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

  • Marc Flandreau

    (Centre for Finance and Development)

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.

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Paper provided by Sciences Po in its series Sciences Po publications with number info:hdl:2441/604.

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Date of creation: Apr 2006
Date of revision:
Publication status: Published in European Review of Economic History, 2006, vol. 10, pp.3-33
Handle: RePEc:spo:wpmain:info:hdl:2441/604
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  1. 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.
  2. 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.
  3. 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, 04.
  4. Alessandra Casella, 1990. "Participation in a Currency Union," NBER Working Papers 3220, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.
  7. Flandreau, Marc & Komlos, John, 2005. "Target Zones in Theory and History: Credibility, Efficiency, and Policy Autonomy," CEPR Discussion Papers 5199, C.E.P.R. Discussion Papers.
  8. 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.
  9. repec:oup:qjecon:v:112:y:1997:i:4:p:1027-56 is not listed on IDEAS
  10. 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.
  11. 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.
  12. 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.
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