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The European crisis in the context of the history of previous financial crises

Author

Listed:
  • 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.

Suggested Citation

  • Michael Bordo & Harold James, 2013. "The European crisis in the context of the history of previous financial crises," Special Conference Papers 18, Bank of Greece.
  • Handle: RePEc:bog:spaper:18
    as

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    File URL: http://www.bankofgreece.gr/BogEkdoseis/SCP201318.pdf
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    References listed on IDEAS

    as
    1. Nicos Christodoulakis, 2013. "Currency crisis and collapse in interwar Greece: predicament or policy failure?," European Review of Economic History, Oxford University Press, vol. 17(3), pages 272-293, August.
    2. Maurice Obstfeld & Alan M. Taylor, 2003. "Sovereign risk, credibility and the gold standard: 1870-1913 versus 1925-31," Economic Journal, Royal Economic Society, vol. 113(487), pages 241-275, April.
    3. Eichengreen, Barry & Sachs, Jeffrey, 1985. "Exchange Rates and Economic Recovery in the 1930s," The Journal of Economic History, Cambridge University Press, vol. 45(04), pages 925-946, December.
    4. Wandschneider, Kirsten, 2008. "The Stability of the Interwar Gold Exchange Standard: Did Politics Matter?," The Journal of Economic History, Cambridge University Press, vol. 68(01), pages 151-181, March.
    Full references (including those not matched with items on IDEAS)

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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. By failing to prepare, you are preparing to fail
      by bbatiz in NEP-HIS blog on 2015-08-11 21:10:50

    Citations

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    Cited by:

    1. Sergio Cesaratto, 2013. "The implications of TARGET2 in the European balance of payments crisis and beyond," European Journal of Economics and Economic Policies: Intervention, Edward Elgar Publishing, vol. 10(3), pages 359-382.
    2. Hau, Harald & Lai, Sandy, 2016. "Asset allocation and monetary policy: Evidence from the eurozone," Journal of Financial Economics, Elsevier, vol. 120(2), pages 309-329.
    3. Sergio Cesaratto, 2017. "Beyond the traditional monetary circuit: endogenous money, finance and the theory of long-period effective demand," Department of Economics University of Siena 757, Department of Economics, University of Siena.
    4. Sergio Cesaratto, 2017. "The nature of the eurocrisis. A reply to Febrero, Uxò and Bermejo," Department of Economics University of Siena 752, Department of Economics, University of Siena.

    More about this item

    Keywords

    Gold Standard; Gold Exchange Standard; Debt Crisis; Euro;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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