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Greece’s fundamental problem with monetary unions: Past and present

Posted on 10 May 2016

VOX, the policy portal of CEPR (Centre for Economic Policy Research, London), published a column from Dr Matthias Morys on the Greek debt crisis in historical perspective.

Greece in a monetary union: Lessons from 100 years of exchange rate experience, 1841-1939

The first century of modern Greek monetary history has striking parallels to the country’s current crisis, from repeated cycles of entry and exit from the dominant fixed exchange rate system, to government debt built-up and default, to financial supervision by West European countries. This column compares these two episodes in Greece’s monetary history and concludes that lasting monetary union membership can only be achieved if both monetary and fiscal policies are effectively delegated abroad. Understandable public resentment against ‘foreign intrusion’ might need to be weighed against their potential to secure the long-term political and economic objective of exchange rate stabilisation.