The Euro as a Proxy for the Classical Gold Standard? Government Debt Financing and Political Commitment in Historical Perspective

The paper addresses some similarities and differences in the institutional set-up of the classical gold standard and European Monetary Union (EMU). I argue that giving up monetary nationalism and committing to the rules of either the gold standard or EMU initially seemed to restrict the scope of state action. Therefore, the euro – like previously the gold standard – provided some (fiscal) policy credibility. Policy credibility was a main determinant of capital market integration and low government borrowing costs in Europe under both systems. However, I shall emphasize that the membership in the gold or euro club itself did not force reforms and spending cuts upon countries that faced crisis and debt problems. The article suggests that the institutional set-ups of the gold standard and EMU determined the degree of commitment to them and the way in which countries reacted to deal with debt problems