"Internal Devaluation and the Road to Wigan Pier

Greg Ip, in correspondence, directs me to Chapter 3 of the latest IMF World Economic Outlook, which among other things contains an analysis of a case that bears directly on the attempts of euro area countries to restore economic health through fiscal austerity and internal devaluation: Britain’s return to the gold standard after World War I.
As the report says, Britain demonstrated a fairly awesome commitment to austerity:

To achieve its objectives the U.K. government implemented a policy mix of severe fiscal austerity and tight monetary policy. The primary surplus was kept near 7 percent of GDP throughout the 1920s.This was accomplished through large expenditure decreases, courtesy of the “Geddes axe,” and a continuation of the higher tax levels introduced during the war. On the monetary front, the Bank of England raised interest rates to 7 percent in 1920 to support the return to the prewar parity, which—coupled with the ensuing deflation—delivered extraordinarily high real rates.

Sad to say, however, the confidence fairy never arrived. Britain suffered prolonged economic stagnation even before the onset of the Great Depression:

And it didn’t even succeed in reducing the debt/GDP ratio, because deflation and slow growth outweighed the effects of austerity.
Not a good omen for Europe."

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The Guardian:

The root of Europe's riots

28 Sep 2012: Ha-Joon Chang: No wonder the protesters are back. They are angry at the backdoor rewriting of the social contract 19 comments
France: no leeway for failure

28 Sep 2012: Editorial: François Hollande's budget – the toughest in 30 years – is ameliorative but it is hardly a radical departure. 6 comments
Spanish banks stress test reveals €59bn black hole

28 Sep 2012: Report lists seven banks that will need bailout to cover bad boomtime loans to building developers
Spain's cultural fabric tearing apart as austerity takes its toll

28 Sep 2012: With half a million homes without a breadwinner and grandparents being pulled out of care homes for their pensions, separatist sentiments are brewing in a country that can take no more strain
France unveils 'harshest budget in 30 years'

28 Sep 2012: Hollande's 2013 budget asks for 'unprecedented effort' to find €36.9bn in savings and includes 75% supertax on the rich
David Cameron hints at EU referendum amid eurozone crisis

28 Sep 2012: Prime minister says Britons will get a say on any new EU settlement, and announces opt-out of pending EU justice policies
Portugal at flashpoint as austerity lights fires in mild-mannered populace

28 Sep 2012: Country said to be more circumspect than its neighbours at breaking point as anger towards politicians turns white hot 38 comments
Eurozone risks lost decades if north-south divide not addressed

28 Sep 2012: Brad DeLong: Structural imbalance between north and south is the longest-term and most dangerous factor underlying the eurozone crisis 8 comments
Kipper Williams on the eurozone crisis

Cartoon, 28 Sep 2012: Spain announces fresh austerity measures