Britain dropped gold standard in 1931. That's playing itself out again in today’s European debt crisis, writes David Marsh.
Sept. 26, 2011, 12:01 a.m. EDT
In euro crisis, Merkel is replaying 1931
Commentary: Contagion risk may sweep away the status quo
By David Marsh, MarketWatch
LONDON (MarketWatch) — Eighty years ago, Britain left the gold standard. It reminds you of some of the things going on today.
Read the front page of the Financial Times of Sept. 21, 1931, for instance, a day after the move. “The step now taken is due solely to heavy withdrawals of sterling by foreigners. Their exaggerated fears have brought about the new situation.”
German Chancellor Angela Merkel may be the
latest chancellor to be swept away over
discord with the central bank.
Well that’s all right then. Elsewhere, one reads: “Temporary step only….There is in no sense a crisis. Internally the affairs of the country will proceed along normal lines.”
In fact, Britain’s relinquishment of the gold peg, while giving much-needed stimulus to the domestic economy, piled up pressure on the main gold-adhering countries of the Continent, Germany and France, to follow suit. Nowadays we’d call it “contagion risk”. Germany stood firm. France didn’t, eventually departing the gold standard in 1936 in a hotly contested move by the Popular Front government of Léon Blum. The rest is, mainly unpleasant, history.
Scroll forward to the present, and you see some dark similarities in today’s dilemmas for European governments.
.
.
.
Which brings us back to the gold standard. Back in 1931, the conservative Reichsbank, the forerunner of the Bundesbank, fiercely opposed Britain’s departure on the grounds of contagion risk — forebodings that proved accurate. The bank’s eight-decades-removed successor Weidmann appears to be taking a more flexible line that doesn’t rule out that the occasional EMU member may end up leaving.
Economically, this may produce a less unstable situation than the one we have today. Politically, it will be extremely tight for Merkel, given her stated wish to preserve the EMU status quo. The tussle between the chancellor and her one-time lieutenant Weidmann has some way still to run. A succession of German chancellors has seen their political careers ended over discord with the Bundesbank. Even though the Bundesbank has now been subsumed within the ECB, it still holds significant sway within German politics. Merkel could become the latest head to topple.
Full article: http://www.marketwatch.com/story/in-euro-crisis-merkel-is-replaying-1931-2011-09-26
Gold is $1,581/oz today. When it hits $2,000, it will be up 26.5%. Let's see how long that takes. - De 3/11/2013 - ANSWER: 7 Years, 5 Months
| 