The recurring dream of monetary union

Chris Bowlby looks at earlier examples of talk of economic and monetary union

Illustration by Femke de Jong

As the euro faces its troubles there has been much talk of economic and monetary union as a kind of giant experiment, a leap into the financial and political unknown. But while much of the project has indeed been of a scale and ambition never seen in Europe before, the idea of bringing currencies together in some kind of union is far from new. And earlier examples offer fascinating echoes of today’s euro drama.

Professor Richard Roberts of King’s College London points out that monetary unions can take different forms. Sometimes they involve several governments sharing a currency; sometimes different currencies are linked.

And always, lurking in the background, are political as well as economic ambitions.

Perhaps the clearest echoes of the euro are to be found in the creation of the Latin Monetary Union in the 1860s. This involved member countries – initially France, Belgium, Switzerland and Sardinia – agreeing to accept each other’s coinage, which had a defined amount of gold or silver content linked to the French franc. The project, Professor Roberts notes, had much to do with French ambitions to rival Britain’s global currency, sterling, and London’s financial pre-eminence.

The rhetoric accompanying the project would warm the hearts of today’s Europhiles. One of its chief supporters, politician Félix Esquirou de Parieu, wanted to extend it into a common currency to be called the ‘Europe’, part of a ‘European Union’, to include a parliament, and common market. Monetary union, he believed, would mean the end of war in Europe.

There was much international sympathy for such ideals. A conference was held which even proposed extending the union into a global one, bringing Britain and the US on board. The editor of the Economist newspaper, Walter Bagehot, famous for his writings on the English constitution, was keen, urging Britain not be “left out in the cold”. “Before long,” he added, “all Europe… will have one money, and England be left standing with another money.”

But the conference followed a pattern familiar to followers of Britain’s relations with European projects. The sceptical British delegate opted out, suggesting that Britons would not like to abandon sterling, “approved by experience and rooted in the habits of the people”.

So the Latin Monetary Union continued without Britain or the US, and soon faced dilemmas any modern Eurocrat would recognise as new members applied. “The countries that wanted to join,” says Richard Roberts, “were the ones the existing members least wanted in.”

Greece was allowed to join only after agreeing to have its coinage issued in France. But the whole union was seriously weakened when the Papal States and unifying Italy started issuing far more money than expected, and discipline could not be enforced. The First World War and related economic convulsions in effect killed off the project, which formally ended in the 1920s.

There were other European monetary unions. One was in Scandinavia from the 1870s to the 1920s. Perhaps most successful was the Austro-Hungarian monetary union, created in 1867 when Austria and Hungary gained autonomy under a single monarch. The two sides agreed to share a currency and a central bank. And the union operated, Professor Roberts points out, for 50 years “without serious disruption”. It won praise for the way it developed central banking. But it too fell victim to the First World War.

Insofar as one can draw lessons from very different times, Richard Roberts suggests, they are that a monetary union run as “a very controlled entity, where each member knows the other well, can last”. What the Latin Union indicates, however, is that “larger entities, with a more disparate membership and lack of effective central institutions” will struggle. And crises, such as the First World War or the global economic downturn today, expose such weakness brutally.

The question then, as now, is whether such entities should fuse into closer union or split. Future historians will have rich material with which to describe the latest attempt to unite European money – either as a stepping stone towards greater integration, or a failure which sends integration into an historic reverse.

 

Chris Bowlby is a presenter on BBC radio, specialising in history

This series is produced with History & Policy. You can find out more about them and read their papers at www.historyandpolicy.org

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