Joseph E. Stiglitz: Euro – How a Common Currency Threatens the Future of Europe

Abstract

In his lecture on the occasion of being awarded the Nobel Prize for Economics for year 2001, Stiglitz spoke out vigorously against the classical economics based on a limited impact of government and markets functioning without government interventions. We do not see the invisible hand of the market, he remarked, because either it ‘simply doesn’t exist’ or ‘at least [...] it is palsied’ (Stiglitz 2001). In the basic dichotomy between free market and state interventions, Stiglitz stands as a strong critic of neoliberalism and is entirely on the side of state interventions. This view also forms the essential character of his (so far) latest book Euro – How a Common Currency Threatens the Future of Europe. The monograph thus does not discuss the origin and development of euro, establishing the monetary union or monetary integration during the Great Recession but is primarily ‘about economics and economic ideologies and their interactions with politics’ (p. 42). For Stiglitz, the ideology against which he speaks out is the ‘unwavering faith in markets’ (p. 47), that is, neoliberalism or market fundamentalism (both terms are virtually used as synonyms). For Stiglitz, as an American economist, the common European currency is only an academic opportunity to speak out against the individual aspects of neoliberalism, based on a specific and rather dramatic European case. The book is divided into four parts. The first part (Europe in Crisis) describes the theoretical expectations for the common currency and essential arguments in favour of its adoption; in the third chapter, he provides a concise overview of the development of the eurozone’s basic economic markers in comparison to the development of (predominantly) the American economy. In the second part (Flawed from the Start), he explains the conditions under which euro could work. He emphasises that despite the expectations, or rather wishes, of the founders of the monetary union, euro did not lead to higher and more profound integration, but, on the contrary, it contributed to numerous divergences. The last chapter of the second part is devoted to the criticism of European Central Bank’s currency policy. The third part (Misconceived Policies) criticises the crisis programmes proposed by the ‘Troika’ (European Central Bank, European Commission, International Monetary Fund) during the Greek economic crisis. In the final fourth section (A Way Forward?), he outlines three possible ways of solving the problems of the eurozone. The first (and, in Stiglitz’s opinion, the most suitable) way is implementing his proposal of the seven structural reforms of the eurozone. The second option is an ‘amicable divorce’, illustrated by Greece or Germany leaving the monetary union. Finally, the third option is his concept of the so-called ‘flexible euro’. Throughout the monograph Stiglitz keeps emphasising that euro is not an economical project. He reminds that euro ‘was a political project, and in the case of any political project, politics matters’. (p.41) and, consequently, it ‘was not an end in itself but a means to broader ends’ (p. 576). Allegedly, euro is like a bad marriage where it is not clear whether it should be saved (p. 88). Therefore, the European politicians must choose whether they want ‘more Europe’ or ‘less’ (p.50). Stiglitz gradually uproots the three fundamental arguments that are in favour of euro despite its flaws. In his view, the ‘influence of the united Europe on the world stage’ is not to be accomplished by a deeper monetary integration but through consensus of the member states of the European Union. Contrary to the persisting beliefs, Stiglitz is convinced that there is not any proof that the use of common currency would reduce probability of conflicts. Therefore, he does not see any link between a deeper monetary integration and achieving peace. Eventually, he also disclaims the argument that euro will help to create European integrity. He does not find the economical argumentation in favour of the single currency compelling, because the savings in transaction costs are not significant enough to prevail over the costs of the crises (p. 131–132).