Magazine article The Times Higher Education Supplement : THE

The Currency That Crushed a Continent

Magazine article The Times Higher Education Supplement : THE

The Currency That Crushed a Continent

Article excerpt

The decision process behind the euro has left the EU in an untenable position, says Lucia Quaglia

The Euro and Its Threat to the Future of Europe

By Joseph Stiglitz

Allen Lane, 496pp, £20.00 ISBN 9780241258156 Published 16 August 2016

The sovereign debt crisis in the eurozone, which has threatened the very survival of the euro, has still not been resolved, despite years of heated policy discussions on the matter and billions of euros of financial support provided. This excellent and timely book by Joseph Stiglitz, a Nobel laureate and former chief economist of the World Bank, explains the causes of the crisis and the policy response of the European Union, and specifically the eurozone, to it. He also puts forward three alternative solutions to the crisis that policymakers would do well to consider.

Stiglitz argues that the creation of the euro was a "fatal decision", and the crisis, which began in 2009, ushered in "a lost decade" for parts of Europe. The construction of the economic and monetary union was informed by "bad economics", that is, by a flawed neoliberal ideology that shaped flawed institutions and policies. It led to an "asymmetric" EMU, in which monetary policy was centralised at the eurozone level and conducted by the European Central Bank. However, economic policies mostly remained at the national level, even though the EU imposed limits on national fiscal policies. In the setting up of the EMU, monetary integration outpaced political integration, but economics and politics cannot be separated. If they are, the results are abysmal. In fact, according to Stiglitz, the euro augmented financial instability; triggered economic divergence instead of convergence; increased inequality across countries and within countries; and worsened the democratic deficit of the EU. The euro was supposed to be a means to an end, whereby monetary integration was to further political integration, but the reverse is happening. The "EU lost its compass" in dealing with the crisis, which became a morality play in which the only solution put forward was fiscal austerity.

Several new facts are presented here. Stiglitz outlines some oddities and mistakes of the programmes of the Troika, a triumvirate made up of the ECB, the European Commission and the International Monetary Fund, which discuss and monitor the conditional financial assistance provided to countries. The Troika programmes sometimes addressed issues that were trivial and even counterproductive, especially in Greece, where certain provisions concerned the labelling of milk and the size of loaves of bread (the expression relating to shifting chairs on the deck of the Titanic comes to mind). New light is also shed on important issues such as the ECB's decision to force the hand of the Irish government in bailing out Irish banks. The result was that Irish taxpayers had to foot the bill, whereas if the banks had failed, shareholders and bondholders would have taken the hit. It was a fatal decision for the Republic of Ireland, which was pushed to the brink of bankruptcy and had to resort to external financial assistance.

This book has many merits: it deals with complex and technical matters in a way that is easy to follow, and that brings out the "politics" and political implications of some of the economic and technical decisions taken. It draws attention to the role of economic ideas, or rather ideologies, in the construction and management of the euro, considering the power configuration underpinning those ideas, in other words the interests at stake. It will be excellent reading for experts, but is also accessible to a broader audience. It is worth noting, too, that it is written in a lively, discursive format, and is a real pleasure to read. The only criticism I would make is that its criticisms are sometimes one-sided, and, at the very least, Stiglitz could have better contextualised the (wrong) choices made by policymakers prior to and during the crisis, so as to provide a more balanced assessment. …

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