You don't usually write a book review before the book comes out, but Peter Goodman of the New York Times interviewed Joseph Stiglitz, a Nobel prize-winning economist, about his new book and the major themes are so important, it doesn't hurt to get a discussion going about the book, even before it hits the shelves.
The book is titled "The Euro: How a Common Currency Threatens the Future of Europe," and is published by W. W, Norton & Company and is scheduled to be available on August 16, 2016.
This is a book you should read, even if you don't agree with Mr. Stiglitz, which I must warn readers, I don't most of the time. But, it is thought provoking and contains some very good insights.
The European Union, Mr. Goodman starts off by summarizing the background Mr. Stiglitz presents, "started in the name of gorging a greater sense of union among the disparate nations of Europe. It was supposed to enhance commercial ties, erode borders and foster a spirit of collective interest, furthering the evolution of former wartime combatants into fellow nations of a united Europe."
Where are we now?
"The Euro, in the 17 years since the common currency came into existence, has instead reinvigorated conflicts, yielding new crises, fresh grievances and a spirit of distrust."
Mr. Stiglitz describes "the Euro as a tragic mistake, a currency begun without the necessary political integration or clear thinking about its fundamental flaws."
There has been little or no movement to achieve the political integration that most feel is needed to make the currency union work. When problems or crises arise, the EU "kicks the can down the road," or, in other words, the EU muddles through.
As a consequence, any real move to create a real political union gets put off.
And, Mr. Stiglitz believes that this can't continue. "It is hard to believe that the muddling-through can continue for another five years. "
There will be members exiting the community. "That will begin the process of a real unraveling of the eurozone."
And, if the eurozone breaks apart, the future of the former members will be grim because the current "back-and-forth" between the members just highlights differences and exacerbates the divides.
The problem, as Mr. Stiglitz suggests, is that the member countries had to converge. "They formulated these ideas called the convergence criteria.
What made this convergence very difficult was that there were countries with fiscal surpluses and countries with fiscal deficits. And, the countries with fiscal surpluses included the largest and most powerful nation in the bloc…Germany.
The EU put enormous pressure on the countries to keep their deficits and debts relative to GDP down. That was viewed as the necessary and almost sufficient conditions for making the Euro work."
Of course, the bad guy turned out to be…guess who…Germany.
Germany ran fiscal surpluses. Germany believed in austerity. So, austerity was a big part of the EU from the very beginning.
The problem that arose, to Mr. Stiglitz, was that the world experienced a modest recession in the early 2000s and then had a Great Recession in the 2007-2010 period that ended up with the leadership of the EU "doubling down" on deficit nations…with more austerity.
"The structure of the Euro," according to Mr. Stiglitz, "was at fault, and the policies they enacted amplified the structural deficiencies. The result was that the countries diverged."
And, this wasn't the only thing going on. Mr. Stiglitz argues, "European leaders…wanted to break the back of workers. Their view was that workers needed to accept a wage cut and we are going to change the bargaining rules to make it more difficult for them to resist
The result? European leaders "have broken the back of the unions in many countries of Europe."
So, the continuing divergence "between creditor, Germany, and debtor, the rest" goes on. And, the pressures continue to mount. An ECB that doesn't just focus on inflation-you want it to focus on employment. A tax policy that deals with the inequalities. And you have to get rid of limits on government debt."
One should say right here that Mr. Stiglitz is a believer in national sovereignty and an independence that allows each sovereign nation to pursue policies that achieve the highest level of employment possible for that nation's workers.
Anything that detracts for this emphasis Mr. Stiglitz opposes. Thus, the only way the currency union can work is if the "convergence" of national policies convergences on high levels of employment. This, of course, would mean that austerity is out and fiscal stimulus is in…alone with monetary ease…which does exist given the quantitative easing now being followed by the ECB.
The problem with this, in my mind is that it conflicts with reality. This path does not conform to a strong currency.
To me, the currency union was constructed assuming that the fiscal policies of the member nations must be consistent with one another. That is, political unity was not going to be achieved if the budgetary policies of nations were not in sync with one another. This was why countries were to have fiscal deficits that were not too different from one another and why deficits had to be reduced heading for balanced budgets.
This, of course, in one of the things Mr. Stiglitz is against because if a nation gives up this privilege, it is giving up its national sovereignty when it comes to its responsibility to its laborers.
That is a no, no, and can only be overcome if the whole EU were to be totally committed to a full employment policy.
But, to achieve a strong currency, fiscal and monetary discipline is a must. The common currency was felt to be doomed, if the full economic union could not focus on containing inflation. Therefore, to construct an economic…and political union…the EU had to focus on bringing the budgets of the sovereign nations into line producing a conservative, balanced-budget discipline.
The labor union situation is another issue and can't be dealt with here. Just let me say that times have changed due to massive technological changes, the position of labor unions have changed, and the nations are going to have to deal with this in reforming and restructuring their economies.
Let me say in conclusion that the political union may not be achievable. Sovereign nations, at this stage in their existence, may not be able to reform and restructure themselves in order to create the fiscal discipline necessary to belong in a currency union that wants to support and sustain a strong single currency.
In that, Mr. Stiglitz may be correct.
However, to me the world is changing and technology is driving the change. These changes will require that countries will have to reform and restructure whether or not they want to. (See my articles "Free Global Trade Should be Embraced, Not Feared" and "Be a "Web Person" Who Embraces the Looming Technological Changes.") Then if these countries want to be a player in the emerging world of the twenty-first century, they need to buy into a common currency that is strong and respected in the rest of the world.
This is the future. Connection, cooperation, and combination are the links to this new world, not iindependence and isolation.
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