-Caveat Lector- > A strong central government controlled state spending, and there was > only one finger on the printing press most of the time.
>>>And, following Napoleon, after a time, was Herr Adolf, each on a quest to expand their empires into a cohesive whole, answerable to a single central government. Interesting how many people fought and died for sovereignty only to ultimately prove these fallen leaders correct in the long run. Something the U.S. and Canada have been doing for centuries: uniting states under a central government and a single currency. And yet to whom or what is deferred as being "enlightened"? A<>E<>R From http://www.iht.com/cgi- bin/generic.cgi?template=articleprint.tmplh&ArticleId=43289 }}}>Begin Copyright � 2001 The International Herald Tribune | www.iht.com The Euro Renews a Dream of Unity Thomas Fuller International Herald Tribune Saturday, December 29, 2001 Divisiveness Doomed Previous Continental Monetary Links PARIS "Brother, when you issue coins I would like you to adopt the same valuations as in French money. In this way there will be monetary uniformity all over Europe, which will be a great advantage for trade." - Letter from Napoleon to the King of Naples, May 6, 1807 Napoleon's efforts to create a common European currency died with his defeat on the battlefield. But the dream was kept alive by men like Victor Hugo, who spoke of "one continental money which could drive the activities of 200 million people instead of all the absurd varieties of money we have today." And by the end of the 19th century, European leaders had experimented with a half-dozen money- sharing agreements, chief among them the Latin Monetary Union of 1865 and the Scandinavian Monetary Union of 1874. Economists who study the history of money say these efforts to create common currencies were vastly more modest than the euro, which will begin circulating as notes and coins Tuesday among 300 million Europeans, making it the largest monetary changeover in history. But these previous attempts nonetheless offer lessons for modern policymakers. The overriding lesson, historians say, is that monetary unions were not successful unless they were political unions as well. The failures of both the Latin and Scandinavian unions were due to a lack of central coordination and the absence of political will when times got rough. "Political unity is the glue that holds a monetary union together," said Lars Jonung, a professor at the Stockholm School of Economics and the author of a widely circulated paper about the history of monetary unions. "Onc e political unity has disappeared, then monetary divorce follows, as a rule." Under the Latin Union, which grouped France, Belgium, Switzerland, Italy, Greece and Bulgaria, each member minted gold and silver coins to a specified weight. The coins were legal tender throughout the union, effectively setting a common exchange rate for a significant portion of Western Europe. The union lasted for several decades but was undermined when the cash-strapped governments of France and Italy issued paper money that was not convertible to gold or silver. Italy also weakened the union when it cheated the other members by unilaterally reducing the percentage of silver in its coins, which resulted in the flooding of the union with cheap Italian coins. The Latin Monetary Union was ultimately abandoned in the face of the soaring costs related to World War I, when countries printed paper money recklessly, thus making any money-sharing agreement untenable. Under the Scandinavian Monetary Union, which grouped Sweden, Denmark and Norway, each country agreed to exchange the others' gold coins and, eventually, paper money. The Scandinavian Union, which was more resilient than t he Latin Union, also foundered under the strains of World War I. Yet, Europe can also draw on notable successes. Two other monetary unions of the 19th century prospered - and still exist today. It is a testament to their success, economists say, that the most long-lasting monetary unions of that era, Italy's lira and Germany's mark, are no longer even considered experiments. Yet, each country had many different types of money circulating within its borders during the early years of political unity. In 1815, the German Federation was composed of 39 independent states, each with its own standards for coinage. In 1859, two years before the unification of Italy, as many as 90 different metallic currencies were legal tender within the borders of present-day Italy. These unions have been successful for obvious reasons: A strong central government controlled state spending, and there was only one finger on the printing press most of the time. The current euro experiment is somewhat of a hybrid between the Latin Union and the unions within Germany and Italy. Twelve euro-zone countries have agreed to give up the power to decide when to print money - and how much. But they have not surrendered their tax collection powers and thus their ability to direct spending through a central government. The fact that the euro zone lacks this ability to direct fiscal spending makes the union vulnerable, according to some economists. "It seems to me that it lacks several things that have proved necessary for the sustainability of a monetary union in the past," said Forrest Capie, a professor of economic history at the City University Business School in London. "The chief one is some central fiscal arrangement that can help the territory withstand a shock of some kind." If one part of the union experiences a big shock, Mr. Capie asked, "How does it cope with that?" "If it's an independent country," he said, "all kinds of things can come into play: The government can pay tax to the affected area, the exchange rate can bounce around. But if you're an area within a monetary union, pretty much nothing can happen, except you bear the pain." Economic shocks that affect specific parts of the union but not the rest are most worrisome because ultimately they put pressure on the union as a whole to bail out the weakened link. "Economic shocks" could be anything from a natural disaster, the failure of a large industry, a massive crop failure or the outbreak of war. In the post-Sept. 11 world, the list might also include a large-scale terrorist attack. Glyn Davies, author of "A History of Money From Ancient Times to the Present Day," said the greatest long-term threat to monetary union in Europe would be wars or "disputes regarding attitudes to countries that are at war." "It's the political aspect which will matter," he said. "If you have a strong political union, then it can withstand many attacks. But if there are political differences, it can weaken the monetary union considerably." The monetary past offers insights into the national "personalities" that may help decide the course of the euro. Since the days of Napoleon, France has seen European monetary union as a way to spread its economic and cultural influence throughout Europe. Britain was always skeptical of monetary affairs on the Continent and maintained a gold standard while much of the rest of Europe had a bimetallic standard. Norway has cherished its independence and was a reluctant partner in the Scandinavian Monetary Union. Greece was indecisive about membership of the Latin Monetary Union. There are other lessons. Monetary unions are successful when there is a great mobility of people within the union. The United States, which began its monetary unity with the constitution of 1789, stands as perhaps the best example of this. Finally, "you can't talk too much about the future," said Mr. Davies, who has dug up reams of documents on the monetary past of the Continent, including the letter from Napoleon and Victor Hugo. "History is full of the unexpected," he said. 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