Stiglitz Wants ‘Amicable Divorce’ If Euro Area Can’t Reformby
Economist says ideal would be institutions to make euro work
Divorce of common currency ‘is not going to be easy’: Stiglitz
Nobel laureate Joseph Stiglitz said rather than continuing on its present “dismal” path the euro area should split up if it can’t undertake reforms.
“If they can’t get it together, then an amicable divorce, probably dividing into two or three different currency areas” would be preferable, Stiglitz, an economist and professor at Columbia University, said in a Bloomberg Television interview with Tom Keene and Francine Lacqua.
Until European Central Bank President Mario Draghi’s 2012 pledge to do “whatever it takes” to save the euro, anxiety among investors about potentially unsustainable government indebtedness in a number of euro-area countries -- notably at the periphery of the bloc -- fueled speculation the 19-country currency union might break apart. Those concerns resurfaced last year when Greece was thrown into turmoil following the election of a new government.
Stiglitz said his new book -- “The Euro: How a Common Currency Threatens the Future of Europe” -- outlines how a split of the currency union could be done “fairly and smoothly.”
Draghi and the European Union’s top bureaucrats have said they want to overcome the contradictions of 19 sovereign countries using one currency and rejig the bloc to rule out recurring debt crises. The ECB president and his co-authors last year laid out a potential map for stronger European integration in the so-called “Five-Presidents” report.
The document cited the possibility of a shared treasury for the region within 10 years. That meshes with the opening lines of the 1957 Treaty of Rome, which envisaged an “an ever closer union” which would “eliminate the barriers which divide Europe.”
Presently, Draghi faces the risk of a renewed economic slowdown in the aftermath of the U.K.’s decision to leave the European Union, as well as fresh downward pressure on headline inflation from falling oil prices. Inflation in the euro area rose to a mere 0.2 percent in July. More stimulus, in the shape of extended asset purchases, could be in the cards for the Sept. 8 policy meeting.
Policy makers also have been intensifying rhetoric that euro-area governments need to boost fiscal support and structural reforms. Draghi now uses his press conferences to call for “other actors” to play their part.
“Of course a divorce is not going to be easy -- it could be done in a way that is better than the current system,” Stiglitz said. “It would still be better if they put in place institutions that would make it work. The question is will they do that?”