The European Crisis in the Context of the History of Previous Financial Crises
There are some striking similarities between the pre 1914 gold standard and EMU today. Both arrangements are based on fixed exchange rates, monetary and fiscal orthodoxy. Each regime gave easy access by financially underdeveloped peripheral countries to capital from the core countries. But the gold standard was a contingent rule--in the case of an emergency like a major war or a serious financial crisis --a country could temporarily devalue its currency. The EMU has no such safety valve. Capital flows in both regimes fueled asset price booms via the banking system ending in major crises in the peripheral countries. But not having the escape clause has meant that present day Greece and other peripheral European countries have suffered much greater economic harm than did Argentina in the Baring Crisis of 1890.
Paper prepared for Bank of Greece Conference, May 23-25, 2013 The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
This paper draws in part from conclusions of a study commissioned by the Bank for International Settlements and the European Central Bank and published as "Making the European Monetary Union" (Harvard University Press, 2012).
Journal of Macroeconomics Volume 39, Part B, March 2014, Pages 275–284 The Crisis in the Euro Area. Papers Presented at a Bank of Greece Conference Cover image The European Crisis in the Context of the History of Previous Financial Crises Michael Bordoa, Harold Jamesb, , citation courtesy of