Monday, 19 September 2016

'The Euro and it's threat to the future of Europe

My husband recently read a newly published book by Joseph Eugene Stiglitz, an American economist and a professor at Columbia University. This is his review of it:

'Joseph Stiglitz is a recipient of the Nobel Memorial Prize in Economic Sciences (2001) and the John Bates Clark Medal (1979). He is a former senior vice president and chief economist of the World Bank and is a former member and chairman of the (US president's) Council of Economic Advisers. In 2009 the President of the United Nations General Assembly appointed Stiglitz as the chairman of the U.N. Commission on Reforms of the International Monetary and Financial System, where he oversaw suggested proposals and commissioned a report on reforming the international monetary and financial system. He served as chair of the international Commission on the Measurement of Economic Performance and Social Progress, appointed by President Sarkozy of France.  From 2011 to 2014, Stiglitz was president of the International Economic Association, and presided over the organization of the IEA triennial world congress in June 2014.

In his most recent book, The Euro: And it’s Threat to the Future of Europe, Stiglitz discusses how in 1992 a financial Troika [the International Monetary Fund (IMF), the European Central Bank (ECB), and the European Commission] decided to “unify and stabilize Europe” by imposing a single currency (the Euro) on 19 countries.   The Troika created the Eurozone, based on an almost religious devotion to the “neoliberal” concept that free and unfettered markets regulate themselves and must not be interfered with.  Over two decades of global financial experience have overwhelmingly demonstrated the fatal flaws on this free market concept, notably the global financial crisis in 2008.  But the Troika refuses to acknowledge this experience, insisting that the Euro and associated policies will eventually create economic improvement in the Eurozone, in spite of repeated crises and consistently poor performance to the contrary. 

Stiglitz argues that the Euro could unify the Eurozone if all 19 countries shared in the financial risks and rewards of that free market (i.e., a common Eurozone bank).  But each country in the Eurozone retains it’s own banking system, to conveniently take the blame for any financial failures as a separate nation.  Further, each nation can no longer adjust its currency rate of exchange, the way non-Eurozone countries do, as a means to financial recovery.  Their only option is to borrow more Euros from the Troika.

By blaming each Eurozone country that finds itself in crisis and imposing draconian austerity measures that further weaken its economic recovery, the Troika assures that weak countries get progressively weaker, a curious policy for a creditor who supposedly wants to be repaid.  These policies ensure that money (investment) flows out of the weaker countries (e.g., Greece) and into the economies (banks) of stronger countries (e.g., Germany).  Stiglitz points again to global experience where the use of austerity measures, as a means to economic recovery, has never worked in recorded history.  Yet the Troika insists that ‘more water will eventually bring the drowning victim back to health’.   Stiglitz argues that the massive suffering of real people in crisis countries, like Greece, will soon destroy the Eurozone if the Troika continues to stubbornly “muddle through” from crisis to crisis without prompt and dramatic changes in the structure of the Euro.

In an Afterword, written just before publication, Stiglitz observes that the European Union’s response to Brexit has been similar to Greece’s June 2015 ballot-box rejection of it’s bailout ‘conditions’, i.e., punishment for being disloyal to the unelected and unaccountable ‘elite’ in Brussels.  To quote Stiglitz, “Jean Claude Juncker, the proud architect of Luxembourg’s massive corporate tax-avoidance schemes and now head of the EU Commission, has taken a hard line – perhaps understandably, given that he may go down in history as the person on whose watch the dissolution of the EU began.” '

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