Today is Cinco de Mayo , May 5. To the degree most Americans think about it all, it’s as a day to drink lots of Mexican beer. But the forgotten history behind Cinco de Mayo is fascinating and remains extremely relevant today. In fact, it’s so relevant for small countries around the world that it’s hard not to believe that’s exactly why it’s been forgotten. Cinco de Mayo celebrates the victory of Mexican troops over the invading French army at the Battle of Puebla southeast of Mexico City on May 5, 1862. Because the Mexican soldiers were badly outnumbered and outgunned, the unexpected triumph was a watershed in forging the country’s national identity. (Militarily it wasn’t that significant — the next year France captured the Mexican capital and installed a member of the Austrian nobility as Maximillian I, “Emperor of Mexico.”) But here’s important part for everyone else to remember today: France was invading Mexico essentially because Mexico owed France money. Mexico had borrowed enormous amounts from Europe during the Mexican-American War from 1846-8 and in a civil war from 1858-61. By 1862 it was impossible for the government to make timely payments on the loans without starving the country, and Mexican president Benito Juárez declared that all payments on foreign debt would be suspended for two years.

Photo: Alfredo Estrella/AFP/Getty Images

Getting into unsustainable debt is not something unique to Mexico; countries have done so over and over throughout history, particularly during wars. The U.S. borrowed more than we could ever repay from France and the Netherlands during the Revolutionary War, and the U.K. borrowed far beyond its means from the U.S. during World War I. When this happens, it’s far better for both the debtors and creditors to organize some kind of default rather than forcing the debtors to pay all the money back on the original terms. The advantage for debtors is obvious. More intelligent creditors understand it’s also good for them, because they generally don’t have a choice between getting all or just some of their money back. Instead, it’s a choice between getting some of it back or much less. To understand why, imagine loaning too much money to a software engineer. If you demand that the engineer sell all their computers to make interest payments, you’re unlikely to get much more money after that. And indeed both the U.S. and U.K. defaulted to varying degrees after their wars. Likewise, in 1862 the U.K. and Spain agreed to accept less than they were formally owed by Mexico. France, however, invaded Mexico in an attempt to get all its money back, which is why French troops were there for the Battle of Puebla on May 5. In a sense, the invasion was admirably honest. International relations are often like organized crime on a gigantic scale, but people pretend otherwise. Here there was no pretense: The loanshark’s enforcers beat the crap out of an entire country. By contrast, creditors today have institutions like the International Monetary Fund, which has often functioned as a creditors’ cartel — squeezing countries until they pay back their debts. This often involves lots of people dying … but in quiet ways, without armies involved. One famous example is the East Asian financial crisis of 1997. Indonesia, Thailand, and South Korea in particular had borrowed large amounts in foreign currencies. When lenders cut off their line of credit, many countries were forced to go to the IMF for loans. The IMF provided them, but only under extremely onerous conditions called “structural adjustment” — jacking up interest rates and slashing government spending. This slowed Asian economies tremendously, essentially reorganizing the entire region in an attempt to pay off their creditors in full.

International Monetary Fund (IMF) Managing Director Michel Camdessus, left, watches Indonesian President Suharto sign the new IMF deal at Cendana Residence in Jakarta on Jan. 15, 1998. Photo: Muchtar Zakaria/AP