“There has never been any successful austerity program in any large country,” Stiglitz, 69, told reporters in Vienna yesterday. “The European approach definitely is the least promising. I think Europe is headed to a suicide. ”
Politicians across the 27 European Union members are implementing austerity measures totaling about 450 billion euros ($600 billion) amid a sovereign-debt crisis. At the same time the debt of the euro region rose last year to the highest since the start of the single currency as governments increased borrowing to plug budget deficits and fund bailouts of fellow nations crippled by the fiscal crisis.
If Greece was the only part of Europe that was having austerity, authorities could ignore it, Stiglitz said, “but if you have U.K., France, you know all the countries having austerity, it’s like a joint austerity and the economic consequences of that are going to be dire.”
While euro-area leaders “realized that austerity itself won’t work and that we need growth,” no actions have followed and “what they agreed to do last December is a recipe to ensure that it dies,” he said, referring to the euro.
“The problem is that with the euro, you’ve separated out the government from the central bank and the printing presses and you’ve created a big problem,” Stiglitz said, adding that “austerity combined with the constraints of the euro are a lethal combination.”
The economist said he sees a core euro area of “one or two countries” made up of Germany and possibly the Netherlands or Finland as the “likely scenario if Europe maintains the austerity approach,” he said. “The austerity approach will lead to high levels of unemployment that will be politically unacceptable and will make deficits get worse.”
Youth unemployment in Spain has been at 50 percent since the crisis in 2008 with “no hope of things getting better anytime soon,” said Stiglitz, who is a professor for economics at Columbia University. “What you are doing is destroying the human capital, you are creating alienated young people.”
To push for growth, European leaders could refocus government spending to “fully utilize” institutions like the European Investment Bank, introduce taxes to improve economic performance and use balanced budget multipliers, he said.
To contact the reporter on this story: Zoe Schneeweiss in Vienna at firstname.lastname@example.org
To contact the editor responsible for this story: Craig Stirling at email@example.com