The Enormous Public Debt of the Kingdom of the Two Sicilies and the Covenant with the Rothschilds

Written by Erica Del Giusto

As many of you know, in recent years there has been much talk in Neo-Bourbonist circles about the solidity (and even the supposed wealth) of the finances of the Kingdom of the Two Sicilies, whose vast resources — according to some people — were supposedly appropriated by the first Italian government after unification in order to balance the disastrous budget of the Kingdom of Sardinia, thereby allowing Italy to have a solid financial start. Now, it is well known that after unification there was no "solid financial start" for Italy, whose financial issues, on the contrary, gave rise to the government of the Historical Right.

Regarding this, the distinguished historian Valerio Castronovo wrote:

"In the aftermath of 1861, the new unitary state had to face a situation of absolute emergency, caused primarily by the assumption of the debts of the pre-unification States and by the military expenses incurred by the Kingdom of Sardinia for the wars of independence. Moreover, after that, the public debt and financial deficit were aggravated by the measures for administrative unification, by the construction of the first infrastructures, and by the extraordinary burden of military operations which had to be followed for several years in order to suppress brigandage in the South, which was fomented by the Bourbons' attempts at revenge and by the aversion of the clergy towards the new liberal government." 

(V. Castronovo, "Storia economica d'Italia", p. 26).

Therefore, not only did the Bourbons' finances contribute in no way towards helping the finances of the Kingdom of Sardinia and the Kingdom of Italy, but on the contrary they were one of the causes of the very difficult financial beginning of the new unitary State. Regarding this, a clear and concise picture of the financial situation of the Kingdom of the Two Sicilies on the eve of unification has been left to us by one of the greatest historians of the Risorgimento, Alfonso Scirocco (who, for the record, was a true Neapolitan, as well as a very profound connoisseur of documents relating to the Kingdom of the Two Sicilies which are preserved in the State Archives of Naples). Regarding the finances of the Bourbon Kingdom, he wrote:

"As is well known, the Bourbon government, which always remained faithful to the criterion of limiting public spending to contain the tax burden, failed to prevent the accumulation of an annual deficit, which from 1848 to 1859 reached a total of 31,610,460,64 ducats, which was addressed by selling public annuity. The deficit worsened between the end of 1859 and the first months of 1860 due to Italian affairs, which forced the Bourbon monarchy to effectuate heavy military expenditures. 

Also on this occasion they resorted to the creation of public annuity, and in order to facilitate its sale without causing a collapse the government concluded an agreement with the House of Rothschild, through whom they sold an annuity trust of 200,000 ducats in October 1859 and another trust of 100,000 ducats in May 1860. After the successful landing of Garibaldi in Sicily the conditions of the Neapolitan Treasury rapidly worsened, because the contributions paid by the General Treasury of Sicily were lost, and the emergence of an economic crisis discouraged the use of the convenient expedient of issuing vouchers at the Bank of the Two Sicilies. Already on June 5 the deficit for 1860, originally anticipated at 5,500,000 ducats, rose to 9,170,000 ducats in the forecasts of the Minister of Finance, who therefore proposed the creation of a fund of 400,000 ducats to be used for the immediate needs of the treasury."

(A. Scirocco, "Governo e paese nel Mezzogiorno nella crisi dell'unificazione", pp. 57-58).

Now, if we keep in mind that, through the dictatorial decree of September 24, 1860, the transitional government of Naples marked the ducat at 4.25 Lire, we can easily calculate the size of the huge public debt of the Kingdom of the Two Sicilies both before and during the convulsive phases of unification. Moreover, Scirocco mentions the agreement that the Bourbons signed with the House of Rothschild in 1859, in order to keep the public debt securities of the Kingdom of the Two Sicilies attractive on the market; in other words, the securities, through the mediation of the Rothschilds, were sold at conditions outside the ordinary market, with a much lower interest rate than the disastrous financial condition of the Kingdom would have allowed (the Covenant with the House of Rothschild was stipulated on October 17, 1859; the documents are found in the State Archives of Naples, in the category concerning the documents of the Ministry of Finance, fascio 14.345).

Therefore, in my opinion, the Rothschild Covenant refutes the conclusions of the recent study made by Stephanie Collet, who, analyzing the unification of the public debts of the pre-unification Italian states, argued that the low interest rate of the government bonds of the Kingdom of the Two Sicilies compared to the Kingdom of Sardinia depended on the flourishing state of the public finance of the former with respect to the latter. Dear Professor Collet, do not be too hard on yourself: as a historian of finance you have committed the typical error of the statisticians; namely, you looked at the numbers without considering how they were historically determined.