Economist's "Buttonwood Notebook" Blog Describes Euro As Synthetic Gold Standard

There's still interest in the gold standard, as the downside of a fiat-money regime is clear to more than a few. In this post from "Buttonwood's Notebook," entitled "The new gold standard," the Euro monetary regime is described as acting like a gold standard. Since the European Central Bank isn't attached to any Euroland country, none can print their way out of deficit woes; the Greece crisis had to be solved by the Greecian government imposing austerity measures instead. This constraint makes the Euro system act like [a facet of] the gold standard of old, which also acted as a checkrein against monetary expansion though gold outflows.


It's an interesting comparison, but it begs the question: why aren't IMF loans to debt-ridden emerging markets categorized in the same way? Presumably, the answer is that market forces take care of the adjustment in the Euro system while the IMF swoops in with loans and austerity conditions only when an emerging nation is about to default. Evidently, the market for sovereign debt isn't enough to contain a determined flight to overborrowing.

For this crisis, the Euro system has acted as a checkrein. It's still a discretionary one, though...