Stiglitz on Common Currency Threatening Europe Future (Audio)

why did you decide to write this book? Well, UH, Like a lot of books, it comes out of a series of uh uh lectures and ideas that I've discussed for years. UH. I get invited off into Europe. UH and uh the failings of the European economy are on the minds of everybody there. And the question was why is Europe doing so much more poorly than the United States, Especially since two thousand and eight the crisis started into the United States. You would have thought we would have

had the hardest time Europe. Uh has been basically stagnating for almost a decade now. And the answer came out. It was the euro and UH as I talked to people, it became clear that there was not as clear an understanding of why the Euro was was giving rise to all these problems. Well, Joe, you know, uh you did. You were one of the few two who questioned the the European project, who questioned the initiation of the Euro Area,

the single currency, financial and monetary union, etcetera. There were many at the time though, or I maybe I shouldn't say many, but there was a big debate when the Euro Area was set up. Because from a theoretical side of economics, you think of Ronald McKinnon, for sample, a prominent economist at Stanford University for so many years. Many of the morning Look, if you have if you have economies with low inflation versus very high inflation, you can't

put them in a common currency. And yet over and over and over that's what the officials in these countries seem to have done. They seems that they they've planted the seeds for their own issues, their own problems. I agree with you in a way, it was uh they thought of themselves as visionaries, uh uh, pushing aside these people who are raising h nippicking points and creating a single currency that would create the momentum that would lead

to more and more political and economic integration. But even no matter how good your intentions and how strong your ambitions, you can't ignore the roles of that comics and the acts. I think was the fundamental thing. It was a political project in which the politics was not strong enough to create institutions that would make Hero work Professor Stiglett's Does this mean that Europe will break apart into the kind of factionalism that has led to two World Wars? No? No,

not not by any means. I mean, I think in fact, uh, what I worry about is the continuation of the Euro is likely to be more very is being very divisive.

You know, I've been traveling to Europe regularly for roma's half century, and I've never seen the level of divisiveness that I've seen in recent years because of the Euro, because of what it is doing to uh make the rich richer the poor poor, both within and between countries and with basically economic policy, and so many of the countries like Italy, Spain and and Greece being dictated from Germany and next inevitably going to increase resentment where you

get the buyings between creditors and debtors. That's going to cause resentment. And so the Europe was supposed to promote convergings. You know, you talked about large differences. It was supposed

to make them more similar. In fact, E exacerbated the differences. Well, you know, Joe, I really like the E r M back of the nineties exchange rate mechanism where it wasn't a single currency, but there were bands that each country had to keep their currency within and they could use their monetary policy, they could use the exchange rate policy

to achieve that. Again, you in your book, your brand new book The Euro How Common Currency Threatens the Future of Europe, you do offer a couple of ideas for what could be done. What's the number one idea? Isn't is there any chance that will happen? Well, in a way, one of the ideas that I put forward to which I call the flexible Europe, is very reminiscent of the

R A M. With one difference. What I'm calling for is the creation of some institutions that would help stabilize the currencies within the narrow band, and over time, if those institutions work, if there's enough Uh, coordination and collaboration. Uh. They might be able to actually to make a single currency work, but they're not there yet. So they in a way, they put the cart before their horse. So. UM. The question, the last question you ask is is really

the hardest, Uh. Where And it's it's one about more about politics, and or as much about politics as it is about economics. Um, where will they go? It's been very frustrating to watch the stagnation in Europe and the leaders not being willing to revisit some of the key issues to key policy is the structural reform of the Euro and trying to blame the problems on the individual countries. UH.

So that makes me a little bit pessimistic. What I think is the most likely thing to happen beyond muddling through, is that at one point or another, the voters will get fed up. UH. And already we're seeing in many of the countries a move from the centrist parties to the extreme right and extreme left. Uh. And on both of those two uh, there is very strong support for leaving the Euro. So what what I think uh is a realistic scenario unless the leaders change course, and that's

mainly germanying some of the other Northern European countries. Unless they change course, there will be a demo cratic movement that will upset the strategy, if you can call it that of muddling through. You said a democratic movement. What happens if there's not a democratic movement instead of voters making their voice heard, what if demonstrations and violent protests makes their voice heard, just as it was in Greece. Uh, back's another example of what I call democratic, I mean

either grassroot or electoral. You noticed in in Greece it was the people voted against the austerity policies, but in the end, the structure of the euro and the Eurozone meant that the voices of the majority of the citizens couldn't be heard. And that is a real problem. That is to say that what has been happening is that the voters constantly vote for a change in economic policy, and what happens is they said, oh, no, you can't

change economic policies. Uh, We've delegated those economic policies uh to Germany, to Brussels. And that that I think is deeply disturbing to democratic processes. I just want to switch heres here, Joe. We have about a minute or so left, because I want to ask you about the Bank of Japan.

Governor Corota did an interview published over the weekend saying that as they reassess their policy of negative rates and someone call it unprecedented quantitative easing, that the Bank of Japan can go further more easing deeper negative rates when they meet next month. What do you make of that? Is that a good move or a mistake? Well, I think it illustrates that that the monetary policy is reaching ulmics. Uh as you notice, uh, you know, it hasn't succeeded

in really resuscitating the growth of Japan. Although uh, in many ways, Japan is not the basket case that sometimes describe. Once you take into account and the fact that they're working population, working age population has been growing much more slowly. In fact, its declining while that and say United States has been increasing. Once you take account of that, javan is not really doing that uh poorly. But what is clear is that monetary policy is not enough to restuscitate

the economy. And I think it was a good move of Bobby to postpone the increase in the consumption tax. What they really need is a more comprehensive strategy which includes I think uh A a carbon tax that would stimulate investment in green technology. Joe Stiglets, thank you so

very much for joining us. Joseph Stiglas, Professor of economics at clumb University, when are the two thousand one Nobel Prize in Economics, Talking to a about his new book The Euro How a common currency threatens the future of Europe. He said, the Europeans need to find ways to create more economic divergence than convergence. Rather than divergence, This is Bloomberg