It is amazing how things hardly change. Something which to us is a freak life time economic event, has apparently happened before.

Katrin Bennhold of NYT in this article talks about Greece exit (0r Grexit) from Latin Monetary Union in 1908:

The decision to suspend Greece from the common currency became inevitable when it emerged that Athens had fiddled with the accounts yet again amid chronic economic weakness, forfeiting what credibility in the international arena it still had left…

That was in 1908…

After diluting the gold content in its coins, Greece left the Latin Monetary Union, whose founding members included France, Italy, Belgium and Switzerland. More than a century later, history may repeat itself, albeit in vastly different circumstances.

Though Greece again entered the Union in 1910 but by then LMU was already going downhill.

Look at the other coincidences. EMU was established in 1999 and Greece became the member two years later in 2001. LMU was set in 1866 and guess when Greece joined (along with Spain)..two years later in 1868..

The history of mon unions is full of tragedy:

From the dual currency economy of 14th-century Florence to the monetary union of Austria-Hungary and Argentina’s abandoned dollar peg, the past is littered with examples of countries’ weighing the costs and benefits of different monetary regimes.

What can history teach us about the options still left for a euro zone pulled apart by divergence between a competitive core and an uncompetitive periphery; arguments about austerity versus stimulus; and the increasing gulf between those advocating to keep Greece inside the club at all costs and those lobbying for an exit?

The author discusses lessons from Germany reunion (as East Germany and Greece are in a similar kind of peripheries uniting with the core Germany):

If Greece makes it through the current political crisis and stays in the euro zone, one useful case study is Germany’s reunification, which suggests that the adjustment could take decades, not years, and involve mass emigration, billions of euros more in fiscal transfers and the rise of fringe parties in Greece as well as in the countries that have to foot the bill.

Like the former East Germany, Greece suffers from a crippling competitiveness gap and is locked into the euro. East Germans were priced out of the labor market because the value of the Deutsche mark reflected Western, not Eastern, productivity levels. About 14,000 businesses were shut down and four million jobs lost in the first five years after formal reunification, in 1990. Unemployment eventually peaked at more than 20 percent in 2005.

Since the fall of the Berlin Wall, in 1989, more than 2 million of the 16 million people living in the East have moved West. Long-term unemployment and wage depression bolstered xenophobic parties and the Left Party, which grew from the former East German Communist Party and hopes to reach the national government in 2013.

More than two decades later, living standards have converged, although they remain about 20 percent lower in the East with unemployment in the Eastern part at nearly twice the Western average.

Then there are lessons from Autria-Hungary union break up in case there is a Grexit:

When Austria-Hungary collapsed in 1918, after World War I, and with it a currency zone covering part of today’s euro zone, the new governments of the region created national currencies by simply stamping the Austro-Hungarian krones circulating in their country with a national marking. Armed troops patrolled the borders to stop people from ferrying krones to the country they thought would have the strongest currency to get the most valuable stamp.

In 2012, much of the conversion back to Greek currency, the drachma, would happen electronically, during a banking holiday that would temporarily freeze online transfers out of the country, but the borders would still have to be sealed to prevent people from smuggling euros out of Greece after the devaluation has taken place, an awkward undertaking in postwar Europe. A substantial default on Greece’s public and private debt would almost inevitably follow: the value of Greek liabilities would surge overnight as the revived currency would trade at an estimated 50 percent to 80 percent discount to the euro, economists say.

Both remaining in Euro and exit are going to be painful..As per the article some say exit is less painful and others say remaining is less painful..

Further research took me to this fab article by David Cannadine (Princeton historian) which looks at previous monetary unions in Europe. The author points to even more insights. For instance, UK was to be initial member then but walked out (just like now):

Negotiations to bring such a union into being had started in 1865, and Britain had initially been part of them. But two proposals were made, which proved to be a major stumbling block: the first was that the UK must reduce the amount of gold in its sovereigns, albeit by only a tiny amount, to make one pound sterling the exact equivalent of 25 French francs.

The second was that Britain must give up shillings and pence and decimalise its coinage to bring it into line with the other European currencies. Neither of these proposals was deemed acceptable, and so then, as in 1999, Britain stayed out, and left the continentals to their own devices. It also showed no interest in another and even more grandiose scheme floated by the French in 1867, for what was termed a “universal currency”, which would have been based on equivalent gold coins to be issued by France, Britain and the United States.

Here were signs and portents aplenty of recent British attitudes and behaviour.

Bagehot raised concerns over this Brit attitude.

As Walter Bagehot, the essayist and editor of The Economist, put it in the late 1860s, there seemed to be a real danger that, “Before long, all Europe, save England, will have one money, and England will be left outstanding with another money.”

If this happened, Bagehot went on, “We shall, to use the vulgar expression, ‘be left out in the cold’. If we could adopt this coinage ourselves without material inconvenience, I confess I, for one, should urge our doing so.”

But Bagehot believed that the practical difficulties of such a step were “simply insurmountable”. He feared more generally that “the attempt to found a universal money is not possible now”, and the unhappy fate of the Latin Monetary Union would later bear him out. Yet with the establishment of the late 20th Century European Monetary Union, it did seem as if the state of affairs, which Bagehot one day envisaged – and feared – had come very close to realisation.

However, Greece entry into 2001 and subsequent collapse in 2010 again did away with Bagehot’s fears….

But in 2001, Greece joined the European Monetary Union, and the rest, as they say, is history – but a history that is not yet anything like being over.

Ever since it gained its hard-fought independence from the Ottoman Empire in 1832, Greece has been plagued by recurrent budget crises, frequent state defaults and long periods during which it’s effectively been cut off from the international capital markets.

So while it was one of the earliest nations to join the Latin Monetary Union, its membership soon became more a cause of concern than celebration, for its chronically weak economy meant successive Greek governments responded by decreasing the amount of gold in their coins, thereby debasing their currency in relation to those of other nations in the union and in violation of the original agreement.

So irresponsible and unacceptable did Greece’s behaviour become that it was formally expelled from the Latin Monetary Union in 1908. As a result, some effort was made to readjust the nation’s monetary policy and Greece was readmitted to the Union two years later. But by then, the whole enterprise was increasingly fragile, its future looked increasingly uncertain, and the outbreak of WWI was only four years off.

Nothing changes really…

Then there were other unions as well in Europe:

The Latin Monetary Union was not the only one of its kind in Europe during the 19th Century. A German monetary union was created in 1857, which replaced the many different currencies of the many different German states with a dual system based on the north German thaler and the south German gulden. It proved to be a rare success story among such ventures, surviving until German unification in 1870, when political union was effectively aligned with monetary union and five years later the two separate currencies were replaced by the mark.

Less successful was the Scandinavian Monetary Union, established between Denmark and Sweden in 1873, which was joined by Norway two years later. The aim was to do for Scandinavia what the Latin Monetary Union was attempting more broadly for Europe as a whole but it, too, effectively ceased to function on the outbreak of WWI and it was formally brought to an end in 1924.

All Mon unions are not a disaster. Author talks about German Mon Union which was successful:

The Latin Monetary Union was not the only one of its kind in Europe during the 19th Century. A German monetary union was created in 1857, which replaced the many different currencies of the many different German states with a dual system based on the north German thaler and the south German gulden. It proved to be a rare success story among such ventures, surviving until German unification in 1870, when political union was effectively aligned with monetary union and five years later the two separate currencies were replaced by the mark.

Less successful was the Scandinavian Monetary Union, established between Denmark and Sweden in 1873, which was joined by Norway two years later. The aim was to do for Scandinavia what the Latin Monetary Union was attempting more broadly for Europe as a whole but it, too, effectively ceased to function on the outbreak of WWI and it was formally brought to an end in 1924.

What is even funnier is that Greece was teh early pioneer to create MUs:

Such efforts to create common currencies during the 19th and 20th Centuries are only the most recent examples of a process that’s been going on for almost as long as coinage itself has existed. It’s an intriguing historical irony that among the pioneers of these endeavours seem to have been none other than the ancient Greeks.

One of the earliest examples of such a union occurred sometime about 400BC, along the western coast of Asia Minor, where seven Greek states allied themselves and produced a coinage that directly foreshadowed later European monetary unions. On the front of the coins was a common design of the baby Heracles strangling a snake, and the first three letters of the Greek word for alliance. On the reverse, each state placed its own particular image. All these coins were minted to the same weight and formed a unified currency, which was the tangible symbol of the seven members’ economic alliance.

No-one quite knows why or when this early effort at a monetary union collapsed but 200 years later, the ancient Greeks had another try, organised through what was known as the Achaean League, an alliance of territories and city states covering the whole of the Peloponnese that had been formed about 280BC.

Once again, their shared currency had a common obverse design, in this case the head of Zeus, and reverse patterns that were specific to the individual issuing authority.

The result, according to the historian Polybius, was that the Greeks “had not only formed an allied and friendly community but they have the same laws, weights, measures and coinage, as well as the same officials, council and courts of justice”. Here was a level of integration, which the most ardent and ambitious Eurocrat of today might envy and this may help explain why, unlike the Latin or the Scandinavian monetary unions, the Achaean League lasted for well over 100 years.

Its eventual dissolution, in 146BC, was not because the members of the league fell out with each other, over the currency or anything else but was the result of an external shock in the form of a crushing military defeat by the Romans at the Battle of Corinth.

What we get is a paradox:

Which leaves us with the following paradox: the ancient Greeks were pioneers of monetary unions and were quite eager to keep them in being… Modern Greece, by contrast, has been a threat and a danger to any monetary union that it has ever joined.

Just amazing to know all this..