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Any lessons for today? Exchange-rate stabilisation in Greece and South-East Europe between economic and political objectives and fiscal reality, 1841-1939

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  • Matthias Morys
Abstract
We add a historical and regional dimension to the debate on the Greek debt crisis. Analysing the 1841-1939 exchange-rate experience of Greece, Bulgaria, Romania and Serbia/Yugoslavia, we find surprising parallels to the present: repeated cycles of entry to and exit from gold, government debt build-up and default, and financial supervision by West European countries. Periods of stable exchange-rates were more short-lived than in any other part of Europe as a result of 'fiscal dominance', i.e., a monetary policy subjugated to the treasury’s needs. Granger causality tests show that patterns of fiscal dominance were only broken under financial supervision, when strict conditionality scaled back the influence of treasury; only then were central banks able to pursue a rule-bound monetary policy and, in turn, stabilize their exchange-rates. Fiscal institutions have remained weak in the case of Greece and are at the heart of the current crisis. A lesson for today might be that the EU-IMF programmes – with their focus on improving fiscal capacity and made effective by conditionality similar to the earlier South-East European experience – remain the best guarantor of continued Greek EMU membership. Understandable public resentment against 'foreign intrusion' needs to be weighed against their potential to secure the long-term political and economic objective of exchange-rate stabilisation.

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  • Matthias Morys, 2015. "Any lessons for today? Exchange-rate stabilisation in Greece and South-East Europe between economic and political objectives and fiscal reality, 1841-1939," Centre for Historical Economics and Related Research at York (CHERRY) Discussion Papers 15/01, CHERRY, c/o Department of Economics, University of York.
    • Handle: RePEc:yor:cherry:15/01
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    More about this item

    Keywords

    fiscal dominance; gold standard; financial supervision; South-East Europe;
    All these keywords.

    JEL classification:

    • N13 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: Pre-1913
    • N14 - Economic History - - Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations - - - Europe: 1913-
    • N23 - Economic History - - Financial Markets and Institutions - - - Europe: Pre-1913
    • N24 - Economic History - - Financial Markets and Institutions - - - Europe: 1913-
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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