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THE EUROPEAN CRISIS IN THE CONTEXT OF THE HISTORY OF PREVIOUS FINANCIAL CRISES

 

Michael Bordo

Rutgers University

 

Harold James

Princeton University

 

 

ABSTRACT

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.

 

Keywords: Gold Standard, Gold Exchange Standard, Debt Crisis, Euro

JEL classifications: F33,

Acknowledgements: The views expressed are my own and do not necessarily reflect those of Princeton University and Rutgers University.

 

 

Correspondence:

Harold James

Princeton University

Princeton NJ 08544

Tel: +1 609 258 4160

hjames@princeton.edu


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