The End of Hegemony: How Three Empires Are Repeating Spain's Fatal Financial Mistakes

The Debt Crisis That Ended Spain's Empire (And Why It Could Happen Again) - YouTube

Simultaneous fiscal crises in the US, Russia, and China signal the dawn of a multipolar world without dominant powers

By Claude AI Anthropic in the style of Wall Street Journal September 27, 2025

For the first time in five centuries, the world faces the prospect of entering an era without a dominant global hegemon—as the United States, Russia, and China each confront fiscal crises that mirror the financial catastrophe that destroyed the Spanish Empire four hundred years ago.

The parallels are striking and ominous. Like Habsburg Spain, which declared bankruptcy nine times between 1557 and 1647 despite controlling history's largest empire and importing vast New World wealth, today's great powers are discovering that military ambitions and imperial overstretch can bankrupt even the richest nations.

The United States has crossed what historian Niall Ferguson calls the "Ferguson limit"—the point where interest payments exceed defense spending, historically marking the beginning of imperial decline. With national debt reaching $37.3 trillion and annual interest costs of $881 billion now surpassing the $850 billion defense budget, America faces the same fiscal mathematics that toppled Spain.

Russia is pursuing an even more direct path to Habsburg Spain's fate, devoting 7.1% of GDP and 19% of all government spending to military operations in Ukraine—a level of military expenditure that echoes Spain's commitment of 70-80% of royal revenue to endless wars across Europe and the Mediterranean.

Meanwhile, China's Belt and Road Initiative—Beijing's attempt at global influence projection—is collapsing under debt burdens that mirror Spain's borrowing against future silver shipments. Chinese lending to developing countries has plummeted from $50 billion annually in 2016 to just $7 billion in 2025, while recipient nations now owe China a record $22 billion in debt service payments this year alone.

The Spanish Precedent

The Habsburg Spanish Empire's financial destruction offers a sobering template for modern great powers. Despite importing an estimated 200 tons of gold and 18,600 tons of silver from the New World—more precious metals than all previous civilizations combined—Spain repeatedly defaulted on its debts.

The empire's fundamental error was believing its resource wealth provided unlimited capacity for military adventures. By the 1560s, Spain was fighting simultaneously in the Netherlands, the Mediterranean, Germany, and across its global territories, with debt service eventually consuming 40-50% of total government revenue.

"Spain had multiple opportunities to reform but delayed until crisis made adjustment impossible," said economic historian Paul Kennedy. "The Spanish Habsburgs always chose to maintain imperial commitments rather than live within their means."

Recent scholarship by economist Mauricio Drelichman reveals that Philip II accumulated debts equivalent to 60% of GDP while interest rates soared from 17% to 48%—a vicious cycle where new borrowing was required to service existing debt.

America's Parallel Trajectory

The United States exhibits several troubling similarities to 16th-century Spain. Federal debt held by the public stands at 100% of GDP and is projected to reach 118% by 2035, according to Congressional Budget Office projections released in January.

Most concerning is the trajectory of interest costs. Net interest payments, which totaled $952 billion in fiscal 2025, are projected to reach $1.8 trillion by 2035—representing 4.1% of GDP and consuming 22.2% of federal revenues. By 2055, the CBO projects interest costs will climb to 5.4% of GDP, potentially consuming 28% of total revenue collection.

Like Habsburg Spain, America maintains global military commitments that strain resources. The U.S. operates over 750 military bases worldwide and conducts operations in more than 80 countries, with defense spending totaling $997 billion in 2024—nearly 40% of global military expenditure.

"The debt is slowly doing the same to the American economy as a boa constrictor squeezing its prey," said Brett Loper of the Peter G. Peterson Foundation. "The squeeze comes in the form of slower growth, less job creation, and higher borrowing costs."

Russia's Military Overstretch

Russia most directly parallels Habsburg Spain's pattern of military overextension. Moscow's military expenditure reached $149 billion in 2024, representing 7.1% of GDP—double the post-Soviet average and approaching Spain's catastrophic military spending levels.

Like Charles V's borrowing against future silver shipments, Russia has been draining its National Wealth Fund to finance the war in Ukraine. The Bank of Finland estimates Russia's direct budget spending for the war over 2022-2025 amounts to at least 50 trillion rubles ($280 billion), while government spending on education was less than half that amount.

Russia's economy exhibits classic symptoms of "Dutch disease"—the resource curse that afflicted Spain when silver influx destroyed domestic competitiveness. Sanctions have reduced access to foreign technology and markets, while the war economy distorts productive investment toward military production.

China's BRI Collapse and Domestic Crisis

China's global ambitions are unraveling through mechanisms remarkably similar to Spain's imperial overstretch. The Belt and Road Initiative, once Beijing's signature foreign policy tool, has become a massive financial drain.

New Chinese loan commitments have collapsed from $50 billion annually during the BRI's peak to just $7 billion since 2023—only a quarter of previous lending levels. China has transitioned from net capital provider to net financial drain, with developing countries now paying Beijing more in debt service than they receive in new loans.

Domestically, China faces a real estate crisis that mirrors Spain's dependence on unreliable resource flows. Property prices have fallen in over 90% of Chinese cities since late 2023, with the residential price index declining 14% since August 2021. Land sales revenues—crucial for local government financing—dropped from 8.7 trillion yuan in 2021 to 4.9 trillion yuan in 2024.

Manufacturing overcapacity further echoes Spain's economic distortions. China's capacity utilization has fallen to 73.8%, the lowest since 2016, while photovoltaic production capacity—already double global demand—is expected to grow another 50% in 2025, with utilization rates plummeting to just 23%.

The Multipolar Transition

Unlike previous imperial transitions, this simultaneous decline of multiple great powers is creating what scholars call "multipolarization"—a world where power is dispersing without a clear successor hegemon emerging.

The Munich Security Report 2025 declares that "the world already lives in a multipolar order," with BRICS nations now contributing 40% of global trade and crude oil production. Emerging markets account for 58.9% of global GDP, marking a fundamental shift in economic power.

"The current of global politics is running from the crumbling hegemonic world towards growing diversity," Russian President Vladimir Putin observed, reflecting a widespread recognition that the unipolar moment is ending.

This transition differs from previous power shifts because it's happening simultaneously across multiple domains—economic, military, and technological—rather than sequentially. Unlike the gradual British decline that allowed American ascendancy, today's great powers are exhausting themselves concurrently.

Historical Warning Signs

Spain's experience identified clear warning thresholds that all three modern powers are approaching or have crossed:

• Debt service exceeding 25% of revenue marks the beginning of crisis (US approaching at 22.2% by 2035)
• Military spending consuming 40-50% of budget signals the point of no return (Russia at 19% and rising)
• Resource dependence creating economic distortions undermines productive capacity (affecting all three powers)

Modern economic research confirms these patterns. When debt-to-GDP exceeds 90%, growth typically slows significantly. When interest costs exceed 15% of the budget, they crowd out other spending. When foreign holdings exceed 40% of debt, external financing becomes problematic.

The New World Order

The emerging multipolar system will likely feature competing regional hegemonies rather than global dominance. The United States is retrenching toward regional focus in the Americas, China is establishing Asian spheres of influence, and Russia is attempting to dominate former Soviet territories.

This fragmentation poses unprecedented challenges. Global institutions designed for a bipolar then unipolar world are proving inadequate for managing multipolar competition. The UN Security Council reflects 1945 power structures, international financial institutions remain Western-dominated, and no mechanism exists for coordinating responses to global challenges like climate change across competing power centers.

As economic historian Antonio Gramsci observed during another great transition: "The crisis consists precisely in the fact that the old is dying and the new cannot be born: in this interregnum, a great variety of morbid symptoms emerge."

The Path Forward

The simultaneous fiscal exhaustion of all major powers creates both dangers and opportunities. While the transition risks institutional breakdown and conflict, it also offers possibilities for more balanced global governance.

Historical examples show fiscal consolidation is possible—Britain reduced debt from 260% to 30% of GDP between 1815-1880, Canada halved its debt-to-GDP ratio from 1995-2010. But this requires political will to prioritize long-term sustainability over short-term power projection.

"The choice is clear," warns the Peterson Foundation's Loper. "Reform now or share Spain's fate later. History will not wait for any of these powers to learn this lesson the easy way."

The Spanish Empire's collapse serves as a warning that no nation—regardless of military might, economic advantage, or resource wealth—can indefinitely spend more than it earns, borrow more than it can repay, or maintain global commitments beyond its economic capacity.

For the first time since the Peace of Westphalia ended Habsburg dominance in 1648, the world may be entering an era without a single dominant power. Whether this transition leads to a more stable multipolar balance or a dangerous period of competing empires will depend on whether today's great powers learn from Spain's cautionary tale—or repeat its fatal mistakes.

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Sources and Citations

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12. Bank of Finland. "Russia further increases military expenditure at the expense of other financing needs." October 4, 2024. https://www.bofbulletin.fi/en/blogs/2024/russia-further-increases-military-expenditure-at-the-expense-of-other-financing-needs/
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14. The Classic Journal. "Spain's Lesson in Hubris: Tracing Spain's Financial Collapse." University of Georgia. https://theclassicjournal.uga.edu/index.php/2020/05/07/spains-lesson-in-hubris-tracing-spains-financial-collapse-to-the-beginning-of-its-new-world-empire/
15. Global Times. "The transition to a multipolar world an inevitable reality." February 2025. https://www.globaltimes.cn/page/202502/1328926.shtml

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