ROME – Increasingly, one hears predictions that the euro will go the way of the gold standard in the 1930’s. And, increasingly, the reasoning behind such forecasts seems persuasive. But does that mean that the euro doomsayers are right?
Following the 1929 stock market crash, Europe was hit by a massive deflationary shock. Output collapsed and unemployment soared. Unable to agree on coordinated reflationary action, governments opted to move unilaterally. One after another, they abandoned the gold standard, depreciating their currencies. By loosening credit in this way, they recovered, one after another, from the Great Depression.