The eurozone crisis seems to be consistent with the prediction that fiscal and financial crises have a strong link. In the wake of the subprime crisis, several European countries linked to the US crisis or the booms in real estate prices fuelled by bank loans have been looking at costly bank bailouts financed by bonds. These rescue operations and the economic collapse increased the budget deficit, resulting in an increase in debt. Rescue operations across Europe followed, in some respects, the example of Ireland, which guaranteed its entire financial system in September 2008. To combat the recession that accompanied the crisis, they also adopted an automatic expansionary fiscal policy, which also increased deficits. One example is the Gold Pool, created in 1961 by the United States and seven European countries under the gold dollar standard of the Bretton Woods system. The agreement aimed to stabilize the price of gold in dollars to avoid the depletion of U.S. gold reserves. Like the current issue of the accumulation of reserve requirements, this is an example in which the individual and collective interests of central banks differ. Arbitration transactions by some central banks were individually rational, but collectively undesirable: they reduced U.S. gold reserves and called into question the U.S. obligation to trade gold for the fixed-price dollar. The Gold Pool wanted to avoid this depletion of U.S.
gold reserves by pushing the market price to the official price. This cooperation worked as long as the market price fell below the official price and the pool was a net buyer of gold. However, when the market price went up and the pool sold gold for dollars, the arrangement collapsed. Some central banks left the pool or made transactions — they bought gold when the pool sold gold.5 Gold was often physically shipped abroad to pay for current account imbalances that affected the country`s real monetary supply. What`s that? The dollar had become the substitute for gold. As a result, the value of the dollar began to rise relative to other currencies. The “Bretton Woods system” is the term used to describe international monetary agreements between World War II and the early 1970s. In fact, the Bretton Woods agreements could be a more appropriate expression. The agreements were overseen by the IMF, the founding institution. The general perception of this era is that there has been stability in international payments and where there has been economic growth and prosperity that have been or have followed stable agreements. Many would be happy to admit some causality.
Against this backdrop of weak fiscal position in the euro area as a whole, the Greek government`s announcement in 2009 of the falsification of its budget books highlighted the eurozone debt crisis, which involved first the risk of a Greek default and then the contagion of other members through their banks to the large sovereign debt of Greek and other peripheral countries. In 1944, in Bretton Woods, following the collective conventional wisdom of the time, representatives of all leading allied nations collectively supported a regulated fixed exchange rate system, indirectly disciplined by a gold-related dollar – a system based on a regulated market economy, with strict controls on money values. International speculative financing flows have been held back by the passage and limitation by central banks. This meant that international investment flows were invested in foreign direct investment (FDI) – that is, the construction of factories abroad instead of international currency manipulations or bond markets. Although national experts have, to some extent, disagreed on the specific implementation of this system, everyone agreed on the need for strict controls. The Japanese banking crisis in 1890 was due to a boom-bust cycle that began in the mid-1980s with a rise in i