Tuesday, September 6, 2011

Plus ça change …

An interesting paper by Michael Sauga on the different designs and management styles of “transfer unions” (aka “federal states”): “Designing a Transfer Union to Save the Euro” (Spiegel Online). The author reviews several variants of such unions, and one historical episode stands out as a forerunner of current events.


"In the mid-19th century, for example, France, Belgium, Italy, Greece and Switzerland established the Latin Monetary Union, a precursor of the European Monetary Union. The exchange rates among the members were set, and all members were required to accept the currencies of their partner countries. But Italy and Greece, in particular, took advantage of the rules of this union to take out high government loans, which they paid for in part by printing money. The other countries resisted the southern countries' inflationary policy, but then the monetary union fell apart in the mid-1920s.”

Read the whole article here.

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