As the eurozone crisis heats up yet again, Kate McNamara has a paper which makes an intriguing historical comparison – to the creation of a common currency in the 19th century US. The comparison suggests that the EU lacks one of the two precipitating factors that helped push through a common currency in the US – war. Martin Feldstein famously suggested that the euro might make Europe lapse into conflict again. McNamara instead suggests that conflict and its aftermath were a key precipitating force behind the American currency union (although she obviously does not advocate war as a solution to Europe’s problems).
Foreign currencies and multiple versions of the dollar circulated widely throughout the antebellum US, and state-based banks issued notes that functioned as paper money. There was no permanent national central bank and little in the way of federal mechanisms for control over the monetary order. … the antebellum US was marked by deep cultural and political divides, violently expressed in the war but felt long before and afterwards. … Comparing their formal political structures and institutions, prior to the creation of the single currency, both today’s EU and the US of the nineteenth century can be described as loose federal structures with central control limited to a few key areas.
… two factors were important in motivating actors to seek currency consolidation. The most immediate and proximate cause was war, specifically public officials’ need to rationalize the monetary system and increase federal revenues to prosecute the American civil war. The second factor setting the stage for a single currency was the creation of a single American market, spurred on by the federal courts, which created rising societal pressures for regulation of the monetary regime. … The US and EU cases share the impetus of market integration for statebuilding, but while the civil war may have been the “true foundational moment” of the American state, the EU has yet to experience such a singular, consequential episode in political consolidation … The critical question is whether the ongoing and dramatic crisis in the eurozone today might be provoking a political recalculation.
[Cross-posted at The Monkey Cage]