External debt and commitment mechanisms: Danish borrowing in Holland, 1763-1825

External borrowing constituted an important part of sovereign finances in early modern Europe. As payments could not be enforced through third parties, sovereigns had to convince lenders of their commitment to service their loans. Although the literature has dealt with this problem extensively, little is known about what supported lending in early modern Europe. This article therefore asks whether and how commitment mechanisms identified in the sovereign borrowing literature made external borrowing safer in early modern Europe. It attempts to answer this question by analysing the loans that a small and peripheral state (Denmark) issued in Europe's foremost international investment hub (eighteenth-century Holland). Primary sources demonstrate that Denmark inspired confidence in investors and serviced its loans well; a new dataset with securities prices reveals yields to maturity in accordance with this. Economic spillovers (domestic economic damage) and reputation (loss of access to external loans) are identified as the mechanisms that kept the Danish sovereigns committed to honouring their debts. The Danish case shows, however, that these commitment mechanisms could only be adopted after the growth and integration of northern Europe's economies.