The convention of 23rd December 1865, which established the Latin Monetary Union, was a triumph for Napoleon III. It was not, however, the creation of a new fiat currency, as was the Euro, but rather mutual adherence to bimetallism, with France, Belgium, Italy and Switzerland tying their currencies to a standard of 4.5 grams of silver or 0.290322 grams of gold, crucially a ratio of 15.5 to 1. Greece formally joined the system in 1867 and Spain, Romania, Austria, Finland, Venezuela, Serbia, Montenegro, San Marino and the Vatican effectively became associate members. The Latin Monetary Union survived at least in name until 1927. At this time, when the tectonic plates of the Eurozone grind against each other (basically the prudent, competitive German creditor agonizing over its profligate and over-indebted Mediterranean neighbours), it is instructive to look at the history of the former Latin Monetary Union. Giacomo Cardinal Antonelli, the administrator of the Papal Treasury, was the first to break the rules by issuing silver coinage without the adequate silver content to the benefit of the Holy See and the detriment of those banks in the Union who were obliged to accept the debased coinage. The Papal States were expelled from the Union. Silver was a problem of the early days of the Union, both because small denomination and often sub-standard silver coins were allowed to circulate and silver itself was depreciating against gold. During the 1870's the Union became exclusively tied to gold.
The ultimate demise of the Union was based first on the financing needs of the First World War, which was the death knell of gold convertibility, but also with members of the Union finding themselves on different sides in the conflict, reinforcing the argument that monetary union is impossible without political and fiscal union. Contrast this with the situation in Bismarck's Germany, where after the Franco-Prussian War, political union was achieved in 1871 by force (as in the USA six years previously) and the chaotic multiple currencies such as the Thaler and Gulden were replaced by the Mark. Importantly, Germany had fiscal union through the federal collection of tariffs though the less important direct taxation was only collected centrally at the time of the First World War. Germany also toyed with a gold standard, transferring the gold element of the £200million reparations into its reserves (incidentally making the reparations agreed at Versailles in 1919 look not so unreasonable). And thus, with gold convertibility proving too burdensome, national competitiveness to mint debased coinage and the lack of political union, the Latin Monetary Union came to its end.
Tensions within the Eurozone are becoming fraught. Manual Barroso, the President of the European Commission, has called the German Chancellor, Angela Merkel, naïve (never a good policy towards one's paymaster) in respect of her efforts to save the Euro. Whether German aid is ruled illegal by the constitutional court in Karlsruhe; the markets rebel and refuse to finance the Eurozone or the citizens of Southern Europe refuse to accept the austerity imposed on them from Brussels and Berlin, the Euro experiment in its present form is looking less sustainable by the day.
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