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The logic of compromise : monetary bargaining in Austria-Hungary 1867-1913

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  • Marc Flandreau

    (Centre for Finance and Development - GRADUATE INSTITUTE OF INTERNATIONAL AND DEVELOPMENT STUDIES)

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

  • Marc Flandreau, 2006. "The logic of compromise : monetary bargaining in Austria-Hungary 1867-1913," Post-Print hal-01071968, HAL.
    • Handle: RePEc:hal:journl:hal-01071968
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01071968
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    Cited by:

    1. Handler, Heinz, 2013. "The eurozone: piecemeal approach to an optimum currency area," MPRA Paper 67183, University Library of Munich, Germany.
    2. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093, September.
    3. Pope, Robin & Selten, Reinhard & Kube, Sebastian & von Hagen, Jürgen, 2009. "Prominent Numbers, Indices and Ratios in Exchange Rate Determination and Financial Crashes: in Economists’ Models, in the Field and in the Laboratory," Bonn Econ Discussion Papers 18/2009, University of Bonn, Bonn Graduate School of Economics (BGSE).

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