Europe’s monetary union is collapsing.
Yes, it’s not the first time Europe’s diverse economies have been shoe-horned into monetary union—and not for the first time, it turns out not everyone is able to live in the Procrustean Bed it constructs.
In the 19th century [explains Oliver Hartwich], it was France that pushed for monetary union. After Napoleon, the French needed a strategy to bolster their influence in Europe. They tried it through monetary alliances. Belgium adopted the French franc after independence in 1830. Switzerland joined them in 1848. Italy followed in 1861, and finally in 1867 Greece and Bulgaria also linked their currencies to the franc.
The French monetary bloc then became the Latin Monetary Union (LMU). It was a union based on the same gold and silver content of coins in all its member countries. Several other European countries from Spain to Serbia joined this union in the following years.
LMU failed and was officially disbanded in 1927 for several reasons. It could not keep up the fixed relationship between gold and silver when more silver flooded the market. Second, there was no central authority to effectively control and coordinate monetary policy. And crucially, member states were cheating on the gold and silver content of their coins. One country was even formally expelled from monetary union in 1908 because of the grossly fraudulent gold content of its coins.
The country in question was none other than Greece.
In watching the current Greek tragedy we are witnessing history repeating. Once again a French initiated monetary union is on the verge of collapse. And once more, this collapse was brought about by a lack of political coordination, cheating member states and ineffective sanction mechanism.
Isn’t it odd that the experiment of fiat money union has been tried and tried, and failed and failed—yet the primary means by which country’s have successfully and peaceably coordinated their economies, the gold standard, is still shunned.
Could the reason be that “monetary union” always promises governments the opportunity (they think) to get something for nothing, but the discipline of the gold standard doesn’t?