Euro the ‘root of all eurozone’s ills’

PARIS - Agence France-Presse

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, Nobel-prize-winning economist Joseph Stiglitz told AFP on Sept. 13.

The outspoken economist said the single currency was structurally flawed from the outset and 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,” said the former World Bank chief economist, 73.

While the euro might be a boon for “a few people and the bankers who can move money more easily around,” it’s less positive for ordinary individuals in the eurozone, suffering from sluggish economies and high unemployment.

“Our societies are stagnating, we are not growing. That would give impetus to extreme parties of the right,” said Stiglitz, as far-right parties gain ground in France, the Netherlands, Germany and Austria in part due to high unemployment.

Stiglitz, who loosened his tie for the interview in a sweltering Paris, took a blistering swipe at the rules underpinning the single currency, as well as those governing the European Central Bank.

“You have to change the rules when the rules are wrong. If you have the wrong rules, then the consequence is a disaster,” he stressed.

“These rules are not like the ten commandments that God gave from Mount Sinai,” he said, adding that the economics and politics behind the eurozone’s fiscal and monetary rules “needs to be rethought.” 

He took aim at both the Stability and Growth pact - which limits member state’s budget deficits to a maximum of three percent of total output - as well as the strict rules governing the ECB.

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.

“They tied the hands of the countries in Europe ... and then they tied the hands of the central bank and said ‘focus just on inflation’,” charged the economist.

So what is the solution, according to Stiglitz?  
   
“More Europe” and “less austerity that just leads to contraction.”

He called for eurobonds - allowing eurozone countries to pool debt issuance that is a taboo subject in Germany.

The economist also appealed for “common deposit insurance, a common way to resolve the problems in the banks.”

And he aimed a barb at Germany, Europe’s economic and political powerhouse that spearheaded the drive towards austerity in the wake of the eurozone’s debt and banking crisis.

“The view that you can recover to full employment and to prosperity by austerity is rejected by most economists, rejected by the IMF, but still seems to be the dominant view in the German government, and particularly in the finance ministry,” he charged.

“The easiest way would be for Germany to leave Europe.”