Are there parallels between EMU and similar historical experiences?

Barry Eichengreen, Mon, 01/14/2008



Earlier efforts to draw parallels between the European Monetary Union (EMU) and past monetary unions are more likely to mislead than offer useful insights. It is possible to point to similar historical experiences, the most obvious of which were in the 19th century, occurred in Europe, and had ‘union’ as part of their names, but the EMU is different. The author of CEPR DP6642 argues that there is no historical precedent for Europe’s monetary union and where history is useful, it is not in drawing parallels but in pinpointing differences and highlighting what is distinctive about EMU.

Illustrations to the point are made through reference to three main issues around which discussion of EMU currently focuses: the relationship between monetary union and financial integration; the connections between monetary union and financial stability; and the probability that the euro area might break up. Overall, the findings confirm that the EMU is different. It is not like the golden standard, which left room for fluctuations in the exchange rates between participating countries and from which members could and did exit at will. It is not like multilateral monetary unions in the 19th century under which there was no centralized control of money supplies by a transnational central bank. It is not like the monetary union inherited by the successor states of the Austro-Hungarian empire, from which exit was straightforward because of relatively low levels of financial development and the ease of sealing borders during the period when national currencies were being reintroduced. And lastly, it is not like national experiences with monetary unification, precisely because these were virtually all cases where political proceeded monetary unification.

In summary, history is useful for pointing out what is distinctive about the EMU. It is a monetary unification, extending to centralized control of the money supply by a central bank at the level of the union, without political unification. EMU takes place in an environment of deep financial integration among a group of countries with well-developed capital markets. There is no provision for exiting and reintroducing a national currency.

DP6642 Sui Generis EMU

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Topics:  EU policies

Tags:  European Monetary Union


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