear to be lower than those on government bonds, when other hidden clauses are taken into account, the actual cost of foreign loans is higher than that of government bonds.

Moreover, after issuing national bonds, Spain can obtain a large amount of funds in a short period of time, and the Spanish people can also obtain a large amount of funds in total, including principal and interest, after holding the national bonds for a long period of time.

For both the Spanish government and its people, this is a win-win situation. People are using funds they don't currently need to make a high-return, low-risk investment; their profits stimulate Spain's economic growth, which is beneficial for the Spanish government.

As for the Spanish government, after building up its navy with the money raised from issuing national debt, it will certainly want to put the navy to use.

With such a powerful navy protecting it, Spain could naturally gain even more benefits. Putting aside everything else, as long as they could recapture Gibraltar, the sacrifices would be worthwhile.

If they could also annex Portugal, then this deal would be incredibly profitable.

Carlo also had reason to believe that the Spanish government would easily repay these national debts a few years later, or at the very least, use the reparations from defeated nations to repay them.

Anyway, with the royal family as a safety net, even if the war puts the Spanish government's finances under immense strain, it will absolutely not affect the government's repayment of these naval construction debts to the people.

After determining the share of government bonds to be issued and the corresponding interest rates, Spain's government bond issuance process began quickly.

This naval construction bond is open to all Spaniards and all Spanish businesses, in order to raise sufficient funds more quickly.

On August 11, 1902, after a period of preparation, the Spanish government officially issued 500 million pesetas of naval construction bonds.

To set a good example for the Spanish people, Carlos, on behalf of the Spanish royal family, took the lead in purchasing 5000 million pesetas and chose a 20-year term with a lighter repayment burden.

按照20年期限7%的利率来算，20年后西班牙王室购买的这笔国债的利息就高达7000万比塞塔，而王室只付出了5000万比塞塔的本金。

It seems absurd that the interest is higher than the principal, but if you think about it, you'll realize that the royal family is actually the one who loses out.

Although the interest is as high as 7000 million pesetas, this interest can only be earned after 20 years. If all 5000 million pesetas were invested, given the current state of Spain's economic development, the royal family could potentially earn a profit of over 7000 million pesetas in just a few years.

现在的5000万比塞塔和20年后的1.2亿比塞塔到底谁的价值高卡洛并不能确定，但卡洛可以确定的是，现在能掏出5000万比塞塔的个人或者企业，在20年后也有极大的概率可以轻松掏出1.2亿比塞塔。

Although this is just an example of the royal family buying government bonds, this is actually the reality for most people.

The good news is that most Spaniards are still very patriotic.

After the government officially issued naval construction bonds, the royal family first subscribed to 5000 million pesetas of bonds, and then Spain's two major official banks each subscribed to 3000 million pesetas of bonds.

Although these two official banks possess extremely strong financial resources, they certainly cannot subscribe to the same amount of government bonds as the royal family.

More importantly, the government bonds purchased by the royal family and the two official banks alone amounted to 1.1 million pesetas, accounting for 22% of the total government bonds issued this time.

This doesn't even include other companies that want to buy government bonds. If they could really buy government bonds at will, the Spanish people who have been eagerly waiting probably wouldn't be able to buy a single penny of government bonds.

that's the truth.

In the first three days of the bond issuance, Spanish government and private companies purchased a significant amount of the bonds. Besides the previously mentioned royal family and the two official banks, several other companies jointly purchased nearly 1.5 million pesetas worth of bonds.

This resulted in only 2.4 million pesetas of national debt ultimately flowing into the private sector, and the Spanish people absorbed the portion of national debt that flowed into the private sector in just two and a half months.

(End of this chapter)