The European Crisis in the Context of the History of Previous Financial Crises

46 Pages Posted: 8 Jun 2013 Last revised: 14 Jun 2013

See all articles by Michael D. Bordo

Michael D. Bordo

Rutgers University, New Brunswick - Department of Economics; National Bureau of Economic Research (NBER)

Harold James

Princeton University - Department of History; National Bureau of Economic Research (NBER)

Date Written: June 2013

Abstract

There are some striking similarities between the pre 1914 gold standard and EMU today. Both arrangements are based on fixed exchange rates, monetary and fiscal orthodoxy. Each regime gave easy access by financially underdeveloped peripheral countries to capital from the core countries. But the gold standard was a contingent rule--in the case of an emergency like a major war or a serious financial crisis --a country could temporarily devalue its currency. The EMU has no such safety valve. Capital flows in both regimes fueled asset price booms via the banking system ending in major crises in the peripheral countries. But not having the escape clause has meant that present day Greece and other peripheral European countries have suffered much greater economic harm than did Argentina in the Baring Crisis of 1890.

Suggested Citation

Bordo, Michael D. and James, Harold, The European Crisis in the Context of the History of Previous Financial Crises (June 2013). NBER Working Paper No. w19112. Available at SSRN: https://ssrn.com/abstract=2276374

Michael D. Bordo (Contact Author)

Rutgers University, New Brunswick - Department of Economics ( email )

New Brunswick, NJ
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Harold James

Princeton University - Department of History ( email )

Princeton, NJ 08544
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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