Economics · Neoliberalism

“The Euro: How a Common Currency Threatens the future of Europe” by Joseph E. Stiglitz

 

This book is a summary of Joseph Stiglitz’s recent book titled “The Euro: How a Common Currency Threatens the future of Europe.”

Preface

Europe Is in bad shape. Spain’s unemployment rate has fallen from 26% in 2013 to 20% at the beginning of 2016. And this is what counts for good news in Europe.

There is basically a really simple answer to the problems in Europe: The official decision in 1992 to adopt a single currency, without providing for the institutions that would make it work.

It has long been known that the decision to use currency pegs iis a really bad idea.

This has been long been associated with recessions and depressions. America’s depression at the end of the nineteenth century was linked to the gold standard. With no new large discoveries of gold, gold’s scarcity was leading to the fall of prices of ordinary goods, in terms of gold.   This is now called deflation. In effect money was becoming more valuable and this was impoverishing America’s farmers who found it increasingly difficult to pay back their debts. In the election of 1896 Democratic candidate William Jennings Bryan said America would “crucify mankind upon a cross of gold.”

Also the gold standard is widely blamed for its role in deepening and prolonging the Great Depression.

In spite of all this, Europe decided to tie itself together with a single currency, which created in Europe the same kind of rigidity that the gold standard had inflicted on the world in other depressions.

Europe does not need to be crucified on the cross of the Euro.  Actually the Euro can still work. What has to be done is to reform the currency union, not individual countries.    In 2008 Europe was pulled along with the rest of the world into recession. Today the  United States has recovered but Europe  not.

Sometimes Outsiders can give a more accurate analysis of what’s happening in the country than Insiders.   This was true of Alexis de Tocqueville’s book, Democracy in America.  And it can still be true.  Stiglitz says he can be a good observer, even tho he is an outsider.  

Stiglitz worked with Bill Clinton on the idea of NAFTA back in the 1990s.    NAFTA was launched in 1994.  He and Clinton also worked on creating the World Trade Organization which was launched in 1995. It was then that stiglitz started to think about the consequences of the disparity between economic and political integration.   This is basically the problem in Europe now:  There is a disparity between economic and political integration.  The Euro caused economic integration, but the political integration of Europe was not yet there.  [In the US there is both economic and political integration.  We have one currency and it can be transferred from California to Florida when needed.]

Stiglitz went from working with President Clinton on NAFTA to being the chief Economist of the World Bank. Here Stiglitz saw that the sister institution of the World Bank, the international monetary fund or IMF, had serious problems. [The basic problem was neoliberal economics,]  which often led to recessions and depressions.  [I think Stiglitz says that there were often close similarities between these neoliberal programs to those that have been imposed on Greece and other afflicted countries in the wake of the Great Recession.]

Today, says stieglitz, the world is beset by new initiatives designed to harness globalization for the benefit of the very few. Stiglitz says this is very true of the Trans Pacific Partnership Trade Agreement. He says this agreement shows a persistent desire for economic integration that is out of sync with political integration. The Eurozone project was a little different though, behind it was a serious intent to move toward more political integration. Behind the new trade agreements there is no intent to have harmonized regulatory standards. In this case the corporate agenda is simply to stop regulation or even to roll it back.

This book is aimed at the critical question of the euro. However it is also broader.  It is an attempt to show how even well-intentioned efforts at economic integration can backfire when questionable economic doctrines drive the agenda. This is what happened when the EU rushed the Euro into circulation pre-maturely.  

Stieglitz says the story he is telling in this book is a dramatic illustration of several themes that have preoccupied him for several years. The first is about how neoliberalism has shaped Europe for the past third century.  He says he has described these neoliberal policies earlier [in his first book] when they were called the Washington Consensus. He says this book is about how the same ideas, that is neoliberalism, now shape ideas in Europe. He says in some cases these neoliberal arguments used in the recent austerity battles in Europe were very like those used in the United States where conservatives  attempted to downsize government spending,including for badly needed infrastructure, even while unemployment was high and resources were idle. [ie when fiscal spending was really needed.]  These were the same fights and arguments Stiglitz faced in his World Bank battles and the same fights we now see in the depressesed EU.  Understanding these battles against neoliberalism is one of the main reasons Stiglitz wrote this book.  

Page xvii

 

The article is still in progress.  It will be finished soon.

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Fishing nets, Philippines.  Picture by Hanselmann Photography. 

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