Badly conceived and economically wrong, the euro is at the heart of most of the eurozone’s problems such as stagnation, unemployment and the rise of the far-right, an American economist, recipient of the Nobel Memorial Prize in Economic Sciences and a former senior vice president and chief economist of the World Bank, Joseph Stiglitz, said in an interview with Agence France-Presse. The economist believes the single currency was structurally flawed from the outset. “It takes away member states’ ability to make crucial adjustments to their economies. What they did was to put the cart before the horse. They tried to create the euro before they had the institutions,” he said.
While the euro is still a boon for some people and the bankers who can move money around more easily, it’s less positive for ordinary people in the eurozone, who suffer from sluggish economies and high unemployment. “Our societies are stagnating, we are not growing. That would give impetus to extreme parties of the right, which gain ground in France, the Netherlands, Germany and Austria in part due to high unemployment,” he said.
Stiglitz criticized the rules underpinning the single currency, as well as those governing the European Central Bank.
“You have to change the rules when they are wrong. If you have the wrong rules, then the consequence is a disaster. These rules are not like the ten commandments that God gave from Mount Sinai. The economy and politics behind the eurozone’s fiscal and monetary rules must be rethought,” he noted.
He stressed that the Stability and Growth Pact limits member state’s budget deficits to a maximum of three percent of total output. The European Central Bank has as its mandate to keep inflation to “close to but below two percent” but unlike the Federal Reserve in the United States, does not have creating jobs as one of its objectives. This policy tied the hands of the European countries and the Central Bank, ordering to focus just on inflation.
So what is Stiglitz’s solution?
“More Europe” and “less austerity that just leads to contraction”. The economist urged to use eurobonds, which is a taboo subject in Germany, but allow eurozone countries to pool debt issuance. He also appealed for “common deposit insurance, a common way to resolve the problems in the banks.” In addition, Stiglitz outlined the problem of economic corruption and concentration of power in the hands of a small political group in Germany, which contributes to austerity on the background of debt and banking crisis in the eurozone.
“The view that you can recover to full employment and to prosperity by austerity is rejected by most economists, rejected by the IMF itself, but still seems to be the dominant view in the German government, and particularly in the finance ministry. The easiest way would be for Germany to leave Europe,” he stated.