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

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  • Michael D. Bordo
  • Harold James
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

  • Michael D. Bordo & Harold James, 2013. "The European Crisis in the Context of the History of Previous Financial Crises," NBER Working Papers 19112, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:19112
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    References listed on IDEAS

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    JEL classification:

    • E00 - Macroeconomics and Monetary Economics - - General - - - General
    • N1 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations

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