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Lessons from history?

So will the euro suffer the same fate as his parents? Two insights can be derived from this history: first, once the metallic bases of the currencies were abandoned, the unions faced their decline. And second, if there was a chance for the national governments to depart from the sometimes unclear rules for their own advantage, they usually did so. So the prospects for their son seem bad.

Countries acting in the national interest at the expense of others in the Union, a treaty open to bold interpretation, and the fact that economic heterogeneity put the past unions constantly under stress – these factors seem to suggest a dim outlook for the euro, if he has inherited such genes from his parents.

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States pursue their national interest. This is the main lesson to be learned. But how to tame this and how to foster fiscally prudent behaviour to keep the Euro alive, remains unclear.

But the son is also very different from the parents: conclusions that could be drawn are very limited, because the nature of money was different at that time. Furthermore, the mints were under full control of the national rulers, which is also not the case for the European Central Bank. And, unlike in the Eurozone, there were no mechanisms present to sanction and effectively coordinate the past Unions. Finally, the euro was not born out of economic efficiency reasons, as his parents were, but out of political commitments. As long as these commitments last, with its implications to act in interest of the Union, the euro might evade the grim developments suffered by his parents.

References

Michael Bergmann, Stefan Gerlach and Lars Jonung „The rise and fall of the Scandinavian Currency Union 1873-1920“; European Economic Review 37.

Marc Flandreau „The economics and politics of monetary unions: a reassessment of the Latin Monetary Union, 1865–71“; Financial History Review 7.

Theresia Theurl „Eine gemeinsame Währung für Europa – 12 Lehren aus der Geschichte“; Österreichischer Studien Verlag 1992.

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