According to the philosopher Hegel, the only lesson of history is that men never learn anything from history.

Such generalisations aside, Michael Bordo and Lars Jonung give us a very specific reason why the history of so-called monetary unions is of only limited guide to the prospects for EMU, and the case for and against other countries joining it.

Their key statement is Point 4 of their summary where they remind us that the regimes in existence prior to the breakdown of Bretton Woods in the early 70s were founded on a specie or metallic standard, while the regimes of today are based on a paper or fiat standard. Thus comparisons of EMU with the 19th Century German or Latin American Monetary Union do not compare like with like.

For the first two thirds of the 19th century European countries of were not all on a gold standard. The authors explain that some were on gold; some were on silver; some used both and some were on a bimetallic standard which tried to maintain a fixed ratio between the two metals. Moreover coins were not of 100 per cent purity. There were examples, cited in the paper of rules stipulating that they must be,for example of at least 83 or 90 per cent pure. And there were also many attempts to limit the circulation of small denomination token coins.

The various monetary unions of the 19th century were not concerned with the price level or sustaining economic growth or employment. They were, as the paper makes clear, mainly concerned with the complications resulting from the circulation of numerous coins of widely varying denomination and purity and with the absence of a single standard of value for denominating contracts. The efforts to get rid of these obstacles to trade resembled much more the Single Market, which the European Union is trying to establish than the Single Currency. The analogy is with today’s efforts to simplify and remove border controls or towards mutual recognition of quality standards or attempts to make tax systems more transparent, than they are with the attempts to establish a single monetary policy.

The euro has already had a role in increasing the intensity of price comparisons between different countries and thus making markets more "perfect". Since January 1999 there has been greater publicity for anomalous price differentials -- not only in cars -- between the UK and other countries. In a sense, Britain has been a free rider on the 11 founding members of the euro. Journalists and consumer advocates no longer have to compare British prices with those in a multitude of other countries. Even if they do not yet look at euro equivalents, they can make comparisons in national currencies knowing that exchange rates are "irrevocably fixed".

My guess however is that the single currency is less important in making markets more transparent than technical developments such as the Internet and other manifestations of IT, which make is possible for an increasing band of sophisticated consumers to make international price comparisons at the touch of a button (I assume that younger readers will know how to do this, even if I still find it difficult!)

An international monetary union, without any metallic backing, is a novel undertaking. Money before 1914 was thought of as consisting of intrinsically valuable commodities. Paper money, to the extent that it was trusted, was valued for its convertibility into precious metals. Countries did of course occasionally suspend convertibility and move on to inconvertible paper currencies which floated against other currencies. But these were regarded as emergency measures undertaken in times of war or the aftermath of war. The intention was always to resume convertibility into precious metals as soon as possible.

History is therefore not a great deal of help in deciding whether a paper-based euro needs a common political authority. There is no escape from relying on general principles in assessing the prospects for EMU.

If one leans on the evidence to try to make a historical comparison, EMU emerges as a hybrid. It is like what the authors call a "multilateral union" in that it is being constructed without an overriding political authority. But it is like a national monetary union in that there is a single central bank -- the ECB -- which runs the currency.

The most relevant comparison is not with any of the past "international monetary unions" but with the international gold standard itself in the four decades up to 1914. This stretched well beyond Europe and covered for instance the United States. There had to be more or less a single monetary policy as countries could not depart very far from prevailing international interest rates without provoking a run on their gold reserves.

The nature of that common monetary policy was determined by the balance between the accidents of new gold discoveries and the efforts of official and private financial institutions to economise on gold stocks by all manner of devices ranging from convertible paper money to a proliferating array of credit instruments.

More recent historical comparisons are sometimes made. The chief examples are the harm done by the attempts to maintain unsustainable parities in the latter days of Bretton Woods or still more recent attempts by the IMF to maintain the parities of emerging countries before the Asian and Russian crises. Eurosceptics also often point to the conflict between the needs of internal monetary policy and exchange rate objectives when Britain was trying to shadow the D-mark in the late 1980s or during the brief, sad membership of the Exchange Rate Mechanism in 90-92 from which the British establishment has not yet recovered.

But this is not still comparing like with like. There is all the difference in the world between an ad-hoc exchange rate peg -- which even the rule book says can in the last resort be changed -- and the introduction of a new currency run by its own institution.

In 1992 the markets rightly perceived a contrast between the needs of the UK for lower interest rates for anti-recession reasons policy and the stance of the Bundesbank which - as a result of the inflationary forces following German unification - was reluctant to bring its own rates down. The worse the recession got, the more distrustful the market became of Britain’s continuing membership until the whole structure collapsed.

With a single currency and a single central bank such a one way speculative option could not occur. There would still be a problem if a country’s domestic needs were for stimulus and the euro consensus were for restraint. But the situation would be ameliorated to the extent that there was no sterling to speculate against.

A test of an opposite kind is emerging in the case of Ireland, which has economic institutions much more like those of the UK than of continental Europe and which conducts a large part of its trade with Britain. It has been experiencing a remarkable boom, which is tending to overheat the domestic economy. Left to itself the Irish financial authorities would undoubtedly have raised interest rates several times. But to conform to the single monetary policy they have had to be reduced instead.

Pessimists say that the overheating will lead to a uncompetitive Irish cost level and a subsequent severe recession. But there is another way of looking at matters. Existing federations such as the US or Canada often experience different rates of recorded price increase in different areas. Might not an overheated Irish economy be more like a California land boom or a Texas oil boom than like Britain in the run-up to a typical sterling crisis?

So long as productivity in Ireland is increasing faster than in the main part of the euro group, Ireland can afford faster pay increases even in the international trading sector of its economy. Price increases in the more protected sectors such as real estate or traditional crafts will not be tethered in the same way to the European price level and may go higher. But the kind of inflation psychosis in which people project an acceleration of inflation into the future cannot take place so long as there is confidence in Irish membership of EMU -- which there is likely to be in view of the country’s political commitment.

Of course there are big differences between Ireland and the UK. Ireland is a much smaller economy and has benefited proportionately much more both from inward US investment and from EU regional funds. Far more important: there is a pool of overseas Irish labour ready to come back when the labour market tightens: an anti-inflationary valve which does not exist in the UK. (Of course it could if we had a more liberal immigration policy). Nevertheless, if I wanted a clue to how the UK might fare inside EMU OI would look at Irish experience as it develops rather than at any of the "monetary unions" of the 19th century.

The most important forward-looking remark in the paper is that the development of EMU is likely to be very different from what the framers had in mind or anything envisaged today. It is for instance often assumed that EMU will pave the way for a European political union, which will itself be a hegemony dominated by Germany -- something like the system which the Kaiser’s Reich might have established if Britain had stayed out of World War I. The main grounds for such an assertion are that Germany is by far the largest single member of the European Union judged by either population or GDP. A supporting reason is the central position of the country should the EU be enlarged to the east.

But I doubt if sheer size is all that matters. Even in those terms the German-speaking countries (Germany plus Austria) account for hardly a third of EU population and GDP. In terms of normal electoral arithmetic, they have a plurality but not an absolute majority. The actual political arithmetic of the European Central Bank is even further biased against Germany. It has only two representatives on the 17-member Governing Council -- or four if Austria and the Netherlands is taken as a natural ally (the heads of the national central banks, plus one German member of the Executive Board).

A tell-tale sign of underlying German insecurity is the fight that it is having to put up in the summer of 1999 to try to secure that Germans should count as one of the top official languages of the European Union, along with French and English.

During the course of the negotiations to set up EMU, the fear was frequently expressed -- not least in Germany -- that German economic stability would suffer from being pulled down by the traditionally weaker Mediterranean and peripheral economies. The real surprise has been that the most successful economies so far have just been these peripheral ones -- above all Ireland, Spain and Finland. The one upward alignment that took place in 1998 in the run-up to the establishment of the euro was that of the Irish punt. The countries which have had the greatest difficulty in returning to normal growth and improving employment have been, Italy, Germany and France. And if one allows for the dynamism of the unofficial Italian economy imperfectly recorded in the statistics, Germany and France alone may lead the rank of invalids in the economic sphere.

There are indeed problems ahead for the European Union. But they lie neither in the absence of political union, nor in an excessive impetus in that direction, but rather from the ossified economic systems of these core states. European unemployment is not due to the supposedly hard line policy of the ECB -- which maintains nominal and real interest rates below those of the US or Britain. It reflects rather excessively high and excessively rigid pay costs. (I use this unsatisfactory expression because it is not so much pay itself, but the overhead costs of employing labour -- social security contributions plus a great many restrictions on hiring and firing -- which are the problem. But the formulation "labour costs" is not satisfactory either. It is possible to hold down labour costs -- as some German corporations are trying to do - by substituting capital for labour or by diverting investments towards the emerging countries. None of this helps with domestic employment.)

In a static democratic environment, maintaining existing jobs and financing a margin of non-employed workers through the tax and social security system would be a legitimate option for rich countries. But it will not be satisfactory in European countries faced in the coming century with an ageing population and a looming deficit in national pension systems. If I can be allowed to indulge a guess about what future historians might condemn, it would be the lack of attention being paid to the criminal absurdity of some European countries in trying to lower artificially retirement ages and shorten working hours, and thus reduce further the production base available to finance the social security burden.)

Neither a "Europe of Nations" nor a federal Europe will make too much difference to the way these problems are tackled or not tackled. Still less will be the existence of the single currency. It is astonishing that so many supposedly hard money, anti-inflationary British economists and politicians should make so much of the absence of the devaluation option. John Stuart Mill once said that money was much less important than most people thought. This applies with knobs on to a single currency.

Many of the intrusions into the freedom of the British government to conduct its own policy which are so resented by Euro-sceptics have nothing to do with the single currency. The attempts to enforce a minimum withholding tax on interest income -- whether wise or unwise -- arise from the Single Market programme. So do some of the regulations about product standards and quality. Restrictions on working hours or legislation on labour conditions arise from neither. In spirit they emanate from the Social Charter. But in legal terms they arise from a stretching of the interpretation of Health and Safety directives.

Those who think that a single currency involves uniform tax rates should look at the widely varying rate of tax in force in the different states of the USA. So should over-zealous members of the Commission in Brussels. The one legitimate area of disagreement is whether a single currency involves, not a single tax policy, but a single fiscal policy. By this I mean a uniform attitude towards budget surpluses and deficits.

There is an unholy alliance between "doves" and "hawks" on this issue. The hawks around the central banks are all too ready to blame lax fiscal policies for any future difficulties in maintaining price stability; and the doves are all too ready to bemoan the restrictions -- exaggerated in most discussions -- placed on anti-recession policies by the Growth and Stability Pact. Those of us who believe that serious recessions and inflations have monetary roots -- or at least are most amenable to monetary treatment - will be less impressed by either camp.