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

Author

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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," Working Papers hal-01065619, HAL.
    • Handle: RePEc:hal:wpaper:hal-01065619
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-01065619
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    References listed on IDEAS

    as
    1. Alberto Alesina & Enrico Spolaore, 1997. "On the Number and Size of Nations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1027-1056.
    2. Marc Flandreau, 2000. "The economics and politics of monetary unions: a reassessment of the Latin Monetary Union, 1865-1871," Post-Print hal-03416539, HAL.
    3. Marc Flandreau & Mathilde Maurel, 2005. "Monetary Union, Trade Integration, and Business Cycles in 19th Europe," Sciences Po Economics Publications (main) 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, CESifo, Sciences Po;CES;MSH, vol. 13(26), pages 116-162.
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    6. Marc Flandreau & Jacques Le Cacheux & Frédéric Zumer, 1998. "Stability without a pact?," Sciences Po Economics Publications (main) hal-03416381, HAL.
    7. Marc Flandreau, 2000. "The economics and politics of monetary unions: a reassessment of the Latin Monetary Union, 1865-1871," Post-Print hal-03416540, HAL.
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    11. 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(4), pages 977-1007, December.
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    15. John Komlos & Marc Flandreau, 2001. "Core or periphery ? The Credibility of the Habsburg Currency, 1867-1914," Post-Print hal-03416567, HAL.
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    17. Marc Flandreau, 1993. "On the Inflationary Bias of Common Currencies: the Latin Union Puzzle," Post-Print hal-03416221, HAL.
    18. 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.
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    21. 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(3), pages 311-340, December.
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    24. Casella, Alessandra, 1992. "Participation in a Currency Union," American Economic Review, American Economic Association, vol. 82(4), pages 847-863, September.
    25. Mr. Michael G. Spencer & Mr. Peter M. Garber, 1992. "The Dissolution of the Austro-Hungarian Empire: Lessons for Currency Reform," IMF Working Papers 1992/066, International Monetary Fund.
    26. 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(1), pages 25-44, April.
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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. Flandreau, Marc & Zumer, Frederic & Accominotti, Olivier & Rezzik, Riad, 2008. "Black Man?s Burden: Measured Philanthropy in the British Empire, 1880-1913," CEPR Discussion Papers 6811, C.E.P.R. Discussion Papers.
    3. Heinz Handler, 2013. "The Eurozone: Piecemeal Approach to an Optimum Currency Area," WIFO Working Papers 446, WIFO.
    4. Maxence Follot, 2024. "The impact of populism on central bank communication: Analyzing theoretical developments and the case of Hungary," European Journal of Comparative Economics, Cattaneo University (LIUC), vol. 21(1), pages 65-95, June.
    5. Singleton,John, 2010. "Central Banking in the Twentieth Century," Cambridge Books, Cambridge University Press, number 9780521899093, January.
    6. 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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    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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