A translation of my article published in AHORA on September 16th 2016
The Nobel laureate economist blames the euro for all the ills afflicting the European Union without rigorously considering the existence of causality between the object of his attacks and the negative consequences he attributes to it.
The latest book by Joseph Stiglitz, of which AHORA offered an excerpt last week, is a merciless plea against the euro. The Nobel Prize laureate in Economics vented all his fury on it, accusing it of all the evils that afflict the European Union – many, no doubt about it – without stopping to consider with a minimum rigour the existence of causality between the object of his attacks and the negative consequences attributed to it.
His exaggerated criticisms even blame the euro for several structural weaknesses of the European economies that come from the past; and even for the populist boom, which is not exclusive to Eurozone countries. If carried out, the solutions he proposes would further aggravate the damages caused by the crisis –not only within the Eurozone- and would mean a probably lethal blow to the whole integration process.
Disagreeing with Stiglitz’s false recipes and warning about their serious shortcomings does not imply complacency with the current situation nor endorsing every decision taken in recent years. The institutional design that accompanied the euro in 1999 should be completed at the fastest possible pace. At this point there is virtual unanimity about it. We won’t be starting from scratch, and the debate has intensified since 2008. Analysis and ideas are coming up to complete the architecture of the Economic and Monetary Union (EMU) both in the academia and in the political arena. Moreover, last year the top EU leaders published an important document with their proposals in this regard, the Five Presidents’ Report.
The decisions already adopted have started the implementation of some of these proposals. But Stiglitz seems to ignore the progress made and the ongoing projects, or despises them without paying attention to it. There is already an ongoing procedure for monitoring macroeconomic imbalances of a non-fiscal nature. The proposal for a common deposit guarantee system for the whole EMU is on the table. The characteristics of a fiscal capacity to contribute to the appropriate policy mix in the Eurozone are being discussed. Those who predicted the total or partial disintegration of EMU were wrong and will continue to be.
Moreover, relevant changes are taking place in the orientation of economic policies, which Stiglitz overlooks. The ECB has taken a significant turn in its monetary policy in mid-2012, cutting interest rates and implementing the current QE program in secondary markets of public and private debt. In the financial area, in addition to the huge regulatory effort carried out since 2010, banking supervision is already being carried out at the Eurozone level, and the new rules to deal with banking resolution have introduced bail-in as a rule for shareholders and bond holders, in the benefit of taxpayers.
Regarding fiscal policy, most of those responsible for EMU recognize at this point the serious mistakes made in relation to Greece, and by extension with the imposition of excessive fiscal efforts to countries whose problems had their origin in non-fiscal imbalances. The necessary adjustments should have been and could be achieved through more economically effective ways, minimizing their social consequences and through a decision-making process more in line with democratic standards. The rules of the Stability Pact have been interpreted for some time now based on a more flexible approach, drifting towards a slightly expansive orientation of the fiscal policies in the Eurozone.
In short, policies are changing, although Stiglitz covers it with a thick veil to facilitate his allegation. Monetary policy, the management of banking crises, financial regulation and fiscal policy in the Eurozone have today a very different orientation from that determined at the beginning of the crisis. And against Stiglitz´s considerations, the existence of the euro has not at all been an obstacle to it. The mistakes made by those who chose wrong policies are not attributable to the euro as a currency, but to the decisions adopted by them.
Errors and contradictions
To sum up, Stiglitz incurs in many errors with his criticism of the euro. His prediction that we are headed toward the break-up of EMU is totally wrong. As it is to say that the single currency is a threat to Europe. On the contrary, the euro has proved its strength during the crisis. And the European integration, currently undergoing strong tensions, finds in the single currency its best support. Suggesting that the fragmentation of the euro – or its disappearance – would be desirable not only belittles the enormous costs of returning to the old national monetary sovereignties, which is not admissible coming from a great economist. It is even worst, because it ignores the extremely serious political consequences that would result from it.
Finally, in strictly political terms Stiglitz incurs in a profound contradiction. On the one hand he acknowledges that the euro had originally an undoubted political substrate as an engine of European integration. But he now considers that the single currency is a threat to Europe, and it would be best to just get rid of it. Which is it then? Is it that the implementation of wrong policies for a few years is enough to throw out the window such an ambitious project? Citizens do not think so. They criticize wrong policies but will not give up the historical project. It is true that EMU needs to improve the democratic quality of its decisions. The supporters of the euro are the most interested ones in moving in that direction. But recommending its fragmentation is the best gift that could be done to those who advocate for returning to the old barriers with the consequent identity tensions. The euro was conceived as a political project to deepen European integration. This project is now more necessary than ever.