The problem with the Europe is the euro, or more precisely, the creation of the single currency without establishing a set of institutions that would enable Europe’s diversity to function effectively with a single currency. Yet, the euro is still worth salvaging, says Joseph Stiglitz in his book The Euro: And its Threat to the Future of Europe.
The eurozone was flawed at birth, argues Stiglitz. While the euro was a political project, the “political cohesion” – especially the implementation of policies and the progressive transfer of national sovereignty to EU – was not strong enough to give euro a chance to succeed. Joseph Stiglitz was one of the many US economists that have been sceptical of the single currency project from the outset and rightly points out that the conditions and the rules laid down during the drafting of the euro by the 1992 Maastricht Treaty and later during its actual creation in 1999, have been inadequate. The lack of factors that could frame European monetary union, such as cross-border fiscal transfers, growth strategy, and employment, have contributed to the severity of the 2008 crisis.
Greece, a country which was hit particularly hard by the financial crisis of 2008, was furthermore affected by the Troika’s ideological views and presumptions, says Stiglitz. The troika policies are counterproductive, while the emphasis in austerity and the repayment of debts owned, rather than the restoration of growth and an increase of living standards of the people in the country have devastated effects in Greece’s economy. Taking into account Stiglitz’s experience with Greece’s social, political and economic system, – he was consulting ex-prime minister George Papandreou– it was rather odd to read at the book that ‘it was mostly private sector misconduct, not public sector profligacy that brought [the country] into crisis’. Without ignoring the mistakes of Troika, (IMF has released a critical report on how it handled the crisis in Greece and has identified where things went wrong), it was mainly Greece’s political system’s inability to handle a difficult situation. What is irritating, coming from an experienced economist like Joseph Stiglitz, is Stiglitz’s view that it was ECB’s mistake – and not the Greek’s government’s – the closure of banks in the summer of 2015. He totally overlooks the fanciful expectations of the newly elected Prime-minister Alexis Tsipras and the disastrous role of his finance minister Yanis Varoufakis during that traumatic period.
The current Eurozone structure leads to divergence, says Stiglitz. He believes that the euro can be saved and he proposes an agenda for what to be done if the euro is to work. The agenda includes tax harmonisation, a progressive Europe-wide tax system, and social safety net. Also industrial policies to help those countries that are behind to catch up.
Alternatively, if Europe fails to fix the failures of the monetary union, Stiglitz suggests ‘a smooth transition out of the euro and potentially go over to a flexible euro system’. To me, it seems as an extremely perilous idea. The only way forward for Eurozone is an improved and comprehensive Economic and Monetary Union.
Stiglitz writes with passion and he successful conveys complex economic issues in reader-friendly language. But his writing style is very slow and repetitive at places. This book could easily be half its size.