The Euro: How A Common Currency Threatens The Future Of Europe
Joseph E. Stiglitz
W.W. Norton & Company
Since 2010, Europe has been in economic crisis, as the 19 countries that share the euro currency have been rocked by stagnation and debt crisis.
Some countries have been in depression for years while the eurozone’s governing powers have gone from emergency to emergency, most notable in Greece.
Nobel Prize-winning economist and best-selling author Joseph E. Stiglitz examines in The Euro the causes for the endless crisis and mistakes made around the creation of the single currency. He lays bare the European Central Bank’s misguided inflation-only mandate and explains how eurozone policies, especially toward the crisis countries, have further exposed the zone’s flawed design.
Stiglitz writes, “As an economist, the euro experiment has been fascinating. Economists don’t get to do laboratory experiments . We have to test our ideas with experiments that nature – or politics – throws up. the euro, I believe, has taught us a lot. It was conceived with a mixture of flawed economics and ideologies. It was a system that could not work for long – by the time of the Great Recession, its flaws were exposed for all to see. I believe that the underlying deficiencies had been evident from the start for anyone willing to look. These deficiencies had contributed to a buildup of imbalances that played a central role in the unfolding crises and will take years to overcome.”
On what he hopes to achieve with the book, Stiglitz writes, “Thus, while this book is aimed at the critical question of the euro, its reach is broader: to show how even well-intentioned efforts at economic integration can backfire when questionable economic doctrines, shaped more by ideology and interests than by evidence and economic science, drive the agenda.
“The story I tell here is a dramatic illustration of several themes that have preoccupied me in recent years – themes that should have global resonance: The first is the influence of ideas, in particular how ideas about the efficiency and stability of free and unfettered markets (a set of ideas sometimes referred to as “neoliberalism”) have shaped not just policies but institutions over the past third of a century. I have elsewhere described the policies that dominated the development discourse, called the Washington Consensus policies, and shaped the conditions imposed on developing countries. This book is about how these same ideas shaped what was viewed as the next step in the tremendously important project of European integration, the sharing of a common currency – and derailed it.
“Today, the same battle of ideas is being fought in myriad skirmishes. Indeed, in some cases, even the arguments and evidence presented are fundamentally the same. The austerity battle in Europe is akin to that in the United States, where conservatives have attempted to down-size government spending, including for badly needed infrastructure, even while unemployment remains high and resources remain idle. The fights over the right budgetary framework in Europe are akin to those I was immersed in with the IMF during my tenure at the World Bank. Indeed, understanding the global reach of these battles is one of the reasons I have written this book.”
On what the intent of the single currency was, Stiglitz writes, “The euro was supposed to bring about closer economic and political integration, helping Europe address whatever challenges the region faced….
“While there are many factors contributing to Europe’s travails, there is one underlying mistake: the creation of the single currency, the euro. Or, more precisely, the creation of a single currency without creating a set of institutions that enabled a region of Europe’s diversity to function effectively with a single currency.”
Sitglitz offers three possible ways forward: fundamental reforms in the structure of the eurozone and the policies imposed on the member countries; a well-managed end to the single-currency euro experiment; or a bold, new system dubbed the “flexible euro.”
This in-depth work is mainly about economics, but it also can double as a history book. That is evident in this passage about how far back the origin of the euro dates:
“The common currency was an outgrowth of efforts that began in the mid-20th century, as Europe reeled form the carnage and disruption of two world wars that claimed some 100 million lives. Europe’s leaders recognized that a more peaceful future would necessitate a complete reorganization of the politics, economics, ad even the national identities of the continent. In 1957, this vision came close to being a reality with the signing of the Rome Treaty, which established the European Economic Community (EEC), comprising Belgium, France, Italy, Luxembourg, the Netherlands, and West Germany. In the following decades, dominated by the Cold War, various other Western European countries joined the EEC. Step by step, restrictions were eased on work, travel, and trade between the expanding list of EEC countries.
“But it was not until the end of the Cold War that European integration really gained steam. The fall of the Berlin Wall in 1989 showed that the time for much closer, stronger European bonds had grown near. The hopes for a peaceful and prosperous future were higher than ever, among both leaders and citizens. This led to the signing, in 1992, of the Maastricht Treaty, which formally established the European Union and created much of its economic structure and institutions – including setting in motion the process of adopting a common currency, which would come to be known as the euro.”
Stiglitz does a great job of distilling a lot of complex economic jargon into something anybody can read and follow, and understand why Europe is still in economic turmoil.