The European push for fiscal austerity isn’t the way to fight the region’s sovereign-debt crisis and may hurt confidence, Nobel Prize-winning economist Joseph Stiglitz said.
“Austerity as the solution is just wrong,” Stiglitz, a Columbia University economics professor, said in a Bloomberg Television interview in Hong Kong today. “There won’t be a return to confidence -- quite the contrary. So the direction Europe is going is unfortunately I think the wrong direction.”
European leaders have said they may complete a new rulebook for fiscal discipline by Jan. 30 as they try to contain a crisis that’s already forced Greece, Ireland and Portugal into bailouts. Standard & Poor’s stripped the European Financial Stability Facility, the region’s rescue fund, of its top credit rating yesterday after earlier downgrading France and Austria.
There could be a “very serious” downturn in Europe, which needs to bolster growth, Stiglitz said. The region’s leaders “don’t seem to get what needs to be done,” he said.
On China, Stiglitz said an easing in its economic expansion to 7 percent to 8 percent is in some sense probably a “good thing.” He later told reporters at a Hong Kong briefing growth in the world’s second-largest economy is now more “sustainable.”
China Expansion Slows
China’s gross domestic product climbed 8.9 percent in the fourth quarter from a year earlier, its statistics bureau said earlier today. The expansion is the slowest in 10 quarters and may sustain pressure on Premier Wen Jiabao to tilt policies toward sustaining growth.
Asian shares rose today, partly on increased expectations for further monetary policy easing in China. The MSCI Asia Pacific Index rallied 1.8 percent as of 4:09 p.m. in Tokyo.
There is a case for slower appreciation in the nation’s currency, the yuan, Stiglitz said in the television interview. The currency should be included in the International Monetary Fund’s Special Drawing Rights, he said in the press briefing.
The SDR is an international reserve asset created by the IMF in 1969. It can be exchanged for freely usable currencies.
Asia is doing “very well” and can manage the current downturn, Stiglitz said in the interview. He told the briefing that the region can take steps to counter global risks, citing the decision last month by the People’s Bank of China to allow banks to set aside less of their deposits as reserves.
Stiglitz also told the briefing that he has “concerns” about an extended period of “low” interest rates in the U.S., which he said may not necessarily lead to more job creation.
Europe faces a “hard” year and that will have an impact on the U.S., he said in the interview. Stiglitz is attending a conference in Hong Kong.
The IMF aims to expand its lending capacity to counter the impact of the European crisis, its First Deputy Managing Director David Lipton said at the forum yesterday. The fund will cut its 2012 global growth estimate next week, he also said.
S&P lowered the credit ratings of nine members of the 17-nation euro area on Jan. 13.