The euro as a proxy for the classical gold standard? Government debt financing and political commitment in historical perspective
[Introduction] In spite of the recent troubles in the euro area, Jesus Huerta de Soto (2012), a famous proponent of the gold standard, argues that the euro should be considered a 'second best to the gold standard' and is worth being preserved. From a classical liberal point of view, he sheds some light on the euro's similarities with the gold standard and on some important advantages of the currency union over its alternative, flexible exchange rates in Europe. According to Huerta de Soto (2012), the main advantage of the introduction of the common currency is that - like when 'going on gold' - European governments have given up monetary nationalism. Like the gold standard, the euro limits state power as it prevents national central banks from manipulating exchange rates and inflating away government debt. Currently, he argues, the common currency - like previously the gold standard - forces important reforms and/or spending cuts upon the countries of the euro area that face severe debt and structural problems. In this respect, the euro should be seen as 'a proxy for the gold standard'. In this policy paper, I attempt to address some similarities and differences in the institutional framework of the classical gold standard (1880 - 1912) and the European Monetary Union (EMU) (1999 - ) that affect government debt financing and the way in which countries react to crisis. I argue that - in line with Huerta de Soto (2012) - giving up monetary nationalism and committing to the rules of either the gold standard or EMU initially restricted the scope of state action. Therefore, the euro - like previously the gold standard - provided some (fiscal) policy credibility. Fiscal policy credibility was the main determinant of capital market integration and low government borrowing costs in Europe under both systems. But in contrast to Huerta de Soto (2012), I shall emphasize that neither the gold standard, nor the euro itself force reforms and spending cuts upon countries that face crisis and debt problems. The political commitment to the monetary systems determines the willingness to reform or cut spending and therewith fiscal policy credibility in crisis periods: (...)
|Date of creation:||2013|
|Contact details of provider:|| Postal: Marschnerstraße 31, 04109 Leipzig|
Web page: http://www.wifa.uni-leipzig.de/en/dekanat.html
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Carmen M. Reinhart & Kenneth S. Rogoff, 2010.
"From Financial Crash to Debt Crisis,"
NBER Working Papers
15795, National Bureau of Economic Research, Inc.
- Hugh Rockoff & Michael D. Bordo, 1996.
"The Gold Standard as a "Good Housekeeping Seal of Approval","
Departmental Working Papers
199528, Rutgers University, Department of Economics.
- Bordo, Michael D. & Rockoff, Hugh, 1996. "The Gold Standard as a “Good Housekeeping Seal of Approval”," The Journal of Economic History, Cambridge University Press, vol. 56(02), pages 389-428, June.
- Michael D. Bordo, 1995. "The Gold Standard as a `Good Housekeeping Seal of Approval'," NBER Working Papers 5340, National Bureau of Economic Research, Inc.
- Peter Backé & Balázs Égert, 2006.
"Credit Growth in Central and Eastern Europe: New (Over)Shooting Stars?,"
Focus on European Economic Integration,
Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 112-139.
- Egert, Balázs & Backé, Peter & Zumer, Tina, 2006. "Credit growth in Central and Eastern Europe: new (over)shooting stars?," Working Paper Series 0687, European Central Bank.
- Poterba, James M. & Rueben, Kim S., 2001. "Fiscal News, State Budget Rules, and Tax-Exempt Bond Yields," Journal of Urban Economics, Elsevier, vol. 50(3), pages 537-562, November.
- Andreas Hoffmann, 2010.
"An Overinvestment Cycle In Central And Eastern Europe?,"
Wiley Blackwell, vol. 61(4), pages 711-734, November.
- Hoffmann, Andreas, 2009. "An Overinvestment Cycle in Central and Eastern Europe?," MPRA Paper 15668, University Library of Munich, Germany.
- Schmukler, Sergio L. & Serven, Luis, 2002. "Pricing currency risk under currency boards," Journal of Development Economics, Elsevier, vol. 69(2), pages 367-391, December.
- Michael D. Bordo & Barry Eichengreen & Douglas A. Irwin, 1999. "Is Globalization Today Really Different than Globalization a Hunderd Years Ago?," NBER Working Papers 7195, National Bureau of Economic Research, Inc.
- Flandreau, Marc & Le Cacheux, Jacques & Zumer, Frédéric, 1998.
"Stability Without a Pact? Lessons from the European Gold Standard 1880-1914,"
CEPR Discussion Papers
1872, C.E.P.R. Discussion Papers.
- 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.
- Christopher M. Meissner, 2003.
"Exchange-Rate Regimes and International Trade: Evidence from the Classical Gold Standard Era,"
American Economic Review,
American Economic Association, vol. 93(1), pages 344-353, March.
- Lopez-Cordova, J. Ernesto & Meissner, Chris, 2000. "Exchange-Rate Regimes and International Trade: Evidence from the Classical Gold Standard Era," Center for International and Development Economics Research, Working Paper Series qt1b04r034, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
- J. Ernesto López-Córdova and Chris Meissner., 2000. "Exchange-Rate Regimes and International Trade: Evidence from the Classical Gold Standard Era," Center for International and Development Economics Research (CIDER) Working Papers C00-118, University of California at Berkeley.
- ,, 2009. "Economics of Monetary Union," OUP Catalogue, Oxford University Press, edition 8, number 9780199563234, December.
- Mauro, Paolo & Sussman, Nathan & Yafeh, Yishay, 2007. "Emerging Markets and Financial Globalization: Sovereign Bond Spreads in 1870-1913 and Today," OUP Catalogue, Oxford University Press, number 9780199226139, December.
- Aßmann, Christian & Boysen-Hogrefe, Jens, 2009.
"Determinants of government bond spreads in the Euro Area: in good times as in bad,"
Kiel Working Papers
1548, Kiel Institute for the World Economy (IfW).
- Christian Aßmann & Jens Boysen-Hogrefe, 2012. "Determinants of government bond spreads in the euro area: in good times as in bad," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 39(3), pages 341-356, August.
- Christian Aßmann & Jens Hogrefe, 2009. "Determinants of government bond spreads in the Euro area – in good times as in bad," Kiel Working Papers 1548, Kiel Institute for the World Economy.
- Ebner, André, 2009. "An empirical analysis on the determinants of CEE government bond spreads," Emerging Markets Review, Elsevier, vol. 10(2), pages 97-121, June.
- Denise Côté & Christopher Graham, 2004. "Convergence of Government Bond Yields in the Euro Zone: The Role of Policy Harmonization," Staff Working Papers 04-23, Bank of Canada.
- Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 503-532, October.
- Gunther Schnabl & Holger Zemanek, 2011. "Inter-temporal savings, current account trends and asymmetric shocks in a heterogeneous European Monetary Union," Intereconomics: Review of European Economic Policy, Springer;German National Library of Economics;Centre for European Policy Studies (CEPS), vol. 46(3), pages 153-160, June.
- Salvador Barrios & Per Iversen & Magdalena Lewandowska & Ralph Setzer, 2009. "Determinants of intra-euro area government bond spreads during the financial crisis," European Economy - Economic Papers 2008 - 2015 388, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
- Mark Hallerberg & Guntram Wolff, 2008. "Fiscal institutions, fiscal policy and sovereign risk premia in EMU," Public Choice, Springer, vol. 136(3), pages 379-396, September.
- Moritz Schularick & Thomas M Steger, 2010. "Financial Integration, Investment, and Economic Growth: Evidence from Two Eras of Financial Globalization," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 756-768, November.
- Susan M Schadler & Pipat Luengnaruemitchai, 2007. "Do Economistsâ€™ and Financial Marketsâ€™ Perspectives on the New Members of the EU differ?," IMF Working Papers 07/65, International Monetary Fund.
When requesting a correction, please mention this item's handle: RePEc:zbw:leiwps:119. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.