Draghi's `Whatever It Takes' Was Confidence Trick, Stiglitz Says

Joseph Stiglitz

Nobel prize-winning economist and professor of economics at Columbia University Joseph Stiglitz. Photographer: David Paul Morris/Bloomberg

Joseph Stiglitz, the Nobel-prize-winning economist, said that Mario Draghi’s 2012 pledge to shield the euro zone only papered over the cracks that are caused by the faulty design of the currency bloc.

The euro area’s “flawed structure that does not allow adjustment will have significant consequences, there will be another euro crisis,” Stiglitz said in Lugano, Switzerland, on Tuesday. “Europe was saved last time by Draghi’s statement he’ll do whatever it takes -- that was what I call a confidence trick.”

European Central Bank President Draghi’s comments three years ago to safeguard the common currency amid surging bond yields were a turning point in the European debt crisis. Still, according to Stiglitz, those words distracted markets from a deficient system.

“If push comes to shove there will be nothing there behind that assertion, particularly given the political economy,” he said. There’s a “real risk of the next bout of the euro crisis -- the likelihood that they muddle through is very high at enormous cost of continuing stagnation.”

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