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The Logic of Compromise: Monetary bargaining in Austria-Hungary 1867-1913

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  • Flandreau, Marc

Abstract

This paper examines the historical record of the Austro-Hungarian monetary union, focusing on its bargaining dimension. As a result of the 1867 Compromise, Austria and Hungary shared a common currency, although they were fiscally sovereign and independent entities. By using repeated threats to quit, Hungary succeeded in obtaining more than proportional control and forcing the common central bank into a policy that was very favourable to it. Using insights from public economics, this paper explains the reasons for this outcome. Because Hungary would have been able to secure quite good conditions for itself had it broken apart, Austria had to provide its counterpart with incentives to stay on board. I conclude that the eventual split of Hungary after WWI was therefore not written on the wall in 1914, since the Austro-Hungarian monetary union was quite profitable to Hungarians.

Suggested Citation

  • Flandreau, Marc, 2006. "The Logic of Compromise: Monetary bargaining in Austria-Hungary 1867-1913," CEPR Discussion Papers 5397, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:5397
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    References listed on IDEAS

    as
    1. Flandreau, Marc & Jobst, Clemens, 2005. "The Ties that Divide: A Network Analysis of the International Monetary System, 1890 1910," The Journal of Economic History, Cambridge University Press, vol. 65(04), pages 977-1007, December.
    2. Alberto Alesina & Enrico Spolaore, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1027-1056.
    3. Marc Flandreau & Mathilde Maurel, 2005. "Monetary Union, Trade Integration, and Business Cycles in 19th Europe," Post-Print halshs-00308756, HAL.
    4. Marc Flandreau & Jacques Le Cacheux & Frédéric Zumer, 1998. "Stability without a pact? Lessons from the European gold standard, 1880-1914," Economic Policy, CEPR;CES;MSH, vol. 13(26), pages 115-162, April.
    5. Flandreau, Marc, 1993. "On the inflationary bias of common currencies : The Latin Union puzzle," European Economic Review, Elsevier, vol. 37(2-3), pages 501-506, April.
    6. Flandreau, Marc & Komlos, John, 2006. "Target zones in theory and history: Credibility, efficiency, and policy autonomy," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1979-1995, November.
    7. Pammer, Michael, 1998. "Austrian private investments in Hungary, 1850 1913," European Review of Economic History, Cambridge University Press, vol. 2(02), pages 141-169, August.
    8. Casella, Alessandra, 1992. "Participation in a Currency Union," American Economic Review, American Economic Association, vol. 82(4), pages 847-863, September.
    9. Marc Flandreau & John Komlos, 2001. "Core or periphery ? The Credibility of the Habsburg Currency, 1867-1914," Working Papers hal-01064885, HAL.
    10. repec:spo:wpecon:info:hdl:2441/625 is not listed on IDEAS
    11. Flandreau, Marc & Sussman, Nathan, 2004. "Old Sins: Exchange Rate Clauses and European Foreign Lending in the 19th Century," CEPR Discussion Papers 4248, C.E.P.R. Discussion Papers.
    12. Marc Flandreau & Mathilde Maurel, 2005. "Monetary Union, Trade Integration, and Business Cycles in 19th Century Europe," Open Economies Review, Springer, vol. 16(2), pages 135-152, April.
    13. Schulze, Max-Stephan, 2000. "Patterns of growth and stagnation in the late nineteenth century Habsburg economy," European Review of Economic History, Cambridge University Press, vol. 4(03), pages 311-340, December.
    14. Marc Flandreau & Clemens Jobst, 2006. "The Empirics of International Currencies: Evidence from the 19th Century," Working Papers hal-01065631, HAL.
    15. Flandreau, Marc, 2000. "The economics and politics of monetary unions: a reassessment of the Latin Monetary Union, 1865 71," Financial History Review, Cambridge University Press, vol. 7(01), pages 25-44, April.
    16. Frédéric Zumer & Jacques Le Cacheux & Marc Flandreau, 1998. "Stability without a pact? Lessons from the European Gold Standard, 1880-1913," Working Papers hal-01037858, HAL.
    17. Schulze, Max-Stephan, 2000. "Patterns of growth and stagnation in the late nineteenth century Habsburg economy," LSE Research Online Documents on Economics 4370, London School of Economics and Political Science, LSE Library.
    18. repec:spo:wpecon:info:hdl:2441/645 is not listed on IDEAS
    19. Flandreau, Marc & Jobst, Clemens, 2005. "The Ties that Divide. A Network Analysis of the International Monetary System," CEPR Discussion Papers 5129, C.E.P.R. Discussion Papers.
    20. Michael G. Spencer & Peter M. Garber, 1992. "The Dissolution of the Austro-Hungarian Empire; Lessons for Currency Reform," IMF Working Papers 92/66, International Monetary Fund.
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    Citations

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    Cited by:

    1. Barry Eichengreen, 2008. "Sui Generis EMU," NBER Working Papers 13740, National Bureau of Economic Research, Inc.
    2. Accominotti, Olivier & Flandreau, Marc & Rezzik, Riad & Zumer, Frédéric, 2008. "Black Man’s Burden: Measured Philanthropy in the British Empire, 1880-1913," CEPR Discussion Papers 6811, C.E.P.R. Discussion Papers.
    3. Handler, Heinz, 2013. "The eurozone: piecemeal approach to an optimum currency area," MPRA Paper 67183, University Library of Munich, Germany.
    4. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093, October.

    More about this item

    Keywords

    free riding; market integration; monetary union; secession;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • N32 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - U.S.; Canada: 1913-

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