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Stability without a pact?

Author

Listed:
  • Marc Flandreau

    (Sciences Po - Sciences Po, Centre for Finance and Development - GRADUATE INSTITUTE OF INTERNATIONAL AND DEVELOPMENT STUDIES)

  • Jacques Le Cacheux

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po, CATT - Centre d'Analyse Théorique et de Traitement des données économiques - UPPA - Université de Pau et des Pays de l'Adour, UPPA - Université de Pau et des Pays de l'Adour)

  • Frédéric Zumer

    (LARGEPA - Laboratoire de recherche en sciences de gestion Panthéon-Assas - UP2 - Université Panthéon-Assas)

Abstract
The high level of trade and financial integration reached by Europe both today and under the late 19th century gold standard suggests that important lessons can be learned by looking at past record to inform current issues. In this article, we draw a fresh picture of the European gold standard, and use it to derive a number of useful implications. The paper's basic finding is that the stability of the European gold standard depended on the stance of the common monetary policy. Under the gold standard, this stance was disturbingly deflationary prior to 1895. As a result, debts became exceedingly heavy and monetary standards crumbled under their weight, not so much because fiscal policies became looser, but rather because debt burdens became unsustainable in the wake of continued deflation. Once gold was discovered and deflation gave way to inflation, real interest rates fell and debt grew more slowly. This study's clear implication for the EMU zone, is that stability will hinge on the European Central Bank's (ECB) policy not being too restrictive.

Suggested Citation

  • Marc Flandreau & Jacques Le Cacheux & Frédéric Zumer, 1998. "Stability without a pact?," Post-Print hal-03416381, HAL.
    • Handle: RePEc:hal:journl:hal-03416381
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