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Austerity obsession is pushing EU into crisis warns Stiglitz


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Austerity obsession is pushing EU into crisis warns Stiglitz

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‘The main problem of the eurozone is the single currency itself’ ; so says Jozeph Stiglitz . The Nobel prize-winning economist insists that the monetary union shouldn’t have been created the way it was and now we see that this experiment was flawed from the start.

However the World Bank’s ex-chief economist believes it can still be fixed.

Oleksandra Vakulina, euronews:
“Mr, Stiglitz, thank you for being part of the Global Conversation on euronews. Your latest book is called : ‘The Euro; how a common currency threatens the future of Europe’. Is there a way to save the monetary union and to make it prosper?”

Joseph Stiglitz:
“Yes, I think there is. But it requires creating certain institutions, like common deposit insurance and a common way of resolving problems in banks that face difficulty. It requires some kind of mutualisation of debt, we call it something like a eurobond and it requires changing the rules of the European Central Bank so it doesn’t just focus on inflation, it also focuses on growth and employment and financial stability.

It also requires creating a common solidarity fund for financing unemployment and other cyclical needs within the eurozone. So there are these reforms; they are not – in some sense – huge, the question is: are they too huge for the politics? What is particularly important is that the reforms have to be done really quickly.”

Oleksandra Vakulina:
“How much time do we have for that?”

Joseph Stiglitz:
“There is no magic number. But what has been clear is that Europe is playing a game of brinkmanship. And the problem with brinkmanship is that there is a chance each time that you go over the brink. You had
a Greek crisis a year ago, but the way that crisis was fixed actually led Greece to continue to decline."

Oleksandra Vakulina:
“There was a referendum last year and we saw a majority voted to reject those austerity measures.”

Joseph Stiglitz:
“Sixty-two percent!”

Oleksandra Vakulina:
“One year after the referendum and the crisis in Greece is still far from being over.”

Joseph Stiglitz:
“It’s worse! It’s worse than it was a year ago! And that’s because they insisted on another dose of austerity and predictably that next dose of austerity led the economy to continue to go down.

Oleksandra Vakulina:
“Do you think that austerity is still needed?”

Joseph Stiglitz:
“I think austerity is dangerous. It’s not only not needed, I think it’s really hurting the countries of Europe. Austerity has almost never worked.”

Oleksandra Vakulina:
“Last year’s referendum was seen by many as a ‘no’ to the eurozone and to Europe in general. Do you think that Greece would have more chances to overcome the crisis outside the eurozone?”

Joseph Stiglitz:
“Yes, I do. As time goes on, it will become clear that unless Germany and the Troika relent, unless there is a debt restructuring, that even the IMF says is absolutely necessary, unless there are these changes in the policy framework, then I think that the only course forward is for Greece to go another way.”

Oleksandra Vakulina:
“You said you met the government, you went to Athens to meet the government. I’d like to know, when you went there last year during the crisis, what was it that struck you the most there?”

Joseph Stiglitz:
“What struck me the most was that they really wanted so much to be part of the euro and so much wanted to get over austerity, yet they were unable to realise they could not have both.”

Oleksandra Vakulina:
I’m going to ask you about another country that recently made a decision to leave the European Union. Do you believe that Britain will now have more prospects? Will it be better for the UK to stay out of the European Union?”

Joseph Stiglitz:
“I think that the consequences of Brexit are more political than economic. The real question is, what does it say about the future of the European Union? That’s the political issue. Will the European Union read the message and say ‘look, we have not convinced the citizens of the European Union that we are delivering benefits and everybody receives these benefits and that’s leading to prosperity’.

What worries me is that in the response to the Brexit, Juncker, the head of the European Union said ‘We are going to give very tough terms, we are going to make it very difficult, because we don’t want any other country to leave’. It was saying the only way we keep Europe together is out of fear, not out of the benefits they get.

You know, if you are getting benefits you don’t want to leave, but what they were saying is ‘we have to instill fear in them for them not to leave’. That’s the wrong attitude in my mind.”

Oleksandra Vakulina:
“Do you see other countries in Europe also holding a referendum on whether to stay in the EU or in the eurozone?”

Joseph Stiglitz:
“That really depends on how the EU responds. Many people feel that not only is their economy being undermined, but also their democracy. They vote time and time again for the end of austerity, not only in Greece, but 62 percent voted in Portugal, 62 percent voted in Spain, with strong votes in France and Italy. And yet they are told ‘I’m sorry, these issues, which are the most important issues are no longer a matter of your democracy, they’ve been delegated to Brussels, to Frankfurt, to Berlin.’

You’ve given up your sovereignty over the thing you care the most about. In some of the elections some of the candidates were campaigning on the platform that they were the best person to bargain with Germany. It wasn’t ‘we have the best policies’, it was acknowledged that the policies were being set somewhere else and we were the better bargainers.”

Oleksandra Vakulina:
“The countries we’ve just discussed now, the countries that did hold referendums, Greece and the UK, and the countries where that kind of referendum is possible like Southern Europe, also bring us to this problem nowadays that people are not only against austerity, as you said, but also against inequality. Is it something we are seeing in the run-up to the US elections?”

Joseph Stiglitz:
“Oh, very much! And some of the themes running through Europe are also running though the US. That anger of so many of our citizens, that these policies, financial market liberalisation, or globalisation in general, have left large fractions of our population behind, and the promises of our leaders have not been fulfilled.

It is not a surprise that there will be a politician who’ll take advantage of that, and unfortunately in the US one could not have imagined a worse candidate for being the president of the US, but obviously a candidate that has achieved some degree of empathy with a very large number of voters.

As Americans, we are very scared, it’s very scary to us and it should be very scary to citizens of the world. America has a distinctive role in the global economy and in global security and as many of us are saying in the US: having somebody who is with HIS personality as unstable as HE seems to be with a finger on a nuclear button is not something any of us should feel comfortable with.”

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