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What Happened After Europe's Last Three Currency "Unions" Collapsed
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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"In Roman Egypt, where the best documentation on pricing has survived, a measure of wheat which sold for 200 drachmae in 276 AD increased to more than 2,000,000 drachmae in 334 AD, roughly 1,000,000% inflation in a span of 58-years"
http://www.businessinsider.com/7-gasoline-thanks-ben-2012-4
This time is different. You won't have to have a wheelbarrow thanks to the debit card.
You will be able to get your debit limit increased automatically each time you make a purchase.
Also you will find that your credit card will not work on PMs or any other useful items (for security reasons of course) , therefore people will still need to carry cash to buy tangibles.
The more things change....
A corporate lawyer from Yugo told me she could not afford to buy bananas on her salary in the early 90's.
Unless you were an apparatchik, bananas did not exist in post-Stalin Soviet Russia, many people born after the Great Patriotic War had never seen a banana until the end of the USSR or after.
Yugoslavia decoupled from USSR in 1948 and had a more open economy.
https://en.wikipedia.org/wiki/Informbiro
So, in other words, in a banana republic there are no bananas?
Oh the irony!
The political union is not allowed by Washington. What else you could expect?
The EU will collapse when the "bankers" decide so. The US Gov. will dissolve very quickly thereafter....fast like a huge fire. Big Momma and the DHS will use their hollow-poiints to keep order. You won't need money because there won't be anything to buy or sell. Supermarkets clear out in about 3-4 hours when a hurricane warning and evacuation is/are announced. Forget the hyperinflation or deflation...the currency will just cease to exist. All the hypothesizing above is useless bullshit. Then the zombies will appear......
The Bernak and the folks behind the curtain will not induce hyperinflation as it works against them. The will inflate a real and controlled 20% per year which will allow them to drain move tresure from the economy. The question is will they be schmart genuge to get out of the country before the sefts figure out "Wha happon"? The Weimar common man that kept the gold mark coins, or the one that converted his marks to another currency did pretty good - for awhile.
Apes are just pretending they are smarter than humans.
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:
I am waiting for the pictures of people eating cows in the field.
If I were in Begium, I would eat the rabbits. You need to see those fuckers. They are huge; like dogs hopping in the field.
This post compares oranges, lemons and limes to an apple. The Hapsburg dual monarchy, USSR and Yugoslavia were multi-ethnic, totalitarian states that dissolved with the component pieces attempting to retain their common currency. The political dissolution in and of itself meant that the new countries were attempting to set out on their own paths. New governments, new laws and a new currency are what makes a new state.
The Eurozone is the opposite. It is a political agglomeration of diverse states, and they have adopted the common currency to cement an ever closer political union. Unlike the Hapsburgs, USSR and Yugoslavia, the members of the EU have not been forced to join or even adopt the currency. It has been a voluntary process; therefore there is much more political capital to keep it together.
One pertinent fact from this article is how any currency union seems to dissolve. It is a small, rich country that starts the process. This is my euro death scenario, which I wrote about one week ago:
http://dareconomics.wordpress.com/2012/08/15/euro-death-scenarios/
Guess who leaves first starting the dissolution?
(It's a small, rich country)
I agree. Most hyperinflations happen when a new, inexperienced government comes to power after a war or revolution. The new leaders do not feel securely established and are unable or unwilling to support government expenditures through taxation. So inexperienced political hacks are put in charge of the money supply and ordered to print money for the government to spend.
If the EMU broke up, you would have existing governments that had previously managed their own currencies taking charge of their currencies once again. So I don't think hyperinflation would be very likely in that case. However there could very well be fairly high inflation (but not hyperinflation) in the PIIGS countries.
The only possible exception is Greece. The recent Greek governments have been completely corrupt and inept. And there are some fairly radical fringe parties that might possibly come to power. So all hyperinflation bets are off there.
I'm afraid i have to disagree.The members of the EU were forced to join and adopt the common currency, as no referendums were held.I live in Greece and can tell you that there was no national debate about such a serious matter. After record suicide rates,more and more people here are saying how better off we were with the Drachma. But you see it is not the people but the Greek Goverment and European Bureocrats who wish to hold on to the Eurozone no matter what. The media here at Greece are on a, pro Eurozone, propaganda frenzy, trying to scare and intimidate people as to the apocalypse or end of the world that would follow if our country left.In Economics and truly free markets there is no such thing as a dead end.There is always another,albeit harder,way.
saving the status quo "At any costs" means "the next generation must suffer in zero growth, high unemployment, and little opportunity environment so that we the older meritocracy can continue to live beyond our means"
The Austrian School only remembers what is convenient..
Can we say Austro-Hungariean Empire? Boys and Girls
The two leading 'thinkers' discussed here agreed on much more than they disagreed upon.
The GOP is clearly THE party of the false-flag-event-to-create-a-FACIST Police STATE!
Can we say, Turmenistan, natural gas pipeline, Dick CHEEEENEEEE, and TWIN Towers? Boys And Girls
"all the previous failed monetary regimes had a strong and supposedly munificent hegemon too, to pull a Realpolitik term"
I like the Bismarck (Realpolitik) but could do without the Gramsci (hegemon).
The Hapsburgs are as old as you can go? How about some love for the Carolingians?
May I just suggest that the reason that European currency unions have never worked, and will never work, is that what are now countries were once collections of tribes and clans ( tribes in the north; clans in the south) and while the tribes sometimes learned to cooperate when it seemed to be to their advantage the clans never trusted each other - in fact, for the most part they hated each other - so the whole idea of a single Europe is just a fairy tale to begin with. Why did the agricultural revolution happen in the north but not in the south of Europe? Because the northern tribes had at least an inkling of the advantages of cooperation ( hey - let's all build just one grain mill that we all share - you grow more grain but we have the river and the stone) and the southern clans never could get past their suspicion and hatred of each other - we have a grain mill and you don't. Fuck you. It doesn't matter that you can grow more grain than we can - it's our mill and you can't mill your goddamn grain in our mill.
The EU and Euro are a romantic attempt to gloss over thousands of years of differences that always have and always will make the people of the North and the people of the South incapable of understanding each other, and even within the north and the south there are so many factions that any idea of union is simply ridiculous on the face of it. Just look at the headlines in the press of the northern tribes and southern clans ( er - countries) and you'll see that nothing has changed for thousands of years.
Collapse of the EU and the Euro union are absolutely inevitable - all that is in dispute is the timetable. People are people.
What these three unions also have in common is that the US was very instrumental in their breakup and their further destruction afterwards. Same thing with the Euro. You see, the US does not like competition really.