The Greek crisis, and the speed with which the consequent fear has spread to other European countries - notably Portugal, Spain and, most worrying of all, Italy - seems for many analysts to be unprecedented. It is hard, they say, to know how the crisis will eventually end.
But in fact there is a lot of historical precedent that allows us to make some reasonable guesses about the course of the crisis. There are at least four things we can learn from history.
First, and most obviously, we should always have been sceptical about the survivability of the euro. There is a long history of currency unions from which we can draw two reasonable conclusions. Without full monetary and fiscal integration, currency unions are no more permanent than other forms of monetary integration, such as adherence to gold or silver standards. And when they succeed, it is almost always during periods of rising global liquidity and expanding international capital flows.
No currency union has been able to survive the great monetary contractions that spell the end of a globalisation period. The 19th century's Latin Monetary Union and the Scandinavian Monetary Union were once considered great successes, but both were forced into retreat when global monetary conditions turned sour.
Second, the European crisis will be accompanied by a trade shock. In the early 1980s Latin American countries were suddenly cut off from funding. These countries had been running large current account deficits, but current account deficits require capital account surpluses. When Latin America began to experience capital outflows, its trade deficit necessarily had to become a trade surplus.
Because they, too, have trouble financing themselves, the deficit countries of Europe, with combined trade deficits nearly two-thirds that of the US, will also be forced into a rapid contraction in their trade deficits. This contraction will cause a trade shock that must, one way or another, be absorbed by the very unwilling rest of the world.
Third, the recovery in the countries hit by crisis will not begin until they are recognised as insolvent and receive debt forgiveness from their creditors. Greece, and probably two or three other countries, simply cannot repay their outstanding debt amounts. As long as they maintain the pretence that they can, and struggle with the burden, the resulting distortions in the economy will mean that businesses will disinvest and the country will not grow.
