There’s discussion in the news now about the potential for Greece to be forced out of the Euro currency union, perhaps even the total collapse of the system. But if it happens, it wouldn’t be the first time.
In 1865, several European nations established the Latin Monetary Union, which was an agreement to standardise their currencies and make them interchangeable. By 1868, the Union included France, Belgium, Italy, Switzerland, Spain, Greece, Romania, Austria-Hungary, Bulgaria, Venezuela, Serbia, Montenegro, San Marino and the Papal States. (Although the Papal States were soon kicked out for issuing a large quantity of debased silver coins. Nobody ended up hanging from a bridge though.)
The British Government considered joining. It would have required reducing the gold content of a Sovereign by 1% to make a Pound exactly equal to 25 Francs; and then decimalising the subdivision of the Pound. Perhaps they’d have called them “cents” or maybe “new pence”. The United States very nearly became a member, standardising its currency in 1873 to match the Latin Union’s rules, including the issue of a new silver 20c coin, which was exactly equal in silver content to 1 Franc. (So if Britain and the USA had joined, a Pound would have been fixed equal to 5 Dollars.)
But neither Britain nor the USA joined the Monetary Union, and eventually the diverging economies of the member states made it impossible to maintain the fixed exchange rates on which the system depended. The Union was inoperative long before it was formally dissolved in 1927. Part of the establishment of the Euro in 1999 was a set of rules to ensure that the members’ economies remain in step, but in the event, the rules weren’t rigorously applied when Greece and other countries with less robust economies were allowed to join. (Also, it appears now that Greece had been submitting fraudulent national accounts to the EU for years.)
Interestingly, the UK’s economy has consistently met all the required criteria for membership since 1997, but no British government has ever had the confidence to join. There has always been public resistance to the Euro in the UK, and a strong emotional attachment to the current currency system, which has been in place since time immemorial (1971).
But even as a non-member, a collapse of the Euro would affect the UK. A recent bullish estimate by a “think-tank” (i.e. self-appointed pundits) suggests that it would “only” hit GDP growth by -0.5%, which would currently take growth negative. That’s bad enough, but that’s the optimistic forecast. Even the UK’s Chancellor understands the dangers, putting him and his party in the difficult political position of having to take action to defend the Euro monetary union while many party members and supporters fantasise about disconnecting Britain from Europe.
In terms of the national “deficit”, the gap between government spend and income, only Ireland and Greece do worse than the UK (the cuts aren’t working), although the UK’s total debt is close to the EU average when compared to GDP. But that’s not a great position to be in to take the impact of a failed Euro. Fingers crossed, eh?