What Happened After Europe's Last Three Currency "Unions" Collapsed

Tyler Durden's picture

It may come as a surprise to some of our younger readers, that the Eurozone, and its associated currency, is merely the latest in a long series of failed attempts to create a European currency union and a common currency. Three of the most notable predecessors to the EUR include the Hapsburg Empire, the Soviet Union, and Yugoslavia. Obviously, these no longer exist. Just as obvious, all of these unions, having spent time, energy, money, and effort to change the culture and traditions of member countries and to perpetuate said unions, had no desire, just like Brussels nowadays, to see these unions implode. The question then is: what happened after these multi-nation currency unions fails. VOX kindly answers: "they all ended with disastrous hyperinflation."

Just in case anyone missed it, here it is again from VOX:

In the last century, Europe saw the collapse of three multi-nation currency zones, the Habsburg Empire, the Soviet Union, and Yugoslavia. They all ended in major disasters with hyperinflation. In the Habsburg Empire, Austria and Hungary faced hyperinflation. Yugoslavia experienced hyperinflation twice. In the former Soviet Union, ten out of 15 republics had hyperinflation (e.g. Pasvolsky 1928, Dornbusch 1992, Pleskovic and Sachs 1994, and Åslund 1995).

So... trying to pull infinite demand from the future to the present once the ability to fund said present deferred demand ends, has consequences? Oh yes, Virginia. It does indeed:

The output falls were horrendous and long lasting. The statistics are flimsy, but officially the average output fall in the former Soviet Union was 52%, and in the Baltics it amounted to 42% (Åslund 2007, 60). Five out of twelve post-Soviet countries – Ukraine, Moldova, Georgia, Kyrgyzstan, and Tajikistan – had not reached their 1990 GDP per capita levels in purchasing power parities by 2010. Similarly, out of seven Yugoslav successor states, at least Serbia and Montenegro, and probably Kosovo and Bosnia-Herzegovina, had not exceeded their 1990 GDP per capita levels in purchasing power parities two decades later (World Bank 2011). Arguably, Austria and Hungary did not recover from their hyperinflations in the early 1920s until the mid-1950s. Thus half the countries in a currency zone that broke up experienced hyperinflation and did not reach their prior GDP per capita in purchasing power parities until about a quarter of a century later.

What was the catalyst:

...systemic change, competitive monetary emission leading to hyperinflation, collapse of the payments system, exclusion from international finance, trade disruption, and wars.

It's all good though: Europe has a beneficial donor with an endless sack of money - Germany - and 80 some million people who will never, ever consider voting out those politicians who jeopardize their standard of living (regardless how it was obtained, but hard work is a distinct possibility). Ever. Or maybe they will? Maybe they will realize, as they should have over a year ago, that each passing day that nothing changes, and the broken status quo persists, simply means the pain in the inevitable end will merely be that much greater? If recent elections are any indication, Europe should probably be very concerned. Of course, this being Europe, and the market being the market, the fact that there is reason to worry, will provide the market with reason not to worry. After all someone else will make everything better: the central planners made risk of failure illegal.

Then again...

Sinn (2011) has argued that “the Eurozone payments system has been operating as a hidden bailout whereby the Bundesbank has been lending money to the crisis-stricken Eurozone members via the Target system.” He has alternatively proposed to cap the Target2 balances, settle them in hard assets, or transform them into short-term Eurobonds. Karl Whelan (2011) and others oppose Sinn, arguing that the Bundesbank has claims on the ECB system as a whole, not on individual national central banks. Whelan points out that limiting a Target2 balance would amount to cutting out a country from the euro system.

Some will say that this €700 billion + contingent liability is not really a liability until what has to happen - a member country departing - finally departs. Which it will. Sooner or later. So all debate is absolutely idiotic in this regard.

If one country (Greece) departs from the Eurozone or if its Target2 balances are capped, the current slow bank run from the south will accelerate quickly and become a massive bank run from most banks in southern Europe, and the banking system would stop working. The Eurozone payments system would stop functioning because it is centralized to the ECB. To re-establish a payments system is both politically and technically difficult. In the former Soviet Union, it took three years to do so. Currency controls would arise and a liquidity freeze would occur. If the drachma were reintroduced in the midst of a severe financial crisis, its exchange rate would plummet like a stone by probably 75%-80%. High inflation would result and mass bankruptcies ensue because of currency mismatches. Output would plunge and unemployment soar. Greece would experience a new default and other countries would follow.


For all these reasons, Greece or any other financially weak country is unlikely to depart from the Eurozone. In the three hyperinflationary currency union collapses, it was small, wealthy counties that left first: Czechoslovakia from the Habsburg Empire, Slovenia and Croatia from Yugoslavia, and the three Baltic states from the former Soviet Union. The countries that departed early and resolutely were most successful. Hence, the main concern should be whether small, wealthy northern countries want to abandon the Eurozone.

Finally considering the article was written by a member of the status quo who stands to lose his tenure, and his livelihood, if the voodoo he preaches is found to be hollow, the conclusion is obvious:

The conclusion is that the Eurozone should be maintained at almost any cost. All the economic problems in the current crisis can be resolved within the Eurozone. In order to maintain the Eurozone Eurozone-wide clearing must be maintained in full. The Target2 balances should be resolved by reforms, not by capping national balances. The only reasons for a breakup of the Eurozone would be that Eurozone governance fails completely or that one nation decides to leave. If the breakup starts, it would be better to agree on a complete and speedy dissolution into the old national currencies.

The "any cost" of course, has to be bourne by Germany. Which this time around is expected to merely stand there as its deadbeat neighbors continue to mooch off its generosity. Oddly enough, all the previous failed monetary regimes had a strong and supposedly munificent hegemon too, to pull a Realpolitik term.

What is certainly obvious is that in none of the previous occasions of monetary union collapse did the member countries think anything else. In fact, we can say what tenured economists said about the specter of the Hapsburg, the Soviet and Yugoslav collapse with absolute certainty: "the conclusion is that these should be maintained at almost any cost."

They weren't. And "disastrous hyperinflation" followed.

This time will surely be different though.

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francis_sawyer's picture

All your wheelbarrows are belong to us...

Ahmeexnal's picture

After Tito's death in 1980, the germ-ans duped the Yugoslav leaders into massive debt.
Germ-any deliberately destroyed and raped Yugoslavia.
It was the people of the former Yugoslavia who paid for germ-an "reunification". And yet, the germ-an elite charged the germ-an sheeple for this non-event too.
The rest of europe was also complicit in the crime against Yugoslavia, as they sold weapons to all sides in conflict and stood by as the genocides ramped up.
The irony is that the balkans have always been ahead in time of europe.
What happened in the former Yugoslavia is what will soon happen in the rest of europe.....IN SPADES.

zilverreiger's picture

It was the people of the former Yugoslavia who paid for germ-an "reunification".

lol  rich

Debtonation's picture

The government should ban hyperinflation.

Nothing To See Here's picture

As well as poverty and unemployment. There, problem fixed, everyone is rich.

Dalago's picture

Its designed to fail.  So when the end hits a power grabing opportunity presents itself.  One world currency?  Revolution?  We shall see.

TruthInSunshine's picture

There you guys go with those wacky conspiracy theories again.

Her come the ludricous claims that the U.S. Joint Chiefs of Staff signed off on a proposal to wage a lengthy series of false flag attacks killing American Citizens on U.S. soil and blame Cuba for it as a pretext for war; or that the Gulf of Tonkin incident really involved a U.S. warship firing on North Vietnamese vessels in unprovoked fashion, and then the filing of an intentionally false claim that North Vietnamese vessels attacked a U.S. warship two days later ...or a variety of other equally implausible, wild, wacky conspiracies...


You guys and your conspiracies.


Some of you are probably going to claim that what we know as the "U.S. Dollar" is actually a Federal Reserve Note, or something equally silly.

Shocker's picture

Whatever you want to call it. This economy is in rough shape, Financials, Businesses,... All in the same boat.

Currency problems are just another layer to the problems


See the daily economic problems - http://www.dailyjobcuts.com


strannick's picture

"The Federal Reserve can provide currency for the administrations programs and pensions into the future, it just cant guarantee it's purchasing power".

 -Alan Greenspan

Pladizow's picture

Martin Armstrong - Hyperinflation occurs on the fringe. Through out history an empire with a reserve currency has never hyperinflated. They have ALL collapsed due to deflation!

Chief KnocAHoma's picture

Oh wait... I've seen this movie. It is really good. First Patton kicks Romell's ass across North Africa. Then Private Ryan and Tom Hanks blow up a bridge too far. A few million die, Germany gets put in detention, and Russia expands with really ugly shoes and manish looking female Olympians until Regan tears down a wall with his fucking words.

Though I must say, I don't remember the ending.


Michael's picture

Congressmen are starting to warn people to get ready as I have requested. Thanks.

Survivalist congressman is ready for doomsday Rep. Roscoe Bartlett (R-MD) is one of the the country premiere proponents of preparedness against doom. By Ben Pershing, The Washington Post Posted Aug. 20, 2012, at 6:02 a.m.

Deep in the West Virginia woods, in a small cabin powered by the sun and the wind, a bespectacled, white-haired man is giving a video tour of his basement, describing techniques for the long-term preservation of food in case of “an emergency.”

“We don’t really think of those today, because it’s so convenient to go to the supermarket,” he cautions. “But you know, you’re planning because the supermarket may not always be there.”

The electrical grid could fail tomorrow, he frequently warns. Food would disappear from the shelves. Water would no longer flow from the pipes. Money might become worthless. People could turn on each other, and millions would die.


Free online Documentary just released;



gmrpeabody's picture

"Martin Armstrong - Hyperinflation occurs on the fringe. Through out history an empire with a reserve currency has never hyperinflated."

Only because the reserve currency first implodes, like a collapsing star, and in that instant it is no longer the reserve currency. Then the explosions occur.

ParkAveFlasher's picture

Reserve currencies are a modern phenomenon.  He simply confirms that no one knows what will happen.

BigJim's picture

Exactly. There has never been an unbacked, totally fiat, reserve currency. Why would it have ever become the reserve currency in the first place if it was just paper?

When GBP lost reserve currency status through the Twentieth Century, its holders sure as shit weren't complaining about deflation as they saw its purchasing power decline by a factor of 100 as all those pounds sterling came flooding home.


Martin Armstrong is always a very interesting read, but on the subject of money and gold he does say some bizarre things.

AldousHuxley's picture

despite being fiat....central banks measure each other with gold as collateral....

AND having big guns help too.


paper is now backed by gold and guns folks.




midtowng's picture

Brilliant! Genius!

Unicorns and rainbows for everyone

Zap Powerz's picture


Its so simple and crazy it just might work! 

masterinchancery's picture

Hyperinflation should ban the government, and hopefully will.

AldousHuxley's picture

you can't carry piles of money on your own,

so you have to use a wheelbarrow to haul around money,

but to buy the wheelbarrow, you need piles of money.


Germany's currency crashed due to losing a war.

to solve that debt problem, they went to another war with more debt.

When they lost the second war they owed even more.


Becareful of leadership who tries to solve problems with war.

US seems to go to war every time they print money to cover up the financial crisis.



john39's picture

but the bankers won all those wars....   they did build those wars in fact.

Pladizow's picture

Credit cards replace wheel barrows!

AldousHuxley's picture

during hyperinflation, credit cards would go out of business because of skyrocketing short term rates.

hmmtellmemore's picture

Are you sure? What about adjustable rates?

Ar-Pharazôn's picture

perhaps.... PERHAPS even cause people will not pay the bill at the end???

ParkAveFlasher's picture

Germany crashed by its own design.  Reparations would not be met voluntarily.  So, Germany waited, forestalled, held off, postponed payments, reborrowed, retooled, rebuilt, repopulated, retrained, reorganized, and then re-invaded. 

Germany never lost that war, according to the Germans themselves, they simply retreated over the course of a generation.  Those elites seen as responsible for the retreat were marginalized or worse.  Those who would not retreat, namely Hitler, were eventually elevated.  Hitler was a Bavarian, local phenomenon during the Weimar Inflation.  He had analogues in other regions.  He survived the waves of purge.  He was voted into his ultimate power.


Cast Iron Skillet's picture

Hitler was an Austrian, not a Bavarian.

ParkAveFlasher's picture

Thanks wikiAhole, where did he gather his strength?  In ... BAVARIA.

AldousHuxley's picture

hitler was fascist, nationalist, socialist, anti-communist, capitalist, imperialist, democratic, whatever you want to get him more power -ist.....


people like hitler comes to power when status quo sells their citizen to foreign bankers.


poor country = war lords


Disenchanted's picture




People like Hitler come to power when the 'right people' want them to...the 'right people' also provide the financing for the past, present and future Hitlers of the world.

Ar-Pharazôn's picture

is the USA a poor country? cause i was usend to think that they are the fucking king of all warlords

optimator's picture

Even more exact description, he was the "Bohemian Corporal'.

ali-ali-al-qomfri's picture

Austrians are the best at marketing;

Beethoven (German) considered Austrian

Hitler (Austrian) considered German

Swarzenegger (Actor) considered Politician

Wait, was perhaps Orwell really Austrian?

e2thex's picture

Reparations would not be met voluntarily.


You imply that:

the terms could be met but Germany refused to do so and 

they  had a say as to the terms when they were  originally drawn up.



ParkAveFlasher's picture

And...they ceded the Ruhr and its fruits voluntarily.  OK. You're right.

I love the CB apologists that think everything is an accident.  It isn't.  Bernanke is dumb, I know.  Sure he is.  He has no idea what he is causing.  Sure he doesn't.  And he doesn't understand why he needs a security detente for public appearance.  Of course not.  And he doesn't understand why some of the chief architects of the Weimar event were assassinated midway through. 

Ar-Pharazôn's picture

if they didnt lost the war, TELL ME WHY:

- they accepted to pay for war reparation?

- they ceded Ruhr which was badly important for them?

- they reduced their army to 100k man?$


Turin Turambar's picture

You need a truck to carry the paper money needed to buy the wheelbarrow, so you can carry the money needed to buy some bread without having to use the truck, especially after you've run out of daughters needed to acquire gasoline. :-(

CABill's picture

All wars were started as economic necessity; over resources, living space, availability of food, energy suppies, populist demands for 'fair' distribution of resources, a desire for economic control through total dominance of one political party over another, deification of the state as the only hope for solutions, and to burn off inventories produced to stimulate the economy.

Also, every war was the war to end all wars; meaning that we've learned that debt and overspending causes war, and free enterprise means peace.

By the time we realize we didn't learn, we also discover we're on our way to the next war.

Things that go bump's picture

Screw that, I have not raised children and grandchildren as cannon fodder for the state.  

AldousHuxley's picture

your children never fight each other?


it is part of human nature...jealousy, envy, competitiveness, etc....even among siblings.


Look at Koch brothers....millionare brothers who don't talk to each other....

Look at what happens to lottery winners from poor families....all kinds of emotional problems and conflicts.


Things that go bump's picture

You are being deliberately obtuse.

Ar-Pharazôn's picture

this is one of the most stupid thing i've ever heard here.


ASK to indios in south america if they know what is jealousy, possession, theft and so on



NidStyles's picture

War is a by-product of Statism. 

hmmtellmemore's picture

I wonder about that.  By the opposite of Statism, would you point to micro-states and small states, such as Ancient Greece, Spring & Autumn China, Renaissance Italy?  All were absent the massive State we all have grown accustomed to, and all had immense leaps in creativity and intellectual thought.  No surpise there.  But they also had intense warfare between the micro-States.  So, I'm not so convinced warfare truly is a large State invention, if that's what you mean.  Maybe i missed the point of your post, if so I'm sorry.

Disenchanted's picture



Wars are very profitable...for a select few.

TruthInSunshine's picture

What's truly incredible is how few sheeple realize that the original epicenter of Ponzinomics and Fractional Reserve Alchemy (buying a "democratic & representative" government off wholecloth in order to enslave the citizenry & compel their government to borrow operating capital from The Money Masters), Britain, essentially declared bankruptcy in 1976, and was bailed out by the arm of the racketeering outfit referred to as the International Monetary Fund (a benevolent organization, just as is the World Bank, with the habit of claiming ownership of rainwater in exchange for financial "assistance").

That's right, bitchez, Her Majesty's Empire, with a cesspool of a capital city that is London (the counterpart to our New York City), with its financial derivative engineers who bestow many gifts upon society, is a bastardized, bankrupted bitch. It's ability to project itself as a financially solvent going concern is just another of many illusions perpetrated by the elite who meet to beat.


The Cabinet Papers | IMF crisis


In 1976 Britain faced financial crisis. The Labour government was forced to apply to the International Monetary Fund (IMF) for a loan of nearly $4 billion. IMF negotiators insisted on deep cuts in public expenditure, greatly affecting economic and social policy.

francis_sawyer's picture

Good news is that we got the Sex Pistols, The Clash & otherwise, great album covers out of it...



Things that go bump's picture

Why they continue to support that nest of cretins and deviants in Buckingham Palace is quite beyond me.  They say those dreadful "royals" are a tourist attraction that actually gives a good return on their money, but if they simply made them commoners and nationalized whatever property they could find I think it would go a long way toward replenishing British coffers. 

AldousHuxley's picture

for cultural values, because bankers will sell out culture for profit because culture is not practical, however brings humans together and feel happier?


net worth of "royals" = value of nation's culture

military, finance, political are all outsourced...but cultural norms are still set by highest upper class.