Gold Standard Lessons for the Eurozone

Abstract:

This article explores some lessons of the gold standard for the eurozone crisis with specific focus on the interwar period. Resurrected in the 1920s, the interwar gold standard malfunctioned from the onset, contributing to the Great Depression's quick propagation and severity, and its abandonment between 1929 and 1936 was a critical factor in ending the Great Depression, with countries devaluing earlier and more sizeably recovering more quickly. The intricate combination of similarities and differences with the present situation makes one of two outcomes likely: either some countries will eventually leave the eurozone to boost their growth prospects; or, the eurozone will remain intact as a result of stronger political co-operation today, but a poorly working internal adjustment mechanism could result in low growth rates for the foreseeable future, similar to the experience of the gold bloc countries in the 1930s.